January 28, 2009

The Principal and the Agent

Global auditing firms are often organized as a professional services organization of member firms, with a different member firm operating in each country. As a result of this structure, courts have often found that the global umbrella entity cannot be liable for the fraudulent activities of a member firm. In the Parmalat securities litigation, however, the court declined to dismiss the claims against Deloitte Touche Tohmatsu ("DTT"). The court found that the plaintiffs had sufficiently alleged a principal-agent relationship between DTT and its Italian member firm that conducted Parmalat audits.

In In re Parmalat Sec. Litig., 2009 WL 179920 (S.D.N.Y. Jan. 27, 2009), the court considered the issue again on summary judgment, with the same result. The court found: (a) the U.S. Supreme Court's decision in Stoneridge did not foreclose vicarious liability for a principal based on the acts of its agent, and (b) there was sufficient evidence that "DTT exercised substantial control over the manner in which the member firms conducted their professional activities," including "in the specific context of the Parmalat engagement." The court also declined to dismiss the control person liability claims against DTT and Deloitte & Touche LLP (Deloitte's U.S.-based member firm).

The WSJ Law Blog has a post on the decision.

Holding: Deloitte defendants' motion for summary judgment denied.

Posted by Lyle Roberts at January 28, 2009 10:09 PM | TrackBack
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