Re: 10/3/01 - [CGYC] Carnegie International Receives Favorable Rulings in $2.1 Billion Suit vs. Grant Thornton
SOURCE: Carnegie International Corporation
Carnegie International Receives Favorable Rulings in $2.1 Billion Suit vs. Grant Thornton
Grant Thornton Motion to Dismiss Denied
BALTIMORE--(BUSINESS WIRE)--Oct. 3, 2001-- Trial Set to Begin October 16 in Circuit Court for Baltimore City
Grant Thornton Criticized for Deliberate Destruction of Documents
Carnegie International Corporation (OTC BB: CGYC - news), an Internet support and computer telephony holding company, said today that it has received ``favorable rulings'' in connection with its $2.1 billion lawsuit against Grant Thornton LLP, its former auditor and accountant.
Lowell Farkas, president of Carnegie, said that Judge Kaye A. Allison of the Circuit Court for Baltimore City, the judge specially assigned to conduct all proceedings in the litigation, issued a ruling yesterday denying Grant Thornton's Motion to Dismiss the suit which Carnegie initiated 16 months ago (see ``Carnegie International Corporation Files $2.1 Billion Suit Against Grant Thornton, LLP for Fraud, Negligence and Defamation,'' Business Wire, May 23, 2000). The case is scheduled to go to trial beginning Tuesday, October 16, 2001.
Farkas said that Grant Thornton filed its Motion to Dismiss Carnegie's claims in the Fall of 2000, with briefs filed and the Motion argued before Judge Allison in February 2001. The Motion, he said, sought dismissal of all but one of Carnegie's claims against Grant Thornton, specific dismissal of Carnegie's requests for punitive damages, and restriction as to the types of proof of compensatory damages which Carnegie might produce at trial.
Carnegie's Farkas said that in her ruling on the Motion, Judge Allison permitted all but one of Carnegie's seven claims to proceed to trial, including claims for Malpractice (Negligence), Fraud, Breach of Trust, Fee Gouging, Interference with Business Relations and Fraudulent Inducement.
Farkas also said that the one count which Judge Allison dismissed Carnegie's claim against Grant Thornton for breach of contract, was apparently dismissed because Judge Allison agreed with Grant Thornton's argument that Carnegie's malpractice claims included Carnegie's claims for breach of contract.
Claims for Punitive Damages Remain
Farkas said that Judge Allison's order left standing Carnegie's claims for punitive damages in connection with Carnegie vs. Grant Thornton, including charges of fraud, intentional interference with business relations and breach of trust. In its complaint and suit, he said Carnegie requested compensatory damages of $600 million and punitive damages of $1.5 billion.
He also said that Judge Allison declined to rule at this time on the measure of Carnegie's compensatory damages. Farkas said that in pleadings filed by Grant Thornton, the former auditor, complained to the trial judge about Carnegie's potential proof, at trial, of compensatory damages totaling from $195.3 to $476.9 million. Attached to its Motion, Carnegie included an expert report issued by David Tabak, PhD, an economist affiliated with National Economic Research Associates (N/E/R/A), who was hired by Carnegie's counsel. Dr. Tabak's was that Carnegie had suffered compensatory damages of $195.3 to $476.9 million.
Farkas said that Grant Thornton had also complained that Carnegie intended to use proof of lost market capitalization as one aspect of its proof of damages at trial. He said the judge left for trial any decision on the admissibility of such proof of damages through use of evidence of lost market capitalization. Grant Thornton did not complain about the portion of Dr. Tabak's report which set forth his conclusion that Carnegie suffered damages of $195 to $260 million based upon a straightforward analysis of the cash flow that Carnegie would have realized from only two lost business opportunities. Farkas said that Carnegie expects at trial to introduce additional lost business opportunities.
Farkas said that with the exception of their individual claims for defamation, the judge had dismissed the individual claims asserted by Carnegie Chairman E. David Gable and himself.
In a separate opinion, also issued on October 2, Farkas said that Judge Allison ruled on Carnegie's Motion for a Default Judgment, filed on July 25, 2001 (see ``Carnegie International Corporation Seeks Default Judgment in $2.1 Billion Suit vs. Grant Thornton, LLP,'' Business Wire, July 31, 2001). In that Motion, Carnegie complained that Grant Thornton personnel had intentionally destroyed relevant documents, even though they were aware that litigation was imminent. The only relief which Carnegie sought was a default judgment.
Farkas said that while Judge Allison denied Carnegie's Motion for Default, noting that Carnegie ``has not requested that this court consider an alternative sanction,'' the judge had specifically found that Mike Starr, Grant Thornton's National Director of Assurance (the company's auditing function), had ``freely admitted during deposition that he deleted from his computer e-mails relating to Carnegie as well as other notes and communications relating to Carnegie that may have been on his computer.'' Farkas said that the opinion rendered by Judge Allison's continued to state that ``not only could the evidence deleted by Starr reasonably lead to the discovery of admissible evidence, it could actually be admissible evidence.''
He said that the trial judge rejected Grant Thornton's argument that, at the time Starr deleted documents and e-mails from his computer, he ``had no knowledge that litigation was imminent,'' stating that ``these contentions are not supported by the evidence before this court.'' Farkas said that in summarizing evidence presented, the court commented on Starr's prior involvement with Grant Thornton litigation, in his capacity as National Director of Assurance, a position which included supervision of quality assurance. He said that the court had also noted that Starr had been Grant Thornton's Director of Risk Management, a position that Starr himself said involved handling litigation.
Farkas said Judge Allison's opinion also stated that Starr was ``intimately involved with the Carnegie matter,'' and that he had ``detailed knowledge of the audits in question, as well as the shareholder suit against Carnegie. Judge Allison said that it was clear that Starr had knowledge that a lawsuit against Grant was imminent when he deleted his computer files,'' he said, ``and that Starr was ''familiar with the signs and `red flags' that precede litigation against Grant . . .``
He said that finding these events, taken together, ``were sufficient to put Starr on notice that a lawsuit was imminent,'' Judge Allison held that ``Starr's intentional deletion of the files resulted in a violation of the [Maryland] discovery rules.''
Farkas said that Grant Thornton has filed several other pre-trial motions, including a request to delay the start of trial. The Judge, he said, has rejected similar requests to delay the start of the trial at a hearing, and has scheduled hearings on several outstanding pre-trial motions for Wednesday, October 10, 2001.
Farkas also said that in related proceedings, in the United States District Court for the District of Maryland, Carnegie has sought federal court approval of a settlement reached between Carnegie and certain shareholders who commenced class action litigation against Carnegie in June and July 1999. That settlement was reached in September 2000. In April 2001, Grant Thornton objected to the settlement, claiming that it failed to comply with the ``bar order'' provisions of the Private Securities Law Reform Act of 1995 (``PSLRA''). Grant Thornton claimed that the PSLRA's provisions concerning ``bar orders'' require that the federal court enter an order which would, in effect, prevent Carnegie from making any claim for damages against Grant Thornton in the Maryland state court litigation based upon any alleged loss in Carnegie's market capitalization. Carnegie and the shareholder plaintiffs (who also sued Grant Thornton) have asserted that the PSLRA imposes no such requirement and that, consistent with other courts that have rejected such contentions, the federal court should determine that the ``bar order'' provisions of the PSLRA do not prevent injured companies, like Carnegie, from suing their former auditors in state court proceedings.
United States District Judge Benson Legg has now scheduled a hearing on Grant Thornton's objections to the Carnegie-shareholder settlement for Friday, October 5, 2001, at 2:00 p.m.
Carnegie Chairman Gable ``Pleased With Rulings''
E. David Gable, Carnegie's chairman, said that ``he and the company are pleased with Judge Allison's rulings. All of Carnegie -- management, staff and shareholders -- looks forward to proving this case in state court later this month,'' he said.
Gable also expressed his gratitude to the attorneys representing Carnegie in the state and federal court litigation. Carnegie is represented in the Maryland Circuit Court action against Grant Thornton by nationally prominent attorney Willie Gary, of Gary, Williams, Parenti, Finney, Lewis McManus, Watson and Sperando, together with William H. Murphy Jr., of William H. Murphy & Associates, and D. Christopher Ohly of Blank Rome Comisky & McCauley, LLP. Carnegie has been represented in the federal shareholder litigation since July 1999 by Blank Rome's Baltimore office.
The complete text of Judge Allison's rulings will be available on Carnegie's Web site (www.carnegieint.com) starting tomorrow.
About Carnegie International Corporation
Carnegie International Corporation is an Internet support and computer telephony holding company with specialization in telecommunications products, services and distribution, and in E-Commerce and EDI.
Private Securities Litigation Reform Act of 1995 provides a ``safe harbor'' for forward-looking statements. Certain information included in this Press Release (as well as information in oral statements or other written statements made or to be made by Carnegie International Corporation) contain statements that are forward-looking, such as statements relating to the future anticipated direction of the telecommunications industry, plans for future expansion, various business development activities, planned capital expenditures, future funding sources, anticipated sales growth, and potential contracts. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of Carnegie International Corporation. These risks and uncertainties included, but are not limited to, those relating to development and expansion activities, dependence on existing management, financing activities, domestic and global economic conditions, change in Federal or state laws, and market competition factors.
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Contact:
Carnegie International Corporation
Lowell Farkas, 410/785-7400
lfarkas@carnegieint.com
or
The Kaminer Group
David A. Kaminer, 914/684-1934
dkaminer@kamgrp.com
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