West End Printing Limited (WEP) was a large specialty printer located in Etobicoke. It was owned and operated by a single family until 2003 when it became listed on the TSX through a reverse takeover of a dormant listing. It had slow but steady growth, a solid customer base, and a good reputation for quality and fair prices. The founding West family stayed on after going public.

In 2007, a private equity group took the company private. It pushed down the debt from the equity partners to the operating company. To relieve some of the debt, WEP sold its land and buildings as well as printing equipment and leased them back, even though lease interest rates were higher than debt rates. WEP treated these leases as operating leases under ASPE which kept the future lease payments off the books. The Bank of New Glasgow (BNG) had the mortgage on the land and building while a numbered company, 771010 Investments owned the land and building.

Leasing equipment turned out to be a smart move as the industry more fully embraced digital technology. Leasing allowed WEP to replace equipment more rapidly. However, doing so often meant that the original lease had to be broken. A string of lawsuits ensued which WEP was still fighting in 2012, the last year of operations.

When WEP was taken private, the last of the West family member was let go amid massive restructuring and cost-cutting. In 2009 Lloyd West, eldest son of founder Larry West, founded his own competing company, West Brothers Lithography. WEP sued under a non-compete clause which was thrown out in a 2011 court ruling with WEP ordered to pay $280,000 in costs to Lloyd, an amount which Lloyd has yet to collect.

With such a strong competitor on the scene and rising costs due to legal fees, lease, and interest payments, WEP went into bankruptcy protection in late 2012. As the only auditor WEP has had, Fox and Associates were served notice they might be sued by the private equity company since the leases should have been shown as capital leases. Also, BNG has contacted Fox. Apparently, the land was polluted by printing solvents, a fact not disclosed on the 2006 financial statements. Meanwhile, 771010 Investments has stopped returning the bank’s phone calls and is behind on its mortgage payments.

Derek Fox has hired you, a partner with Rowlands, Marcellin, and Khan to advise them on all legal exposures. Briefly summarize the issues with each potential plaintiff based on these 4 factors: Duty of care, Breach of duty, Damages, Proximity (Auditor`s defense)