Injuries claimed: Lost loan value and interest/penalties
Court: Dane County Circuit Court
Case name: American Trust and Savings Bank v. Philadelphia Indemnity Insurance Company, Bremser, Schommer & McHugh CPA’s LLC, Bremser Group Inc
Case number: 07CV1175
Judge: Honorable Amy R. Smith
Verdict & settlement: For the plaintiffs
Date of incident: 2003, 2004, 2005
Disposition date: The jury verdict was on Tuesday, November 3, 2009
Original filing date: April 4, 2007
Plaintiffs attorney (firm): Robert J. Kasieta, Kasieta Legal Group, LLC
Defendants attorney (firm): Coyne, Schultz, Becker & Bauer SC
Insurance carrier: Philadelphia Indemnity Insurance Company
Plaintiffs expert witnesses: Greg Junek, Chortek & Gottschalk
Defendants expert witnesses: Brian W. Mayhew, University of Wisconsin, Madison; James G. Johannes, University of Wisconsin, Madison
Noteworthy evidentiary issues: The question of what damages to submit to jury included whether to permit the bank to seek from the CPAs amounts for interest and penalties on loans lost when the CPA’s client entered receivership.
Plaintiff counsel’s summary of the facts: This case arises out of a commercial lending relationship between the Plaintiff bank, ATSB, and Shullsburg Creamery, Inc. (Shullsburg). The bank required Shullsburg to submit annual reviewed (and later, audited) financial statements from an independent certified public accountant. The bank relied on those financial statements in underwriting loans to Shullsburg.
Defendant Bremser entities are two certified public accounting firms that prepared financial statements upon which ATSB relied in lending to Shullsburg. The accountants’ insurer is also a Defendant. Beginning in fiscal year 2002, Shullsburg retained Bremser to perform the bank-mandated review.
Bremser issued two clean reviews and a clean audit for 2002 through 2004. Then, in 2005, Shullsburg became insolvent and sought receivership protection. Ultimately, the company’s assets were sold and the proceeds remitted to all of the company’s creditors. After the sale, however, ATSB still had loan losses exceeding $2 million, not including loss of income the bank would have earned from those loans.
The bank presented evidence at trial that each financial statement prepared by the accountants was materially false and inaccurate. Evidence showed that Shullsburg had no functional general ledger or other internal accounting systems. Without internal controls, there were no financials for defendants to review or audit. Still, they produced clean reviews and a clean audit.
Evidence showed that Defendants created internal accounting records themselves and reviewed or audited their own work. Documentation from the accountants’ files demonstrated that the accountants could not get the company’s books to balance so they entered false accounting entries or “plugs”, including one plug of more than $600,000. There was also evidence that the accountants misrepresented the company’s inventory value, falsely attested to Shullsburg’s compliance with Generally Accepted Accounting Principles (“GAAP”), manipulated bookkeeping entries to conceal Shullsburg’s losses, and falsified the sale of Shullsburg’s entire trucking fleet to conceal a massive operating loss in 2004.
Plaintiff called employees of the accountants as adverse witnesses in its case in chief. These employees admitted to various errors in their financial reporting that they had not previously admitted. The bank also offered testimony of a key employee of Shullsburg involved in the accounting, review, and audit performed by the Bremser entities. Carolyn Kuhle was hired as controller of Shullsburg in early 2005. She testified about the work that she did to create financial records and how Defendants manipulated those records to conceal Shullsburg’s dire condition.
Greg Junek, Plaintiff’s expert witness on accounting, audit, and review, explained to the jury how the financial statements were inaccurate and false and how the Bremser accountants failed to meet the standard of care for certified public accountants in Wisconsin.
Post-trial motions: Filed on Nov. 23, 2009
Length of trial: Seven days
Jury or bench: Jury