U.S. judge blasts Benesch
A federal judge criticized the conduct of a Cleveland law firm as “utterly inexcusable” in a case involving accounting giant PricewaterhouseCoopers and its alleged destruction of documents.
The Cleveland firm, Benesch, Friedlander, Coplan & Aronoff, was excoriated by Judge Patrcia Hemann for acting in “bad faith” in failing to produce documents relating to PWC’s financial audit of Telxon Corp., the former Fairlawn-based maker of scanners and handheld computers.
In a report dated July 16, 2004, and released Tuesday, Judge Hemann said Benesch Friedlander, PWC and another law firm “know without warnings from this court what the penalties are for conducting discovery in bad faith — and must be deemed to know that their conduct in instant litigation has been utterly inexcusable.”
John Banks, chief operating officer of Benesch Friedlander, said Tuesday he was aware of Judge Hemann’s criticism of the law firm, but maintained that the firm and its lawyers have not done anything wrong. Mr. Banks said the firm and its lawyers adhere to the strict ethical codes and professional responsibilities required of all lawyers and law firms.
"We believe we've done that in this case, too," Mr. Banks said.
Beyond saying that Judge Hemann's report has been appealed, Mr. Banks declined to comment on the report in regard to her findings on PWC.
PWC, which is one of the nation's largest accounting firms and is based in New York, was ordered by the court to produce documents relating to the financial audits of Telxon for the years 1996 through 1999.
Telxon was acquired by Symbol Technologies Inc. of Holtsville, N.Y., in 2000
Telxon shareholders filed a 1998 lawsuit against PWC for accounting irregularities that allegedly occurred while PWC conductedTelxon’s financial audits. Telxon and its shareholders then filed another suit against PWC, alleging that the accounting firm was responsible for Telxon’s financial misstatements.
Judge Hemann found that PWC and its legal representatives resisted court orders to provide Telxon and the Securities and Exchange Commission with work papers, e-mails and all software used in its audits, despite repeatedly assuring the court that it had submitted all relevant materials.
“The only conclusion the court can reach is that PWC and/or its counsel engaged in deliberate fraud or was so recklessly indifferent to their responsibilities as a party to the litigation that they failed to take the most basic steps to fulfill those responsibilities,” Judge Hemann wrote in her report.
“The magistrate judge has considered, but cannot recommend, any lesser sanction than the entry of default judgment against PWC,” Judge Hemann wrote.
Regardless, Judge Hemann’s recommendations are not binding.
U.S. District Judge Kathleen O’Malley will make the final decision in the case, but will take Judge Hemann’s statements into consideration.
PWC spokesman David Nestor issued a written statement saying that the firm disagrees with the Judge Hemann’s report.
“We have filed extensive objections with the district court to the magistrate judge's recommendation,” Mr. Nestor said. “We acknowledge an error in discovering and producing documents in the litigation later than that should have occurred. At the same time, we believe that our objections to the magistrate judge's recommendation are well-founded.”
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