March 16, 2004

That'll Cost You 1 Million Euros

Securities class actions brought against foreign companies, or their advisors, in U.S. court can be an adventure.

KPMG-Belgium was the auditor for Lernout & Hauspie Speech Products NV, the Belgian software maker that collapsed amid revelations of accounting fraud. A securities class action was brought against KPMG-Belgium and others in the D. of Mass. After the denial of KPMG-Belgium's motion to dismiss, pretrial discovery commenced in September 2002 with plaintiffs serving document requests for auditor work papers.

KPMG-Belgium refused to comply with the requests, asserting that producing the papers would violate Belgian law (plaintiffs were, however, able to examine the documents as part of the Belgian criminal investigation). Plaintiffs moved to compel the production of the documents and, on November 13, 2003, a magistrate judge granted the motion. Shortly thereafter, KPMG-Belgium filed an ex parte petition with a court in Brussels seeking to enjoin the plaintiffs from "taking any step" to proceed with the requested discovery. To obtain compliance, they asked the Belgian court to impose a 1 million euros fine for each violation of the proposed injunction.

The U.S. district court issued an antisuit injunction enjoining KPMG-Belgium from pursuing the Belgian court action. KPMG-Belgium appealed. Last week, the First Circuit affirmed the district court injunction order, holding that "[w]here, as here, a party institutes a foreign action in a blatant attempt to evade the rightful authority of the forum court, the need for an antisuit injunction crests."

The First Circuit opinion can be found here. The Wall Street Journal has an article (subscrip. req'd) on the decision.

Quote of note (WSJ article): "That means KPMG-Belgium could soon be faced with a stark choice: It can hand over the documents. Or the firm can disregard [the district judge's] orders. In that event, she has warned that she may enter a default judgment for the plaintiffs, exposing KPMG-Belgium to potentially billions of dollars of liability. A KPMG-Belgium spokesman, Jos Hermans, on Friday said, 'There hasn't been a final decision on what we're going to do,' although one could come this week.'"

Posted by Lyle Roberts at March 16, 2004 11:16 PM | TrackBack
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