World Radio Laboratories, Inc. v. Coopers & Lybrand

• Decision Date: 12 September 1995
• Docket Number: No. A-93-739,A-93-739
• Citation: 538 N.W.2d 501,4 Neb.App. 34
• Parties: WORLD RADIO LABORATORIES, INC., a Nebraska corporation, Appellee, V. COOPERS & LYBRAND, a partnership, Appellant.
• Court: Nebraska Court of Appeals

Page 501

538 N.W.2d 501

4 Neb.App. 34

WORLD RADIO LABORATORIES, INC., a Nebraska corporation, Appellee,

V.

COOPERS & LYBRAND, a partnership, Appellant.

No. A-93-739.

Court of Appeals of Nebraska.

Sept. 12, 1995.

Syllabus by the Court

1. Verdicts: Juries: Appeal and Error. A jury verdict will not be set aside unless clearly wrong, and it is sufficient if there is any evidence presented to the jury upon which it could find for the successful party.

2. Damages: Juries: Appeal and Error. The question of the amount of damage is one solely for the jury, and its action in this respect will not be disturbed on appeal if it is supported by evidence and bears a reasonable relationship to the elements of injury and damage proved.

3. Judgments: Appeal and Error. As to questions of law, an appellate court has an obligation to reach a conclusion independent from a trial court's conclusion in a judgment under review.

4. Limitations of Actions: Accountants: Negligence. Unless there is some circumstance changing the rule, the statute of limitations on any error committed in an audit begins to run when the audit report is delivered to the client.

5. Limitations of Actions. If there is no dispute on the facts, the determination of when a statute of limitations begins to run is a question of law for the court.

6. Limitations of Actions: Appeal and Error. When the facts are in dispute on the issue of when a statute of limitations begins to run, the finding of the trial court will not be set aside unless clearly wrong.

7. Limitations of Actions: Negligence: Notice: Words and Phrases. Discovery under Neb.Rev.Stat. § 25-222 (Reissue 1989) means notice of facts which would lead an ordinarily prudent man to make an examination which, if made, would disclose the existence of other facts is sufficient notice of such other facts.

8. Limitations of Actions: Accountants: Malpractice: Negligence. Evidence of contributory negligence of a client in the case of malpractice of an accountant auditing a company's books has a definite limit because of the nature of an auditor's task.

9. Accountants. It is clear that an audit of an institution's financial records serves, at least in part, as a check on the authority and expertise of the institution's own financial personnel.

10. Principal and Agent: Presumptions. The general rule is that agents are conclusively presumed to have performed their duty to communicate facts concerning their agency to their principal.

11. Corporations. A corporation is not chargeable with the knowledge nor bound by the acts of one of its officers in a matter in which he acts in behalf of his own interests, deals with the corporation as a private individual, and in no way represents it in the transaction.

12. Corporations: Accountants. The failure of a corporate officer to disclose information to an auditor is not attributed to the corporation as a matter of law when the corporate officer's failure to disclose the information was not for a corporate purpose.

13. Damages: Words and Phrases. Profits are the net pecuniary gain from a transaction, the gross pecuniary gains diminished by the cost of obtaining them.

14. Jury Instructions: Damages. It is the duty of the court, on its own motion, to instruct on all material issues raised by the pleadings and evidence. The jury should be told the manner in which the damages sustained 15. Jury Instructions. Whether requested to do so or not, the trial court has the duty of instructing the jury on issues presented by the pleadings and the evidence.

by the plaintiff are to be measured and arrived at.

16. Jury Instructions: Damages. It is the duty of the trial court to refrain from submitting to the jury the issue of damages where the evidence is such that the jury cannot determine that issue without indulging in speculation and conjecture.

17. Damages: Appeal and Error. Where a certain theory as to the measure of damages is relied upon by the parties to the trial as the proper one, it will be adhered to on appeal whether it is correct or not.

18. Damages: Appeal and Error. Where the measure of damages had been challenged by objections to the pleadings or evidence, or by motion for a directed verdict or by the tendering of an instruction, the rule that the theory of damages relied upon by the parties in the trial will be accepted does not apply.

19. Malpractice: Attorney and Client: Proof. In order to recover for legal malpractice, the plaintiff must prove (1) duty, (2) breach of duty, (3) proximate cause, and (4) resulting damages.

20. Accountants. Accountants are held to the same standard of care as lawyers, doctors, architects, and other professional people engaged in furnishing skilled services for compensation.

21. Directed Verdict: Damages. A directed verdict may be granted on the issue of damages if the plaintiff fails to prove any damages.

22. Damages: Proof. The rule that lost profits from a business are too speculative and conjectural to permit the recovery of damages therefor is not a hard and fast one, and loss of prospective profits may nevertheless be recovered if the evidence shows with reasonable certainty both their occurrence and the extent thereof.

23. Damages: Proof. The plaintiff must plead and prove damages. Further, the plaintiff's burden of proof cannot be sustained by evidence which is speculative and conjectural.

24. Damages: Proof. A claim for lost profits must be supported by some financial data which permit an estimate of the actual loss to be made with reasonable certitude and exactness.

25. Damages: Proof. Where it has been proved that damage has resulted and the only uncertainty is as to the exact amount, it is sufficient if the record shows data from which the extent of the injury can be ascertained with reasonable certainty. Data for an exact calculation is not necessary.

26. Real Estate: Valuation. To permit a person, even a qualified one, to appraise a tract of land on the basis of capitalization of income by an estimate of the operation of a typical business would be guesswork at every stage.

27. Accountants: Malpractice. While minor inaccuracies in an audit or report may be overlooked, where by reason of the accountant's negligence, inaccuracies and failure to report facts of serious character appear, he or she is not entitled to compensation.

Jeff A. Anderson, Kutak Rock, William G. Campbell, of Rogers & Wells, Philip A. Lacovara and Lynne M. Raimondo, of Mayer, Brown & Platt, and Maureen E. McGrath, for appellant.

Joseph E. Jones and Michael L. Schleich, of Fraser, Stryker, Vaughn, Meusey, Olson, Boyer & Bloch, P.C., for appellee.

HANNON, IRWIN, and MUES, JJ.

HANNON, Judge.

In this action, World Radio Laboratories, Inc. (WR), sued Coopers & Lybrand (C & L), an accounting partnership, for professional malpractice in connection with the latter's audit of WR's financial statements for the fiscal years ending in the last week of May or first week of June in the years 1981 through 1984. WR alleges C & L was negligent in auditing WR's annual reports for those years because it did not discover a large account C & L maintains that the statute of limitations bars recovery for 1982 and 1983 and that contributory negligence bars any recovery as a matter of law. C & L also assigns a myriad of alleged errors concerning damages. We conclude that neither the statute of limitations nor contributory negligence bars recovery as a matter of law and that the verdict of liability should be affirmed. We also conclude the jury was not properly instructed on the measure of damages and that the principal evidence relied upon by WR to establish significant damages is speculative and conjectural as a matter of law. We therefore affirm in part, in part reverse, and remand for a new trial on the issue of damages.

payable that was not listed on WR's balance sheets for 1981 through 1984 and because it failed to advise WR's [4 Neb.App. 37] management that its accounting system did not contain adequate internal controls. The undiscovered payable was $890,111 at the time of C & L's last audit, which covered the fiscal year ending June 2, 1984. In spite of the claim that C & L's malpractice made WR insolvent, WR continued in business and made a profit for the years 1986 and 1987, but it suffered a loss in 1988 and filed for bankruptcy in 1989. In submitting the case to the jury, the court instructed it to determine the damages for each year separately. The jury awarded WR damages of $0 for 1981, $10,300 for 1982, $12,000 for 1983, and $17,018,000 for 1984.

BACKGROUND AND FACTS

Leo Meyerson started WR in 1935 and sold radio equipment and supplies to amateur radio operators by mail order. Larry Meyerson, Leo's son, joined the company in 1961. In 1967, the company opened its first retail store in Omaha. This store sold not only radios and electronic equipment and parts, but also hi-fi equipment and sound recordings. Later the company expanded into TV, video, stereo, and similar equipment. In 1984, the company began to sell extended warranties for the electronics equipment it sold. The company quit the mail-order business in 1970. By 1979, the company operated 10 stores. By January 1985, it operated 21 stores. At its peak in 1986, it operated 28 stores that were situated in various cities in Nebraska, Iowa, Missouri, Kansas, and Illinois. By 1980, sales were better than $8 million per year; by 1984, $25,839,043; and by 1987, $40,562,746.

During the first half of the 1980's, WR was a growing company that appeared to have excellent prospects for continued growth. Larry Meyerson owned more than 85 percent of the outstanding stock of WR and was its president, and his father was chairman of its board of directors, but did not attend meetings. Larry Meyerson hoped WR would have 50 stores by 1987. Toward that end, in 1979 he hired Joseph Riha, a C.P.A. who had worked for C & L, as the chief financial officer for WR. Riha became vice president...