In Re: Parmalat Securities Litigation
Filing
1040
MEMORANDUM OPINION # 97011. For the foregoing reasons, the Deloitte defendants motion for summary judgment [04 Civ. 0030 docket item 984; 04 MD 1653 docket item 1586] is denied, and as further set forth. (Signed by Judge Lewis A. Kaplan on 1/27/09) Filed In Associated Cases: 1:04-md-01653-LAK-HBP, 1:04-cv-00030-LAK-HBP(rjm) Modified on 2/2/2009 (rjm).
UNITED STATES DISTRICT COURT S O U T H E R N DISTRICT OF NEW YORK -------------------------------------x In re PARMALAT SECURITIES LITIGATION T h is document relates to: 04 Civ. 0030 -------------------------------------x M A S T E R DOCKET 0 4 MD 1653 (LAK)
M E M O R A N D U M OPINION
A pp earan ces:
S tev e n J. Toll L isa M. Mezzetti Mark S. Willis Julie Goldsmith Reiser Joshua S. Devore C O H E N, MILSTEIN, HAUSFELD & TOLL, P .L .L .C . S tua rt M. Grant James J. Sabella J o h n C. Kairis Diane Zilka GRANT & EISENHOFER, P.A. A tto rn e y s for Plaintiffs
M ich a e l J. Dell Scott Ruskay-Kidd C ra ig L. Siegal K RAM ER LEVIN NAFTALIS & FRANKEL, LLP A tto rn e y s for Defendants Deloitte Touche T o h m a t s u and James E. Copeland D a n iel F. Kolb D a v is Polk & Wardwell, LLP A tto r n e y s for Defendant Deloitte & Touche, LLP
2
L EW IS A. KAPLAN, District Judge. P a rm a la t Finanziaria, S.p.A., Parmalat S.p.A. and their affiliates (collectively, "P a rm a la t" ) collapsed upon the discovery of a massive fraud that reportedly involved the u n d ers ta te m e n t of Parmalat's debt by nearly $10 billion and the overstatement of its net assets by $ 1 6 . 4 billion.1 Plaintiffs, purchasers of Parmalat securities between January 5, 1999 and December 1 8 , 2003 (the "Class Period"), seek damages against Parmalat's accountants, banks and others. In a series of decisions, the Court granted in part and denied in part various motions to dismiss. It c e rtifie d a class consisting of domestic parties who purchased or otherwise acquired Parmalat se c u rities during the Class Period.2 The matter now is before the Court on the motions of Deloitte T o u c h e Tohmatsu ("DTT"), Deloitte & Touche LLP ("DT-US"), and James Copeland (collectively, the "Deloitte defendants") for summary judgment dismissing the complaint.
F a c ts T h e class plaintiffs represent a class of individuals who purchased ordinary Parmalat s h a re s and bonds during the Class Period. They sue the Deloitte defendants and others under
1
T h i rd Amended Consolidated Class Action Complaint for Violations of the Federal Securities L a w s ("Cpt.") ¶ 4.
2
In re Parmalat Sec. Litig., No. 04 MD 1653 (LAK), 2008 WL 3895539 (S.D.N.Y. Aug. 21, 2 0 0 8 ).
3
S e c tio n s 10(b) and 20(a) of the Securities Exchange Act of 1934 3 (the "Exchange Act") and Rule 1 0 b - 5 thereunder.4
D e l o i tte ' s Structure D e fe n d a n t DTT, a Swiss verein 5 headquartered in New York,6 is a professional s e rv ic e s organization of member firms, which sometimes are referred to collectively as a "global firm ." 7 These member firms, including defendants Deloitte & Touche, S.p.A. ("Deloitte Italy") and D T - U S , generally are organized as limited liability entities under the laws of their respective j u r i s d i c t io n s . 8 A c c o u n tin g and auditing standards and regulation of the accounting profession often a re country specific. In addition to complying with any locally applicable rules, however, Deloitte
3
15 U.S.C. §§ 78j(b), t(a).
4
17 C.F.R. § 240.10b-5 (2005).
5
A verein is a Swiss business form that DTT alleges is legally distinct from its member o rg an iza tion s. See Jeffries v. Deloitte Touche Tohmatsu Int'l, 893 F. Supp. 455, 457 n.1 (E.D. P a. 1995). "Verein" means association, society, club or union. CASSEL'S GERMAN D IC TIO N A R Y 662 (1978); see also LANGENSCHEIDT'S STANDARD DICTIONARY OF THE ENGLISH A N D GERMAN LANGUAGES 1163 (6th ed. 1970).
6
C o p e l an d Dep. 13-14.
7
I d . at 55.
8
D ef. Rule 56.1 ¶ 6. Some member firms have affiliated or subsidiary firms. For example, Deloitte Touche T oh m atsu Auditores Independentes ("Deloitte Brazil"), the Deloitte firm in Brazil, is a su b sid iary of Deloitte Touche Tohmatsu USA. Id.
4
firm s follow general professional standards and auditing procedures promulgated by DTT. Member firm s regularly cross check each other's work to ensure quality,9 and they cooperate and join to g e t h e r under the direction of a single partner to provide audit services for international clients.10 P a rtn e rs and associates of member firms participate in global practice groups and attend DTT m e e t in g s .11 A lth o u g h 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 c l ie n ts to "get[] consistent seamless service across national boundaries." 12 Member firms therefore u se the Deloitte name when serving international clients "in order to project the image of a cohesive inte rn a tio n a l organization." 13
T h e Parmalat Scandal and Deloitte Italy T h e claims against the Deloitte defendants all rest on the premise that they are v ic a rio u s ly liable for the alleged fraud of Deloitte Italy, one of Parmalat's former auditors, which h a s not joined in the motion. The motion itself seeks dismissal only on the ground that the Deloitte d e fe n d a n ts are not vicariously liable. It does not dispute that Deloitte Italy itself is primarily liable
9
D T 96259-268.
10
D T I ta lia 96061-66.
11
D T U S A 562-63.
12
C o p e l an d Dep. 55.
13
D T I ta lia 96099-96100.
5
f o r the alleged fraud. Accordingly, it suffices for present purposes to outline briefly plaintiffs' a lle g a tio n s with respect to the Parmalat scandal generally and Deloitte Italy's role. In the early 1990s, Parmalat, an Italian dairy conglomerate known for its long shelflife milk, pursued an aggressive growth strategy financed largely by debt. Its expansion into South A m e r ic a , however, turned out to be ill-advised, and it began to lose hundreds of millions of dollars th e re .14 The company needed constant infusions of cash to cover these losses, service its massive d e b t, and hide the personal diversion of funds by Parmalat chief executive officer Calisto Tanzi and h is family.15 But cash could be obtained only so long as Parmalat appeared to be a sound in v e s tm e n t. To this end, insiders at Parmalat and Grant Thornton S.p.A.16 ("GT-Italy") concocted a scheme involving misleading transactions and off-shore entities that created the appearance of fin a n c ia l health.17 One such transaction, for example, involved a fictitious sale of 300,000 tons of p o w d e r e d milk to Cuba for $620 million.18 Loans obtained on the basis of this transaction were
14
C p t . ¶ 240 ("By 1995, Parmalat was losing about $320 million a year in its South American op eration s alone.").
15
I d . ¶¶ 266, 370-80. According to former Parmalat chief financial officer Fausto Tonna, hundreds of millions of d o llars were transferred to Tanzi family companies. Id. ¶ 370.
16
T h e complaint uses the name "Grant Thornton" without distinction among GT-Italy, Grant T h o rn ton LLP, and Grant Thornton International.
17
C p t. ¶¶ 12-14.
18
I d . ¶¶ 284. A Chilean subsidiary of Parmalat actually had a contract with the Cuban importer for $700,000 w o rth of powdered milk a month, or about 7,000-8,000 tons of milk annually. Id. ¶ 286.
6
u se d to service debt and obtain more loans.19 In short, Parmalat and its confederates were operating s o m e th in g akin to a Ponzi scheme. Ita lia n law obliged Parmalat to switch auditors in 1999. Concerned that new a u d ito rs would discover and disclose the fraud, Parmalat and GT-Italy moved the allegedly fictitio u s financing transactions to Bonlat, a new company incorporated in the Caribbean that would c o n t in u e to be audited by Grant Thornton.20 Parmalat then hired Deloitte Italy as its auditor. D e l o i tte offices in numerous countries audited Parmalat and its subsidiaries and affiliates as part o f this worldwide engagement.21 Despite the company's fear that new auditors would not continue to acquiesce in the fraud, the Deloitte defendants allegedly discovered or recklessly ignored the fra u d , yet certified the company's financial statements as substantially accurate.22
19
O n e of the more significant parts of this scheme used a multi-step process to create the a p p e ara n c e of revenue while removing debt from Parmalat's books. First, Parmalat issued a phony invoice to an offshore shell company, principally Bonlat after 1999, thus creating a n account receivable for a nonexistent debt. Id. ¶ 241. At the same time it issued the in v o ic e , Parmalat created a discounted bill, which represented the subsidiary's payment o b lig a tio n to Parmalat. Id. ¶ 242. It then sold the discounted bill to a bank, giving the bank th e right to be paid on the invoice. The shell companies did not have any assets or revenue, h o w e v e r, and so Parmalat loaned the company money to pay the bank. Next, Parmalat re c o rd e d the transfer as an investment in a subsidiary rather than as a loan. Id. ¶¶ 242-43. F in a lly , at the end of the accounting period, Parmalat assigned the credit and the liability on th e invoice of the consolidated subsidiary to an unconsolidated subsidiary. Id. ¶¶ 244. P a rm a la t then recorded the transaction as an asset because it then had a credit owed to it by an unconsolidated subsidiary. Plaintiffs contend that this scheme allowed Parmalat to obtain m a ss iv e amounts of cash in loans from banks while recording them as assets, which gave ris e to Parmalat's overvaluation. Id. ¶¶ 236, 244-49.
20
I d . ¶ 260-61 (quoting Tonna's account of the enterprise to Italian authorities on December 23, 20 03 ).
21
Id . ¶137.
22
E . g ., id. ¶¶ 1033-34, 1041, 1108, 1137.
7
B y late 2003, the scheme became unsustainable. Parmalat had a liquidity crisis, and th e ensuing collapse was rapid. In early December, Parmalat could not pay certain maturing b o n d s .23 By December 11, the company's stock had lost half its value.24 Trading was suspended fo r days by Italian regulators.25 Parmalat's bonds rapidly lost value as well.26 On December 19, th e company announced that a Bank of America account allegedly held by its Bonlat affiliate that su p p o se d ly contained $4.9 billion did not exist.27 P a rm a la t filed for bankruptcy in Italy on December 24 and was declared insolvent th re e days later.28 Italian authorities thereafter indicted a number of Parmalat executives and ins ide rs as well as the company's auditor, Deloitte Italy. Authorities also arrested many individuals c o n n e c t e d with the fraud and seized their assets.29
23
I d . ¶¶ 827-29.
24
I d . ¶ 830.
25
I d . ¶¶ 826, 830.
26
I d . ¶ 830.
27
Id . ¶ 835.
28
I d . ¶¶ 840-41. Parmalat's United States subsidiaries filed for bankruptcy in the Southern District of New Y ork . See Grant Thornton Int'l v. Parmalat Finanziaria, S.p.A., 326 B.R. 46 (Bankr. S .D.N .Y. 2005).
29
C p t . ¶¶ 117-29, 138.
8
D is c u s s io n T h e Deloitte defendants move for summary judgment dismissing plaintiffs' claims u n d e r Sections 10(b) and 20(a) of the Exchange Act. Alternatively, they assert that they are e n title d to summary judgment determining that they are not jointly and severally liable pursuant to Section 21D(f)(2)(A) of the Private Securities Litigation Reform Act of 1995 ("PSLRA").30
A.
S u m m a r y Judgment Standard S u m m a ry judgment is proper when there is no genuine issue of material fact and the
m o v a n t is entitled to judgment as a matter of law.31 Where, as here, the burden of proof at trial w o u ld fall on the nonmoving party,32 it ordinarily is sufficient for the movant to point to a lack of e v ide n c e to go to the trier of fact on an essential element of the non-movant's claim.33 In that event, th e non-moving party must come forward with admissible evidence sufficient to raise a genuine issu e of fact for trial in order to avoid summary judgment.34
30
1 5 U.S.C. § 78u-4(f)(2)(A).
31
F E D . R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
32
A lth o u g h this is a point of debate within the Circuit, this Court holds the view that lack of c u lp a b le participation or a defendant's good faith is an affirmative defense to a Section 20(a) c la im which the defendant bears the burden of proving. See, e.g., CSX Corp. v. Children's In v . Fund Management (UK) LLP, 562 F. Supp.2d 511, 558 & n.244 (S.D.N.Y. 2008); In r e Parmalat Sec. Litig., 375 F. Supp.2d 278, 307-08 & n.198 (S.D.N.Y. 2005); In re NTL, In c . Sec. Litig., 347 F. Supp.2d 15, 37 n. 127 (S.D.N.Y.2004) (collecting cases).
33
C e lo te x , 477 U.S. at 322-323; Virgin Atl. Airways Ltd. v. British Airways PLC, 257 F.3d 2 5 6 , 273 (2d Cir. 2001).
34
C e lo te x , 477 U.S. at 322-323; Raskin v. Wyatt Co., 125 F.3d 55, 65-66 (2d Cir.1997).
9
B. V ic a r io u s Liability After Stoneridge T h e Deloitte defendants first challenge plaintiffs' claim that DTT is vicariously lia b l e on a respondeat superior theory for federal securities law violations of its alleged agent, D e lo itte Italy. This claim, they argue, cannot survive the Supreme Court's decision in Stoneridge In v e s tm e n t Partners, LLC v. Scientific-Atlanta, Inc.,35 which, in their view, foreclosed common law th e o rie s of secondary liability for Exchange Act claims. Section 20(a) of the Exchange Act, the D e lo itte defendants argue, now is the exclusive basis for vicarious liability for Exchange Act v i o l a tio n s .36 In Stoneridge, the Supreme Court held that "[r]eliance by the plaintiff upon the d e fe n d a n t's deceptive acts is an essential element of the Section10(b) private cause of action." 37 T h e Court stated that "[t]he conduct of a secondary actor must satisfy each of the elements or p r ec o n d i tio n s for liability" and concluded that Section 10(b) "does not incorporate common-law fra u d into federal law." 38
35
1 2 8 S. Ct. 761 (2008). The Deloitte defendants argue also that the Court must grant s u m m a r y judgment dismissing plaintiffs' alter ego claim. Plaintiffs do not appear to pursue s u ch a claim, as they do not address it in their response brief. Previously, the Court declined t o consider plaintiffs' alter ego claim after concluding plaintiffs had pleaded adequately an a g e n c y relationship. See In re Parmalat Sec. Litig., 375 F. Supp.2d 278, 296 (S.D.N.Y. 2 0 0 5 ).
36
D e f. Br. at 6-7.
37
1 2 8 S. Ct. at 769.
38
Id . at 769, 771.
10
W e re it considered in a vacuum, aspects of the Stoneridge Court's reasoning would se e m to apply also to common law agency principles.39 Nevertheless, Stoneridge did not deal with th e question presented here, viz. whether a principal is liable vicariously for an Exchange Act v i o l a tio n committed by its agent acting within the agent's scope of employment. There are su b sta n tia l reasons why its holding should not be extended, at least by a district court. A t the most basic level, the common law principle of respondeat superior i.e., that a principal is liable for the acts of its agent within the scope of the agent's authority is centuries o ld .40 The Second Circuit and nearly every other circuit to have considered the question e x p r e s s l y has permitted the application of the common law principle of respondeat superior to hold p r i n c i p a l s liable for Section 10(b) violations by their agents.41
39
While there doubtless are
S e e , e.g., id. at 771 ("`Congress, in enacting the securities laws, did not intend to provide a b ro a d federal remedy for all fraud.'") (quoting Marine Bank v. Weaver, 455 U.S. 551, 556 (1 9 8 2 )).
40
S e e , e.g., The Hector, 24 How. (62 U.S.) 110, 123 (1860); Philadelphia & Reading R. Co. v . Derby, 14 How. (55 U.S.) 468, 479 (1852); JOSEPH STORY, COMMENTARIES ON THE LAWS O F AGENCY § 452, at 465-66,(1839); I WILLIAM BLACKSTONE, COMMENTARIES ON THE L A W S OF ENGLAND 417-20 (1765).
41
S e e Marbury Mgmt., Inc. v. Kohn, 629 F.2d 705, 716 (2d Cir. 1980); Secs & Exch. Comm'n v . Mgmt. Dynamics, Inc., 515 F.2d 801, 812-13 (2d Cir. 1975); see also Hollinger v. Titan C a p ita l Corp., 914 F.2d 1564, 1576-78 (9th Cir. 1990) (en banc); Commerford v. Olson, 794 F .2 d 1319, 1322-23 (8th Cir. 1986); In re Atlantic Fin. Mgmt.,784 F.2d 29, 32-35 (1st Cir. 1 9 8 6 ); Paul F. Newton & Co. v. Texas Commerce Bank, 630 F.2d 1111, 1118-19 (5th Cir. 1 9 8 0 ); Holloway v. Howerdd, 536 F.2d 690, 694-95 (6th Cir. 1976); Carras v. Burns, 516 F .2 d 251, 259 (4th Cir. 1975); Fey v. Walston & Co., Inc., 493 F.2d 1036, 1051-52 (7th Cir. 1 9 7 4 ); Kerbs v. Fall River Indus., Inc., 502 F.2d 731, 740-41 (10th Cir. 1974); but see Sharp v . Coopers & Lybrand, 649 F.2d 175, 180-84 (3d Cir. 1981) (holding that, in general, c o m m o n law agency principles should not establish secondary liability under Section 10(b), b u t that certain exceptions to this general rule exist in light of the "public trust" certain firms, in c lu d in g accounting firms, hold "and the duty to supervise arising therefrom"), overruled o n other grounds by In re Data Access Sys. Sec. Litig., 843 F.2d 1537 (3d Cir. 1988) (en b an c).
11
c ircu m sta n c e s in which a Supreme Court decision so undermines the viability of established circuit p re c e d e n t as to justify a district court in concluding that it need not follow previously binding c irc u it law, this Court is not persuaded that this is such an instance. T h e typical defendant in a Section 10b-5 or other Exchange Act case is a c o rp o ra tio n . Corporations and other legal entities, as we frequently instruct juries, are not living, b r ea th in g human beings and therefore can act only through their agents. In consequence,
a c c e p ta n c e of the Deloitte defendants' argument would confine liability for securities law violations c o m m itte d by corporate officers and employees to the individual malefactors and limit recovery a g a in s t the corporations that employed them and, frequently, benefitted from the securities v io la tio n s. This in turn would undermine the ability of defrauded investors to obtain meaningful c o m p e n s a tio n , as individual corporate employees who are personally culpable in the usual case se ldo m are capable of paying judgments of the requisite magnitude.42 It could undermine as well g o v e r n m e n t efforts to enforce the securities laws against corporations and other business entities. If the Supreme Court in Stoneridge intended any such transformation of this longs e ttle d principle of American law, it presumably would have made its intention clear. It did nothing o f the sort. Accordingly, this Court declines to do so here.
T h e Eleventh and District of Columbia Circuits have not spoken on this precise issue.
42
O f course, corporate officers and employees often will have claims for indemnification a g a in s t their employers. The practical utility of this fact, however, is at least somewhat lim ite d because claims for indemnification often do not arise until payment is made against th e judgment. See, e.g., RESTATEMENT (FIRST) OF RESTITUTION § 77 (1937).
12
C. DTT 1. Respondeat Superior Liability for Section 10(b) Violations by Deloitte Italy W h e th e r DTT may be held liable for the securities violations and other actions of D e loitte Italy turns on whether DTT had a principal-agent relationship with that member firm. An agency relationship exists under New York law 43 when there is an agreement b e tw e e n the principal and the agent that the agent will act for the principal, and the principal retains a degree of control over the agent.44 The element of control often is deemed the essential c h a ra c teristic of the principal-agent relationship. 45 "When the existence of an agency relationship is uncertain, the courts often look to control as a critical indicator." 46 T o bind a principal, "an agent must have authority, whether apparent, actual or im p lie d ." 47 Actual authority arises from a principal's direct manifestations to the agent.48 It "`may
43
T h e law of the forum state governs where, as here, no party alleges that the law of a different sta te controls and differs from that of the forum. See, e.g., Questrom v. Federated Dep't S to r es , Inc., 192 F.R.D. 128, 133 n.26 (S.D.N.Y. 2000), aff'd, 2 Fed. Appx. 81 (2d Cir. 2 0 0 1 ).
44
C o m m e r c ia l Union Ins. Co. v. Alitalia Airlines, S.p.A., 347 F.3d 448, 462 (2d Cir. 2003); N .Y . Marine & Gen. Ins. Co. v. Tradeline, LLC, 266 F.3d 112, 122 (2d Cir. 2001) (quoting M e e se v. Miller, 79 A.D.2d 237, 242, 436 N.Y.S.2d 496, 499 (4th Dep't 1981)); see also M a u r illo v. Park Slope U-Haul, 194 A.D.2d 142, 146, 606 N.Y.S.2d 243, 246 (2d Dep't 1 9 9 3 ).
45
S e e , e.g., Meese, 79 A.D.2d at 241; RESTATEMENT (SECOND) AGENCY § 14 cmt. a. (1958).
46
M a ritim e Ventures Int'l, Inc. v. Carribean Trading & Fidelity, 689 F. Supp. 1340, 1353 ( S . D . N . Y . 1988).
47
M e rr ill Lynch Interfunding, Inc. v. Argenti, 155 F.3d 113, 122 (2d Cir. 1998) (applying New Y o rk law); see also In re Parmalat Sec. Litig., 375 F. Supp.2d at 290.
48
D in a c o , Inc. v. Time Warner, Inc., 346 F.3d 64, 68 (2d Cir. 2003) (applying New York law).
13
b e express or implied, but in either case it exists only where the agent may reasonably infer from th e words or conduct of the principal that the principal has consented to the agent's performance o f a particular act.'"
49
T h e Deloitte defendants contend that plaintiffs have failed to raise a genuine issue o f material fact as to whether DTT and Deloitte Italy had a principal-agent relationship. Plaintiffs, h o w e v e r, point to numerous facts that could be taken as indicating that DTT structured and c o n d u cte d itself in a manner that permitted it to exercise control over its member firms, including D e loitte Italy. To begin with, DTT exercised substantial control over the manner in which the m e m b e r firms conducted their professional activities. Each member firm agreed in DTT's g o v e r n in g document, the Articles of the Verein, to "support and adhere to the purposes and policies o f the Verein" and to "be bound by the requirements contained in resolutions and protocols . . . in c lu d in g . . . those regarding professional standards and methodologies." 50 DTT set the policies th a t governed member firms, including Deloitte Italy, which dictated the specific methodologies to be applied in conducting audits and the particular software and documentation procedures to be u se d .51 It required member firms to sign license agreements pursuant to which they agreed to
49
I d . (quoting Minskoff v. Am. Express Travel Related Serv. Co., 98 F.3d 703, 708 (2d Cir. 1 9 9 6 ) (in turn quoting RESTATEMENT (SECOND) AGENCY § 7 cmt. b (1958)) (emphasis o m itte d )); see Riverside Research Inst. v. KMGA, Inc., 108 A.D.2d 365, 370, 489 N.Y.S.2d 2 2 0 , 223 (1st Dep't 1985), aff'd, 68 N.Y.2d 689 (1986).
50
D T T 017426-27-32 § 6.2(a).
51
E x . 1004, at 1 ("All services provided by the Member Firms are governed by these policies u n le ss their applicability is explicitly limited by the Executive Committee of Deloitte T o u c h e Tohmatsu.") (Deloitte Professional Practice Manual); id. (requiring the use of the
14
c o m p ly with DTT's "quality standards, specifications, directions, and procedures" 52 and required a review of each member firm's compliance every three years.53 D T T had control over the acceptance and rejection of engagements by member firms a n d required use of the company name.54 DTT's rules prohibited member firms from suing each o th e r55 and required that one member firm accept client work referred from another member firm.56 D T T could arrange, with the approval of the transferring firm, for the transfer of employees from o n e member firm to another.57 D T T played also a substantial role in the legal and risk management affairs of m e m b e r firms.58 Member firms, with the exception of DT-US, generally did not have in-house le g a l counsel, but relied instead on DTT's legal staff.59 DTT instructed auditors to refer press
A u d it Approach Manual by Member Firms for "all audit engagements covering fiscal p e rio d s beginning on or after December 31, 1995"); see also DTItalia 000097749-98709 (the A u d i t Approach Manual).
52
D T 17385 § 5.1.
53
E x . 1004 at 204. DTT chooses which firms and which specific audit engagements will be re v ie w e d . Willemain Dep. 29-30.
54
P l. Rule 56.1 ¶¶ 25-28; DT 442660-62.
55
M u rra y Dep. 94.
56
E x . 1644 at 2.
57
M u rra y Dep. 258-60.
58
P l. Br. at 14-15.
59
M u rra y Dep. 23-26.
15
in q u i r ie s to DTT and, where lawsuits naming a member firm were threatened or filed, DTT lawyers re v iew e d the work papers of that member firm.60 In addition, DTT required member firms to p u r c h a se specified levels of insurance coverage.61 T h e Deloitte defendants contend that the manner in which DTT is structured does n o t demonstrate control.62 Some courts have adopted that view. 63 But plaintiffs do not rely upon D T T 's structure alone. D T T 's Professional Practice Manual states that "differences of opinion between M e m b e r Firms . . . should be resolved" by referring such matters "to the Chairman and Chief
60
P e n a Dep. 23-24.
61
H o lt Dep. 174-75; Ex. 1803 at 7.
62
D e f. Br. at 15-21.
63
In re Asia Pulp & Paper, 293 F. Supp.2d 391, 393, 396 (S.D.N.Y. 2003) (allegations of cost a n d profit sharing, partner overlap, global setting of professional standards, and maintenance o f a global infrastructure and administration insufficient to demonstrate "control" under S e c tio n 20(a) for purposes of motion to dismiss when no allegation that global umbrella e n tity controlled or influenced particular audits by individual member firms); Nuevo Mundo H o ld in g s v. Pricewaterhouse Coopers LLP, No. 03 Civ.0613 (GBD), 2004 WL 112948, at * * 3 - 6 (S.D.N.Y. Jan. 22, 2004) (global umbrella entity that requires member firms to adhere to certain procedures and conducts reviews to ensure that member firms follow those p ro c e d u re s insufficient find principal/agent relationship between global entity and member firm when there were no allegations that the global entity participated in decisions about h o w member firms completed audit reports or that the global entity was aware of or c o n trib u te d to a decision to alter the audit reports); Howard v. Klynveld Peat Marwick G o e rd e le r, 977 F. Supp. 654, 661-62 (S.D.N.Y. 1997) (umbrella entity that set standards for m e m b e r accounting firms and provided general assistance does not have a principal agent re la tio n sh ip with member firm); but see Banco Espirito Santo Int'l v. BDO Int'l, 979 So. 2d 1 0 3 0 , 1033-34 (Fla. Dist. Ct. App. 2008) (holding that evidence demonstrating, inter alia, th a t global entity could require member firms to provide services to clients, comply with g l o b a l operating directives and restrictions, and submit to review of member firm's c o m p l ia n c e presented a triable issue of material fact as to agency).
16
E x e c u tiv e for resolution." 64 Moreover, there is evidence that DTT exercised that authority in the sp e c ific context of the Parmalat engagement. In 2002, Deloitte Brazil and Deloitte Italy had a difference of opinion about how to trea t certain related party transactions in which Parmalat Brazil had engaged. Wanderley Olivetti o f Deloitte Brazil concluded that the audit report should include an emphasis paragraph describing th e transaction. Deloitte Italy disagreed and requested that DTT "arbitrate the matter." 65 James C o p e la n d , the chief executive officer of DTT, appointed Richard Murray to do so. Murray d e sc rib e d his assignment as one that "invoked the CEO's responsibility to resolve differences in a c c o rd a n c e with the dispute resolution provisions of . . . the practice manual."66 M u r r a y held a conference call during which the "principal business . . . was [his] d e c la ra tio n of [his] conclusion" about the appropriate disclosure. He characterized the call as "an a n n o u n c e m e n t of [his] recommendation jointly to the two firms and an acceptance by each firm that the y would abide by the decision."67 He concluded that "[n]on-disclosure [of the transaction] . . . [w a ]s unacceptable." 68 T h e Deloitte defendants argue that DTT neither controlled nor had authority to
64
E x . 1004 § 1510 at 43-44.
65
E x . 1005 DTT282597. "Arbitration" is a "binding" method of dispute resolution. BLACK'S LAW DICTIONARY (8th e d . 2004).
66
M u rra y Dep. 43.
67
Id . at 141.
68
E x . 1012 at 1.
17
c o n t r o l Deloitte Brazil's decisions about the audit report. They emphasize Murrary's c h a ra c te riz a tio n of his role as arriving at a "voluntary," "consensus" solution following consultation w ith Deloitte Italy and Deloitte Brazil.69 They point also to the testimony of Alcides Hellmeister, the managing partner of Deloitte Brazil, who stated that "DTT had no authority to tell Deloitte B ra z il how to conduct its audits of the financial statements of Parmalat Brazil, and it did not do so ." 70 T h e testimony upon which the Deloitte defendants rely would support a conclusion a t trial that DTT did not control the outcome of the Deloitte Brazil Deloitte Italy dispute 71 and e v e n , perhaps, a conclusion that DTT lacked the authority to dictate the outcomes of disputes a m o n g member firms generally. But the standard on a motion for summary judgment is different. H e re the Court is obliged to view the evidence in the light most favorable to the plaintiffs. And by tha t standard, the argument falls short. T h e Deloitte defendants' position ignores the DTT Practice Manual, which confers a u th o rity to resolve disputes on DTT's chief executive officer, and Deloitte Italy's request that the m a tte r be "arbitrate[d]," a word that means, or is at least susceptible of interpretation as referring
69
M u rra ry Dep. 139 ("I achieved a consensus agreement on a voluntary basis resolving a high i n t e n s i ty dispute by Monday morning.").
70
H e llm e is te r Aff. at ¶ 8.
71
T h e fact that a member firm seeks guidance from or confers with DTT does not necessarily ind icate that it is subject to DTT's control. See Maung NE We & Massive Atlantic Ltd. v. M e rr ill Lynch & Co., Inc., No. 99 CIV. 9687 (CSH), 2000 WL 1159835, at *7 (S.D.N.Y. A u g . 15, 2000) ("It is one thing to `consult' with, or obtain `recommendations' or approval f r o m a parent corporation. It is quite another for the parent's approval to be required before t h e subsidiary can act.").
18
to , a binding determination by a third party. Against the background of these documents, the c h a ra c te riz a tio n s of the authority and roles of Messrs. Copeland and Murray reasonably could be v i e w e d as self-serving and unpersuasive attempts to put a helpful face on otherwise unhelpful facts. W e re a jury so to conclude, it would be justified in concluding also that DTT actually did dictate the resolution of the Deloitte Brazil dispute with Deloitte Italy. Evidence that a global entity c o n t r o lle d or influenced a particular audit report of a member firm, taken together with plaintiffs' s tru c tu ra l evidence,72 is sufficient to permit the conclusion, under even the most stringent standard, th a t the global entity controlled the member firm.73 T h e Deloitte defendants argue also that Rodonich v. House Wreckers Union Local 9 5 74 stands for the proposition that Deloitte member firms were not DTT agents even if DTT did d e c id e an issue relating to the Parmalat audit. But the argument is not convincing. In Rodonich, the Second Circuit affirmed a grant of summary judgment for an in te rn a tio n a l union, concluding that it could not be held liable as a principal for Local 95's im p o s itio n of discipline on a member.75 In Rodonich, however, the local had the power to impose
72
S e e United States v. Corr, 543 F.2d 1042, 1050 (2d Cir. 1976) (noting that "control" for c o n tro l person liability is a factual question that depends on the totality of the circu m stan ce s).
73
S e e , e.g., In re Asia Pulp & Paper, 293 F. Supp.2d at 396 (dismissing complaint alleging v ic a rio u s liability of global accounting firm where complaint alleged only "`one-firm'" or " u n ifie d company theory" of agency and noting the significant absence of allegations that th e global entity "was able to control or in any way influence the particular audits conducted o r opinions offered by its individual firm members").
74
8 1 7 F.2d 967, 974-75 (2d Cir. 1987).
75
Id . at 970.
19
d is c ip lin e pursuant to the union's constitution. The international had only the authority to conduct a n appellate review of that decision. The local could not and did not act at the international's d ire c tio n at any stage of its own decision making process.76 Here, in contrast, there is evidence that w o u ld permit the conclusion that DTT had the power to impose its will on a member firm's p ro fe s s io n a l judgment and that it exercised that power to dictate to Deloitte Brazil an outcome fa v o ra b le to Deloitte Italy. In all the circumstances, the totality of the evidence including evidence concerning th e structure and internal relationships of Deloitte generally, DTT's authority over the professional p r ac tic e s of the member firms, and DTT's exercise of that authority in connection with the Parmalat e n g a g e m e n t raises a genuine issue of material fact as to whether Deloitte Italy was an agent of D T T with respect to the Parmalat engagement. Accordingly, DTT is not entitled to summary ju d g m e n t dismissing the claims against it to the extent they rest on the theory that DTT is liable on th e basis of respondeat superior for any Section 10(b) liability that Deloitte Italy may have to p l a i n tif fs .
2.
S e c tio n 20(a) Liability T h e DTT next contends that it is entitled to summary judgment dismissing plaintiffs'
E x c h a n g e Act Section 20(a) claim. Section 20(a) provides that: "[e ]v e ry person who, directly or indirectly, controls any person liable under any p ro v is io n of this chapter . . . shall also be liable jointly and severally with and to the s a m e extent as such controlled person to any person whom such controlled person
76
Id . at 974-75.
20
is liable, unless the controlling person acted in good faith and did not directly or ind irec tly induce the act or acts constituting the violation or cause of action." 77 D T T argues that it is entitled to summary judgment because there is no evidence that would justify a conclusion that it controlled the alleged primary violator, Deloitte Italy. It contends in any event tha t the record indisputably establishes that it acted in good faith and did not induce the act or acts c o n s t itu t in g the alleged violations.78
a.
C o n tr o l
C o n tro l of a primary violator under Section 20(a) may be demonstrated by "showing th a t the defendant `possessed the power to direct or cause the direction of the management and p o l ic ie s of a person, whether through the ownership of voting securities, by contract, or o th e rw is e .'" 79 "[O]nly the ability to direct the actions of the controlled person, and not the active e x e rc is e thereof" is required to establish control.80 DTT argues that control for Section 20(a) p u r p o s e s must extend to the transaction in question, whether or not it was exercised.81 As this Court a lrea d y has ruled in this case, however, the plain language of Section 20(a), requires control only
77
1 5 U.S.C. § 78t(a).
78
T h e Deloitte defendants do not dispute for purposes of this motion that there was a primary v io la tio n by the controlled person. See SEC v. First Jersey Secs., Inc., 101 F.3d 1450, 1472 ( 2 d Cir. 1996) (listing elements of § 20(a) claim).
79
F i rs t Jersey, 101 F.3d at 1472-73 (quoting 17 C.F.R. § 240.12b-2 and adopting this standard f o r a Section 20(a) claim).
80
S e e Dietrich v. Bauer, 126 F. Supp.2d 759, 764-65 (S.D.N.Y. 2001); see also In re Flaff T e le c o m Holdings, Ltd. Sec. Litig., 352 F. Supp.2d 429, 458 (S.D.N.Y. 2005) (citing D ie tr ic h for same proposition).
81
D e f. Br. at 24-25.
21
o f a person or entity liable under the chapter, not of the transaction constituting the violation.82 R e q u i r in g a plaintiff to prove not only that the defendant controlled the person or entity, but also tha t the defendant exercised control over the transaction constituting the violation, would be in s e rio u s tension and probably inconsistent with the language of the statute. It would be inconsistent a ls o with this Court's oft-stated view that a plaintiff relying on Section 20(a) is not obliged to allege o r prove a controlling person's culpable participation in the violation 83 and with this Court's prior ru lin g in this case.84 E v e n if the Court adopted the view put forth by defendants, it would not reach a d iffe re n t result. As discussed above, plaintiffs have presented sufficient evidence that DTT had the a b ility to influence the preparation of member firms' audit reports generally and the Parmalat audit re p o rt prepared by Deloitte Brazil specifically. Thus, whether or not DTT's control must extend to th e transaction in question need not affect the analysis of this issue. The Court concludes that p l a i n tif fs have shown that there is a genuine issue of material fact as to whether DTT was a c o n tro llin g person.85
82
In re Parmalat Sec. Litig., 474 F. Supp.2d 547, 554 (S.D.N.Y. 2007); see also 15 U.S.C. § 78j(t)(a) ("Every person who, directly or indirectly, controls any person liable under a n y provision of this chapter or of any rule or regulation thereunder shall also be liable j o i n t ly and severally with and to the same extent as such controlled person . . . .").
83
S e e , e.g., In re Parmalat Sec. Litig., 375 F. Supp.2d 278, 307-10 (S.D.N.Y. 2005). The C o u rt recognizes, of course, that there is a split of authority on this point. See, e.g., In re A l sto m SA Sec. Litig., 406 F. Supp.2d 433, 487 (S.D.N.Y. 2005); Cromer Finance Ltd. v. B e r g e r, 137 F. Supp.2d 452, 484 (S.D.N.Y. 2001).
84
In re Parmalat Sec. Litig., 474 F. Supp.2d 547, 554 (S.D.N.Y. 2007).
85
S e e In re Parmalat Sec. Litig., 375 F. Supp.2d at 310 (equating the two standards).
22
b. G o o d Faith
G o o d faith is an affirmative defense. "It is not enough on a motion for summary ju d g m e n t to demonstrate that plaintiffs fall short of producing evidence of culpable conduct; rather, th e defendant[s] must put forth [their] own evidence of this defense sufficient to direct a conclusion o f law that [they are] entitled to the defense." 86 T h e Deloitte defendants first argue that they have shown affirmatively that DTT a c te d in good faith. They point to the fact that there is no evidence that DTT had reason to know o f or recklessly disregarded any fraud by Deloitte Italy in connection with the Parmalat audits.87 P la in tiffs do not dispute this. But this alone is insufficient to demonstrate good faith, as it does not e x c lu d e the possibility that DTT was, for example, wilfully blind to a violation.88 T h e Deloitte defendants next point to evidence indicating that DTT had an a p p ro p ria te compliance review system in place. A court may consider such structures in deciding w h e th e r an entity's acts or omissions were in good faith.89 However, the existence of a compliance r e v i e w system alone is not sufficient to establish a good faith defense on a motion for summary ju d g m e n t. In SEC v. Lum's, Inc., for example, the district court found the issue of Lehman B r o t h e rs ' good faith "close," despite testimony by several witnesses about the company's
86
In re Boesky, Nos. 732, M21-45-MP, 1995 WL 456368, at *1 (S.D.N.Y. Aug. 1, 1995); see a ls o First Jersey, 101 F.3d at 1473 ("Once the plaintiff makes out a prima facie case of § 2 0 ( a ) liability, the burden shifts to the defendant to show that he acted in good faith.").
87
D e f. Br. at 26-27.
88
S e e , e.g., Compudyne Corp. v. Shane, 453 F. Supp.2d 807, 830 (S.D.N.Y. 2006); Dietrich, 1 2 6 F. Supp.2d at 765.
89
S e e SEC v. Lum's, Inc., 365 F. Supp. 1046, 1064-65 (S.D.N.Y. 1973).
23
c o m p lia n c e department and the procedures it took to ensure that employees were kept apprised of h o w to comply with securities laws.90 Here, the Deloitte defendants' evidence relates only to D T T ' s procedures and policies, but not to how those procedures and policies actually were im p l e m e n te d during the period in question.91 The lack of such evidence alone precludes this Court fro m ruling as a matter of law that defendants acted in good faith. T h i r d , the Deloitte defendants argue that the evidence demonstrates that DTT's a c tio n s and recommendations plainly were made in good faith when issues involving Parmalat a u d its were brought to its attention.92 By way of illustration, they point to the incident involving a difference of opinion between Deloitte Brazil and Deloitte Italy about the appropriate treatment o f a Parmalat Brazil transaction.93 They contend that their actions with respect to this incident d e m o n stra te their good faith because DTT ultimately recommended disclosure of the transaction.94
90
Id .
91
S e e Def. Br. at 27; see also First Jersey, 101 F.3d at 1473 (to establish good faith under S e c tio n 20(a), "the controlling person must prove that he . . . `maintained and enforced a re a so n a b le and proper system of supervision and internal controls'") (quoting Marbury M g m t. Inc. v. Kohn, 629 F.2d 705, 716 (2d Cir. 1980)) (emphasis added).
92
D e f. Br. at 27-28.
93
T h e Deloitte defendants discuss also an incident involving Deloitte Italy's concerns that DTU S 's decision to perform an appraisal for a company seeking to purchase Parmalat assets w o u ld impair Deloitte Italy's independence. DT-US requested that DTT speak with Deloitte Ita ly to see if the two member firms could reach an understanding. The Deloitte defendants c o n te n d that this incident demonstrates DTT's good faith as DTT repeatedly emphasized that, in the end, it was Deloitte Italy's decision whether DT-US's work would impair the Italian firm 's independence. See ex. 1437; ex 1252, at 1; Mamoli Dep. 110. This evidence may s u p p o rt a contention that DTT did not control Deloitte Italy, but does little to support the co n ten tio n that DTT acted in good faith.
94
D e f. Br. at 27-29.
24
T o plaintiffs, the same incident demonstrates DTT's willful blindness, as they argue the incident ra is e d warning signs that DTT intentionally ignored.95 T h e Deloitte defendants agree with plaintiffs that the Deloitte Brazil - Deloitte Italy d is p u te raised red flags, but argue that DTT responded to these warning signs appropriately.96 Jorge P e n a of DTT testified that DTT wanted to know whether the non-disclosure of the transaction in v o l v e d in the dispute was limited to Parmalat Brazil or whether, instead, other Parmalat s u b s id i a rie s had not disclosed similar transactions. He had heard, for instance, that Parmalat A rg e n tin a had been involved in such a transaction.97 After looking into the matter, however, Pena lea rn e d that the transaction involving Parmalat Argentina had been disclosed properly.98 This in d ic a te d to Pena that the dispute over the treatment of the transaction was a "Brazilian issue," not th e result of, say, the policy or influence of the parent Parmalat corporation.99 To DTT, that re n d e re d the issues raised by the dispute "far less important."100 C e rta in ly , the facts that DTT (a) resolved the dispute between Deloitte Italy and D e lo itte Brazil by deciding that some form of disclosure was necessary and (b) examined how a sim ila r transaction involving Parmalat Argentina had been treated would tend to support a
95
P l. Br. at 22.
96
D e f . Br. at 27-29.
97
P e n a Dep. 210-11.
98
I d . at 211.
99
Id .
100
Id .
25
c o n c lus ion that DTT was not willfully blind to Deloitte Italy's alleged violations. It is insufficient, h o w e v e r, to compel a conclusion of law that DTT acted in good faith. The willful blindness standard is satisfied where a control person "`knew or should h a v e known that [the] primary violator . . . was engaged in fraudulent conduct, but . . . did not take s te p s to prevent the primary violation.'" 101 Here, the Deloitte defendants ask the Court to conclude a s a matter of law that DTT's limited investigation was sufficient. The Court declines to do so. W h ile a jury might so find, a jury would be entitled to conclude also that the issue raised by the d is c lo s u re dispute merited more than merely looking to see how one similar transaction had been r e p o r te d . Indeed, Pena himself testified that DTT originally had been concerned that the pressure n o t to disclose the transaction had come from Parmalat itself, not the Brazilian subsidiary. But th e re is no evidence that DTT ever questioned Deloitte Italy about whether it was receiving client p re ssu re to resist disclosure nor conducted any other investigation. In all the circumstances, the Court concludes that DTT has failed to demonstrate that it is entitled to the good faith defense as a matter of law.
D.
DT-US 1. Control Person T h e Deloitte defendants next contend that DT-US is entitled to summary judgment
b e c a u se it did not control DTT. Plaintiffs, however, respond with at least three meritorious a rg u m e n ts. First, plaintiffs contend DT-US controls DTT through the many DT-US partners that
101
D ie tr ic h , 126 F. Supp.2d at 765 (quoting First Jersey, 101 F.3d at 1472).
26
o c c u p y key DTT positions.102 They point to the fact that the chief executive officer of DTT always h a s been a DT-US partner.103 Indeed, James Copeland, DTT's chief executive officer during the p e r io d relevant here, was simultaneously DT-US's chief executive officer.104 Additionally, DTT's c h ie f financial officer was also the chief financial officer of DT-US, and DTT's head of legal and r e g u la t o r y affairs and DTT's director of independence were former and current DT-US partners, re s p e c tiv e ly .105 T h is argument alone is not dispositive. As this Court already has stated in this case, "[i]t is a `well-established principle [of corporate law] that directors and officers holding positions w ith a parent and its subsidiary can and do "change hats" to represent the two corporations s e p a r a te ly , despite their common ownership.'" 106 But it certainly is relevant that several DT-US p a rtn e rs , including many who held key leadership positions at DT-US, simultaneously held officer p o s itio n s at DTT. S e c o n d , plaintiffs contend that DTT and its member firms depend on DT-US for fin a n c in g . It is uncontroverted that member firms provide DTT's main source of funding and that D T - U S contributes a significant portion of those funds, for example $80 million out of a $218
102
P l. Br. at 32-33.
103
B e rn ik o w Dep. 41-42.
104
B e rn ik o w Dep. 39.
105
C o p e la n d Dep. 40-41; Murray Dep. 20-21, 31, 34-35; Pena Dep. 118-19.
106
In re Parmalat, 501 F. Supp.2d 560, 588 (S.D.N.Y. 2007) (second alteration in original) (q u o tin g United States v. Bestfoods, 524 U.S. 51, 69-70 (1998)).
27
m illio n budget in 2001.107 Additionally, DT-US provided loans to DTT and guaranteed DTT's bank fin a n c ing .108 While the provision of funds alone is insufficient to support a finding that one entity c o n tro lle d another, the contribution of a significant portion of one entity's operating costs is a factor tha t may indicate control.109 P la in tiffs point also to what they assert was a specific instance of DT-US's control o f DTT. When DTT deliberated whether to separate its consulting function from its audit function, D T - U S partners voted for the proposal before other member firms voiced their agreement.110 The D T T board of directors then conditionally approved the transaction.111 Following the vote, h o w e v e r, DT-US changed its mind and concluded that separating Deloitte Consulting from DTT w a s too risky. Apparently without soliciting the opinions of other member firms, DTT management a g r e e d with DT-US to withdraw the plan from the board's consideration.112 From this, a jury re a so n a b ly could infer that DT-US at least influenced and possibly controlled DTT's decision. In sum, it is uncontroverted that several DT-US partners held key leadership
107
D e f. Rule 56.1 Statement ¶ 79.
108
C o p e la n d Dep. 35-36; Willemain Dep. 88-89.
109
S e e , e.g., Mecca v. Gibralter Corp., 746 F. Supp. 338, 342 (S.D.N.Y. 1990) (evidence s u ffic ie n t to support jury finding of control where individual defendant depended on d e fe n d a n t corporation's financing and corporation retained threat of bringing criminal c h a rg e s against individual defendant); Bulger v. Royal Doulton, PLC, No. 05 Civ. 7709, 2 0 0 6 WL 3771016, at *5 (S.D.N.Y. Dec. 16, 2005).
110
S e e Pl. Br. at 37; ex. 1814, at 1-2.
111
E x . 1814, at 1.
112
D T T 2000094.
28
p o sitio n s at DTT, including the position of chief executive officer, and that DT-US, through loans a n d outright contributions provided a large portion of DTT's funding. There is evidence also of at le a s t one instance in which DT-US may have influenced DTT's decision making. Considering the to ta lity of the circumstances, the Court concludes that plaintiffs have shown there is a genuine issue o f material fact as to whether DT-US controlled DTT.
2.
G o o d Faith
T h e Deloitte defendants assert only that DT-US did not know of any fraud relating to Parmalat Finanziaria.113 As discussed above, this assertion is insufficient to "`direct a conclusion o f law that [DT-US] is entitled to the defense." 114 The Court thus concludes that DT-US is not e n title d to summary judgment on the control person issue.
E.
Copeland 1. C o n tr o l Person A s Copeland was the chief executive officer of DT-US and DTT, plaintiffs have met
th e ir burden to demonstrate a genuine issue of fact as to whether Copeland was a control person of b o th entities.115
113
D e f. Br. at 36.
114
In re Boesky, 1995 WL 456368, at *1; see also First Jersey, 101 F.3d at 1473 ("Once the p la in tiff makes out a prima facie case of §20(a) liability, the burden shifts to the defendant to show that he acted in good faith."); In re WorldCom, 2005 WL 638268, at *15.
115
S e e In re Initial Public Offering Sec. Litig., 241 F. Supp.2d at 352 n. 26; Dietrich, 126 F. S u p p .2 d at 765-66, 768.
29
2. G o o d Faith T h e Deloitte defendants presented no evidence of Copeland's good faith in addition to that already discussed. Thus, for the reasons discussed above, the Court concludes that Copeland h a s failed to establish an affirmative defense of good faith.
F.
Joint and Several Liability In the alternative, the Deloitte defendants contend that they are entitled to summary
ju d g m e n t determining that they are not jointly and severally liable for any fraudulent conduct p u rsu a n t to Section 21D(f)(2)(A) of the PSLRA, which limits joint and several liability to d e f e n d a n ts who commit knowing rather than merely reckless violations of the securities laws.116 A c c o rd in g to the Senate Report, this amendment was intended to protect deepp o ck et defendants who "bear very little responsibility" for an alleged securities violation from being s u e d and potentially held liable for 100 percent of the damages.117 The legislative history indicates n o intent to alter traditional principles of vicarious liability under which liability is attributed to one p a r ty based on the actions of another party regardless of the first party's mental state. The Court th u s concludes that the Deloitte defendants are not entitled to summary judgment on this claim.
116
1 5 U.S.C. § 78u-4(f).
117
S e e S. Rep. No. 104-98, at p. 29, 104th Cong., 1st Sess. 1995, reprinted in 1995 U .S . C .C .A .N . 679.
30
C o n c lu sio n For the foregoing reasons, the Deloitte defendants' motion for summary judgment [0 4 Civ. 0030 docket item 984; 04 MD 1653 docket item 1586] is denied.
S O ORDERED. D a te d : J a n u a ry 27, 2009
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