Accounting Firm Can Be Liable for Foreign Affiliate's Work, Federal Judge Rules
In a U.S. District Court decision trumpeted by a press release (PDF) for the winning law firm as “a seismic ruling for the accounting profession,” a federal judge has held the Deloitte financial firm potentially liable for alleged malfeasance by an Italian affiliate concerning the collapse of Parmalat Finanziaria SpA and related companies.
In his decision yesterday (PDF) dismissing a summary judgment motion in shareholder class action litigation, Judge Lewis Kaplan of the Southern District of New York rejects an argument by several Deloitte companies that it should not be held responsible for work performed by what the global financial giant described as a loose confederation of affiliates.
“Although disclaimers on DTT’s website assert the legal separateness of DTT and its members, DTT’s goal, as expressed by its chief executive officer, James Copeland, was for clients to ‘get consistent seamless service across national boundaries,’ ” the judge writes, referring to defendant Deloitte Touche Tohmatsu. “Member firms therefore use the Deloitte name when serving international clients ‘in order to project the image of a cohesive international organization.’ ”
The judge also emphasized that DTT “exercised substantial control over the manner in which the member firms conducted their professional activities,” reports Reuters in an article about the decision.
DTT’s members include include Deloitte & Touche in the United States, Reuters notes.
Parmalat collapsed in 2003 after inflating its balance sheet by $26 billion or so, as the judge notes in the opinion. The case is Europe’s biggest bankruptcy.
A lawyer for Deloitte didn’t immediately respond to a Reuters request for comment.
“Judge Kaplan’s ruling causes the law to reflect reality—that these global accounting firms function as a seamless worldwide organization—and the whole is indeed responsible for the actions of the constituent parts,” says shareholder counsel Stuart Grant of Grant & Eisenhofer in a press release. “In essence, Judge Kaplan has said that the parent can’t hide from the misdeeds of its children.”
