On June 23rd, Florida’s Third District Court of Appeal overturned the largest jury verdict in history against a U.S. accounting firm and ordered a new trial.

Banco Espirito Santo sued BDO Seidman in 2004 over $170 million in losses that allegedly resulted from BDO’s negligence in failing to find fraud during its audits of E.S. Bankest, a company that Espirito Santo backed.

The jury issued its unprecedented award in 2007, which consisted of $170 million to compensate for Espirito Santo’s losses and a whopping $351 million in punitive damages. 

During the trial, BDO warned that losing just $170 million would force the company to layoff employees and endanger the company’s standing.  Being forced to pay three times that amount could cripple the company beyond the point of no return.

The appellate court overturned the exceptional jury award primarily because it found that the trial court erred in deciding to trifurcate the trial, which allowed the trial to be presented in three phases.  This unusual three-part trial allowed the jury to find BDO grossly negligent without considering the conduct of other actors. 

In its opinion, the appellate court wrote, “The cart cannot lead the horse” and “The jurors should have been allowed to consider all of the evidence...” as they decided on BDO’s conduct.  The court concluded, “We have carefully considered every substantive and procedural authority that might be applied to preserve at least some of the jury’s findings.  In this case, however, no such balm is found.”

Steven Thomas, lead counsel for Banco Espirito Santo said, “The evidence of BDO Seidman’s failures of even the most basic auditing procedures is so overwhelming that we expect a new jury will reach the same conclusion as the original jury.”

BDO CEO Jack Weisbaum said, “We are very pleased that the Appeals court has reversed the lower court verdict.  We have consistently stated that we were confident that the jury’s erroneous verdict in this case would be reversed on appeal.”

A new trial date has not yet been scheduled.