United States District Court, D. Kansas
MEMORANDUM AND ORDER
TERESA J. JAMES, Magistrate Judge.
This matter is before the Court on Plaintiff's Motion for Leave to Amend (ECF No. 32). Plaintiff seeks to amend its Complaint to state with more particularity its allegations against Defendant Kramer & Associates CPAs, LLC, for professional negligence. For reasons stated below, the Court grants Plaintiff's motion.
I. Background Information
This is an accounting malpractice case. On September 3, 2013, Plaintiff filed its Complaint against Kramer & Associates CPAs, LLC. Plaintiff, a surety, issued surety bonds to Wittwer Construction Co., Inc., many of which Wittwer defaulted on and Plaintiff was therefore obligated to pay. Defendant provided accounting services to Wittwer, including preparing annual audits and financial statements from at least 2007 through the end of 2009. Plaintiff alleges that Defendant inaccurately represented Wittwer's financial condition on the statements it prepared. Plaintiff further alleges that Defendant knew or should have known that Plaintiff would rely on Defendant's statements in determining whether to bond Wittwer, and that Plaintiff executed surety bonds that it otherwise would not have executed if Defendant had provided accurate information. Plaintiff alleges that Defendant did not adhere to the accepted standard of care for certified public accountants, and that if it had then Plaintiff would have known of Wittwer's poor financial condition and would not have issued bonds and suffered loss.
Defendant filed a motion to dismiss Plaintiff's complaint for failure to state a claim upon which relief can be granted. In its motion to dismiss, Defendant argues that Plaintiff did not allege facts to satisfy K.S.A. 1-402, which defines the circumstances under which an individual or entity may bring a cause of action against an accountant or accounting firm for professional negligence. In response, Plaintiff opposed Defendant's motion to dismiss and filed the instant motion in an effort to correct any pleading deficiency and avoid dismissal.
II. Legal Standards
Rule 15 of the Federal Rules of Civil Procedure allows a party to amend the party's pleading once as a matter of course (1) within 21 days after serving it or (2) within 21 days after a responsive pleading or a Rule 12(b), (e), or (f) motion is served. Subsequent amendments are allowed only by leave of court or by written consent of the adverse party. Leave to amend is a matter committed to the sound discretion of the district court,  and the court "should freely give leave when justice so requires." A district court should refuse leave to amend "only upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment." A proposed amendment is futile if the amended complaint would be subject to dismissal.
Plaintiff asserts that the Court should grant its motion for leave to amend because it meets the standards of Rule 15 and was timely filed. Plaintiff acknowledges Defendant's motion to dismiss and argues in response that the proposed Amended Complaint adds factual allegations which satisfy K.S.A. 1-402(b). Defendant contends that Plaintiff's motion should be denied as futile and relies on its briefs in support of its motion to dismiss.
A claim for accounting negligence under Kansas law is governed by K.S.A. 1-402, which provides as follows:
No person, proprietorship, partnership or registered firm authorized to practice as a certified public accountant pursuant to article 3 of chapter 1 of the Kansas Statutes Annotated, or any employee, agent, partner, officer, shareholder or member thereof, shall be liable to any person or entity for civil damages resulting from acts, omissions, decisions or other conduct amounting to negligence in the rendition of professional accounting services unless:
(a) The plaintiff directly engaged such person, proprietorship or registered firm to perform the professional accounting services; or
(b)(1) the defendant knew at the time of the engagement or the defendant and the client mutually agreed after the time of the engagement that the professional accounting services rendered the client would be made available to the plaintiff, who was identified in writing to the defendant; and (2) the defendant knew that the plaintiff intended to rely upon the professional accounting services rendered the client in connection with specified transactions described in writing.
The parties agree that Plaintiff does not have a claim against Defendant under K.S.A. 1-402(a) because Plaintiff did not engage Defendant to perform accounting services. Defendant contends that neither does Plaintiff satisfy the requirements of K.S.A. 1-402(b), because the proposed Amended Complaint does not allege that (1) Plaintiff was identified in writing to Defendant as an entity that would receive the accountants' services, or (2) Defendant knew that Plaintiff ...