Facts
- Oregon Steel Mills, Inc., a publicly traded company, retained Coopers & Lybrand, LLP (C&L) for accounting and auditing services over many years.
- In 1994, a subsidiary completed a stock sale; based on C&L’s advice, Oregon Steel reported the proceeds as a gain in its financial statements and C&L’s audit reports for 1994–1995.
- For purposes of summary judgment, C&L’s advice was assumed negligent and incorrect.
- In early 1996, Oregon Steel planned a public offering of stock (and related debt), expecting to price and sell on May 2, 1996.
- Shortly before the registration filing, C&L determined the 1994 transaction might have been reported improperly and refused to allow use of its audit reports unless the SEC approved the treatment.
- The SEC required Oregon Steel to restate its 1994 financial statements and revise the prospectus, delaying the offering more than six weeks to June 13, 1996.
- Oregon Steel’s stock traded at approximately $16 per share on May 2, 1996, and approximately $13.50 per share on June 13, 1996.
- Oregon Steel sought roughly $35 million in damages for allegedly lost proceeds attributable to the lower stock price (and higher interest rates) on the delayed offering date.
Issues
- Whether an accounting firm that negligently causes a client’s public offering to be delayed can be liable in negligence for lost offering proceeds measured by a decline in the market price of the client’s publicly traded stock, where the firm did not cause the market decline.
Decision
- The Oregon Supreme Court reversed the Court of Appeals and affirmed summary judgment for C&L.
- The court held that Oregon Steel could not recover damages measured by the stock-price decline during the delay.
- Although C&L’s negligence could be treated as a factual cause of the delay, the market-price drop was driven by independent market forces and was not within C&L’s legally cognizable responsibility.
Legal Principles
- Tort liability requires more than but-for causation; a defendant is liable only for harms sufficiently connected to the negligent conduct within the scope of legal causation.
- In professional-negligence claims, the scope of liability does not extend to losses based solely on general market movements that the professional did not cause, even if the negligence affected the timing of a transaction.
- Damages measured by fluctuations in a publicly traded stock’s market price during a delay are too contingent and indirect, as a matter of law, absent a causal link between the professional’s conduct and the market price change.
Conclusion
An accountant’s negligence that delays a client’s securities offering does not make the accountant liable for lost proceeds calculated from a subsequent market-driven stock-price decline, because the independent market movement is outside the accountant’s legal responsibility for negligence damages.