Freer v. Cliftonlarsonallen ( 2022 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
JEREMY T. FREER, Plaintiff/Appellant,
v.
CLIFTONLARSONALLEN LLP, Defendant/Appellee.
No. 1 CA-CV 21-0491
FILED 5-5-2022
Appeal from the Superior Court in Maricopa County
No. CV2017-003641
The Honorable Daniel G. Martin, Judge
AFFIRMED
COUNSEL
Fennemore Craig PC, Phoenix
By Joseph A. Schenk, Heather A. Macre
Co-Counsel for Plaintiff/Appellant
Debus & Kazan, LTD., Phoenix
By Lawrence I. Kazan
Co-Counsel for Plaintiff/Appellant
Jaburg & Wilk PC, Phoenix
By Kelly Hedberg
Co-Counsel for Defendant/Appellee
Moss & Barnett PA, Minneapolis MN
By Charles E. Jones, Taylor D. Sztainer
Co-Counsel for Defendant/Appellee
FREER v. CLIFTONLARSONALLEN
Decision of the Court
MEMORANDUM DECISION
Judge Jennifer M. Perkins delivered the decision of the Court, in which
Presiding Judge David D. Weinzweig and Judge Brian Y. Furuya joined.
P E R K I N S, Judge:
¶1 Just two years ago, Jeremy T. Freer urged our supreme court
to appreciate the chasm between JTF Aviation Holdings, Inc. (“JTF”) and
Freer, as its sole owner, when seeking to avoid the terms of a contract
between JTF and CliftonLarsonAllen LLP (“CLA”). In an awkward pivot,
Freer intends to reattach himself to his former business, hoping to press a
tort claim that belongs to JTF and not him. For the following reasons, we
affirm the superior court’s entry of judgment for CLA.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Freer founded JTF, owned all its stock, and served as its
president and chief executive officer. In 2013, JTF hired CLA to provide
financial services, including an audit of JTF’s consolidated financial
statements. JTF informed CLA that the results of its audit “would likely be
given to prospective buyers of JTF.” CLA delivered the audit report in
February 2014.
¶3 In June 2014, Vistria Group, LP (“Vistria”) entered into an
asset purchase agreement with JTF and Freer, as JTF’s sole shareholder.
Under the agreement, JTF would sell almost all its assets for $80 million,
plus assumed liabilities. JTF included a warranty in the agreement that its
financial statements were prepared in accordance with generally accepted
accounting principles and “present[ed] fairly the financial position and
results of operations.”
¶4 The following September, Vistria sued Freer, JTF, and JTF’s
chief financial officer in Delaware, alleging fraudulent inducement, breach
of contract, breach of warranty, breach of good faith and fair dealing, and
civil conspiracy. Vistria settled its claims against Freer and the other
defendants for $4.85 million.
¶5 In April 2017, Freer and JTF sued CLA in Maricopa County,
alleging professional negligence, negligent misrepresentation, and breach
of fiduciary duty. The superior court initially granted summary judgment
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FREER v. CLIFTONLARSONALLEN
Decision of the Court
against Freer and JTF, finding their claims untimely. The supreme court
held only the parties to a contract are bound by its deadlines to sue, absent
certain exceptions, and remanded the matter to the superior court. See JTF
Aviation Holdings Inc. v. CliftonLarsonAllen LLP, 249 Ariz. 510, 514–15, ¶¶ 22–
23 (2020).
¶6 Upon remand, Freer pursued only his negligent
misrepresentation claim. Freer moved for partial summary judgment,
asserting that he brought the claim in his individual capacity, not as JTF’s
sole shareholder, and that the collateral source rule permits him to “pursue
all of his damages,” including the litigation and settlement costs from the
Delaware lawsuit. CLA also moved for summary judgment, contending
Freer’s negligent misrepresentation claim fails under Arizona law. The
superior court granted CLA’s motion and entered judgment against Freer.
The court found Freer lacked standing to “assert a claim for an injury that
is not separate and distinct from the injury suffered by JTF.” The court also
found the collateral source rule inapplicable to the damages Freer sought.
¶7 Freer timely appealed, and we have jurisdiction under A.R.S.
§ 12-2101(A)(1).
DISCUSSION
¶8 We review the superior court’s summary judgment ruling de
novo, viewing the facts and inferences in the light most favorable to Freer.
See Lennar Corp. v. Transamerica Ins. Co., 227 Ariz. 238, 242, ¶ 7 (App. 2011).
We will affirm summary judgment if it is correct for any reason supported
by the record, even if not explicitly considered by the superior court. See
Mutschler v. City of Phoenix, 212 Ariz. 160, 162, ¶ 8 (App. 2006). Freer argues
the superior court erred in concluding: (1) he lacked standing to assert a
negligent misrepresentation claim against CLA; and (2) he suffered no
damages.
¶9 Arizona recognizes the tort of negligent misrepresentation, as
defined by the Restatement (Second) of Torts, § 552. St. Joseph’s Hosp. and
Medical Ctr. v. Reserve Life Ins. Co., 154 Ariz. 307, 312 (1987). Freer needed to
show CLA, in the course of its business, supplied false information for
Freer’s guidance in his business transactions, causing a pecuniary loss as a
result of his justifiable reliance on that information, and CLA failed to
exercise reasonable care or competence in obtaining or communicating the
information. See Restatement (Second) of Torts, § 552(1) (1977). Of particular
importance here, the scope of this tort liability is narrow “because it is
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FREER v. CLIFTONLARSONALLEN
Decision of the Court
premised on the reasonable expectations of a foreseeable user of
information.” St. Joseph’s, 154 Ariz. at 312–13.
¶10 Negligent accountants are liable “only to those persons for
whose benefit and guidance [the information] is supplied.” Restatement
(Second) of Torts, § 552 cmt. h. The party intended to benefit from and be
guided by an accountant’s audit report or representations is often the party
who hired the accountant to furnish that information. See id. at cmt. g. But
an accountant may also owe a duty to a third party if the accountant
intended to supply the information to the third party or knew their client
intended to supply the information to the third party. See Belen Loan
Investors, LLC v. Bradley, 231 Ariz. 448, 455, ¶ 16 (App. 2012).
¶11 In December 2013, JTF hired CLA to audit JTF’s financial
statements and analyze JTF’s financial health. CLA supplied the audit
report directly to JTF because JTF paid consideration to receive it. Freer, in
his individual capacity, was not a party to this agreement. CLA’s duty was
thus limited solely to JTF, as the other contracting party.
¶12 Freer relies on Standard Chartered PLC v. Price Waterhouse, 190
Ariz. 6, 30–31 (App. 1996), to claim he was “among a limited group of
people reasonably expected to receive, and potentially rely upon” CLA’s
audit report. His reliance is misplaced. In Standard Chartered, we held an
auditor may be liable to the prospective purchaser of its client for negligent
misrepresentations in its audit of that client. 190 Ariz. at 28–29. But we
cautioned that that liability does not extend to all foreseeable recipients of
the audit. Id. at 29. Freer ignored our caution, and instead asserts CLA
should be liable to him because it was foreseeable that he, as JTF’s owner,
would rely on the audit results.
¶13 Freer did not—and cannot—establish that CLA expected to
supply its JTF audit results for the benefit of JTF’s owner as “distinct from
the much larger class who might reasonably be expected sooner or later to
have access to the information and foreseeably to take some action in
reliance upon it.” Restatement (Second) of Torts, § 552 cmt. h. After all, JTF
and CLA entered a contract in which JTF disclosed that CLA’s audit results
would likely be supplied for the benefit of prospective buyers conducting
due diligence. Had CLA known Freer was a member of a limited group
who could sue CLA for negligent misrepresentation, it might have required
him to personally enter the contract.
¶14 The relationship between CLA, as the supplier of information,
and prospective buyers, as the intended recipients, creates CLA’s duty to
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FREER v. CLIFTONLARSONALLEN
Decision of the Court
those buyers to gather and communicate information in a non-negligent
fashion. See Standard Chartered, 190 Ariz. at 31; see also Belen Loan, 231 Ariz.
at 455, ¶ 16. CLA owed no such duty to Freer, who was not a prospective
buyer, independent of its duty to JTF. Freer served as the corporate
recipient of the audit report, but that practical reality does not change the
legal landscape. Freer, in his personal capacity, was not an intended
recipient to whom CLA owed a duty.
¶15 Even assuming CLA negligently prepared the audit report,
Freer has no negligent misrepresentation claim against CLA, and the
superior court did not err in granting summary judgment on this basis.
Given this determination, we need not resolve whether and to what extent
Freer suffered damages.
CONCLUSION
¶16 We affirm.
AMY M. WOOD • Clerk of the Court
FILED: AA
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