Minnesota Firm Claims Andersen Botched Job - $6 Billion at Stake

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Department 56 Inc., a Minnesota company that makes little light-up Dickens Villages collectibles and Snowbabies figurines, has filed suit against Arthur Andersen Worldwide, claiming that the company suffered "its worst nightmare" at the hands of allegedly unqualified consultants at Arthur Andersen.

In 1995, Department 56 hired Arthur Andersen, then in the midst of a corporate dispute with sister company, Andersen Consulting, to perform consulting work including the acquisition and installation of a new computer system. Andersen, which had just formed its own consultancy wing, a competitor of Andersen Consulting, quoted a price of no more than $3.3 million for the new computer system. Department 56 alleges that they gave the job to Andersen after having been told that the firm would draw on the services of the entire Andersen Worldwide organization, including Andersen Consulting to perform the work.

During the next three years, while Andersen was working to complete the job, the price of the system escalated to over $12 million, and the lawsuit alleges that the additional cost was a result of the inexperience of the Andersen consultants. The suit also states that Andersen was subject to restrictions by its corporate parent that precluded it taking on such a job for clients with more than $175 million in annual revenue - Department 56 has $250 million in annual sales.

When the new computer system finally went live, in January 1999, orders could not be filled successfully, orders were lost, shipments were not billed, and bills were duplicated. Customers who found they couldn't determine how much they owed simply stopped paying their bills. Department 56 hired another consulting firm to fix the problems, and had to offer discounts to dealers in order to keep their business. The estimated cost of these additional expenses is purported to be over $12 million. In addition, the company reported $18 million on its 1999 and 2000 financial statements for non-recurring charges relating to computer problems, and the value of company stock has dropped 24%.

The lawsuit claims than Arthur Andersen "could not contain its jealousy" as it watched the successes of Andersen Consulting. Department 56 Chairwoman and CEO, Susan Engel said, "Lulled by their reputation and portrayal of self-proclaimed expertise, only too late did we learn that Arthur Andersen didn't have the qualifications to do this type of work and was actually forbidden from accepting it based on agreements it had signed with its partner firm Andersen Consulting and documents filed with the SEC."

Meanwhile, Andersen has filed suit against Department 56 for not paying all of the consulting fees resulting from the job. In a prepared statement, Arthur Andersen spokesman Mike Hatcliffe said the firm's "management team was fully qualified to perform the work and did so in a professional manner." He declined to discuss specific accusations, but said, "We look forward to addressing these issues in court."

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