Fine v. American Solar King Corp.

American Solar King Corporation (ASK) (defendant) hired Main Hurdman (defendant) to do its accounting. ASK sold its solar systems to limited partnerships rather than to the users of the systems. A user would pay for its use of a system by paying for the energy it used. ASK’s first sale was to S.E.P. No. 1 for use by Provimi. The sale was financed, in part, with a 100-year note that Provimi would cover with payments for the energy it used. The sale was finalized on the last day of fiscal year 1982. The solar equipment, however, was not shipped by the end of the fiscal year. Main Hurdman stated in a planning memo that it had to scrutinize ASK’s notes to determine whether the notes were valued fairly. A Main Hurdman auditor also stated in a memorandum that ASK’s reserve for uncollectible accounts, such as payments on the note, was short by $200,000 or $300,000. The auditor stated that ASK had a down year in 1982 and refused to consider the possibility of increasing its reserve for uncollectibles. Despite this memorandum, Main Hurdman issued a report stating that it could not determine the adequacy of ASK’s reserve for uncollectibles. Ultimately, Main Hurdman approved ASK’s accounting. Fine and other purchasers of ASK’s stock (plaintiffs) sued ASK and Main Hurdman for violation of Securities and Exchange Commission (SEC) regulations. Fine alleged that ASK’s 1982 financial statements were overstated, resulting in an artificially inflated stock price. Fine also alleged that Main Hurdman issued a materially false auditor’s opinion on those financial statements. The district court granted ASK and Main Hurdman summary judgment. Fine appealed.