Emanuele Giacometti, Et al v. AULLA, LLC et al
Filed as B217615, Los Angeles County Superior Court No BC391839
August 26, 2010

Court Rules that Accountants owed no Duty to Employees

The case arose from the lawsuit filed by three waiters who worked at Ago Restaurant in West Hollywood. The three waiters alleged that a portion of their tip money was taken by the managers, but was recorded to the Internal Revenue Service (IRS) as income to them. As a result, they claimed that their income was overstated by as much as $30,000 each.

Emanuele Giacometti, one of the waiters, claimed that the IRS audited him and he was forced to litigate his tax liability on money he never received and that the accountants did not do anything to correct the misstatement despite his request.

The three waiters initially charged the owners and managers of the restaurant for violations of the Labor Code and Business and Professions Code, which was later dismissed.

In the first amended complaint, the waiters charged the accountants with professional negligence, conspiracy, and intentional infliction of emotional distress. They also alleged that the accountants negligently or fraudulently over-reported income on the W-2 forms. It also included facts but did not include additional theories of liability.

The accountants filed a demurrer.

The trial court sustained the demurrer to the causes of action for conspiracy and for intentional infliction of emotional distress without leave to amend. However, the demurrer to the cause of action for negligence was sustained with leave to amend.

The employees filed their second amended complaints with the single cause of action against the accountants for professional negligence.

The accountants again filed a demurrer.

The trial court sustained the demurrer without leave to amend and dismissed the employees’ action with prejudice.

The employees appealed the order dismissing their action. The issue that was raised on the appeal is whether the accountant hired by the employer owed duty to accurately report employees income to the IRS.

During appeal, the Los Angeles County Superior Court held that the employees and the accountants were not “in privity of contract”.

Further, the superior court held that the accountant owed no duty to the employees since he was not hired for their benefit, and had no reason to foresee harm to the employees because the accountant did not know, and had no reason to believe that the employees did not know or approve of the method of allocation.

The court affirmed the decision of the trial on the following issues:

• that there are no allegations based on charges that the accountants knew that the restaurant’s representation of the employees’ income was wrong at the time they prepared the documents
• that there are no allegations that the accountants were hired to calculate employee’s income for purposes of year-end reporting
• the accountants, therefore, did not owe the employees a duty of care under the negligence theory as the second amended complaint declared.

The Court therefore affirmed the decision of the trial court that the accountants owed no duty of care to the employees and therefore not liable.