Billy Newcomb and I recently won summary judgment for a top 100 accounting firm. A publicly traded company had sued in a Florida court, alleging negligent failure to detect fraud and claiming damages well into eight figures. Six other defendants, including a top 10 accounting firm, settled with the Plaintiff just after suit was filed, leaving our clients as the sole defendants. At court-ordered mediation, the Plaintiff, perhaps a little too confident in its home court advantage, refused to lower its demand under $5 million. Immediately after the mediation failed, the trial court granted summary judgment to CCS’ clients and dismissed all of the Plaintiff’s claims with prejudice.
Billy practiced law in Florida for five years and regularly litigates Florida cases, and he and I have done well in Florida over the years. We felt strongly about our liability and damages defenses and didn’t want to waste our clients’ money on an excessive settlement. Our clients agreed and had the confidence to stand up to the Plaintiff. If early summary judgment had not been granted, Billy and I planned to prevail on another dispositive motion or at trial.
When a Plaintiff makes a reasonable demand, we often recommend settlement to our clients. But, when the plaintiffs are unreasonable, we know how to get a better result at the courthouse.
As Churchill announced:
we shall fight on the beaches,
we shall fight on the landing grounds,
we shall fight in the fields and in the streets,
we shall fight in the hills;
we shall never surrender…
There are no sure things in litigation, but if you want to know what a case is worth, sometimes you must have the courage to fight. We are both very grateful to our clients for their courage in letting us go forward.
Takeaways from Professional Liability Underwriting Society (PLUS) International Conference 2016:
1. Law firms fail because of: too much debt, rapid expansion, guaranteed salaries, and/or cultural divides.
2. We are all expecting a U.S. law or accounting firm to get hit with a Panama Papers style data breach which brings down the firm and probably yields management liability claims as well.
3. The IRS will continue its attack on captive insurance companies utilized to avoid tax with no real risk transfer.
4. Mary Jo White will be missed and you might expect the SEC to focus less on Wall Street and more on Main Street in the next four years.
I was fortunate to prevail in a bench trial for a great CPA firm in August and was reminded of these takeaways:
1) A CPA’s work product will seldom be perfect but good workpapers can save you from many apparent sins.
2) Identify sources of data in your work product or you may end up as guarantor of data you should not be responsible for.
3) Smart and highly educated Plaintiffs who exaggerate their claims can be systematically destroyed, but only with a light touch.
4) Credibility and likeability are critical in a factually complex case and lawyers and CPAs need to begin to establish both on day one of their engagement.
5) Our trial system is not perfect, but it often yields the right result so defendants should not despair.
Fighting For Your Professional Life: Accounting and Attorney Malpractice
Defamation claims against lawyers and accountants are on the rise, as noted in the recent Carlock, Copeland & Stair Accounting Risk Management program in Atlanta. That point was highlighted recently when a forensic accountant was sued in Fulton County, Georgia. The facts are complex, but the plaintiff was involved in a failed bank and sued over an allegedly negative reference in a national publication. Accountants and all professionals need to be careful what they say, especially in the press.
Five Takeaways from the Carlock Copeland & Stair Accounting Risk Management Program Presented on May 19, 2016
1. The Panama Papers, and Big Data in general, demonstrate the risk posed for accountants when clients hide or launder money offshore. An international consortium of major news sources is actively soliciting more leaks and tax officials from 28 countries met in April to plan a joint strategy to mine the Panama Papers for gold. The database lists many U.S. CPA firms and diagrams their relation to various suspect transactions. Governments from Russia to Britain to Argentina have been rocked by the disclosures. Don’t get your firm’s name added to the list and avoid overly aggressive strategies. Protect your own files from those who might like to steal your clients’ confidential information.
2. Professional judgment is what you get paid for, but can also be what you get sued for. Audit engagements in particular require lots of judgment calls. Make sure your firm’s work reflects good judgment and that those who make the judgment calls are properly trained and professionally skeptical. If you have young auditors in the field without onsite partner supervision, talk through the tough issues with them in advance.
3. Read your insurance policies. Policy provisions may be negotiable and you may gain value in ways beyond premium reductions. Be very accurate when filling out your application and compare it to your website. Submitting a neat and accurate application can save you real money. Price should not be your only consideration and you should check to see which carriers treat their clients well.
4. Jurors hold outside accountants to high standards when a client suffers from internal fraud. Take another look at your engagement letters to make sure you have included all the damage limitations and disclaimers the laws allows and avoid engagements where the client’s lack of internal controls creates too much risk.
5. Accountants are getting sued for defamation even when they make statements in good faith and in the course of their clients’ engagements.