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In re Parmalat Securities Litigation

February 22, 2007


The opinion of the court was delivered by: Denise Cote, District Judge

This document relates to:


This Opinion addresses a request for a bar order and pro tanto judgment credit following a settlement between the plaintiff and auditor defendants in this complex litigation involving actions in multiple fora both in the United States and abroad. Non-settling defendants, principally deep-pocket banks and corporations, vigorously protest that the proposed judgment credit formula is unfair to them. For the following reasons, a revised bar order has been issued with a proportionate share judgment credit.

This multidistrict litigation arising from the 2003 collapse of the Parmalat dairy conglomerate is before the Honorable Lewis A. Kaplan, in the Southern District of New York. The plaintiff, Dr. Enrico Bondi ("Dr. Bondi"), and several of the accounting firm defendants in an action originally filed in Illinois (the "Auditor Action") have reached a settlement, and have moved for a good faith determination and entry of a bar order and partial final judgment. Judge Kaplan having recused himself from determining this motion, it has been assigned to this Court. Familiarity with prior Opinions by Judge Kaplan in In re Parmalat Securities Litigation, and particularly the Opinions in the Auditor Action, is assumed.


A. The Parmalat Litigation

In December 2003, Parmalat, the global food and dairy products conglomerate with headquarters in Italy and subsidiaries around the world, collapsed in scandal. It announced that a certain deposit account supposedly maintained with Bank of America, which purportedly contained $4.9 billion, did not exist. Within days of that announcement, the company instituted bankruptcy proceedings in Italy. It was later revealed that officials at the company had perpetrated a variety of frauds to mask its true financial condition. The fraud and the company's collapse have led to substantial litigation both in the United States and Italy.

Plaintiff Dr. Bondi has been appointed by the Italian government as the Extraordinary Commissioner of Parmalat Finanziaria, S.p.A., Parmalat S.p.A., and certain affiliates (collectively, "Parmalat"), a position described as being similar to that of a bankruptcy trustee in the United States. Any Parmalat-related entity declared insolvent by the Court of Parma in Italy can be admitted into Extraordinary Administration. Dr. Bondi created an Assuntore, which is a new, separate corporation, named Parmalat S.p.A., into which all assets and liabilities of the Parmalat-related entities in Extraordinary Administration were transferred. As Extraordinary Commissioner, Dr. Bondi has filed many actions in Italy and three separate lawsuits in the United States against three different groups of defendants.

Dr. Bondi commenced the Auditor Action in Illinois state court against former Parmalat auditors and their affiliates on a variety of state law grounds. The Auditor Action was removed to federal court as being related to a foreign bankruptcy proceeding, Bondi v. Grant Thornton Int'l, 322 B.R. 44 (S.D.N.Y. 2005), and transferred by the Judicial Panel on Multidistrict Litigation (the "MDL Panel"), In re Parmalat Sec. Litig., 350 F. Supp. 2d 1356 (J.P.M.L. 2004), to Judge Kaplan. The claims include professional malpractice, fraud, aiding and abetting fraud and constructive fraud, negligent misrepresentation, aiding and abetting breach of fiduciary duty, theft and diversion of corporate assets, conversion, unjust enrichment, aiding and abetting fraudulent transfer, deepening insolvency, and unlawful civil conspiracy. Dr. Bondi seeks damages in the amount of $10 billion.

In the Auditor Action Dr. Bondi sued Grant Thornton International, which is an Illinois corporation headquartered in London, and its member firms Grant Thornton LLP and Grant Thornton S.p.A. (collectively, "Grant Thornton"), and Deloitte Touche Tohmatsu, a Swiss association with headquarters in New York, and its member firms Deloitte & Touche USA LLP, Deloitte & Touche LLP, and Deloitte & Touche S.p.A. (collectively, the "Deloitte Defendants").

In addition to the Auditor Action, Dr. Bondi filed suit against Bank of America Corporation and certain of its affiliates (collectively, "Bank of America") in the Western District of North Carolina (the "Bank of America Action"), an action which has also been transferred by the MDL Panel to Judge Kaplan; and against Citigroup and others (collectively, "Citigroup") in New Jersey state court (the "Citigroup Action"). Dr. Bondi has successfully resisted the defendants' efforts to remove the Citigroup Action to federal court for transfer to Judge Kaplan's docket. Dr. Bondi has also claimed damages of $10 billion in both the Bank of America Action and the Citigroup Action.

Dr. Bondi has not been the only plaintiff suing defendants in the United States for their Parmalat-related activities. Also pending before Judge Kaplan are a putative securities class action; actions brought by bankruptcy trustees of two U.S. Parmalat entities, Gerald K. Smith ("Smith") for the Farmland Dairies LLC Litigation Trust ("Farmland Trust"), and G. Peter Pappas ("Pappas") for Parmalat USA; and actions by liquidators of three Parmalat financing companies in the Cayman Islands --Food Holdings Limited, Dairy Holdings Limited, and Parmalat Capital Finance Limited (collectively, the "Cayman Companies") -- all of which are brought against multiple defendants including Grant Thornton and the Deloitte Defendants. One of the defendants in the Farmland Trust action is Banca Intesa S.p.A. ("Banca Intesa"), which is also a defendant in a Parmalat-related New York state court action brought by Bank Hapoalim (Switzerland) Ltd. ("Hapoalim") and in an Italian proceeding brought by Dr. Bondi. In sum, all of the Parmalat-related litigation in the United States has been consolidated for pretrial purposes before Judge Kaplan with the exception of the Citigroup action in New Jersey state court and the Hapoalim action in New York state court.

As noted, Dr. Bondi has also brought multiple actions in Italy, including actions as an intervening civil party in criminal proceedings pending in Italian courts against, among others, employees of Deloitte & Touche S.p.A. Under Italian law, "persons claiming to be victims of charged offenses can apply to the court to intervene as parte civile or 'civil parties' in pending criminal proceedings to seek a civil judgment for damages." Many other parties have also filed actions as such civil parties in criminal proceedings in Italy. Dr. Bondi has also brought an action in Italy against the McGraw-Hill Companies, SRL and The McGraw-Hill Companies, SA (collectively, "McGraw-Hill"), and McGraw-Hill has added Deloitte & Touche S.p.A. as a party to that action. Overall, there is extensive litigation ongoing in both the United States and Italy relating to the Parmalat collapse.

B. The Settlement Agreement

Fact discovery in the Auditor Action had continued from at least early 2005 and was due to conclude on January 22, 2007. Judge Kaplan stayed discovery in the Auditor Action in November 2006, however, in light of settlement negotiations. Settlement negotiations in the Auditor Action included a mediation in early August 2006 before former California Superior Court Judge Daniel Weinstein and a subsequent session with Magistrate Judge Henry Pitman of this district.

Parmalat, as represented by Dr. Bondi, and Deloitte & Touche S.p.A. and Dianthus S.p.A. (which until 2003 operated in Italy under the Deloitte & Touche name) entered into a settlement agreement effective January 12, 2007 (the "Agreement"), and in connection with the Agreement, a side letter (the "Side Letter") was executed by the remaining Deloitte Defendants and additionally Deloitte Touche Tohmatsu Auditores Independentes ("Deloitte Brazil") (collectively, "Deloitte"). Under the Agreement and the Side Letter, redacted versions of which have been filed publicly, for a total consideration to Parmalat valued at $150 million, all claims by "Parmalat Releasors" are released against the "Deloitte & Touche Releasees." The Agreement purports to comply with the Illinois Joint Tortfeasor Contribution Act ("Illinois Act"), 740 Ill. Comp. Stat. 100 et seq.:

The parties agree that this Agreement was made in good faith pursuant to the provisions of the Illinois Joint Tortfeasor Contribution Act . . . . Promptly following the Effective Date [January 12, 2007] [Deloitte & Touche] S.p.A. and Dianthus [S.p.A.] shall file a motion in the MDL Proceedings to obtain a determination that this is a good faith settlement, and a contribution bar, pursuant to the Illinois Act.

If a contribution bar order is not entered by March 13, however, Deloitte & Touche S.p.A. and Dianthus S.p.A. have the option to terminate the settlement agreement with a payment of $15 million:

[Deloitte & Touche] S.p.A. and Dianthus [S.p.A.] have the option, to be exercised in their sole discretion by sending Parmalat a notice of termination on or before the expiration of 60 days from the Effective Date and then paying Parmalat 15 million dollars ($15 million) within three days thereafter, to terminate this settlement agreement if an order granting a contribution bar as set forth above is not entered by such date. If [Deloitte & Touche] S.p.A. and Dianthus [S.p.A.] exercise this option as aforesaid, the Agreement shall be terminated when that payment is made, and thereafter shall be null, void and of no effect and shall not be used for any purpose, including in the Lawsuit or MDL Proceedings. (Emphasis added.) The Agreement states that Illinois law shall apply to its terms:

Choice of Law: This Agreement shall be governed by and interpreted in accordance with the laws of the State of Illinois that are applicable to agreements made and wholly performed by Illinois residents wholly within Illinois and without regard to Illinois or any other choice of law principles.

In connection with the settlement, Deloitte, joined by Dr. Bondi, moved on January 18, 2007 for entry of a good faith determination pursuant to the Illinois Act and final judgment as to the Deloitte Defendants, and entry of a contribution bar order. The January 18 proposed order submitted by the Deloitte Defendants (the "January 18 Proposed Order"), which incorporates language from the Agreement, seeks to have the Illinois Act govern the settlement agreement:

Under Illinois law, non-settling parties can seek a credit at judgment if the injuries they caused were contributed to by the previously settling defendant. Consistent with Illinois law, the Court now determines only that, to the extent that any person, including without limitation the Non-Settling Parties, is entitled to a ...

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