Corporation Owner and His Two Companies Can Sue Accountants For Fraud Involving Third Entity

A company owner and his two corporations have the right to sue their accountants for alleged defalcations at a third company because, at the time, the three companies were affiliated and only severed ties because of the misconduct at issue. The decision regarding whether or not the owner had standing was decided by the Wisconsin Court of Appeals last month when Judge Patricia S. Curley reversed the trial court’s grant of summary judgment.

Judge Curley found that plaintiffs do not have to be shareholders at the corporation where the alleged fraudulent accounting took place. She also said that the plaintiffs are trying to recover damages they had allegedly suffered, not damages sustained by another party.

Michael Vilione and Henry J. Krier were co-owners of three separate companies that were affiliated with each other. The companies, EOG Disposal Inc, EOG Environmental Inc, and Vil-Kri Investments LLC are involved in the hazardous waste storage business. Vilione and Krier became involved in a dispute over Vilione’s alleged personal use of corporate assets. In mediation, the two men decided to split the enterprise. Vilione got full ownership of EOG Environmental, while Krier took full possession of the other two companies.

The terms of the settlement purposely excluded from release claims that Krier and his two companies, EOG Disposal and Vil-Kri, might have against enterprise accountant Donald Vilione, who is the brother of Michael Vilione, and the accounting firm Virchow, Krause & Co. LLP. After the separation, Krier and his two companies sued Donald and Virchow Krause for a number of claims, such as negligent misrepresentation, accounting malpractice, injury to business, breach of fiduciary duty, and violation of the Wisconsin Organized Crime Control Act.

Krier, Vil-Kri, and EOG Disposal claim that Donald Vilione, while a Virchow Krause Partner, purposely falsified accounting records for the three companies so that the misappropriation of funds by Michael Vilione would not be noticed. Krier and the two entities claim the Virchow Krause was aware of the misappropriation, fraud, and misrepresentation but did not inform Krier of these illegal activities.

Krier and the two entities are seeking as damages for the diminished value of their business. They claim they lost out on certain opportunities and contracts because of the fraud and theft. Damages to Krier, Vil-Kri, and EOG Disposal are estimated at more than $11 million.

Virchow Krause said Krier did not have standing to recover because the allegations center around assets that were stolen from EOG Environmental, of which Krier no longer owns an interest. A trial court rejected Virchow Krause’s claim.

The Wisconsin Court of Appeals reversal of the ruling lets the claims move forward.

The securities litigation law firm of Shepherd Smith and Edwards represents clients who have lost money because of the misappropriation, fraud, misrepresentation, and other illegal acts performed by members of the securities industry. Contact Shepherd Smith and Edwards today and ask for you free consultation.

Related Web Resources:

Read the Wisconsin Court of Appeals Decision (PDF)

EOG Environmental, Inc.