Special to The River City News via KY Forward
A Kenton County judge rendered perhaps the largest verdict in the history of the Commonwealth when she ruled Friday that Grant Thornton, one of the big four international accounting firms with 54 offices in the United States and 6,000 employees, breached a contract and committed fraud against Northern Kentucky businessman Bill Yung and his family. Judge Patricia Summe awarded compensatory damages in the amount of $19,315,227, and punitive damages in the amount of $80 million dollars, for a total award of $99,315,227.00, plus interest.
Kevin Murphy of the Ft. Mitchell law firm of Graydon Head & Ritchey sued Grant Thornton on behalf of Columbia Sussex owner Bill Yung and his family regarding tax advice which cost them millions of dollars in excessive tax, penalties, and interest, which carried a negative impact to the family’s business interests.
The Yungs asserted claims for fraud, professional negligence, and breach of contract.
In the late 90s, numerous accounting firms began selling “tax strategies,” and to clients which included an “opinion letter” about the legality of the tax strategy. The Yungs successfully argued that Grant Thornton was selling these products knowing that they were not legal and would not survive scrutiny by the Internal Revenue Service. Yet according to the lawsuit, Grant Thornton did not adequately inform their clients of these facts.
“Multiple families around the United States suffered greatly as a result of Grant Thornton’s actions. What they knew at the time they sold this “strategy,” and what they told their customers, were two very different things.” said Kevin Murphy, lead trial counsel for the Yungs. “It was unconscionable.”
Kenton Circuit Court Judge Patricia Summe was the decision maker in a seven week non-jury trial. In a 210-page opinion, Judge Summe said that Grant Thornton acted fraudulently in its position of trust with the Yungs, and that Grant Thornton’s e-mail correspondence and communications evidenced fraud.
Judge Summe also held that Grant Thornton made deliberate decisions to manipulate language in their communications and clearly misrepresented their work. Judge Summe said that their actions were done “intentionally through affirmative acts of misconduct” and “therefore, these actions can warrant a substantial penalty.”
Judge Summe also held that Grant Thornton’s actions were fraudulent by omission in what they failed to disclose to the Yungs. Judge Summe further held that Grant Thornton’s misconduct was not isolated to one incident, but continued not only from the beginning in July 2000, but also through the date of trial.
“Grant Thornton’s obvious and egregious repeated misconduct against the Yungs. . .occurring solely within the State of Kentucky is sufficient for a finding of describing reprehensibility.”
Several other major accounting firms, such as KPMG and the now defunct Arthur Andersen, failed in their attempts to sell similar tax strategies prior to Grant Thornton going to market with its “leveraged distribution” product. Both KPMG’s “Boss” (Bond Option Sales Strategy) and Arthur Andersen’s “Baby Boss” tax advice products were struck down by the Internal Revenue Service.
Murphy, along with attorneys Jeff Landen and Darren Ford, alleged on behalf of the Yungs that in spite of that knowledge, Grant Thornton continued to sell these opinions without advising their clients of previous unfavorable IRS decisions.
“We argued successfully that Grant Thornton had no business selling this product, knowing the previous position of the IRS when other accounting firms had previously tried and failed with this type of strategy.” said Kevin Murphy. “It was a long six-year battle against a multi-billion dollar per annum company. But the Yungs were steadfast and were able to do what so many of the other families around the country victimized by this wrongdoing could not do — fight until the end.”