Ernst & Young, L.L.P. v. Pacific Mutual Life Insurance Co.
Texas Supreme Court
51 S.W.3d 573 (2001)
- Written by Sean Carroll, JD
Facts
In 1986, InterFirst Corporation (InterFirst) was considering a merger with RepublicBank Corporation (RepublicBank). Ernst & Young, L.L.P. (Ernst & Young) (defendant) conducted an audit of RepublicBank’s financial statements. Ernst & Young found that the statements accurately represented RepublicBank’s financial health. After the merger was consummated, Pacific Mutual Life Insurance Company (Pacific) (plaintiff) bought notes that InterFirst had issued in 1982. Pacific asserted that it relied on Ernst & Young’s audit in buying the notes. Soon after this purchase, the merged entity filed for bankruptcy. Pacific sued Ernst & Young for fraudulent misrepresentation. Pacific argued that it was generally known in the industry that investors would rely on Ernst & Young’s audit report. The trial court granted summary judgment to Ernst & Young. The court of appeals reversed, finding that Ernst & Young had reason to expect that investors like Pacific would rely on the audit report. Ernst & Young appealed.
Rule of Law
Issue
Holding and Reasoning (O’Neill, J.)
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