United States District Court, S.D. New York
May 18, 2004.
TEACHERS' RETIREMENT SYSTEM OF LOUISIANA, ET AL. Plaintiffs,
ACLN LTD., ET AL. Defendants
The opinion of the court was delivered by: MILTON POLLACK, Senior District Judge
Motion for Clarification or Class Decertification
The Class was certified on November 13, 2002. Seidman was added as a
defendant by amendment of the complaint on December 19, 2002. No motion
was thereafter made by plaintiffs to affirmatively include Seidman in the
scope of the earlier certification. Seidman moved to dismiss the Amended
Complaint against it and that motion was denied in opinion dated July 14,
2003. The Amended Complaint now states that:
Seidman partner Dewey physically signed the Audit
Reports on ACLN's financial statements for the fiscal
years ended December 31, 1999 and December 31, 2000,
on behalf of Seidman and Minas loannou using the "BDO
International" name. . . . In signing its "BDO
International" name on the Audit Reports, Seidman
issued the Audit Reports on behalf of itself, and
designated itself as ALCN's [sic] auditors.
Compl. ¶ 246J. Plaintiffs also alleged that BDO Seidman had used the
name BDO International on various occasions and that BDO Seidman was
licensed to do so. Finally, Plaintiffs alleged that BDO Seidman held
itself out to shareholders and the public, on occasion, as BDO
International, the A.C.L.N. auditors. In denying BDO Seidman's motion to dismiss, the Court held:
At this stage of the proceedings it is a fair
inference from all the facts and circumstances that
BDO Seidman, by one of its partners, in fact manually
signed the required originals of the audit reports
that were filed with the SEC (as indicated above) in a
way attributable to BDO Seidman, and utilized a name
that was deceptively applicable to the moving
defendant and its alleged co-engagement partner in
Cyprus. These factual predicates and those on the
record in this matter satisfy the requirements of
Wright v. Ernst & Young at this stage of the
litigation. The motion to dismiss the Complaint as
against BDO Seidman is in all respects denied at this
time and the issues are referred to discovery.
Seidman now asserts that it cannot be bound by the earlier certification
order entered before it was a party to the case. Additionally Seidman
claims that a host of legal and factual issues exist that are critical to
whether a class should be certified, especially in the light of the
record that has since developed.
On the other hand, Seidman asserts that if the Court nevertheless
concludes that Seidman is bound by the Certification Order Seidman here
moves to decertify the Class because plaintiffs would have to prove the
Section 10(b) element of reliance on an all individual-by-individual
basis, and since, they argue that common questions of law or fact do not
predominate on that matter, the presumption of reliance on "fraud on the
market" would not, [they say] apply and it is unreasonable to presume
that each member of the Class relied on the misstatements asserted and
thus common questions do not predominate precluding Class certification.
Seidman claims that it was not identified to the market on the face of
the audit opinion as the author of the auditor's statements. Further, the
two audit opinions here involved, state they were issued by "BDO
International, Nicosia, Cyprus" not "BDO Seidman, LLP, New York,
Plaintiffs have also claimed that in 2001, Seidman partner Lee Dewey
attended an annual meeting of ACLN's shareholders as well as the
"bell-ringing ceremony" on the New York Stock Exchange on the first day
that ACLN's shares traded on the Exchange, and, plaintiffs say, this
further makes it appropriate that investors reasonably attributed the
false audit opinions to BDO Seidman.
Seidman argues that the plaintiffs' claim that the market attributed
the audit opinions to Seidman sufficiently to invoke the doctrine of "fraud on the market"
necessary to invoke that doctrine herein to permit reliance requires a
showing that each individual plaintiff relied thereon.
Seidman characterizes its present position as a lack of due process
because it had no opportunity to address the class action issues. Seidman
cites In re Am. Med. Sys., Inc., 73 F.3d 1069 (6th Cir. 1996), which
directed a decertification of the class. In short, under the facts herein
Seidman claims that because the content and the firms' imprimatur were
not incorporated by the market into the market price, there is no basis
for a presumption that the market attributed the two audit opinions to
Seidman to ground a "fraud on the market" thesis.
Seidman does not dispute that the misstatements at issue in the claims
are contained in two publicly disseminated auditor's reports. Nor does
Seidman dispute that markets reasonably rely on any misstatements
contained in publicly disseminated auditor's reports. Seidman's
attribution to those reports was raised in the earlier motion by Seidman
to dismiss the complaint and failed. Lead plaintiff does not dispute that
it will have to prove at trial that Seidman was sufficiently responsible
for the misstatements in the auditor's reports.
In denying Seidman's motion to dismiss, this Court has already held
that whether Seidman is sufficiently responsible for those auditor's
reports is a matter of fact for the finders of fact. No appeal was taken
from that ruling. In certifying the Class, the claim was accepted that
the market relied on the two audit reports. Whether class members may
attribute the improprieties charged to BDO Seidman because of its alleged
participation in those reports is a question of damages as to BDO Seidman
to be determined on trial of the issues relating to BDO Seidman.
Those responsible for false statements made in financial statements,
not primarily attributed to the auditor charged with responsibility, do
not avoid liability by remaining anonymous. See Global Crossings. Ltd.
Sec. Litig., No. 02-Civ-910 (GEL) 2004 WL 763890 (S.D.N.Y. Mar. 23, 2004)
at *8 ("`[a]bsolving an auditor who prepares, edits, and drafts a
fraudulent financial statement knowing it will be publicly disseminated
simply because [it was signed by another, affiliated auditor] would
stretch Central Bank's holding too far.'" (quoting Lernout & Houspie
Sec. Litig., 230 F. Supp.2d 152, 168 (D. Mass. 2002)). The motions are denied.
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