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Accounting giant PricewaterhouseCoopers has turned to a Fulton County State Court judge for help against plaintiffs in a Cobb County case who are seeking not only $600 million in damages from the Big Four firm, but also its banishment from Georgia. The object of PwC’s ire is Tauber & Balser, an Atlanta accounting firm that has been providing litigation support to the Cobb plaintiffs — the former owners of Atlanta-based Convalescent Services Inc. PwC’s lawyers say Tauber’s employees obtained trade secrets from two unrelated PwC cases — one in Fulton State Court and one in South Carolina — and revealed the confidential data through documents filed publicly in the Cobb litigation. Tauber & Balser, a 40-accountant firm, had access to the protected information because the firm worked as experts against PwC in the unrelated cases. Last month, lawyers for PwC argued before the judge who presided over the Fulton State Court action, Susan B. Forsling, that she should hold Tauber & Balser in contempt of the confidentiality agreement signed in that case. They asked that she bar Tauber & Balser from serving as an expert in any litigation involving PwC, including the Cobb case. Forsling has yet to rule on the request in Toronto Dominion v. Pricewater-houseCoopers, No. 00VS012679. Richard Millman, principal-in-charge of the Forensic Accounting Services Team at Tauber & Balser, told the Daily Report he could not comment. The firm is represented by Jerry L. Sims of Sims Moss Kline & Davis, who also declined to speak about the hearing. One of the lawyers for PwC, Elizabeth V. Tanis of Sutherland Asbill & Brennan, declined to comment, citing the accounting firm’s policy not to discuss pending litigation. Michael J. Bowers of Balch & Bingham, who represents the Cobb plaintiffs who hired Tauber & Balser, declined to talk about the contempt proceedings. Tauber & Balser, founded in 1968, works in auditing, tax preparation, business valuation, mergers and acquisitions, estate planning and forensic accounting. According to the firm’s Web site, clients include public companies, law firms, financial institutions, insurance companies, government agencies and nonprofit organizations. John A. “Jack” Damico is managing partner at the Atlanta office of accounting firm Matson, Driscoll & Damico. He said he’d never seen a situation where one side was attempting to disqualify the other’s forensic experts on the basis of breaking a confidentiality agreement. He added that accountants need to err on the side of protecting confidentiality. “I think any time you sign a confidentiality agreement, you need to make sure you play by the rules,” he said. “There’s a confidence we as CPAs need to protect.” PWC’S PROTECTED SOFTWARE At issue in PwC’s fight is Tauber & Balser’s disclosure in the Cobb case of information about PwC’s proprietary software, known as the Coopers & Lybrand Audit Support System, or CLASS (named for the accounting firm Coopers & Lybrand, which merged with Price Waterhouse in 1998). According to an affidavit filed in the Cobb case by James E. Lee, chief auditor at PricewaterhouseCoopers, the firm and its predecessors developed the CLASS software by collecting a host of resources — including accounting and auditing manuals, electronic forms, checklists and databases — and then combining those materials with software programs designed to aid in a financial audit. Lee added that PwC continues to spend millions of dollars each year evaluating and updating the CLASS materials, and the software gives the firm an advantage over its rivals. “Allowing unprotected access to PwC’s proprietary materials would allow another accounting or audit firm to copy or reverse engineer the proprietary materials and gain the benefits, essentially stealing the work product derived from PwC’s immense financial and professional time investments,” Lee wrote. COBB PLAINTIFFS LOST $200 MILLION The disclosure of the CLASS information came during a discovery dispute in the Cobb case, which was brought by the former owners of Atlanta-based Convalescent Services Inc. They alleged that in 1996 PwC and the former senior management of Mariner Health Group duped Convalescent into selling their privately held company. The defendants falsely portrayed Mariner as a healthy financial partner when in fact it was insolvent, the former owners of Convalescent stated in their complaint. The $123 million in Mariner stock paid to the Convalescent owners became worthless four years later, when Mariner sought protection under Chapter 11 of the U.S. Bankruptcy Code. Mariner subsequently re-emerged under a plan of reorganization that stripped the plaintiffs of their equity stake in the company. According to the original complaint, the Convalescent owners suffered more than $200 million in actual damages but have asked for those damages to be trebled under Georgia’s Racketeer Influenced and Corrupt Organizations Act. They also have sought an order “revoking all licenses issued to PwC by the State of Georgia.” In his expert affidavit accompanying the original complaint, Tauber & Balser Managing Principal Mark I. Murovitz stated that PwC “recklessly deviated from applicable professional standards and completely failed to exercise due professional care” in the performance of its duties. Bassett v. PricewaterhouseCoopers, No. 02-1-8314-35 (Cobb Super. filed Oct. 8, 2002). According to Bowers, the case has been specially set for trial Sept. 6. The discovery dispute occurred in 2003, when Tauber & Balser’s Neil T. Harkins said in an affidavit that documents printed from PwC’s CLASS software would not meet the plaintiffs’ discovery needs. Harkins said he had reviewed PwC’s CLASS software in “unrelated litigation.” The electronic versions of documents created by the software, he said, contain links to supplemental audit information not included in hard-copy prints. The plaintiffs’ lawyers had asserted that the Harkins affidavit was public, but PwC’s lawyers claimed the document was filed under seal. PwC’s lawyers later asked Judge Kenneth O. Nix in Cobb for a protective order, but he rejected the request, holding that the information disclosed in the Harkins affidavit was “superficial and generic” and did not reveal confidential information. Nix added that the plaintiffs’ evidence indicated much of the information is already known in the accounting industry and “is in the public domain.” FIRM’S CONFIDENTIALITY IN DISPUTE In its contempt action against Tauber & Balser, PwC has asked Forsling to rule that the Harkins affidavit violated a confidentiality agreement in the Fulton State Court action. The Fulton case could have been the “unrelated litigation” during which Harkins got a look at PwC’s CLASS software, because Tauber & Balser worked in that case as experts for a third-party defendant, according to a PwC brief in the Cobb case. Tauber worked for Safety-Kleen Corp., a Texas waste management company that went bankrupt in 2000 and had to make adjustments of more $500 million in its financial statements. The company’s auditor was PricewaterhouseCoopers. That case was brought by an international syndicate of lenders, led by The Toronto-Dominion Bank, which alleged it would not have made more than $2 billion in loans had PricewaterhouseCoopers not provided faulty audit reports. The case appeared headed for an estimated three-month trial in October of last year. But on the eve of trial, the lawyers settled the case for $87.5 million. The accounting giant pursued third-party claims against Safety-Kleen’s former chief executive officer, Kenneth W. Winger, and the company’s former chief financial officer, Paul R. Humphreys. On Oct. 26, Forsling granted two default judgments totaling $60 million against the executives. The South Carolina case settled last year under confidential terms.

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