Setting a Precedent in Accounting Malpractice and Third-Party Liability
In one of the most significant accounting malpractice cases in Tennessee legal history, Attorney Mike Richardson represented Bethlehem Steel Corporation in a groundbreaking lawsuit against global accounting firm Ernst & Whinney (now Ernst & Young). This high-profile case would not only be tried twice by Mr. Richardson—but would also establish important legal precedent at the Tennessee Supreme Court level.
Background
Bethlehem Steel, a major steel producer, suffered substantial financial losses after extending credit to a customer who later filed for bankruptcy. Bethlehem relied heavily on the customer’s audited financial statements, which had been prepared and certified by Ernst & Whinney. After the bankruptcy, Bethlehem discovered that the audited statements had misrepresented the financial condition of the customer—omissions and inaccuracies that Bethlehem argued were the result of negligent auditing practices.
Believing that Ernst & Whinney had failed in their professional duty, Bethlehem Steel sought justice through legal action, claiming that they had relied on these financial documents in good faith and to their detriment.
The First Trial & Appeal
Mike Richardson took the case to trial and secured a jury verdict in favor of Bethlehem Steel. However, the victory was short-lived. The defendant appealed the verdict, and the appellate court reversed the decision. At the heart of the appeal was the question of whether auditors owed a legal duty to third parties—in this case, companies like Bethlehem that were not direct clients but had relied on the auditors’ published reports.
Landmark Decision at the Tennessee Supreme Court
Undeterred, Richardson took the case to the Tennessee Supreme Court, where his arguments helped establish new legal ground. In a historic ruling, the Court found that auditors can be held legally responsible to third parties who reasonably rely on their work product, such as audited financial statements, when that reliance results in harm. This decision marked a significant shift in professional liability law, expanding the scope of accountability for accounting firms and setting a legal precedent across the state and beyond.
Second Jury Trial – Victory Again
Following the Supreme Court’s ruling, the case returned to the trial court for a second jury trial. Once again, Mike Richardson presented a compelling case, and once again, the jury returned a verdict in favor of Bethlehem Steel. This second win not only reinforced the strength of the legal arguments but also solidified Mr. Richardson’s reputation as a relentless and highly skilled trial attorney.
Impact and Legacy
The Bethlehem Steel case stands as a powerful example of Mike Richardson’s dedication to justice and his ability to navigate and influence complex areas of the law. The case has been widely cited in legal circles and helped define the legal responsibilities of accounting firms to third parties—a testament to the far-reaching impact of thoughtful, fearless litigation.
This case wasn’t just a win in the courtroom—it was a win for fairness, accountability, and the advancement of legal protections for businesses who rely on the integrity of professionals.