Case Title: Lundeen v. Pricewaterhouse Coopers

Citation: 

Docket Number: 508, 2006

State: delaware

Court: Delaware Supreme Court

Date: 2007-03-05T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
ARTHUR (GREG) LUNDEEN, III, § 
RICHARD FRENCH, and 
 
§ 
No. 508, 2006 
JAMES M. CHAMBERLAIN,  
§ 
 
 
 
 
 
 
 
 
 
 
 
§ 
 
Plaintiffs Below,   
 
§ 
Appellants.  
 
 
§ 
Court Below:  Superior Court 
 
 
 
 
 
§ 
of the State of Delaware in and 
 
 
 
 
 
§ 
for New Castle County 
v. 
 
 
 
 
 
§ 
 
 
 
 
 
 
§ 
PRICEWATERHOUSE COOPERS, § 
C.A. No. 04C-03-200 
 
 
 
 
 
 
§ 
 
 
Defendant Below,  
 
§ 
 
Appellee. 
 
 
 
§ 
 
 
 
 
 
 
§ 
 
Submitted:  December 19, 2006 
   Decided:  March 5, 2007 
 
Before HOLLAND, BERGER and RIDGELY, Justices. 
O R D E R 
(1)  
Appellants Arthur Lundeen, III, Richard French and James Chamberlain 
appeal the Superior Court’s grant of summary judgment in favor of Appellee 
Pricewaterhouse 
Coopers, 
LLC 
(“PwC”) 
in 
this 
action 
for 
negligent 
misrepresentation.  Appellants make three arguments on appeal.  First, Appellants 
contends that the trial court should have granted their motion to amend their expert’s 
report after discovery period had expired.  Second, they contend that the trial court 
should not have granted summary judgment because a genuine issue of material fact 
 2
did exist.  Finally, Appellants contends that the trial judge erred by not considering 
affidavit of a lay witness.  Because these arguments lack merit, we affirm. 
 
(2)  
This case arose out of the sale of Appellants’ company, Consolidated 
Reprographics, Inc. (“CR”), to Lason, Inc. in 1998.  In determining whether to sell 
the company, the Appellants claim to have relied upon Lason’s Annual Report and 
10-K as well as the audited financial statements accompanying those reports for the 
year ending 1997.  Pursuant to the sales agreement, CR received approximately $30 
million in cash, $6 million in Lason stock, and deferred “earnout payments.”  These 
earnout payments were based on CR’s performance and would be paid by Lason.  On 
December 5, 2001, Lason filed for bankruptcy and, as a result, Appellants could not 
receive the full amount of the earnout payments. 
 
(3)  
A special committee was formed by Lason’s Board of Directors in July 
2000 to investigate Lason’s possible accounting irregularities.  In March 2001, Lason 
announced in a Form 8-K that it informed the SEC and U.S. Attorney of certain 
accounting irregularities that affected portions of Lason’s third quarter 1999 financial 
statements and that those irregularities “may go back to late 1997.”  The special 
committee never concluded that Lason’s 1997 financial statements were affected and 
Lason never restated its 1997 financial statements. 
 3
 
(4)  
Two other companies filed similar actions in the Superior Court.1  In the 
Carello action, the plaintiffs contended that PwC made negligent misrepresentations 
in Lason’s 1997 and 1998 financial statements.  This action resulted in a settlement.  
In the Coleman action, the Superior Court granted summary judgment in favor of 
PwC.  This action was based solely on misstatements in Lason’s 1997 financial 
statements.  The plaintiff’s expert witness, Bennett Goldstein, was unable to identify 
with specificity any material misstatement in Lason’s 1997 financial statements.  
Instead, he merely hypothesized as to a possible understatement of intangible asset 
amortization expense. 
 
(5)  
The record before the trial court in this case is the same as the record in 
the Carello and Coleman actions, with the addition of a few additional items of 
evidence.  Those additions include: a supplemental expert report from Mr. Goldstein, 
new deposition testimony from Mr. Goldstein regarding the “hypothetical” he gave in 
the Coleman action, a March 11, 2002 Letter from PwC to the SEC concerning 
misstatements of Lason’s 1997 financial statements, and an affidavit from two of the 
Appellants, stating that PwC would not have advised Lason to inform users not to 
rely on the 1997 financial statements if they had not included misstatements.2  It is 
                                          
 
1 Carello v. Pricewaterhouse Coopers, LLP, 2002 WL 1454111 (Del. Super.); Coleman v. 
Pricewaterhouse Coopers, LLC, 2005 WL 1952844 (Del. Super.), aff’d, 902 A.2d 1102 (Del. 2006). 
2 Lundeen v. Pricewaterhouse Coopers, LLC, 2006 WL 2559855 (Del. Super.). 
 4
the admissibility of the expert report and deposition as well as the affidavit of one of 
the Appellants that forms the bases for this appeal. 
 
(6)  
On March 11, 2002, PwC submitted a letter with the SEC concerning 
Lason’s financial statements.  That letter read, in relevant part: 
 
As disclosed in the March 23, 2001 Form 8-K and again in the February 
21, 2002 Form 8-K, Lason management reported that a Special 
Committee found evidence of accounting irregularities and deficiencies 
in the Company’s accounting systems which affected certain of the 
Company’s financial statements, and the affected financial statements 
may go back to 1997.  We requested that Lason management include an 
explicit statement in the February 21, 2002 Form 8-K, that the March 26, 
2001 press release and related 8-K effectively advised users and 
potential users that they should not rely on the quarterly and annual 
financial statements and our audit reports thereon for 1997 through 1999.  
Lason advised us that they believed such a statement was unnecessary. 
 
 
(7)  
On June 14, 2005, more than six months after the expert discovery 
deadline, the Appellants sought to amend the report of Mr. Goldstein.  This new 
report included Mr. Goldstein’s opinion that there were material misstatements in 
Lason’s 1997 financial statements.  This report was excluded because it was 
submitted well outside the deadline for expert discovery. 
 
(8)  
Mr. Goldstein also testified at a deposition on June 22, 2005.  In this 
deposition, he stated that the “hypothetical” he referred to in past reports was no 
longer hypothetical.  Because this opinion was based on the expert report that was 
excluded, the trial court refused to consider this testimony. 
 5
 
(9)  
Finally, the Appellants sought to introduce two affidavits that stated that 
PwC would not have advised Lason to inform users of possible misstatements in the 
1997 financial statements if there was not, in fact, a misstatement.  The trial court 
refused to consider these affidavits because neither deponent had personal knowledge 
of the Letter, nor were they offered as expert witnesses.3 
 
(10)  Appellants first argue that the trial court abused its discretion by denying 
them the opportunity to supplement their expert report.  We review pretrial discovery 
rulings for abuse of discretion.4 
 
(11)  Appellants contend that Mr. Goldstein’s opinion changed after learning 
about the existence and contents of the March 11, 2002 Letter and a related email 
from a PwC partner, Ms. Dunn.  They further claim that they did not learn about the 
Letter and email until after the expiration of the expert discovery deadline and the 
cause of their late discovery was PwC.  PwC responds that Appellants could have, 
and should have, found those documents earlier, making it possible for their expert to 
review and make a report before the expiration of the expert deadline.   
 
(12)  The Superior Court found that Appellants did not demonstrate good 
cause to allow for a supplemental expert report after the expert report period had 
                                          
 
3 Lundeen, 2006 WL 2559855, at *8. 
4 Coleman v. Pricewaterhouse Coopers, LLC, 902 A.2d 1102, 1106 (Del. 2006) (“Judicial 
discretion is the exercise of judgment directed by conscience and reason, and when a court has not 
exceeded the bounds of reason in view of the circumstances and has not so ignored recognized rules 
of law or practice so as to produce injustice, its legal discretion has not been abused.”). 
 6
expired.  “Good cause is likely to be found when the moving party had been diligent, 
the need for more time was neither foreseeable nor its fault, and refusing to grant the 
continuance would create a substantial risk of unfairness to that party.”5  The trial 
court found that PwC did not wrongfully withhold these documents from the 
plaintiffs.  In addition, the trial court noted at oral argument that “[t]his case and the 
related Coleman case have been marked by such extensive rule and practice 
noncompliance by the plaintiffs.”6  The March 11, 2002 Letter was publicly on file 
with the SEC.  Indeed, the Appellants “utilized the SEC publicly-available documents 
in connection with this case,” but apparently did not notice the March 11, 2002 
Letter.  We find no abuse of discretion by the Superior Court in denying Appellants’ 
motion to supplement. 
 
(13) Appellants next argue that the trial court erred by granting summary 
judgment because there is a genuine issue of material fact as to whether there was a 
material misstatement in Lason’s 1997 financial statements.  We review the grant of 
summary judgment de novo.7  
                                          
 
5 Id. at 1107.  
6 The trial court gave the Appellants an opportunity to support their claim that the email was 
wrongfully withheld, but they were unable to do so.  Id. 
7 Stroud v. Grace, 606 A.2d 75, 81 (Del. 1992). 
 7
 
(14)  Appellants claim that the March 11, 2002 Letter provides a genuine 
issue of material fact with regard to a material misstatement.8  The trial court 
disagreed; concluding that the letter simply states that the 1997 financial statements 
may be misstated, not that it does, in fact, include material misstatements. 
 
(15)  The March 11, 2002 Letter is not, as Appellants suggest, an admission.  
The letter simply states that the 1997 financial statements may be misstated; it does 
not state that those statements were in fact misstated.  In addition, Richard Muir, the 
PwC partner who approved the Letter, testified that it did not constitute an admission 
that the 1997 financial statements contained errors.  Indeed, he testified that if it did 
contain misstatements, Generally Accepted Accounting Principles (“GAAP”) 
requires a restatement of the financial statements.  No restatement occurred in this 
case.  The Appellants have not set forth any record evidence to support their claim 
that Lason’s 1997 financial statements were misstated.  The mere possibility of 
misstatement is insufficient to withstand a motion for summary judgment.9  The 
Superior Court did not err when it granted summary judgment in this case. 
                                          
 
8 After concluding that the expert report could not be supplemented to include Mr. Goldstein’s new 
opinion, the only real difference between this case and Coleman is the March 11, 2002 Letter.   
9 Rochester v. Katalan, 320 A.2d 704, 708 n.7 (Del. 1974) (“It is fundamental that a motion for 
summary judgment must be decided on the record presented and not on evidence potentially 
possible”); Trenwich Am. Litig. Trust v. Ernst & Young, LLP, 906 A.2d 168, 216 (Del. Ch. 2006) 
(“The Litigation Trust does not identify a single violation of generally accepting accounting 
principles or any other specific material misstatement of financial fact in the relevant financial 
statements. All that the complaint alleges is that the financial statements were false in some 
unspecified way.). 
 8
 
(16)  Lastly, Appellants argue that the Superior Court erred when it refused to 
consider the affidavit of Richard Coleman.  Specifically, Appellants claim that 
Coleman was testifying not as an expert, but as a fact witness.  The problem with 
Appellants argument is that Coleman has no personal knowledge of the March 11, 
2002 Letter or of PwC’s practices when the letter was sent.  Instead, he attempts to 
base his opinion on the practices of Price Waterhouse, PwC’s predecessor, when he 
worked for the firm in 1974.  Because Coleman cannot testify from personal 
knowledge as to the reasons supporting PwC’s instruction to Lason to advise users to 
not rely on the 1997 financial statements, the Superior Court properly excluded his 
affidavit. 
NOW, THEREFORE, IT IS ORDERED that the judgment of the Superior 
Court is AFFIRMED. 
BY THE COURT: 
 
 
 
 
 
 
/s/Henry duPont Ridgely 
 
 
 
 
 
 
Justice