Auditor Malpractice – Third Circuit's Recent Application Of New York Law

In Overland Leasing Group, LLC, two New York-based accounting firms that issued independent audit reports for a company were sued for malpractice and negligent misrepresentation. The audits were issued for a company, Allserve Systems Corporation (Allserve), that, in 2004, had leased computer equipment from two separate leasing companies; Allserve was a Texas company with a principal place of business in New Jersey. Subsequently, in March 2005, a third company, Overland Leasing Group, LLC (Overland), acquired the interest in the computer equipment leased by Allserve by purchasing the underlying lease agreements. Overland, a Delaware company, was headquartered in Massachusetts but maintained an office in New York. The accounting firms, in June 2004 and July 2005, issued separate clean audit reports of Allserve's financial statements. In August 2005, however, "Allserve ceased making payments on the equipment and subsequently declared bankruptcy."