section 552

Osborne Computer Corporation was founded in 1980 by entrepreneur Adam Osborne and began manufacturing the Osborne I portable personal computer for the mass market, with shipments starting in 1981. By fall 1982, sales of the company's sole product had reached $10 million per month, making the company one of the fastest growing enterprises in the history of American business. In 1981 and again in 1982, the company retained Arthur Young & Company to audit its financial statements and issue audit reports. Arthur Young issued unqualified audit opinions on the company's 1981 and 1982 financial statements. The 1982 opinion was issued on February 11, 1983, appeared on Arthur Young's letterhead addressed to the company, and 100 copies of the professionally printed opinion were personally delivered to the company. The 1982 financial statements reported a modest net operating profit of $69,000 on sales of more than $68 million. In late 1982 the company postponed a planned initial public offering and instead issued warrants to investors in exchange for bridge financing loans or letters of credit. Plaintiffs, a group that included individuals as well as pension and venture capital funds, invested in the company in early 1983; one plaintiff, Robert Bily, purchased 37,500 shares of stock from Adam Osborne for $1.5 million. With one exception, plaintiffs testified that they made their investments in reliance on Arthur Young's unqualified 1982 audit opinion. After the warrant transaction closed on April 8, 1983, sales declined sharply because of manufacturing problems with the company's new Executive model computer, the public offering never occurred, and the company filed for bankruptcy on September 13, 1983, causing plaintiffs to lose their investments. Plaintiffs brought separate lawsuits against Arthur Young in Santa Clara County Superior Court that were consolidated for trial. Plaintiffs' expert witness identified more than 40 deficiencies in the 1982 audit amounting to gross professional negligence, including an understatement of liabilities by approximately $3 million that turned the reported $69,000 profit into a loss of more than $3 million, and testified that Arthur Young had discovered but failed to disclose material weaknesses in the company's internal accounting controls. After a 13-week trial the jury returned a verdict for plaintiffs on the professional negligence claim and awarded approximately $4.3 million in compensatory damages, but found for Arthur Young on the fraud and negligent misrepresentation claims. The trial court granted Arthur Young's motion for judgment notwithstanding the verdict on the negligence claim. The Court of Appeal reversed the judgment in favor of Arthur Young. The Supreme Court of California granted review.

On July 22, 1981, a fire began in the Port Newark freight yard of defendant Consolidated Rail Corporation when ethylene oxide manufactured by defendant BASF Wyandotte Company escaped from a tank car owned by defendant Union Tank Car Company and leased to BASF. The tank car was punctured during a coupling operation with another rail car and ignited. The municipal authorities evacuated the area within a one-mile radius surrounding the fire, which included the North Terminal building of Newark International Airport where plaintiff People Express Airlines’ business operations are based. People Express employees were prohibited from using the North Terminal for twelve hours, although the feared explosion never occurred. The plaintiff contends that it suffered business-interruption losses as a result of the evacuation. These losses consisted of cancelled scheduled flights and lost reservations because employees were unable to answer the telephones to accept bookings. Fixed operating expenses allocable to the evacuation period were incurred and paid despite the offices being closed. No physical damage to airline property and no personal injury occurred. According to the original complaint, each defendant acted negligently and these acts proximately caused the plaintiff’s harm. An amended complaint alleged additional counts of nuisance and strict liability. Conrail moved for summary judgment. The trial court granted the motion on the ground that absent property damage or personal injury economic loss was not recoverable in tort. The trial court also granted summary judgment motions by BASF and Union Car on the same reasoning. The Appellate Division reversed the trial court’s order granting summary judgment and remanded the cause to the trial court. This Court granted defendant Union Car’s petition for certification, in which Conrail and BASF joined. Plaintiff asserted at oral argument that at least some of the defendants were aware from prior experiences that ethylene oxide is a highly volatile substance. Further, emergency response plans in case of an accident had been prepared. When the fire occurred that gave rise to this lawsuit, some of the defendants’ consultants helped determine how much of the surrounding area to evacuate.

In 2005, Omnicare, Inc., the nation’s largest provider of pharmacy services for residents of nursing homes, filed a registration statement with the Securities and Exchange Commission in connection with a public offering of its common stock. The registration statement contained two statements expressing Omnicare’s opinion on legal compliance: “We believe our contract arrangements with other healthcare providers, our pharmaceutical suppliers and our pharmacy practices are in compliance with applicable federal and state laws” and “We believe that our contracts with pharmaceutical manufacturers are legally and economically valid arrangements that bring value to the healthcare system and the patients that we serve.” Adjacent text noted state-initiated enforcement actions against pharmaceutical manufacturers for offering payments to pharmacies. It cautioned that laws might be interpreted inconsistently with Omnicare’s views. It warned that business could suffer if federal concerns about rebates led to the end of price concessions. Respondents, pension funds that purchased Omnicare stock in the offering, sued after the Federal Government filed suit against Omnicare alleging receipt of kickbacks from pharmaceutical manufacturers in violation of anti-kickback laws. Their complaint alleged that the opinion statements were materially false. Their complaint alleged that Omnicare had omitted material facts necessary to make the statements not misleading, including an attorney’s warning that a particular contract carried a heightened risk of liability. The complaint expressly excluded and disclaimed any allegation that could be construed as alleging fraud or intentional or reckless misconduct. The United States District Court for the Eastern District of Kentucky granted Omnicare’s motion to dismiss. The Court of Appeals for the Sixth Circuit reversed. The Supreme Court granted certiorari.

Curtis Publishing Co. published an article in the Saturday Evening Post in 1962 accusing Wally Butts, athletic director of the University of Georgia and a former head football coach, of disclosing Georgia's offensive plays and defensive patterns to Alabama coach Paul Bryant one week before the teams played. Butts, who was employed by the private Georgia Athletic Association rather than the state, filed a diversity libel action in federal district court in Georgia seeking $5 million in compensatory damages and $5 million in punitive damages. The complaint was filed and the trial completed before the Supreme Court handed down its decision in New York Times, and the only defense raised by petitioner Curtis was one of substantial truth. The evidence showed that Burnett had indeed overheard a conversation between Butts and the Alabama coach, but the content of that conversation was hotly disputed. Expert witnesses supported Butts by analyzing Burnett's notes and the films of the game itself. The Saturday Evening Post's version of the game and of the players' remarks about the game was severely contradicted. The jury returned a verdict for $60,000 in general damages and for $3,000,000 in punitive damages. The trial court reduced the total to $460,000 by remittitur. Soon thereafter the Supreme Court handed down its decision in New York Times and Curtis immediately brought it to the attention of the trial court by a motion for new trial. The trial judge rejected Curtis' motion on two grounds. He first held that New York Times was inapplicable because Butts was not a public official. He also held that there was ample evidence from which a jury could have concluded that there was reckless disregard by defendant of whether the article was false or not. Curtis appealed to the Court of Appeals for the Fifth Circuit which affirmed the judgment of the District Court by a two-to-one vote. The majority there did not reach the merits of petitioner's constitutional claim, holding that Curtis had clearly waived any right it may have had to challenge the verdict and judgment on any of the constitutional grounds asserted in Times, 351 F. 2d 702, 713, on the basis of Michel v. Louisiana, 350 U. S. 91. Judge Rives dissented, arguing that the record did not support a finding of knowing waiver of constitutional defenses. Rehearing was denied, 351 F. 2d, at 733, and the Supreme Court granted certiorari. Separately, on September 30, 1962, the Associated Press distributed a news dispatch giving an eyewitness account of events on the campus of the University of Mississippi when a massive riot erupted because of federal efforts to enforce a court decree ordering the enrollment of James Meredith as a student. Walker was a private citizen at the time of the riot and publication. He had pursued a long and honorable career in the United States Army before resigning to engage in political activity. Walker initiated this libel action in the state courts of Texas, seeking a total of $2,000,000 in compensatory and punitive damages. A verdict of $500,000 compensatory damages and $300,000 punitive damages was returned. The trial judge found no evidence to support the jury's answers that there was actual malice and refused to enter the punitive award. Both sides appealed and the Texas Court of Civil Appeals affirmed both the award of compensatory damages and the striking of punitive damages. The Supreme Court of Texas denied a writ of error, and the Supreme Court granted certiorari.