World Radio Laboratories, Inc. v. Coopers & Lybrand

• Decision Date: 13 December 1996
• Docket Number: No. S-93-739,S-93-739
• Parties: WORLD RADIO LABORATORIES, INC., a Nebraska corporation, Appellee, v. COOPERS & LYBRAND, a partnership, Appellant.
• Court: Nebraska Supreme Court

Page 1

557 N.W.2d 1

251 Neb. 261

WORLD RADIO LABORATORIES, INC., a Nebraska corporation, Appellee, v. COOPERS & LYBRAND, a partnership, Appellant.

No. S-93-739.

Supreme Court of Nebraska.

Dec. 13, 1996.

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 any competent evidence is presented to the jury upon which it could find for the successful party.

2. Damages: Appeal and Error. As to the issue of damages, the amount awarded is a determination solely for the fact finder, and its action in this respect will not be disturbed on appeal if it is supported by the evidence and bears a reasonable relationship to the elements of the damages proved.

3. Directed Verdict. A directed verdict is proper only where reasonable minds cannot differ and can draw but one conclusion from the evidence, where an issue should be decided as a matter of law.

4. Malpractice: Negligence: Limitations of Actions. An action based on professional negligence must be brought within 2 years next after the alleged act or omission in rendering or failure to render professional services.

5. Accounting: Malpractice: Negligence: Limitations of Actions. In cases involving negligently prepared audits, the statute of limitations begins to run when the audit report is delivered to the client.

6. Malpractice: Limitations of Actions. The 2-year filing limitation may be extended if facts constituting the basis of the malpractice action are not discovered and could not reasonably be discovered within 2 years of the alleged negligent conduct.

7. Accounting: Malpractice: Negligence: Proximate Cause: Proof. Before a plaintiff may recover for accounting malpractice, the essential elements of any negligence action must be proved, namely, (1) duty, (2) breach, (3) causation, and (4) resulting damages.

8. Negligence: Proximate Cause: Proof. There are three basic requirements that must be met to establish causation: (1) that "but for" the defendant's negligence, the injury would not have occurred; (2) that the injury is the natural and probable result of the negligence; and (3) that there is no efficient intervening cause.

9. Trial: Negligence: Proximate Cause. Determination of causation is ordinarily a matter for the trier of fact.

10. Trial: Negligence: Juries: Proof. A plaintiff is not bound to exclude the possibility that the event might have happened in some other way, but is only required to satisfy the jury, by a preponderance of the evidence, that the injury occurred in the manner claimed.

11. Trial: Proximate Cause: Evidence. The issue of proximate cause, in the face of conflicting evidence, is ordinarily a question for the trier of fact.

12. Negligence: Damages. The proper measure of damages in a negligence action is that which will place the aggrieved party in the position in which he or she would have been had there been no negligence.

13. Damages: Proof. The nature and amount of damages cannot be sustained by evidence which is speculative and conjectural.

14. Damages: Proof. A plaintiff must prove damages with reasonable certainty.

15. 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.

16. Damages: Proof. Uncertainty as to the fact of whether damages were sustained at all is fatal to recovery, but uncertainty as to amount is not if the evidence furnishes a reasonably certain factual basis for computation of the probable loss.

17. Damages: Proof. Loss of prospective profits may be recovered if the evidence shows with reasonable certainty both its occurrence and the extent thereof.

18. Accountants: Malpractice: Negligence: Damages: Proof. 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. And when compensation is paid to an accountant in reliance upon his or her report, it may be recovered, upon proof that through the accountant's negligence, the audit was, in substance, false.

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

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

WHITE, C.J., and CAPORALE, FAHRNBRUCH, LANPHIER, WRIGHT, CONNOLLY, and GERRARD, JJ.

PER CURIAM.

On May 20, 1986, World Radio Laboratories, Inc., brought an accounting malpractice action against Coopers & Lybrand. In its petition, World Radio claimed that Coopers & Lybrand negligently prepared World Radio's financial statements for fiscal years 1981 through 1984 and negligently failed to advise World Radio as to the inadequacy of its internal accounting controls.

The jury entered a verdict for World Radio and awarded damages of $0 for 1981, $10,300 for 1982, $12,000 for 1983, and $17,018,000 for 1984. Coopers & Lybrand filed a timely appeal. The Nebraska Court of Appeals affirmed the verdict of liability on the part of Coopers & Lybrand but concluded that the evidence was insufficient to support a damage award based on lost profits or a decrease in the value of World Radio. Concluding that the evidence did support an award for accounting expenses incurred to both Coopers & Lybrand and the successor accounting firm, Arthur Young, the court remanded the cause for determination of those fees. The court also held that the statute of limitations and the doctrine of contributory negligence did not bar recovery by World Radio. World Radio Labs. v. Coopers & Lybrand, 4 Neb.App. 34, 538 N.W.2d 501 (1995).

The Court of Appeals subsequently modified its opinion and held that World Radio failed to bring its negligence action for 1983 within the 2-year period prescribed by Neb.Rev.Stat. § 25-222 (Reissue 1995). Therefore, the court held, World Radio was prohibited from recovering any damages incurred for 1983. World Radio Labs. v. Coopers & Lybrand, 4 Neb.App. 264, 542 N.W.2d 78 (1996).

Both Coopers & Lybrand and World Radio have petitioned this court for further review. We agree with the Court of Appeals' determination that Coopers & Lybrand was negligent in auditing World Radio for the years in question and that the evidence is insufficient as a matter of law to sustain a damage award for lost profits or a decrease in World Radio's value. We also agree with that portion of the court's opinion remanding this cause for a determination of fees paid to Arthur Young as a result of Coopers & Lybrand's negligence. However, we modify that portion of the court's opinion remanding this cause for a determination of the fees paid to Coopers & Lybrand for negligent work insofar as we determine the amount of those damages to be set at $42,000.

I. ASSIGNMENTS OF ERROR

On petition for further review, Coopers & Lybrand assigns numerous errors. In summary, Coopers & Lybrand argues that the trial court erred by (1) failing to grant Coopers & Lybrand's motion for a directed verdict on World Radio's claim that its alleged negligence caused World Radio's damages, (2) failing to grant Coopers & Lybrand's motion for a directed verdict on the issue of damages, and (3) failing to grant Coopers & Lybrand judgment on the issue of whether the statute of limitations barred recovery for 1981, 1982, and 1983.

In addition, Coopers & Lybrand argues that the Court of Appeals erred by (1) affirming liability for accounting malpractice on the theory that the negligent acts of World Radio's chief financial officer could not be attributed to World Radio; (2) failing to grant Coopers & Lybrand's motions for directed verdict and judgment notwithstanding the verdict, considering that the evidence offered to prove causation and damages was insufficient; and (3) remanding the cause for retrial on the issue of damages instead of reducing damages to the amount of the auditing fees.

In its petition for further review, World Radio also assigns numerous errors. In summary, World Radio argues that the Court of Appeals erred by (1) ruling that World Radio's experts were insufficient as a matter of law, (2) disregarding precedent as to the issue of to what degree of certainty World Radio was required to prove its damages, (3) improperly instructing the jury on World Radio's theory of damages, and (4) improperly overruling the district court's decision that the statute of limitations did not bar World Radio's claims for 1983.

II. BACKGROUND

1. WORLD RADIO IN 1935 THROUGH 1979

World Radio was founded in 1935 when Leo Meyerson began selling radio parts out of his car to amateur and ham radio operators. After a brief interruption during World War II, World Radio reopened and began selling radio equipment and associated electronics by mail order on a worldwide basis.

Leo Meyerson's son, Larry (Meyerson), joined the company in 1961. With the addition of Meyerson, World Radio quickly responded to the changing trends in the radio market. It was Meyerson that decided to enter the retail consumer electronic business by opening a retail store in Omaha, Nebraska, in 1967. In addition to selling radio equipment, this store also specialized in records, tapes, and stereo equipment.

The retail operations of World Radio expanded steadily throughout the 1970's. Selling mostly stereo and hi-fi equipment, World Radio increased its sales from $1.4 million in 1971 to over $7 million in 1979. By 1979, World Radio was operating 10 retail stores in two states.

In response to this rapid growth, Meyerson, as president and majority shareholder, sought to "professionalize" the company by hiring new management members. One such member was Joseph Riha, a certified public accountant and former auditor...