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April 30, 2008

BDO International optimistic of avoiding US legal wrangle

BDO International remains confident it will not be drawn into a multi-million dollar law case involving its US member firm BDO Seidman despite a US appeals court decision that a jury must decide on the nature of the relationship between the two entities.

In 2007, a US jury found BDO Seidman was grossly negligent in failing to detect a fraud that led to the bankruptcy of Miami financial services provider Bankest and ordered the firm to pay $521 million in damages.

The plaintiff, Bankest’s parent company Banco Espirito Santo, also pursed BDO International, claiming the two entities shared an ‘actual common law agency relationship’. However, the judge at the trial ruled that the plaintiff failed to prove that BDO International was involved.

The plaintiff appealed the verdict and on 12 March 2008, a Florida appeals court ruled that the question as to whether BDO International could be implicated in the case should have gone before a jury.

BDO International chief executive Frans Samyn told IAB that the entire case will need to be tried again before a jury. He added that he is unaware when this will occur.

To establish the entities shared an agency relationship, the plaintiff must prove: there was an acknowledgement by the principal that the agent will act for them; the agent accepted the undertaking; and there was control by the principal over the actions of the agent.

“We will contest everything,” Samyn said of the claims. “BDO Seidman is the BDO member firm in the United States, and there is nothing in the rules of BDO International that constitutes or implies a partnership between BDO International and the member firms.”

MSI Global Alliance chief executive James Mendelssohn said the appeal court’s ruling has “put back into the spotlight this whole question of liability between networks and associations”. Mendelssohn said that although the distinction between a network and an association does not mean members of a network are liable for negligence of other members while members of associations are not liable, the case will make smaller firms in networks consider their options.

Carolyn Canham

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