On August 26, 2010, the Superior Court of New Jersey Appellate Division affirmed a jury's verdict holding KPMG LLP liable for malpractice and negligent misrepresentations. The complaint alleged that KPMG failed to detect a fraud at Papel Giftware Inc., a company it audited from 1997 through 1999, before its merger with Cast Art Industries, LLC in 2000. Although it affirmed the verdict on liability, the court ordered a new trial on the jury's award of approximately $32 million in damages (Decision).
In affirming the malpractice and negligent misrepresentations claims, the court found that plaintiffs, Case Art and its president and officers, presented sufficient evidence to support a finding that KPMG owed them a duty of care under the Accountant Liability Act, N.J.S.A. 2A:53A-25, by demonstrating that KPMG knew that its audits of Papel would be available to Cast Arts. Based on plaintiffs' expert testimony, the court also found that plaintiffs presented sufficient evidence to support the jury's finding that KPMG breached its duty of care. On the issue of proximate cause, the court refused to apply a loss causation test. Instead, it found that there was sufficient evidence to support a finding that KPMG's malpractice was a substantial factor in causing the failure.
Although the court concluded that Cast Art's value as of the day of the merger was an appropriate measure of plaintiffs' damages, it found that plaintiffs' proof, including reports provided by three individuals who were not identified as valuation experts before the trial, did not support the jury's damages reward. The court ordered a new trial specifically on the damages issue.