Manufacturer wins $14.2 million in accounting suit; Paramount company had claimed accounting malpractice.

A Los Angeles County Superior Court jury earlier this month awarded $14.2 million in compensation to a small Paramount manufacturing firm that had claimed accounting-firm malpractice.

The judgment was made against the national accounting firm of Ernst & Young, which -- along with its predecessor firm and two of its accountants -- was found guilty of fraud and malpractice by the same jury in a trial earlier this year.

The verdict came as a result of a lawsuit filed by Mattco Forge Inc., an aircraft-parts maker with annual sales of less than $5 million.

Starting this week, the same jury is scheduled to start deliberations on punitive damages in the case that goes back almost 10 years.

Attorneys for Mattco said they will seek tens of millions of dollars in punitive damages.

A spokesman for Ernst & Young in New York said it is company policy not to comment on ongoing litigation.

"There already has been five appeals of this case in its history so I fully expect they (Ernst & Young) will continue that practice," said John Moscarino, a Mattco attorney and member of the Santa Monica law firm of O'Neill, Lysaght & Sun.

Mateo (Matthew) Minguez, the 56-year-old founder, owner and president of Mattco, said he did not want to comment because of the pending punitive damages portion of the proceeding.

Following the verdict in the March jury trial, he said he felt vindicated by the decision that had cost him at that point about $2 million in legal fees.

His attorneys said last week that Minguez continues to run his business.

The case goes back to 1983 when Mattco sued General Electric Co., which had severed its subcontracting agreement with Mattco. In 1988, Mattco dropped its breach of contract lawsuit against GE after the court concluded that the smaller company had submitted fraudulent estimates of losses from the GE contract.

After it dropped the GE suit, Mattco sued the accounting firm Arthur Young & Co., which had compiled the estimates and had offered expert testimony in the case on behalf of Mattco. Arthur Young, a national accounting firm, merged with Ernst & Whinney to form Ernst & Young in 1989. When Ernst & Young was formed, it absorbed Arthur Young's liabilities, including ongoing litigation.

In its suit against Arthur Young and Ernst & Young, Mattco claimed the firms and their accountants "misrepresented" themselves as experts in assessing damages and losses from discontinued contracts.

In addition, Mattco claimed that the accountants "re-created" job estimates for the lost work from the severed GE contract. The Arthur Young accountants then tried to "cover up" the fact that the working papers from prior years were actually re-created documents made after the start of the Mattco vs. GE action, said Mattco in its case.

Mattco attorneys said the case establishes accounting-firm liability for work done in preparing for trial litigation, including expert testimony.

In addition, it sets precedent regarding the grounds on which a business can sue an expert witness it had hired for its own purposes, the attorneys said.

Moscarino said the verdicts clearly show that "no professionals have the right to lie to their clients. It's shocking that this sort of thing happened. The second lesson here is that if an accounting firm is going to get into this type of business and portray itself as an expert it better be an expert."