“An en banc Superior Court panel has ordered a new trial in a case in which a western Pennsylvania trial judge awarded $102.7 million in 2003 to one of the owners of a property company identified as being at the center of a mid-1980s Ponzi scheme.” Two couples, Thomas and Barbara Reilly and Edward and Karen Krall, each jointly owned half the stock in Canterbury Village Inc., a property development that was oversold in what was later described as a Ponzi scheme that bilked thousands of investors. When Canterbury Village landed in bankruptcy proceedings, an Ernst & Young predecessor was called in to organize the books, which were in great disarray. According to a judge’s footnote, “the male halves of Canterbury Village’s two couple-owners pleaded guilty to criminal charges stemming from the Ponzi scheme.” Mr. Reilly served about four years on fraud and tax evasion charges. The eventual reorganization plan approved by the court barred the Reillys and Kralls from any stake in the emerging business entity.
The Reillys then proceeded to sue Ernst & Young, alleging that its report had contained inaccuracies which had injured their business interests. When the Reillys filed requests for admissions in support of their allegations, Ernst first missed a deadline to respond and then, granted a do-over, omitted to include a required verification from its lawyer. The judge in response deemed Ernst to have agreed to all the requested admissions — in effect, preventing the firm from contesting the key elements of the Reillys’ case. A verdict was then entered on behalf of Barbara Reilly that “included $34 million for her ownership interest in Canterbury Village — half of the $68 million appraised value — plus an additional $50,945,222 in interest, based on a rate of 6 percent per annum beginning in 1986, for a total compensatory damage award of $84,018,989. Yeager also awarded her $18.17 million in punitive damages for a total verdict of $102,718,989.” The appeals panel has now decided, however, that loss (in effect) of its right to mount a substantive defense is too harsh a sanction for Ernst’s procedural fumblings, so a retrial is on its way. (Asher Hawkins, “Retrial Ordered in Nine-Figure Fraud Case”, Legal Intelligencer, Jul. 27; Karen Kane, “Seven Fields developer faults Ernst & Young in lawsuit”, Pittsburgh Post-Gazette, Aug. 25, 2002).
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