A West Virginia man who says his association with the failed First National Bank of Keystone cost him his banking career should be stripped of a $2.4 million damage award, a federal appeals court has ruled.
The 4th U.S. Circuit Court of Appeals opinion reverses a March 2007 ruling by U.S. District Judge David Faber in a lawsuit filed by Gary Ellis against auditing firm Grant Thornton LLP.
Ellis left a United National Bank branch to take a job as Keystone president in April 1999 after learning that Grant Thornton had given the bank a clean audit in a review of financial statements. His lawsuit said he relied not only on the audit report itself, but also on statements made by Grant Thornton partner Stan Quay at a shareholders meeting.
An investigation by the Office of the Comptroller of the Currency revealed that Keystone’s books overstated the value of its loans by more than $515 million. The McDowell County bank was declared insolvent and was closed in September 1999.
The Federal Deposit Insurance Corporation paid out $664 million to cover the bank’s collapse, making it one of the most expensive since the Great Depression. Several top bank officials were sent to prison on federal charges stemming from the fraud, the cover-up and the embezzlement of millions from the bank.
Ellis was not responsible for any of the fraudulent mortgage loan securitizations. His lawsuit alleged that his reputation was nevertheless so tainted that he couldn’t find another banking job. He sued Grant Thornton to recover lost earnings, alleging negligent misrepresentaions by Grant Thornton and Quay.
Faber ruled in Ellis’ favor, concluding that Grant Thornton, as Keystone’s auditor, was liable because it knew its erroneous report would be relied on by Ellis in making his decision to accept or reject employment at the bank.
The appeals court, however, ruled in Grant Thornton’s appeal that the company wasn’t responsible for Ellis’ doomed career move. The Richmond, Va.-based court said the audit report wasn’t intended for use by third parties.
“Grant Thornton was not hired to go over with each potential employee the soundness of Keystone’s financial condition,” the opinion stated.
Grant Thornton attorney John H. Tinney of Charleston said his client had “a strong case and we’re obviously very pleased.”
Charleston lawyer Ben Bailey, who represented Ellis, said he and his legal team are “deciding what additional review to seek.”
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