The opinion of the court was delivered by: Lewis A. Kaplan, District Judge
This document relates to: 04 Civ. 0030 (LAK) 04 MD 1653 (LAK)
This is a purported class action on behalf of purchasers of securities of Parmalat Finanziaria, S.p.A., ("Parmalat") for damages allegedly sustained when Parmalat collapsed following discovery of a massive fraud that reportedly involved the understatement of Parmalat's debt and the overstatement of its assets by billions of dollars. The matter is before the Court on a motion by Grant Thornton LLP ("GT-US") to dismiss the third amended complaint (the "TAC") as to it.
I assume familiarity with my prior decisions in this case, including particularly those reported at 375 F. Supp. 2d 278, which dealt with motions by GT-US and other accountants to dismiss the initial complaint (the "Auditor Opinion"), and 376 F. Supp. 2d 472, which resolved similar motions by various defendant banks. Also important for purposes of this motion is the opinion in a related case brought by the Dr. Enrico Bondi, Extraordinary Commissioner of Parmalat and related entities, which is reported at 421 F. Supp. 2d 703 ("Bondi").
As the nature of the litigation and the allegations of the class plaintiffs and Dr. Bondi are sufficiently described for most purposes in the previous opinions, I omit any such description here. I discuss particulars of this pleading (which is 400 pages in length) only to the extent they are necessary to the resolution of this motion.
The essential background of this motion is the somewhat complex structure of Grant Thornton which, although perhaps differing in some particulars, is similar to that of the other major international accounting firms.
What is commonly known as Grant Thornton in fact consists of a number of putatively separate legal entities that use the Grant Thornton name and market themselves as a global accounting organization. GT-US is the largest, accounting for about one-quarter of the fees generated by the global organization. Grant Thornton International ("GTI") is an Illinois corporation headquartered in London that creates auditing policies and procedures that must be followed by all member firms and reviews each member firm periodically to ensure compliance. Grant Thornton S.p.A. ("GT-Italy") was a member firm located in Italy that audited Parmalat during part of the period in which the fraud allegedly took place.*fn1 All are defendants here.
GT-Italy has not challenged the sufficiency of any of the complaints. In the Auditor Opinion, I denied GTI's motion to dismiss, but granted that of GT-US. Following my ruling in Bondi, where I denied a motion by GT-US to dismiss that complaint,*fn2 class plaintiffs filed the TAC, in part to bring GT-US back into the case by conforming its allegations as to GT-US to Bondi's complaint.
At this point, class plaintiffs assert that the TAC asserts claims against GT-US on two theories. First, they contend that GT-US is vicariously liable for primary violations of Section 10(b) of the Securities Exchange Act of 1934 (the "1934 Act")*fn3 and Rule 10b-5 thereunder*fn4 allegedly committed by GT-Italy on a subagency theory, viz. that GT-Italy was an agent of GTI, which in turn was an agent of GT-US. Second, they argue that the TAC states a claim against GT-US under Section 20(a) of the 1934 Act.*fn5
GT-US first challenges the Rule 10b-5 claim on essentially three grounds.
First, it asserts that agency liability under Rule 10b-5, to whatever extent it exists, is limited to circumstances in which the allegedly false statement by the primary violator, here GT-Italy, was attributed to the principal, here GT-US, at the time of its public dissemination. This, it contends, is required by Wright v. Ernst & Young LLP*fn6 and its progeny. The TAC, it says, alleges no such false statement.
Second, it contends that imposing "GTI's liabilities on GT-US would be an end-run around GTI's corporate structure"*fn7 ...