Reves v. Ernst & Young, 507 U.S. 170, 24 (1993)

Page:   Index   Previous  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  Next

Cite as: 507 U. S. 170 (1993)

Souter, J., dissenting

responsible for the Co-op's decision to treat the transaction in this manner.5

Relying on this fiction, the unreality of which it never shared with the Co-op's board of directors,6 let alone the

5 If Arthur Young had decided otherwise, the value of White Flame on the Co-op's books would have been its fair market value at the time of sale—three to four million dollars less. See ante, at 174. The "blatant fiction" created by Arthur Young maintained the Co-op's appearance of solvency and made Jack White's management "look better." App. 137- 138. The District Court noted some plausible motives for Arthur Young's conduct, including a desire to keep the Co-op's business and the accountants' need "to cover themselves for having testified on behalf of White and Kuykendall in [their] 1981 criminal trial." App. 136.

The majority asserts, as an "undisputed" fact, "that Arthur Young relied upon existing Co-Op records in preparing the 1981 and 1982 audit reports." Ante, at 186. In fact, however, the District Court found that Reves had presented evidence sufficient to show that Arthur Young "essentially invented" a cost figure for White Flame (after examining White Flame records created by Kuykendall). See App. 138-140. Since the Coop's 1980 financial statement indicated that the Co-op had advanced White Flame only $4.1 million through the end of 1980, see supra, at 191, Arthur Young could not have relied on the Co-op's records in concluding that the plant's value was nearly $4.4 million at the end of 1980. See 937 F. 2d, at 1317. The District Court also found sufficient evidence in the record to support the conclusion that Arthur Young had created the "blatant fiction" that the Co-op had owned White Flame from its inception, despite overwhelming evidence to the contrary in the Co-op's records. See App. 137- 138; see also 937 F. 2d, at 1317 ("In concluding that the Co-op had always owned White Flame, [Arthur Young] ignored a great deal of information suggesting exactly the opposite"). The evidence indicates that it was creative accounting, not reliance on the Co-op's books, that led Arthur Young to treat the Co-op as the plant's owner from the time of its construction in 1979 (a conclusion necessary to support Arthur Young's decision to value the plant at total cost). Not even the decree procured in the friendly lawsuit engineered by White and his lawyers treated the Co-op as building the plant, or as owning it before February 1980. See ante, at 173.

6 See 937 F. 2d, at 1318. In fact, Note 9 to the 1981 financial statement continued to indicate that the Co-op "acquired legal ownership" of White Flame in February 1980. App. in No. 87-1726 (CA8), p. 250.

193

Page:   Index   Previous  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  Next

Last modified: October 4, 2007