Swift Transportation Co. Inc. is seeking court permission to sue its former accounting firm for an “erroneous audit report” of a company it merged with in 2001.
Swift said in court documents that it relied on a “fraudulent” audit, resulting in damages of more than $100 million, according to the Arizona Republic. "As a result of E&Y's wrongful conduct, Swift concluded a merger with M.S. Carriers that it otherwise would not have consummated," Swift said in court records. The company also said it paid at least $44 million too much in the $380 million deal.
The lawsuit accuses Ernst & Young of inflating M.S. Carriers' investment in Transportes EASO, which was once Mexico's largest truckload carrier. Swift considered M.S. Carriers' 50 percent interest in the company to be “strategically important.”
Ernst & Young's audit said that M.S. Carriers recognized $1 million from EASO in 2000, the newspaper reported. EASO in fact had no income that year, and the company asked Swift for a $2 million loan weeks after the merger. Swift agreed.
Ernst & Young, for its part, said the lawsuit stems from an “unhappy merger” between the two trucking companies. The firm says that a contract with M.S. Carriers and Swift, the eventual parent company, stated that legal disputes must be settled through arbitration and not in the courtroom. A Superior Court judge ruled in Ernst & Young's favor in June, but Phoenix-based Swift took the case to the Arizona Court of Appeals.
Swift is the biggest U.S. long-haul trucking company, which more than doubled its fleet of trucks through the 2001 merger. Earnings dropped sharply that year, but the company has been profitable in each of the last three years. Swift's earnings improved by 119 percent last year, the company said.