Batchelor wins lawsuit against BDO Seidman

by Paul Brinkmann - South Florida Business Journal

January 31, 2011 - 

Miami-based accounting firm BDO Seidman lost a jury verdict Monday over claims that it was negligent in its auditing of a defunct real estate company.

The jury awarded $36 million in compensatory damages to the estate of late philanthropist and aviation businessman George Batchelor and the Batchelor Foundation. BDO was also slapped with punitive damages of $55 million.

In response the company said, "The addition of punitive damages only serves to emphasize the injustice that has taken place."

The 2002 lawsuit alleged that BDO concealed false statements on financial statements for a company Batchelor had invested in, Boca Raton-based senior apartment builder Grand Court Lifestyles.

Batchelor died in 2002.

Grand Court managed or owned 48 senior living communities with more than 6,600 units, and had controlling interests in 117 multifamily properties. The company went public in 1996 and filed for bankruptcy four years later.

BDO Seidman said in a written statement that it would appeal.

“We strongly disagree with jury’s decision and we are confident the verdict will be reversed on appeal as there were numerous reversible errors made by the court during this trial …” the statement reads.

Batchelor’s attorney was Steven Thomas, of Thomas, Alexander & Forrester, who has handled other lawsuits against BDO. Thomas represented Espirito Santo Bank when it won $521 million award against BDO, but the Espirito Santo judgment was later overturned and sent back for a new trial.

“BDO Seidman’s apparent culture of ignoring its public duty is shameful, and this jury recognized that and acted appropriately,” Thomas said in a statement. “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 Seidman. Today, yet another jury has reminded the entire accounting profession that auditors are our nation’s financial watchdogs.”

Batchelor, founder of Arrow Air and the Batchelor Foundation, invested about $69 million in Grand Court. His estate sought $87 million in damages from BDO.

BDO’s first audit opinion on Grand Court was issued in 1999; prior to that, Grand Court’s auditor was Deloitte, which previously settled out of the Batchelor lawsuit.

The suit alleged that Grand Court dropped Deloitte after the accounting firm raised questions about the value of multifamily properties. The suit alleged that BDO “knowingly failed to disclose the false statements” in a disclosure form for Grand Court.

The suit alleged that BDO “agreed to limit its review of appraisals to a sample of the properties and assured Grand Court that its disagreements with Deloitte over appraisals ‘would not be an issue with BDO.’”

BDO argued that its audits of Grand Court conformed to all generally accepted auditing standards. BDO said Batchelor had acknowledged that he relied on representations from Grand Court’s principals (whom he had known for 30 years), valuations from appraisers and projections from other accountants in making his decision to invest in the partnerships.

“The vast majority of Mr. Batchelor’s investments in Grand Court (approximately $57 million of a total of $69 million) took place prior to BDO issuing its audit opinion on May 3, 1999; therefore he couldn’t possibly have relied on BDO’s audit for those prior investments,” BDO said.