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Arthur Andersen & Co. v. Perry Equip. Corp.

Supreme Court of Texas

March 19, 1996, Argued ; May 16, 1997, Delivered

No. 95-0444


 [*813]  JUSTICE CORNYN delivered the opinion for a unanimous Court.

We withdraw our opinion of January 10, 1997, and substitute the following in its place. The parties' motions for rehearing are overruled.

 [*814]  In this accounting malpractice case, Perry Equipment Corporation (PECO) sued the accounting firm of Arthur Andersen for a faulty audit, which PECO relied on to purchase another company, Maloney Pipeline Systems. The audit favorably reported Maloney's financial condition when, in fact, the company was suffering substantial losses. Fourteen months after the sale, Maloney filed for bankruptcy. PECO sued for violations of the Deceptive Trade Practice Act, fraud, negligence, negligent misrepresentation, gross negligence, and breach of implied warranty. Based on the jury's verdict, the trial court rendered judgment for [**2]  PECO. The court of appeals affirmed. Arthur Andersen & Co. v. Perry Equip. Corp., 898 S.W.2d 914 (Tex. App.--Houston [1st Dist.] 1995).

We address three issues presented by Arthur Anderson's application for writ of error. First, Arthur Andersen challenges PECO's consumer status because Maloney, rather than PECO, actually paid for the audit. Second, Arthur Andersen claims that the trial court failed to instruct the jury on the correct measure of damages. Third, Arthur Andersen contests the attorney's fees award, arguing that the percentage of recovery method is not a proper measure of attorney's fees under the DTPA, and that even if such fees were recoverable, no evidence supports the award. For the reasons discussed below, we reverse the judgment of the court of appeals and remand this case to the trial court for further proceedings.

When PECO, a successful manufacturer of oil filters used in compressors for gas pipelines, decided to expand its business into the gas metering field, it looked into acquiring Maloney Pipeline Systems, one of three United States companies in the liquid metering market. In the mid-1980s, PECO began negotiating with Maloney's owner, Ramteck II. As a condition of the sale, PECO required an audit of Maloney's financial [**3]  statements. Maloney retained Arthur Andersen to conduct the audit. Maloney eventually provided PECO financial statements audited by Arthur Andersen. The statements showed Maloney to be a profitable business. Relying upon this information, on August 23, 1985, PECO purchased the Maloney stock from Ramteck II, Inc. for $ 4,088,237.

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945 S.W.2d 812 *; 1997 Tex. LEXIS 47 **; 40 Tex. Sup. J. 591



This Opinion Substituted on Overrule of Parties' Motion for Rehearing for Withdrawn Opinion of January 10, 1997, Previously Reported at: 1997 Tex. LEXIS 6.

Disposition: Reversed and remanded.


damages, audit, consumer, attorney's fees, misrepresentation, contingency fee, losses, purchase price, time of sale, contracts, consequential damages, direct damage, trial court, recoverable, stock, actual damage, factors

Commercial Law (UCC), Subject Matter, Definitions, General Overview, Contracts Law, Personal Property, Personalty Leases, Torts, Business Torts, Fraud & Misrepresentation, Antitrust & Trade Law, Consumer Protection, Deceptive & Unfair Trade Practices, Types of Contracts, Lease Agreements, Business & Corporate Compliance, Sales of Goods, Performance, Types of Commercial Transactions, Trade Practices & Unfair Competition, State Regulation, Remedies, Damages, State Regulation, Types of Damages, Compensatory Damages, Measurements, Application & Construction, Damages, Civil Procedure, Jury Trials, Jury Instructions, Elements, Causation, Intervening Causation, Unfair Business Practices, Remedies, Costs & Attorney Fees, Attorney Fees & Expenses, Reasonable Fees, Special Proceedings, Class Actions, Compromise & Settlement, Legal Ethics, Client Relations, Attorney Fees, Contingency Fees, Class Attorneys, Fees, Excessive Fees, Claims