In re Herald, Primeo and Thema Funds Securities Litigation

Filing 264

FILING ERROR - DEFICIENT DOCKET ENTRY - DECLARATION of Antony L. Ryan in Support re: #252 JOINT MOTION to Dismiss. Document filed by PriceWaterhouseCoopers LLP, Pricewaterhousecoopers (Dublin), Pricewaterhousecoopers Bermuda, Pricewaterhousecoopers International Ltd.. (Attachments: #1 Exhibit 1 - Declaration of Mark Sanfey (Part 1 of 3), #2 Exhibit 1 - Declaration of Mark Sanfey (Part 2 of 3), #3 Exhibit 1 - Declaration of Mark Sanfey (Part 3 of 3), #4 Exhibit 2 - Declaration of Vincent MacMahon, #5 Exhibit 3 - Declaration of Anthony Weldon, #6 Exhibit A to Declaration of Anthony Weldon)(Ryan, Antony) Modified on 6/30/2011 (db).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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IN RE HERALD, PRIMEO AND THEMA
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FUNDS SECURITIES LITIGATION
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This Document Relates to: All Actions
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Master File No. 09 Civ. 289
(RMB) (HBP)
ECF Case
Electronically Filed

ATTORNEY DECLARATION OF ANTONY L. RYAN
IN SUPPORT OF THE PWC DEFENDANTS’ MOTION TO DISMISS

I, ANTONY L. RYAN, under penalty of perjury, declare the following:
1.

I am a member of the firm of Cravath, Swaine & Moore LLP, counsel for PwC

Ireland. I have coordinated this declaration with counsel for PwC U.S., PwC Bermuda and
PwCIL, and submit this declaration in support of the motions to dismiss by each of the four PwC
Defendants in the Thema-related action, Davis v. Benbassat.
2.

PwC Ireland is an Irish professional services firm organized as a partnership

under Irish law. PwC Ireland is a member firm of the PwC network of firms, as are PwC U.S.
and PwC Bermuda. Each PwC member firm is a separate legal entity organized under the laws
of its own jurisdiction. PwCIL is the coordinating entity for the PwC network and is itself a
separate legal entity from each of the PwC member firms. PwCIL does not provide professional
services and does not control the member firms in the PwC network.
3.

PwC Ireland was engaged by Thema to audit its annual financial statements. PwC

Ireland conducted those audits in Ireland. PwC U.S., PwC Bermuda and PwCIL were not
retained by Thema, and did not issue reports on Thema’s financial statements.
4.

Plaintiff alleges that the PwC Defendants were negligent because they did not

uncover the fraud by Madoff at BMIS, a firm none of the PwC Defendants was ever engaged to
audit. As other courts in this District have found, “[t]he notion that a firm engaged to audit the
financial statements of one client . . . must conduct audit procedures on a third party that is not an
audit client (BMIS) on whose financial statements the audit firm expresses no opinion is
unprecedented and has no basis”. Meridian, 747 F. Supp. 2d at 413; see also Stephenson, 2011
WL 781936, at *14; Tremont, 703 F. Supp. 2d at 371.
Personal Jurisdiction, Venue and Forum Non Conveniens
5.

PwC Ireland moves to dismiss under Fed. R. Civ. P. 12(b)(2). The Complaint

does not make a prima facie showing of personal jurisdiction—either general or specific—over
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PwC Ireland. See Jazini, 148 F.3d at 185. PwC Ireland submits a declaration from its partner
Vincent MacMahon establishing that there is no general jurisdiction over PwC Ireland in New
York. (MacMahon Decl. ¶¶ 9-15.) That PwC Ireland occasionally receives payments from
clients in New York (TC ¶ 116) does not establish a “continuous and systematic course of doing
business” in New York, as those services are provided in Ireland, and 1% or less of the firm’s
revenue comes from such services. (MacMahon Decl. ¶ 12.) See Overseas Media, Inc. v.
Skvortsov, 407 F. Supp. 2d 563, 569 (S.D.N.Y. 2006), aff’d, 277 Fed. Appx. 92 (2d Cir. 2008).
6.

PwC Ireland submits a declaration from its partner Anthony Weldon establishing

that PwC Ireland did not engage in conduct giving rise to specific jurisdiction. Mr. Weldon
attests that no one from PwC Ireland visited the U.S. in connection with the Thema audit.
(Weldon Decl. ¶ 5); see also CRT, 2011 WL 2225050, at *1 (auditor’s receipt of information
from New York for use in audit conducted abroad does not create personal jurisdiction in New
York). Mr. Weldon also sets out facts establishing that PwC U.S. and PwC Bermuda were not
PwC Ireland’s agents for purposes of CPLR 302. (Weldon Decl. ¶¶ 6-7.) Based on nearly
identical allegations as here, another district court held that PwC Ireland is not subject to
personal jurisdiction in New York. Banco Santander, 732 F. Supp. 2d at 1326-29.
7.

All the PwC Defendants move to dismiss under Fed. R. Civ. P. 12(b)(3) and for

forum non conveniens. The forum non conveniens grounds are set forth in Defendants’ joint
brief and supported by the declaration of Mark Sanfey, an expert on Irish law. In addition, the
derivative claims against the PwC Defendants on behalf of Thema should be dismissed to
enforce a mandatory forum selection provision. PwC Ireland’s contracts with Thema provided
that “the Irish Courts shall have exclusive jurisdiction to settle any claim, difference or dispute
. . . which may arise out of or in connection with such contract”. (Weldon Decl. Ex. A, at 8.)
The PwC Defendants may each invoke the forum selection clause, as Plaintiff’s claims against
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them are directly related to PwC Ireland’s conduct in issuing its audit reports on Thema. See
Cfirstclass Corp. v. Silverjet plc, 560 F. Supp. 2d 324, 328 (S.D.N.Y. 2008).
8.

The PwC Defendants also move to dismiss under Fed. R. Civ. P. 12(b)(6). The

PwC Defendants submit that (1) the claims against them are governed by Irish law, and should
be dismissed for the reasons set forth in the Sanfey Declaration, but (2) the Court need not decide
the choice-of-law issue for purposes of this motion as Plaintiff also fails to state a claim under
New York law. The grounds for dismissal under both Irish and New York law are set forth here.
Negligence, Gross Negligence and Professional Negligence (Counts 1–4, 9–10)
9.

Under New York law, the Credit Alliance/Sykes test requires dismissal of the

negligence-based claims against Defendants here. Plaintiff fails to establish that he was in
privity or near-privity with any of the PwC Defendants. (Brief Part III.B.1.) The Caparo test
under Irish law is to the same effect. (Sanfey Decl. ¶¶ 15.20-15.24.) The fact that PwC Ireland’s
audit opinion was addressed to Thema shareholders is legally insufficient. As the First
Department held in CRT, 2011 WL 2225050, another Madoff fund case: “The fact that plaintiffs
were entitled to and received a copy of the audited financial statements, or that BDO Seidman
knew that the investors would rely upon the information contained in the financial statements,
does not establish the requisite linking conduct.” Id. at *2. Nor does Plaintiff allege that the
audits were conducted for the purpose of a specific, known transaction. Security Pacific
Business Credit, Inc. v. Peat Marwick Main & Co., 597 N.E.2d 1080, 1084 (N.Y. 1992); Credit
Alliance, 483 N.E.2d at 119. Plaintiff does not (and cannot) allege that he ever communicated
with PwC Ireland or that he was specifically identified to PwC Ireland.
10.

That is all the more true for PwC U.S., PwC Bermuda and PwCIL, who were not

auditors of Thema, and therefore were not in privity with Thema itself, let alone the Thema
shareholders. Plaintiff does not even come close to alleging “linking conduct” or any other
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prong of the Credit Alliance/Sykes test with respect to PwC U.S., PwC Bermuda or PwCIL.
11.

Plaintiff’s negligence-based claims also fail because Plaintiff fails to plead actual

reliance. Absent from Plaintiff’s Complaint are allegations that Plaintiff actually read, or even
received, PwC Ireland’s audit reports—let alone that Plaintiff took any action in reliance on
them. As PwC U.S., PwC Bermuda and PwCIL did not opine on or make any statement related
to Thema, Plaintiff cannot possibly have relied on a statement by any of them.
Unjust Enrichment (Count 19)
12.

Thema paid PwC Ireland $18,010 in 2006 and $28,050 in 2007 for its audits—

fees Plaintiff describes as “paltry” (TC ¶ 240). Plaintiff fails to state a claim against the PwC
Defendants for unjust enrichment under New York or Irish law. (Brief Part III.B.6; Sanfey Decl.
¶ 17.2.) First, Plaintiff does not allege that he directly conferred a benefit on PwC Ireland, as
Thema paid the audit fees. Second, the contract between Thema and PwC Ireland provides an
adequate remedy at law.
Aiding and Abetting (Counts 11–12, 15)
13.

Plaintiff fails to state a claim for aiding and abetting breach of fiduciary duty

under New York law, and the cause of action does not exist under Irish law. (Sanfey Decl.
¶ 16.1.) First, Plaintiff fails to allege that any of the PwC Defendants had actual knowledge of
the existence of fiduciary duties. See Kolbeck, 939 F. Supp. at 246; Mazzaro de Abreu v. Bank of
Am. Corp., 525 F. Supp. 2d 381, 394 (S.D.N.Y. 2007). Second, Plaintiff fails to plead with
particularity that the PwC Defendants had actual knowledge of a breach of fiduciary duty. Third,
Plaintiff fails to plead that any of the PwC Defendants substantially assisted a tort. An auditor’s
failure to act cannot constitute substantial assistance, because auditors do not stand in a fiduciary
or similar relationship with their clients. Kaufman v. Cohen, 760 N.Y.S.2d 157, 170 (App. Div.
2003); Able Energy, Inc. v. Marcum & Keligman LLP, 893 N.Y.S.2d 36, 37 (App. Div. 2010).
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