Question

Piece Goods Shops Company, L.P., hired Price Waterhouse LLP to audit its 1992 financial statements. Piece Goods forwarded the audited 1992 financial statements to Marcus Brothers Textiles, Inc., which made several extensions of credit to Piece Goods up to April 1993 in reliance on the 1992 balance sheet. When Piece Goods filed for bankruptcy in April 1993, Piece Goods owed Marcus Brothers almost $300,000. Marcus Brothers sued PW for negligent misrepresentation under state law on the grounds PW negligently conducted the audit of the 1992 financial statements, which Marcus Brothers alleged contained several material misstatements. PW moved to dismiss the case on the grounds that PW did not know that Marcus Brothers would be using the financial statements to make credit extension to Piece Goods. Marcus Brothers produced evidence that PW had been Piece Goods's auditor since 1986. A PW internal memo stated that PW had historically reported on Piece Goods's financial statements and that its vendors were accustomed to receiving those financial statements. A PW audit partner signed a memo stating that some of PW's audit clients typically provided their audited financial statements to their trade creditors in reference to obtaining loans or extensions of credit. An audit manager who oversaw the audit of Piece Goods's 1992 financial statements testified that audited financial statements are used by management of the company and possibly outsiders and that such outsiders could include trade creditors such as Marcus Brothers. Piece Goods's bankruptcy filing revealed that 43 of its trade creditors had received the audited 1992 financial statements. Under the Restatement (Second) of Torts, is Marcus Brothers a proper plaintiff to whom PW owed a duty not to be negligent when conducting the audit?



$1.99
Sales0
Views93
Comments0
  • CreatedJuly 16, 2014
  • Files Included
Post your question
5000