Battenfeld of America v. Baird, Kurtz & Dobson
| Decision Date | 13 July 1999 |
| Docket Number | No. 97-2336-JWL.,97-2336-JWL. |
| Citation | 60 F.Supp.2d 1189 |
| Court | U.S. District Court — District of Kansas |
| Parties | BATTENFELD OF AMERICA HOLDING COMPANY, INC., SMS Capital Corp. and SMS Finance Corp., Plaintiffs, v. BAIRD, KURTZ & DOBSON, Defendant/Third-Party Plaintiff, v. Friedrich Theysohn GmbH et al., Third-Party Defendants. |
Randall E. Hendricks, Phillip G. Greenfield, Scott M. Brinkman, Vivian W. McLeod, Rouse, Hendricks, German, May & Shank, Kansas City, MO, for Battenfeld of America Holding Company, Inc., SMS Capital Corporation, SMS Finance Corporation plaintiffs.
James A. Snyder, Lathrop & Gage L.C., Overland Park, KS, John R Gerstein, Ross, Dixon & Masback, Washington, DC, Timothy K. McNamara, James A. Snyder, Daniel L. McClain, L.J. Buckner, Jr., Lathrop & Gage L.C., Kansas City, MO, for Baird Kurtz & Dobson defendants.
Plaintiffs Battenfeld of America Holding Company, Inc. ("Battenfeld"), SMS Capital Corporation and SMS Finance Corporation (collectively "SMS") filed this negligence action against defendant accounting firm Baird, Kurtz & Dobson ("BKD") arising out of accounting and auditing services BKD provided to American Maplan Corporation ("AMC"), a corporation purchased by Battenfeld/SMS in 1995.
This matter is presently before the court on several motions for summary judgment: Defendant BKD's motion for summary judgment based on K.S.A. § 1-402 (doc. # 384); defendant BKD's motion for summary judgment against Battenfeld/SMS and on Counts III-V of third-party defendant AMC's amended counterclaim (doc. # 388); Battenfeld/SMS and AMC's motion for summary judgment on BKD's comparative fault designations (doc # 400); AMC's motion for summary judgment on BKD's fourth amended third-party complaint (doc. # 404); third-party defendant VGT AG's motion for summary judgment (doc. # 393); third-party defendant Friedrich Theysohn GmbH's motion for summary judgment (doc. # 395); third-party defendant Reinhard Theysohn's motion for summary judgment (doc. # 398); third-party defendant Ernst Kruger's motion for summary judgment (doc. # 383); and third-party defendant Horst Eigruber's motion for summary judgment (doc. # 406).
As set forth in more detail below, BKD's motion for summary judgment based on K.S.A. § 1-402 is granted in part and denied in part. Specifically, the motion is granted with respect to SMS Finance Corporation and denied with respect to plaintiff Battenfeld and plaintiff SMS Capital Corporation. Accordingly, the claims of SMS Finance Corporation are dismissed. BKD's motion for summary judgment against Battenfeld and on Counts III-V of AMC's amended counterclaim is granted in part and deferred in part. Specifically, the motion is granted with respect to Battenfeld's breach of contract claim and Counts III-V of AMC's amended counterclaim. These claims are dismissed. The court defers ruling on the motion to the extent it raises evidentiary issues (i.e., whether Battenfeld's evidence with respect to its alleged damages is competent) that will be addressed in connection with the Kumho hearing scheduled later this month. Battenfeld/SMS and AMC's motion for summary judgment on BKD's comparative fault designations is granted in its entirety and, accordingly, BKD's comparative fault designations are dismissed. AMC's motion for summary judgment on BKD's fourth amended third-party complaint is granted in its entirety and BKD's third-party complaint is dismissed as to third-party defendant AMC. Third-party defendant VGT AG's motion for summary judgment and third-party defendant Friedrich Theysohn GmbH's motion for summary judgment are granted in part and denied in part. The motions are granted with respect to BKD's negligent misrepresentation claims, granted to the extent that BKD is attempting to assert an independent, substantive claim for "indemnity," and are otherwise denied. The motions of third-party defendants Reinhard Theysohn, Ernst Kruger and Horst Eigruber are granted in part and denied in part. The motions are granted with respect to BKD's comparative fault designations and are otherwise denied.
The dispute among the parties in this case centers around Battenfeld's purchase of American Maplan Corporation ("AMC"), a Kansas corporation located in McPherson, Kansas. Prior to Battenfeld's purchase of AMC in 1995, AMC was wholly owned by third-party defendant Friedrich Theysohn GmbH ("FTG"). FTG, in turn, was and remains wholly owned by VGT AG ("VGT").
BKD was retained by AMC to perform various audits of financial statements and accounting services at a time when individuals at AMC were making false entries in AMC's books and accounting records, resulting in a material overstatement of assets, equity and earnings and a material understatement of liabilities. Battenfeld alleges that it relied on the results of a special acquisition audit conducted by BKD in deciding to purchase AMC and in establishing the purchase price, and that BKD's audit report falsely represented AMC's financial standing. Battenfeld further alleges that BKD negligently failed to discover, failed to investigate and/or failed to report pertinent financial data about AMC.
BKD, in turn, claims that the third-party defendants engaged in an elaborate fraudulent accounting scheme to artificially inflate the profitability and value of AMC by creating various fictitious accounts receivable and inventory on AMC's books. According to BKD, VGT devised the fraudulent scheme to improve VGT's consolidated financial statements because VGT was experiencing financial difficulties. BKD further alleges that the scheme was facilitated by a number of directors and officers common to VGT, FTG, and AMC.
As set forth above, prior to Battenfeld's purchase of AMC in 1995, AMC was a wholly-owned subsidiary of Friedrich Theysohn GmbH ("FTG"). FTG also owned other subsidiaries, including Theysohn Extrusions Technik ("TET") and Theysohn Maschinenbau ("TMB"). Reinhard Theysohn, who had an ownership interest in FTG, served as a managing director of FTG and also served in various management capacities at FTG's subsidiaries. In the early 1990s, another company, VGT AG, purchased FTG and its subsidiaries, including AMC, TET and TMB. At that time, Reinhard Theysohn began serving as a member of VGT's three-member board of management and continued serving in various management positions of FTG, AMC, TET and TMB. Specifically, Mr. Theysohn served as a managing director of FTG, TET and TMB, and served as the president, CEO and chairman of the board of AMC.
VGT produces and sells two main products — plastics (plastic parts and plastic machinery) and ceramic material. The Theysohn companies (AMC, TET and TMB) constituted the plastics machinery division of VGT. AMC sold product to the North American and South American markets, TET sold product to the European and Asian markets, and the two companies also sold product to each other. TMB, on the other hand, supplied screws and barrels to AMC and TET. In addition, TMB sold a particular machine, the compounder, throughout the world. The record reflects that the financial statements of AMC, TET and TMB were consolidated.
In 1993, VGT's board of management decided to place AMC, TET and TMB under the same management. In that vein, VGT's board promoted Dr. Ernst Kruger, previously Reinhard Theysohn's personal assistant and an employee of TMB, to serve as a managing director of TET and TMB and to serve as a senior vice president and board member of AMC. At the same time, VGT's board selected Horst Eigruber, AMC's chief operating officer, to serve as a managing director of TET and TMB. Together, Dr. Kruger and Mr. Eigruber shared the management responsibility for AMC, TET and TMB. Dr. Kruger was primarily responsible for the day-to-day operations of TMB, Mr. Eigruber was primarily responsible for the day-to-day operations of AMC, and the two shared responsibility for TET. It is uncontroverted, however, that Dr. Kruger was responsible for the finance and accounting aspects of AMC, TET and TMB and that Mr. Eibruger was responsible for the sales, marketing and process technology aspects of the companies. Dr. Kruger and Mr. Eigruber reported directly to Reinhard Theysohn. During this same time frame, Stephen D. Root, AMC's chief financial officer since 1986, began reporting directly to Ernst Kruger. As AMC's chief financial officer, Mr. Root was responsible for the financial books and records of AMC, including the internal and external financial reporting of AMC.
Effective December 31, 1994, Reinhard Theysohn left the VGT organization and resigned his positions with the various Theysohn companies. Mr. Theysohn was replaced by Dr. Stefan Schatz, who began working for VGT and its subsidiaries in February 1995. Dr. Kruger left the Theysohn companies in April 1995. The record does not reflect whether anyone replaced Dr. Kruger.
It is uncontroverted among the parties that, in the years prior to Battenfeld's acquisition of AMC, false entries were made in AMC's books and accounting records. It is further undisputed that Mr. Root was primarily responsible for creating and maintaining the fraudulent entries in AMC's financial books and records. The hotly contested issue with respect to the scheme is whether Mr. Root was acting on his own when he engaged in the fraudulent activity or whether he was acting on instructions from Mr. Theysohn and/or Dr. Kruger.
The following is a summary of Mr. Root's description of the fraudulent scheme.2 Mr. Root testified that Mr. Theysohn first approached him in 1993 concerning losses that AMC had suffered that year. According to Mr. Root, Mr. Theysohn told Mr. Root that any losses suffered by AMC "would not be beneficial for the group," meaning VGT, FTG, AMC, TET and TMB. Thus, Mr. Theysohn allegedly...
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