Opinion ID: 2226595
Heading Depth: 1
Heading Rank: 16

Heading: Failure to Discover Inadequate Internal Accounting Controls

Text: In a similar manner, Coopers & Lybrand also argues that its failure to detect weaknesses in World Radio's internal accounting controls was not the proximate cause of World Radio's alleged damages. Coopers & Lybrand contends that it was World Radio's actual financial condition in 1984 and 1985, along with other multiple intervening causes, that led to its demise and eventual bankruptcy. In support for its position, Coopers & Lybrand points out that World Radio rebounded from any adverse consequences flowing from the failure to discover World Radio's inadequate internal accounting controls, as evidenced by increased sales in the 1986-87 period. In addition, Coopers & Lybrand asserts that World Radio, as well as the electronics industry in general, changed dramatically in the mid to late 1980's. The evidence adduced at trial demonstrates that World Radio made significant changes in its management team after the termination of Riha. In 1984, Ballinger was hired as World Radio's vice president of merchandising. At Ballinger's request, World Radio reduced prices, increased sales commissions, and introduced an entirely new product line in the form of extended warranty contracts. Ballinger also changed World Radio's product mix from 10 percent video and 90 percent audio to 46 percent video and 54 percent audio. At the same time, the electronics industry experienced an overall increase in competition. This increase in competition infiltrated several of World Radio's markets in Iowa and the Kansas City area. As a result, World Radio eventually closed its stores in Kansas City, suffering a loss of $575,000. In a management memorandum dated March 29, 1988, Northwall and Ballinger wrote that the fiscal losses of 1988 can be directly attributed to operating in unprofitable markets, excessive compensation for selected employees, and disagreements over strategic plans for the future. According to Coopers & Lybrand, it was these events and occurrences, and not Coopers & Lybrand's failure to detect World Radio's inadequate internal accounting controls, that led to World Radio's financial ruin. Concerning issues of proximate cause, we have stated that [a] plaintiff is not bound to exclude the possibility that the [event] might have happened in some other way, but is only required to satisfy the jury, by a preponderance of the evidence, that the injury occurred in the manner claimed. Vredeveld v. Clark, 244 Neb. 46, 51, 504 N.W.2d 292, 296 (1993). As set out extensively in section II(2), World Radio offered evidence that Coopers & Lybrand's failure to discover World Radio's inadequate internal accounting controls prohibited Arthur Young from preparing an income statement for World Radio as of June 1, 1985. This, in turn, prohibited World Radio from obtaining credit from its bank and suppliers, resulting in World Radio's inability to purchase additional inventory and new product lines. The testimony also showed that World Radio's lack of financial statements during this period hindered its ability to open new retail locations. Ballinger testified that these problems persisted as long as World Radio was in business and that World Radio was never able to recover. Finally, World Radio presented evidence that had Coopers & Lybrand informed it of inadequate internal accounting controls at any time after 1982, those problems would have been corrected. The issue of proximate cause, in the face of conflicting evidence, is ordinarily a question for the trier of fact. Mid Century Ins. Co. v. City of Omaha, 242 Neb. 126, 494 N.W.2d 320 (1992). The record before us clearly contains conflicting evidence regarding proximate causation. Whereas some evidence and testimony indicated that World Radio's financial problems were caused by an increase in competition and bad managerial decisions, other testimony stated that Coopers & Lybrand's failure to detect the weaknesses in World Radio's internal accounting controls caused an irreparable decrease in World Radio's profits and value. Accordingly, the trial court correctly submitted the issue of proximate cause to the jury.