Case Title: Am. Natl. Bank v. Touche Ross & Co.

Citation: 1996-Ohio-192

Docket Number: 19942178

State: ohio

Court: Ohio Supreme Court

Date: 1996-02-07T00:00:00Z

Document:
American National Bank et al., Appellees, v. Touche Ross & Company; Arthur 
Young &  Company, Appellant. 
[Cite as Am. Natl. Bank v. Touche Ross & Co. (1995), Ohio St.3d ______.] 
Torts -- Negligence -- Comparative negligence law applicable to cases 
involving accountant negligence. 
 
(No. 94-2178 -- Submitted September 12, 1995 -- Decided February 7, 
1996.) 
 
APPEAL from the Court of Appeals for Cuyahoga County, Nos. 65836 
and 65837. 
 
Kathleen Evans embezzled over $3,200,000 from her employer, 
American National Bank (“ANB”), between 1981 and 1988.  ANB’s auditors 
during this period were Touche Ross & Co (“Touche Ross”) (1980-1984) and 
Arthur Young &  Company (“Arthur Young”) (1985-1987).  As ANB’s 
auditors, Touche Ross and Arthur Young audited ANB’s books and records 
and reviewed the financial statements that were otherwise compiled and 
prepared by bank management.  Arthur Young also prepared a “management 
letter”, designed to alert ANB’s management to any accounting or control 
 
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problems.  In these letters, Arthur Young stated that it perceived no weaknesses 
in ANB’s internal control system. 
 
The embezzlements were discovered in June 1988.  Evans and her 
husband, Edward, returned $1,200,000 of the embezzled funds and entered into 
a consent judgment with ANB to repay the other $2,000,000.  ANB agreed not 
to garnish the wages of the Evanses or to execute on the consent judgment 
unless the Evanses accumulated assets in excess of $10,000. 
 
ANB hired Laventhol & Horwath to review the work of Arthur Young 
and Howard, Wershbale & Co. to review the work of Touche Ross.  These 
reviewing auditors determined that Touche Ross and Arthur Young had been 
negligent in failing to detect the embezzlements and in failing to warn ANB of 
the inadequacy of its internal controls.  On April 4, 1989, ANB filed this suit 
against Touche Ross and Arthur Young alleging negligence.  On May 19, 
1989, H.R. Kopf and nine other ANB stockholders (collectively “Kopf”) filed 
suit in negligence against Arthur Young claiming that they had purchased ANB 
stock (in 1988) at least partially in reliance on Arthur Young’s representations 
 
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as to the integrity of ANB’s internal controls.  (Kopf and the other investors 
had invested in aggregate over $2,000,000.)  These two cases have been 
consolidated.  Touche Ross settled with ANB after which ANB dismissed with 
prejudice its claims against Touche Ross.  Touche Ross is no longer a party to 
this suit. 
 
Prior to trial, on February 19, 1993, ANB filed a motion in limine 
seeking to prevent Arthur Young from presenting evidence that ANB was  
negligent in failing to detect the embezzlements.  it appears from the record 
that Arthur Young intended to show that Evans’ personal checking account 
with ANB was overdrawn ninety-seven times and that ANB honored the 
overdraft on each occasion despite a policy to the contrary.  In addition, Evans 
never took two consecutive weeks of vacation even though bank policy 
required all employees to take two consecutive weeks of vacation.  These 
policies were specifically designed to ferret out and prevent fraud and 
embezzlement.  Further, Arthur Young intended to show that the management 
of ANB was aware that among other things Evans owned a $600,000 house and 
 
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drove a Maserati.  Arthur Young intended to show that such knowledge should 
have put the management of ANB on notice that Evans was living a lifestyle 
considerably beyond the means of her annual salary ($21,000 in 1987).  Arthur 
Young contends that these acts of negligence by ANB exacerbated the losses 
suffered by ANB and ought therefore to be considered by the trier of fact in 
apportioning fault and assessing damages.  The trial judge granted the motion 
in limine stating in part that “[e]vidence of the Bank’s own failure to detect the 
embezzlements [and] other conduct will be admitted as to the issue of 
proximate cause only.” 
 
Arthur Young moved for summary judgment claiming that the settlement 
of the suit against the Evanses extinguished ANB’s claim against Arthur 
Young and Kopf’s claim belonged to the bank and could not be pursued 
separately.  The trial court granted summary judgment as to ANB and Kopf.  
On August 18, 1994, the Court of Appeals for Cuyahoga County held that the 
trial court did not err in granting the motion in limine and reversed both grants 
 
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of summary judgment.  The only issue appealed to this court is whether the 
motion in limine was properly allowed. 
 
The cause is now before this court pursuant to the allowance of a 
discretionary appeal. 
__________ 
 
Ernst & Young LLP, Kathryn A. Oberly, General Counsel, and Thomas 
L. Riesenberg, pro hac vice, Assistant General Counsel, for appellant. 
 
Ulmer & Berne, Marvin L. Karp and Richard G. Witkowski, for 
appellees. 
 
Blaugrund, Sweeney, Gabel, Herbert & Mesirow, Steven A. Martin and 
Christopher B. McNeil, urging affirmance for amicus curiae, Ohio Society of 
Certified Public Accountants. 
 
PER CURIAM.  In Scioto Mem. Hosp. Assn., Inc. v. Price Waterhouse 
(1996), ____ Ohio St.3d ____, ____ N.E.2d ____, syllabus, decided today, we 
held that comparative negligence applies to cases involving accountant 
negligence.  In so doing, we rejected the National Surety rule (which in point 
 
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of fact we had never actually espoused).  The rule of National Surety bars the 
presentation of evidence of a client’s negligence, by an accountant defendant, 
unless the client’s negligence contributed to the accountant’s negligent audit or 
interfered with the accountant’s audit.  See Natl. Sur. Corp. v. Lybrand, (1939), 
256 A.D. 226, 235-236, 9 N.Y.S.2d 554, 563. 
 
American National Bank (“ANB”) filed suit against Touche Ross & 
Company and Arthur Young & Company alleging negligence as stated above.  
Prior to trial, ANB fled a motion in limine to prevent Arthur Young from 
introducing evidence that might tend to show negligence by the management of 
ANB.   The trial court granted this motion.  Given our holding in Scioto 
Memorail Hospital, the trial court’s action was error.  We therefore reverse the 
decision of the court of appeals affirming the decision of the trial court with 
respect to the motion in limine, and remand this matter to the trial court for 
further proceedings in accordance with this opinion. 
 
 
 
 
 
 
 
Judgment reversed 
 
 
 
 
 
 
 
and cause remanded. 
 
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MOYER, C.J., WRIGHT, RESNICK, F.E. SWEENEY and PFEIFER, JJ., concur. 
 
DOUGLAS AND COOK, JJ., dissent. 
 
COOK, J., dissenting.  The parties have appealed a preliminary ruling of 
the trial court, the ruling on a motion in limine.  Such is not a final appealable 
order and, therefore, is not a subject for review on appeal.  This appeal should 
be dismissed as having been improvidently allowed. 
 
DOUGLAS, J., concurs in the foregoing dissenting opinion.