BDO Slammed with $92 Million Jury Award in Florida Fraud Case

Edited by Alison Frankel and Nate Raymond - The American Lawyer

February 1, 2011 - 

On Trial / Professional Negligence

Steven Thomas Racks Up (Another) Big Jury Verdict Against BDO; Will $92 Million Award Stand Up on Appeal?

Looks like former Sullivan & Cromwell partner-turned plaintiffs-lawyer Steven Thomas has given the lawyers at Greenberg Traurig another chance to overturn a big Florida state court jury verdict against the accounting firm BDO.

Last year, you'll recall, Greenberg persuaded a Florida state appellate court to reverse a $521 million award Thomas won in 2007 for Banco Espirito Santo, which claimed BDO Seidman conducted negligent audits of a corrupt subsidiary.

Now Thomas and a team from his firm, Thomas, Alexander & Forrester, have won another verdict against the recently rebranded accounting firm. On Monday morning, after a three-week trial, a Miami Beach jury hit BDO with a $36.9 million compensatory damages verdict in a fraud case brought by the Batchelor Foundation and the estate of Miami aviation pioneer George Batchelor. Monday afternoon, after hearing arguments on punitive damages, jurors returned a punies verdict of $55 million. Here's the story from our colleagues at the Daily Business Review.

The verdict is believed to be the first time a jury has found an accounting firm liable for fraud for making a false statement to the Securities and Exchange Commission in an 8K filing disclosing a change in auditors, according to Thomas. In a statement, Thomas said, "BDO Seidman's apparent culture of ignoring its public duty is shameful, and this jury recognized that and acted appropriately. This case was especially egregious, since the client went opinion shopping until it found an auditing firm that was willing to look the other way when it came to performing its public duty. That firm was BDO."

The Batchelor plaintiffs claimed in their 2002 complaint against BDO Seidman that the accounting firm failed to follow generally accepted auditing practices in its audits of the housing operator Grand Court Lifestyles. The Batchelor entities, which had invested millions in Grand Court before it filed for bankruptcy in 2000, sought $78 million in compensatory damages.

BDO replaced Deloitte as Grand Court's auditor in 1998. (Deloitte, represented by Mayer Brown, reached a confidential settlement with the Batchelor plaintiffs last December.) In his opening statement, Thomas told jurors that Grand Court fired Deloitte and brought in BDO because the company "wanted someone not to look so close." He also said that "BDO agreed not to look at everything."

BDO, represented by Adam Cole of Greenberg, defended its auditing practices and contended that the Batchelor plaintiffs didn't rely on its audits in making investment decisions, according to the Daily Business Review.

In a statement, BDO said it strongly disagreed with the jury's decision. "We are confident the verdict will be reversed on appeal as there were numerous reversible errors made by the court during this trial. The addition of punitive damages only serves to emphasize the injustice that has taken place," the accounting firm said. BDO noted that in a deposition before his death in 2002, George Batchelor "never mentioned BDO among a lengthy list of professionals and associates he relied on in making his decision to invest in Grand Court." The firm also said that its audits conformed with GAAP.

"We look forward to reversing this verdict on appeal," BDO said.

Speaking to the Litigation Daily after the jury came back with its punitives award, Thomas scoffed at BDO's statement. "The jury and the court made the right calls on the facts and the law," he said. "It's a historic decision."