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Standard Chartered PLC v. Waterhouse11/7/1996
FIDEL, GARBARINO, and WEISBERG, Judges
The plaintiffs are Standard Chartered PLC, a British banking corporation, and two of its subsidiaries, Standard Chartered Bank and Standard Chartered Overseas Holdings, Ltd. (collectively "SC"). The defendant is Price Waterhouse, an accounting firm ("PW"). S. Ct. brought this action as assignee or successor in interest to certain tort and statutory damages claims owned originally by Union Bancorp of California ("Union") and United Bank of Arizona ("United"). The gravamen of the action is that Union was caused to buy United, a bank that it would not otherwise have bought, by PW's negligent audit of United and approval of misleadingly favorable financial statements that United had prepared. After a lengthy trial by jury, the jury rendered multiple plaintiffs' verdicts of $338,053,778; and the trial court granted PW a new trial on two of many asserted grounds. S. Ct. appeals from the grant of a new trial. PW appeals from the trial court's refusal to grant it judgment notwithstanding the verdict ("JNOV"), and asserts by cross-appeal several additional grounds to support the grant of a new trial. In the course of our opinion, we consider the following issues:
1. Is a negligence claim against an auditor assignable? Yes.
2. Did PW "participate in or induce" Union's purchase of United so as to subject PW to liability under the Arizona Securities Act? No.
3. In serving as United's independent auditor and in certifying United's financial soundness to Union, did PW act as a fiduciary to either United or Union? No.
4. Does a party irretreivably waive a ground for JNOV by neglecting to include that ground within a motion for directed verdict at the close of the evidence? Or may the motion be considered nonetheless if the issue (a) is purely legal, (b) was aired in prior motions so that the adverse party cannot reasonably claim surprise, and (c) is not one to which the adverse party, had there been a motion for directed verdict, might have responded by seeking leave to reopen to present further evidence? The latter.
5. Is there a claim for "auditor negligence" separate and distinct from a claim for negligent misrepresentation? No.
6. Does Arizona law measure the range of liability for negligent misrepresentation by the ordinary negligence yardstick of reasonable foreseeability, or does it employ the more circumscribed range of liability set forth in section 552 of the Restatement (Second) of Torts? The latter.
7. Must a plaintiff in a negligent misrepresentation claim prove loss causation and out-of-pocket damages? Yes.
8. When the negligence that a third party attributes to an auditor is the failure to detect and report the financial mismanagement and inaccurate reporting of the auditing client, may the auditor attempt to reduce its share of liability by allocating fault to the negligent client? Yes.
9. Does apportionment of fault in Arizona Revised Statutes Annotated ("A.R.S.") ยง 12-2506 apply to economic damage claims? Yes.
After addressing these and other issues, we conclude that this case must be retried, but on SC/Union's negligent misrepresentation claim alone. On all other claims that S. Ct. brought on behalf of Union, and on all claims that S. Ct. brought on behalf of United, we conclude that PW is entitled to JNOV.
I. FACTUAL AND PROCEDURAL HISTORY
SC is a United Kingdom banking corporation with subsidiaries worldwide and more than $35 billion in assets. In the mid-1980s, S. Ct. decided to expand its bank holdings in the United States. Through Union, a wholly-owned subsidiary, S. Ct. sought to acquire
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