Mindis Acquisition Corp. v. BDO Seidman
| Decision Date | 18 January 2002 |
| Docket Number | No. A01A1774, No. A01A1775. |
| Citation | 559 S.E.2d 111,253 Ga. App. 360 |
| Parties | MINDIS ACQUISITION CORPORATION v. BDO SEIDMAN, LLP. BDO Seidman, LLP v. Mindis Acquisition Corporation et al. |
| Court | Georgia Court of Appeals |
OPINION TEXT STARTS HERE
Alston & Bird, Oscar N. Persons, Theodore J. Sawicki, John H. Goselin II, Womble, Carlyle, Sandridge & Rice, Nisbet S. Kendrick III, Caroline B. Keller, Atlanta, for Mindis Acquisition Corporation et al.
Sutherland, Asbill & Brennan, Peter J. Anderson, Kristen J. Indermark, Rebecca L. Burnaugh, Atlanta, for BDO Seidman, LLP. BARNES, Judge.
In Case No. A01A1774, Mindis Acquisition Corporation ("Mindis Acquisition") appeals the grant of judgment notwithstanding the verdict ("j.n.o.v.") to BDO Seidman, LLP ("BDO Seidman"), after a jury awarded $44 million to Mindis Acquisition on its claim against BDO Seidman for negligent representation. In Case No. A01A1775, BDO Seidman cross-appeals, contending the trial court erred by receiving evidence on and allowing the jury to consider an improper measure of damages and also contending the trial court erred by granting summary judgment to Jonathan Imerman and Thomas B. Hamil on BDO Seidman's third-party claim against them for indemnification because they allegedly supplied incorrect information to BDO Seidman during an audit.
Imerman and Byron Kopman started a scrap metal recycling business called Mindis in 1987. Although they sold the company to Attwoods plc ("Attwoods") for $18 million in 1989, they remained active in the operation of the company as officers and directors of Attwoods's subsidiary, Mindis Consolidated Corporation ("Mindis"), a scrap metal recycling company. In 1993, Imerman, through his company Celtic Holdings, Kopman, through his company Robust Holdings, and Joseph Lewis, through his company Bellamy, Inc., organized Mindis Acquisition to purchase Mindis from Attwoods through a stock purchase. Bellamy. Inc. initially owned 50 percent of Mindis Acquisition and later acquired controlling interest in the company by investing an additional $10 million.
This litigation arose after Mindis Acquisition's purchase from Attwoods, of Mindis's outstanding stock. BDO Seidman was the accounting firm hired by Attwoods to perform Mindis's annual inventory audit in 1993. BDO Seidman's final audit opinion estimated Mindis's metal inventory to be worth approximately $86 million on July 31, 1993. While conducting the audit, BDO Seidman was aware that Mindis Acquisition was negotiating the purchase of Mindis and was careful to make sure that Imerman did not undervalue the inventory so Mindis Acquisition would get a better bargain. In fact, the record shows that Imerman and others had significant and continuing doubts about whether the value of Mindis's scrap metal inventory could be determined accurately by anyone.
While the purchase and sale of Mindis's stock were in final negotiations, Mindis's Chief Financial Officer ("CFO"), Hamil, informed the BDO Seidman manager in charge of the Mindis audit that an outside shareholder of Mindis Acquisition had requested "comfort" in connection with the proposed acquisition. Specifically, Hamil said that Mindis Acquisition's outside shareholder sought assurance that there would be no material adjustments to the July 1993 financial statements, and Hamil asked the BDO Seidman manager for something he could give the majority shareholder to comfort him so they could proceed with the transaction. Hamil recalled that the BDO Seidman manager asked for some time to determine what could be provided and then responded with the audit opinion. BDO Seidman faxed the audit opinion to Hamil who then passed it on to Jeffrey Voss, who represented Bellamy Inc., Mindis Acquisition's majority stockholder. Later that day, Voss authorized Kopman to execute the stock purchase agreement. After the purchase, an audit by another accounting firm revealed that Mindis's scrap metal inventory was worth only $16 million, some $70 million less than the BDO Seidman audit had reported only three months earlier. A subsequent audit confirmed the accuracy of this figure.
Subsequently, Mindis Acquisition filed this lawsuit against BDO Seidman for negligent misrepresentation. BDO Seidman then asserted third-party claims for indemnification and contribution against the Mindis Chief Executive Officer ("CEO"), Imerman, and CFO, Hamil. Before trial, the parties filed cross-motions for summary judgment on numerous issues. The trial court determined that whether Mindis Acquisition justifiably relied on BDO Seidman's opinion was a question for the jury, and this court denied BDO Seidman's application for an interlocutory appeal. The trial court, however, granted summary judgment to Imerman and Hamil on BDO Seidman's claims against them for indemnification.
The case was tried, and the jury returned a verdict of $44 million in favor of Mindis Acquisition. Subsequently, however, the trial court granted BDO Seidman's motion for j.n.o.v.1
Mindis Acquisition appeals the trial court's grant of a j.n.o.v. to BDO Seidman. The negligent misrepresentation claim is based on our Supreme Court's decisions in Badische Corp. v. Caylor, 257 Ga. 131, 132-133, 356 S.E.2d 198 (1987), and Robert & Co. Assoc. v. Rhodes-Haverty Partnership, 250 Ga. 680, 681-682, 300 S.E.2d 503 (1983).
In Badische Corp., the Supreme Court set out the following guidelines under which a professional could be liable to a third party:
This liability is limited to a foreseeable person or limited class of persons for whom the information was intended, either directly or indirectly. In making a determination of whether the reliance by the third party is justifiable, we will look to the purpose for which the report or representation was made. If it can be shown that the representation was made for the purpose of inducing third parties to rely and act upon the reliance, then liability to the third party can attach.
(Emphasis omitted.) Id. at 133, 356 S.E.2d 198. In this case, BDO Seidman knew that it was providing its audit opinion to provide assurance to the majority stockholder, and therefore, it provided the information specifically to induce the decision of a third party. It is undisputed that the information prepared by BDO Seidman was provided to a third party for the purpose of inducing that party to go forward with the transaction. Accordingly, Mindis Acquisition was within the limited class of persons BDO Seidman knew would rely on information it prepared.
At trial, BDO Seidman contended that Mindis Acquisition could not justifiably rely upon its opinion because two of Mindis Acquisition's shareholders, Imerman and Kopman, had been owners and officers of Mindis before Attwoods bought the company and continued as officers of Mindis after the purchase, and, therefore, they knew what the company was really worth regardless of BDO Seidman's evaluation. BDO Seidman contends that Imerman and Kopman had independent knowledge of the inventory value, knew the BDO Seidman inventories were inaccurate, and gave this information to Mindis Acquisition. Thus, BDO Seidman contended, Mindis Acquisition did not justifiably rely on BDO Seidman's opinion.
Relying on this theory, BDO Seidman first moved for a directed verdict and, when the trial court deferred ruling, renewed the motion after the verdict awarding $44 million to Mindis Acquisition. The trial court then granted BDO Seidman's motion.
The trial court found that
the evidence did not support a finding of justifiable reliance by the plaintiff.... The knowledge of Imerman and Kopman as officers [in] the company was attributable to [Mindis Acquisition], and, therefore, [Mindis Acquisition] was not justified as a matter of law in relying on [BDO Seidman's] representation that the financial statements containing the $86 million inventory figure were fairly stated.
Mindis Acquisition appeals that judgment and also appeals the trial court's denial of its motion seeking prejudgment interest under the Unliquidated Damages Interest Act, OCGA § 51-12-14.
1. When reviewing a trial court's ruling on a motion for a directed verdict or a motion for j.n.o.v., an appellate court must consider the evidence and resolve any doubt or ambiguity in favor of the verdict. A directed verdict or j.n.o.v. "is not proper unless there is no conflict in the evidence as to any material issue and the evidence introduced, with all reasonable deductions therefrom, demands a certain verdict." (Citations and punctuation omitted; emphasis in original.) Southern Store &c. Co. v. Maddox, 195 Ga. App. 2, 3(1), 392 S.E.2d 268 (1990).
Further, j.n.o.v.
may be granted only when, without weighing the credibility of the evidence, there can be but one reasonable conclusion as to the proper judgment. Where there is conflicting evidence, or there is insufficient evidence to make a "one-way" verdict proper, judgment n.o.v. should not be awarded. In considering the motion, the court must view the evidence in the light most favorable to the party who secured the jury verdict. And this approach governs the actions of appellate courts as well as trial courts.
(Citation and punctuation omitted.) Denson v. City of Atlanta, 202 Ga.App. 325, 326(1), 414 S.E.2d 312 (1991). In ruling on such a motion the trial court is not authorized to weigh the evidence or decide issues of fact. Moore v. American Suzuki Motor Corp., 203 Ga.App. 189(1), 416 S.E.2d 807 (1992).
(Citations and punctuation omitted.) Ogletree v. Navistar Intl. Transp....
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