Accounting malpractice claim is reinstated despite argument that damages incurred before negligent audit occurred
The court-appointed custodian of a cemetery trust fund sued Plante & Moran after the accounting firm's audit failed to identify a fraudulent embezzlement scheme that cost 28 cemeteries more than $60 million dollars. The accountants argued that they should not be responsible for any damages on the basis of several technical arguments. They argued that the Court-appointed custodian lacked standing to seek redress, that the trust fund couldn't sue because a principal of the trust was the primary embezzler, and that in any event, the theft had already occurred prior to their audit being performed--so that the damages had already been suffered. The trial judge accepted the arguments and dismissed the case. The Custodian appealed.
The Court of Appeals rejected, as a matter of law, the argument that the Conservator couldn't act to protect the fund. It also deemed the corporate entity to have an independent right to seek redress for negligence in protecting the Trust. With regard to the causation defense, the Court noted that the Conservator employed an expert who believed that much of the embezzlement occurred after the audit was completed and could have been avoided with proper investigation and response: on the basis of this testimony, the Court deemed this a matter for resolution by jurors charged with analyzing material conflicts in evidence.