Suit Over Background Check Goof to Advance

LOS ANGELES (CN) - A company that lost $10 million to an embezzling accountant can sue the contractor that said he cleared a background check, a federal judge ruled.

Verso Paper Company says it hired Thom Williams to work in its accounting department in 2007, unaware that Williams had been convicted of embezzlement in Cook County, Miss., six years earlier. In 2001, Willaims pleaded guilty to having stolen nearly $216,000 from his employer.

Verso says this detail should not have escaped the attention of the companies it hired to perform Williams' background check, HireRight and its subcontractor DDI.

HireRight's contract with DDI stipulated that DDI "shall be required to physically visit the relevant county courthouses and personally examine the physical records pertaining to each search," according to Verso's complaint.

The paper company alleges that DDI falsely claimed that Williams did not have a criminal record in Cook County, though the comments section of its report indicated that further research was required.

Verso says Williams eventually pleaded guilty to embezzling $10.2 million from it.

U.S. District Judge David Carter refused Tuesday to dismiss Verso's negligence and misrepresentation claims.

"Defendant DDI knew that the information being supplied to HireRight would be used by plaintiff to assess the risk of hiring prospective employees like Williams," Carter wrote. "Therefore ... the subcontract reflected intent to induce reliance and action from plaintiff."

"The harm to plaintiff was foreseeable because defendant DDI knew that any mismanagement or inaccurate reporting had the potential to cause plaintiff's economic loss," he added.

"Likewise, HireRight and defendant DDI understood that plaintiff would directly rely on the accuracy and thoroughness of defendant DDI's search," the decision also states. "Thus, in both cases the plaintiff's harms were foreseeable."

Verso can claim that DDI harmed it by breaching the subcontract, according to the court.

Carter also upheld Verso's damages claim stemming from DDI's alleged negligence. While Verso isn't required to meet the heightened standard of alleging the "who, what, when, where and how" of negligent misrepresentation, its complaint does so anyway, the court found.

"Plaintiff has pled 'who' made the misrepresentation, 'what' it was, 'when' it occurred, 'where' it occurred, and 'how' it was made," the decision states. "Plaintiff specifically alleges that Defendant DDI (who) misrepresented the criminal history of Thom Williams (what) to Plaintiff by embedding the information (how) in an inaccurately written report (how and where) and transmitted by HireRight, on April 10, 2007 (when)." (Parentheses in original.)

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