Audit firm Grant Thornton had prepared financial reports for use by the board of directors of First National Bank of Keystone (Keystone) in response to an investigation by the Office of the Comptroller of the Currency (OCC) that raised questions about the value of Keystone’s loan portfolio. Stan Quay, a partner at Grant Thornton, was in charge of the 1998 audit. On March 24, 1999, Quay presented several members and prospective members of Keystone’s board and Keystone’s shareholders with draft copies of Keystone’s 1998 financial statements and told them that Keystone was going to get an unqualified or “clean” audit opinion on its 1998 financial statements.
In April 1999, and despite the fact that Keystone was in fact insolvent at the end of 1998, Grant Thornton issued a clean audit report for Keystone. The audit report contained the following statement: “This report is intended for the information and use of the Board of Directors and Management of The First National Bank of Keystone and its regulatory agencies and should not be used by third parties for any other purpose.”
Gary Ellis, a president of another bank, was being recruited in early 1999 by the Keystone board to take the president’s position at Keystone. Following the Keystone board meeting on March 24, 1999, Ellis met Quay and two other outside directors at a bar at the Fincastle Country Club. Quay spoke with Ellis and the two outside directors because Keystone did not have a chief financial officer, thus making Quay the only person capable of going over the financial statements with the others. At the country club, Quay told Ellis and the two outside directors that Keystone was going to receive a “clean [audit].” Ellis also attended the March 25, 1999, shareholders’ meeting at which Quay informed the group that Grant Thornton was going to give Keystone a clean audit opinion for 1998. On March 30, 1999, Ellis visited Keystone. During this visit, Quay told Ellis once again that Keystone would receive a clean audit opinion for 1998.
Ellis signed a two-year contract at a base salary of $375,000 plus benefits, including the use of a corporate vehicle and a country club membership. He also purchased $49,500 in Keystone stock. By September 1999, Keystone Bank was closed. Ellis filed suit against Grant Thornton. The district court ruled in favor of Ellis on his negligent misrepresentation claim and found that he was entitled to $2,419,233 in damages. Grant Thornton appealed. Is this verdict correct? Explain why or why not Grant Thornton is liable for the loss of the job. [Ellis v. Grant Thornton LLP, 530 F.3d 280 (4th Cir. 2008)]