In a professional malpractice case, the plaintiff must be able to show proximate cause. In other words, the injury or damage was the result of the act or omission of the defendant. Usually the cause of the damages is clear. However, not always. In the case of Cannonball Fund, Ltd, V Marcum & Klegman, LLP., the plaintiffs brought an action against Marcum and Kleigman, LLP, alleging professional malpractice. The plaintiff claimed that the malpractice stems from M&K’s role as an auditor of Dutchess Private Equities Fund, L.P. and Dutchess Private Equities Cayman Fun, Ltd. The Defendant, M&K, moved to dismiss the complaint arguing that their conduct did not directly cause any of the losses.

According to the complaint, the funds were hedge funds with specific strategies, positive cash flow and fully secured or liquified securities. Plaintiff alleges that the damage they suffered was a result of M&K’s negligent auditing process. Had the audit been performed accurately, plaintiffs claimed they would have acted differently with their investments – severely cutting their losses and damage. However, M&K issued the audit opinion on June 16, 2008, after the time the Funds were already suspended. So, M&K argued that the information disclosed in the audit was moot. It could not have impacted the plaintiff’s actions.

Indeed, all new management hired after the Audit Opinion had no control in rectifying the losses. Two months prior to the audit, in April 2008, there was a 33% loss in funds. Plaintiffs therefore failed to allege that M&K’s negligence was the proximate cause of their damages. Clearly, the negative results, or the losses, were not directly related to the audit. The audit happened at a time that made no difference to the Plaintiff’s investment. Again, when dealing with proximate cause, you have to prove that the plaintiff’s damages are directly caused by the defendant’s conduct.

Source:New York Attorney