Arthur Andersen Loses $1.9-Million Negligence Judgment : Accounting: Pacific Coast Packaging sued over the firm’s failure to detect embezzlement.

A Montebello company has won a $1.9-million judgment against Arthur Andersen & Co. in a suit accusing the accounting firm of negligence during a four-year period in which the client’s controller embezzled $2.5 million.

Interest on the judgment could bring to nearly $3 million the sum owed to Pacific Coast Packaging. An attorney for Pacific Coast said Los Angeles County Superior Court Judge J. Kimball Walker will determine the interest award next Thursday.

A jury in Kimball’s Norwalk court rendered its verdict against the Big 6 accounting firm late Monday and decided Tuesday that Pacific Coast was owed interest on the amount.

However, an attorney for Arthur Andersen said he believes that, at the very least, the judge will cut the jury award in half.

The firm expects to file a motion “within the week” to have the jury’s verdict set aside and “will not rest until it’s a complete victory,” said Marshall Grossman of the Century City law firm Alschuler, Grossman & Pines, which represented Andersen in the six-week trial.

The embezzlement by the controller, Edwin H. Carr Jr., began in 1986 and was discovered in late 1990 by a Pacific Coast Packaging employee. It created serious financial problems and forced Pacific Coast’s parent company to sell a subsidiary.

Carr was convicted and served a jail term; the lawsuit was filed against Andersen in 1992, according to Michael Winsten, one of two attorneys from the firm Bye & Hatcher in Irvine who represented Pacific Coast.

Arthur Andersen was the company’s auditor from 1978 until 1991. It contended that it was not hired to conduct a fraud investigation and therefore could not be held liable for Pacific Coast’s losses.

But, as in a lengthening string of recent decisions against accounting firms, the jury apparently rejected that argument and found Andersen’s auditors primarily negligent for not detecting the fraud.

In May, the state Board of Accountancy filed documents seeking to revoke or suspend Arthur Andersen’s license, accusing it of negligence in its audits of three S&Ls;, including Irvine-based Lincoln Savings & Loan.

Andersen’s attorneys said the move is aimed at coercing it to settle with the state. The accounting firm has already paid more than $79 million to the federal government, stemming from charges related to its audits of Lincoln and other failed thrifts.