A US court has rejected a summary
judgement application by Deloitte Touche Tohmatsu (DTT) and
Deloitte US, paving the way for a Parmalat class action against the
firm to proceed.
Southern District of New York district judge
Lewis Kaplan ruled that the nature of the relationship between
Deloitte’s global office and Deloitte US, and how these entities
may have been linked to Deloitte Italy’s involvement in fraud, are
issues that are at least triable, dismissing Deloitte’s appeal.
The ruling does not mean that Deloitte has
been found liable in any way, however, the evidence is assumed in
the plaintiff’s favour for the purposes of the summary judgement
The plaintiffs have delivered several points
that distinguish this case from previous judgements of similar
The plaintiffs pointed out that there had been
overlapping Deloitte US executives as a number of partners from the
US firm sat on the international board.
Plaintiffs were able to cite a particular
policy decision that was taken by the international board but when
a US partner subsequently changed opinion on the matter, the whole
decision was reversed. They argued that this suggested that the
umbrella organisation, DTT, was allegedly a puppet of the dominant
The plaintiffs also claimed that DTT is being
funded to a material extent by the US member firm as opposed to the
dues being paid evenly across the global network.
Another point, plaintiffs alleged, was that
DTT interfered with the professional judgement of the Brazilian
Parmalat auditor. This was also argued in previous cases.
Parmalat collapsed in 2003 following the
discovery of a massive fraud that allegedly involved the
understatement of Parmalat’s debt by nearly $10 billion and the
overstatement of its net assets by $16.4 billion.
A group of investors who purchased Parmalat
securities between 5 January 1999 and 18 December 2003 is seeking
damages from DTT and Deloitte US in relation to fraud.
Previous lawsuits launched against DTT and the
US member firm have failed in US courts while claims against
Deloitte Italy and Deloitte’s Italian member firm at the time of
the fraud have been settled.
The fact that Deloitte operates as a part of a
global organisation can not form the basis of a liability claim
However, if it can be proved that DTT, which
controls the way the network is structured and its membership
rules, had interfered with the audit that is the subject matter of
the claim, there are grounds to test the claim further.
The fall out of this decision is two-fold.
Firstly, it means a costly and protracted court battle for
More broadly speaking, the decision could
cause global networks to pause and think about recent strategies to
further integrate member firms across vast geographical
Jane Howard, a partner at the London law firm
Reynolds Porter Chamberlain, said: “I think some international
organisations will be looking at it and thinking ‘we are really
concerned. Can we be funded and to what extent by individual member
firms? Will that mean they are controlling us?’ They will look at
things like overlapping executives, can we rotate them and ‘can we
always have a US or a UK member on the board’.”