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Stroud v. Arthur Andersen & Co.9/18/2001
__ P.3d __
CERTIORARI TO THE COURT OF CIVIL APPEALS, DIVISION 2
APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY HONORABLE NILES JACKSON, JUDGE
Steve Stroud and Stroud Crop, Inc. [appellees] sued Arthur Andersen & Co. [Andersen] alleging the negligent performance of financial audits of Stroud Crop, Inc. over a several-year period. Appellees were awarded both compensatory and punitive damages on a jury verdict. Andersen appealed assigning error to the trial court's jury instructions and also contesting the sufficiency of the evidence to support the judgment. On appeal the Court of Civil Appeals reversed and remanded the case holding that it was fundamental error for the trial court to have instructed the jury on the "audit interference rule" instead of using the standard comparative-negligence jury instruction. Upon certiorari previously granted,
THE COURT OF CIVIL APPEALS' OPINION IS VACATED AND THE DISTRICT COURT JUDGMENT IS AFFIRMED.
Resolution of today's cause requires the Court (1) to ascertain for comparative-negligence purposes the relevance of a plaintiff's negligence when a professional's performance is faulted in a negligence action and (2) to decide whether there is competent evidence in the record which would sustain the jury's verdict.
I. FACTS AND PROCEDURAL HISTORY
Steve Stroud, individually, [Stroud] and Stroud Crop, Inc. brought an action against Arthur Andersen & Co. [Andersen or defendant], a professional accounting firm, seeking damages for economic injuries allegedly emanating from flawed audits of SCI and Insurance Company of the Prairie States' [ICOPS] financial statements. The audits were prepared by Andersen. Stroud over a period of years had built ICOPS into one of the larger providers of crop insurance in the United States. SCI was the general managing agent and operator of ICOPS. Both companies were owned primarily by Stroud and their indebtedness was collateralized with – among other things – land and personalty owned by Stroud in an individual capacity.
In the latter part of 1987 SCI – at one of its lenders' insistence – sought to have its December 31, 1987 balance sheet audited. It hired the defendant to perform the required accounting in accordance with generally accepted auditing standards [GAAS]. Stroud/SCI assert that the audits for 1987 and later years were negligently prepared by Andersen because (1) a substantial misstatement of SCI's liabilities (in excess of three million dollars) went undetected in them and (2) Andersen failed to identify and communicate to SCI that certain of its internal-accounting mechanisms were "material weaknesses" (as that term is understood under GAAS).
Next, plaintiffs assert that it relied upon the flawed audited statements of SCI's financial condition to make certain business decisions which ultimately rendered SCI/ICOPS unable to sustain economic viability during the 1990's. Lastly, Stroud/SCI allege that Andersen – after becoming aware of the understatement of SCI's liabilities – failed to extend to its clients (SCI/ICOPS) the duty of care required by the Code of Professional Conduct for accountants.
Andersen defends by asserting (1) that plaintiffs failed to prove by sufficient evidence that its audits of SCI and ICOPS were flawed and (2) that the economic losses suffered by SCI resulted solely from (a) bad management decisions made by Stroud/SCI and (b) SCI's flawed internal accounting procedures. Andersen also contests Stroud's right as an individual to seek damages for any audit-related injuries. It is Andersen's contention that if the alleged economic injuries were compensable at all
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