Micro Enhancement Case Summary

Facts of the Case: Micro Enhancement International (ME’) was a software development company that was on the about to have an IPO. They hired Coopers and Lybrand as the auditor. The IPO for MEI was delayed because Coopers and Lybrand were resisting some of MEI’S recognized revenue and were threating to add a “going concern” to the audit. In the end Coopers and Lybrand allowed MEI to recognize the evenue and took away the “going concern” qualification.

By the time the issue was settled MEI had lost the underwriter for the IPO and then went bankrupt shortly after. MEI sued Coopers and Lybrand for multiple things, but then wanted to add a breach of fiduciary duty. MEI’S CEO Staples said that, “he trusted Coopers and that Coopers had agreed to do the audit to do the Audit and to serve as MEI’S business advisor… ” The Judge denied this request and MEI appealed. Procedural History: The Judge denied MEI’S request to add the breach of fiduciary duty so MEI appealed. Legal Issue: The issue in this case is the establishment of Cooper and Lybrand’s fiduciary duty to ME’.

If this duty is established then MEI will get to add that breach, however, if not, the Judge’s original ruling will be affirmed. Reasoning/Analysis: The first thing is to understand what causes a fiduciary duty. There are two types, Matter of Law (between a attorney and client, physicians and patients, partners and partnerships, and close friends/relatives) or a Matter of Fact, which means that there is such a relationship that the party expects that his interest ill be cared for, and that they let their guard down.

An accountant giving financial, investment or tax advice would have fiduciary duty, which is what MEI was claiming. They claimed this and that when Coopers sent a representative to Mexico to “recommend” if A/R should be written off, that was them giving advice. MEI’S claim that they had trusted Coopers and Lybrand and that the partner did not have the needed expertise does not establish fiduciary duty. You need to prove (1) existence of a duty owed (2) breach of duty (3) resulting injury and (4) that the claimed breach roximately caused the injury, which MEI could not/did not do.

The Judge stands by the fact that the duty of a independent auditor is to the public and not the client. Rule of Law: There are no Washington cases that deal with the independent auditor having fiduciary duty. However, US v. Arthur Young & Co. , from 1984 shows that independent public auditors serving in the same capacity as Coopers have obligations beyond those of the client to those of the public. Also see RTC v KPMG Peat Marwick, which is similar. Holding : The case was attlrm ed, the Judge’s ruling was held