Litigation Support Liability - the Mattco Decision

By Hanson, Randall K.; Rockness, Joanne W. et al. | The CPA Journal, March 1995 | Go to article overview

Litigation Support Liability - the Mattco Decision


Hanson, Randall K., Rockness, Joanne W., Woodard, Robert L., The CPA Journal


The Mattco Forge v. Ernst & Young case has opened a potentially significant new area of professional liability. Before this case, large judgments against the accounting profession were primarily in auditor malpractice cases. In June 14, however, a Los Angeles jury awarded a $42 million judgment against Ernst & Young for litigation support negligence and fraud.

This is the first successful case commenced against a major public accounting firm for litigation support negligence and fraud; thus the case is important. It is also a potential precedent for limits on expert witness immunity. This case raises liability concerns for any accountant who acts as an expert witness in a lawsuit.

Litigation Support

In an effort to diversify, expand services, and increase revenues, public accounting firms have moved into a myriad of advisory services. One of these rapidly growing services is litigation support. This specialty can encompass a variety of services including investigation of claims, calculation of damages, interpretation of financial information, assistance in trial preparation, and expert witness testimony in court. These support services have been offered by accounting and consulting firms of all sizes, including many individual practitioners. Common areas where attorneys seek litigation support from accountants include marital dissolution, business valuation, commercial damages, lawsuits against other accountants, bankruptcy proceedings, forensic accounting cases, and tax-related litigation.

Professional standards offer limited guidance for CPAs engaged in litigation sup port services. The basic principles of the AICPA Code of Conduct including integrity, objectivity, due professional care, and acting in the public interest apply to any professional service a CPA offers and serve as guide for litigation support services. In addition, litigation services are included in the broad definition of consulting services under the AICPA Management Services Division's 1991 Statement on Standards for Consulting Services. This Statement identifies standards under Rule 201 of the Code of Conduct as applicable, including professional competence, due professional care, planning and supervision, and sufficient relevant data. Three additional standards under Rule 202 identified specifically for consulting services are client interest, understanding the client, and communication with the client.

A client naturally expects effective advice and assistance when it engages a CPA as an expert witness. Unsuccessful litigation may result in the client questioning the effectiveness of the litigation support services received. The Mattco Forge case is a stunning example of what can go wrong when a CPA provides litigation support services.

Mattco Forge v. Arthur Young

A California jury decision against the accounting firm of Ernst & Young (formerly Arthur Young) held the accounting firm liable on two counts of fraud arising from litigation support rendered on behalf of a manufacturing company. The jury awarded $14.2 million in compensatory damages and $27.8 million in punitive damages in June 1994. The jury also found a former managing partner liable for $250,000 and a former employee liable for $5,000. The case is currently being appealed by the accounting firm

The size of this judgment and the serious implications of the finding of fraud warrant a close look at the facts surrounding this case.

In the mid 1980s, Mattco Forge, a California small aircraft part manufacturer, commenced a lawsuit against General Electric (GE) alleging wrongful discrimination against the company in the awarding of GE contracts. To prepare for trial and at the urging of one of the accounting firm's managing partners, Mattco retained the public accounting firm of Arthur Young for litigation support. Mattco alleged that one of the reasons they retained the accounting firm was its advertisement that stated the was an expert in litigation support and could "assist attorneys and clients having a real or apparent lack of data. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Litigation Support Liability - the Mattco Decision
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.