Are affiliates of the Big Four accounting firms independent operations, or not?
When Deloitte & Touche’s Italian arm served as the auditor for Parmalat Finanziaria SpA, it relied on work done by Deloitte affiliates in about 30 countries, according to The Wall Street Journal. But now that investors in the dairy giant want to sue Deloitte, the firm has argued that its affiliates around the world can’t be held liable for the misdeeds of other arms, the Journal reported.
In federal court in New York, class-action attorneys for shareholders and bondholders took the opposite stance. According to the newspaper, they argued that even if the firm’s affiliates are legally separate, they acted as one entity in auditing the now-bankrupt company.
U.S. District Judge Lewis Kaplan apparently agrees with the plaintiffs; he denied D&T’s motion to dismiss a class-action lawsuit brought against its U.S. and international arms by Parmalat investors.
“He accepted our one-firm argument,” Robert Roseman, a partner at Spector, Roseman & Kodroff who is representing Parmalat bondholders, told the Journal. The upshot, added Roseman, is that plaintiffs’ lawyers can now seek internal documents and communications from many of Deloitte’s entities related to their work on Parmalat.
Grant Thornton’s former Italian unit is also a defendant in the case but did not move to dismiss the complaint, according to Grant & Eisenhofer, which is representing Parmalat shareholders. Stuart Grant, a partner with the law firm, called the ruling “devastating” for Deloitte. The report noted that not only is D&T’s international organization liable for damages caused by other parts of the firm, but Deloitte & Touche’s U.S. arm — the “deepest pocket,” — is also exposed to liability.
A spokeswoman for Deloitte’s international arm declined to comment, saying attorneys were still examining the ruling, according to the paper.