Ernst & Young Ordered to Pay $27.8 Million for Malpractice : Courts: Award may lead other accounting firms to re-evaluate litigation support businesses.

A Los Angeles jury Tuesday ordered Ernst & Young to pay $27.8 million in punitive damages to a Southland aerospace company that accused the accounting firm’s legal services practice of fraud and malpractice.

The judgment, in addition to a previous $14.2-million jury award against Ernst & Young for actual damages, may lead accounting firms to closely examine their fast-growing litigation support businesses. The firms help clients prepare for court cases by supplying financial analysis and expert testimony.

“All the firms will have to take a look at . . . who will be allowed to take the stand, make these (financial) projections and stand by them,” said Arthur Bowman, publisher of Bowman’s Accounting Report in Atlanta.

Ernst & Young was sued more than five years ago by Mattco Forge, a small aircraft parts maker in Paramount. Mattco claimed it lost a previous lawsuit against General Electric because it relied on the faulty information and advice supplied by the litigation support staff of the accounting firm Arthur Young, which merged with another firm to become Ernst & Young in 1989.

After several years of trials and appeals, a Los Angeles Superior Court jury in March found that the accounting firm had committed fraud and malpractice.

“The outcome is a complete vindication of Mattco Forge and its management, who have been subjected to a lot of abuse and a lot of attacks,” Mattco Forge attorney Joseph Connolly said.

Ernst & Young executives could not be reached for comment.

Bowman said accounting firms have faced little risk in providing expert testimony because the courts have tended to shield expert witnesses from lawsuits. “If they had not been protected, they would not get on the stand,” was the courts’ reasoning, he said.

But that protection has eroded over the years.

“If these experts make mistakes, they should be held accountable,” Bowman said.