UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
January 27, 2009
IN RE PARMALAT SECURITIES LITIGATION
The opinion of the court was delivered by: Lewis A. Kaplan, District Judge
MASTER DOCKET No. 04 MD 1653
This document relates to:
Parmalat Finanziaria, S.p.A., Parmalat S.p.A. and their affiliates (collectively, "Parmalat") collapsed upon the discovery of a massive fraud that reportedly involved the understatement of Parmalat's debt by nearly $10 billion and the overstatement of its net assets by $16.4 billion.*fn1 Plaintiffs, purchasers of Parmalat securities between January 5, 1999 and December 18, 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 certified a class consisting of domestic parties who purchased or otherwise acquired Parmalat securities during the Class Period.*fn2 The matter now is before the Court on the motions of Deloitte Touche Tohmatsu ("DTT"), Deloitte & Touche LLP ("DT-US"), and James Copeland (collectively, the "Deloitte defendants") for summary judgment dismissing the complaint.
The class plaintiffs represent a class of individuals who purchased ordinary Parmalat shares and bonds during the Class Period. They sue the Deloitte defendants and others under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934*fn3 (the "Exchange Act") and Rule 10b-5 thereunder.*fn4
Defendant DTT, a Swiss verein*fn5 headquartered in New York,*fn6 is a professional services organization of member firms, which sometimes are referred to collectively as a "global firm."*fn7 These member firms, including defendants Deloitte & Touche, S.p.A. ("Deloitte Italy") and DT-US, generally are organized as limited liability entities under the laws of their respective jurisdictions.*fn8
Accounting and auditing standards and regulation of the accounting profession often are country specific. In addition to complying with any locally applicable rules, however, Deloitte firms follow general professional standards and auditing procedures promulgated by DTT. Member firms regularly cross check each other's work to ensure quality,*fn9 and they cooperate and join together under the direction of a single partner to provide audit services for international clients.*fn10
Partners and associates of member firms participate in global practice groups and attend DTT meetings.*fn11
Although 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 clients to "get consistent seamless service across national boundaries."*fn12 Member firms therefore use the Deloitte name when serving international clients "in order to project the image of a cohesive international organization."*fn13
The Parmalat Scandal and Deloitte Italy
The claims against the Deloitte defendants all rest on the premise that they are vicariously liable for the alleged fraud of Deloitte Italy, one of Parmalat's former auditors, which has not joined in the motion. The motion itself seeks dismissal only on the ground that the Deloitte defendants are not vicariously liable. It does not dispute that Deloitte Italy itself is primarily liable for the alleged fraud. Accordingly, it suffices for present purposes to outline briefly plaintiffs' allegations 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 shelf-life milk, pursued an aggressive growth strategy financed largely by debt. Its expansion into South America, however, turned out to be ill-advised, and it began to lose hundreds of millions of dollars there.*fn14 The company needed constant infusions of cash to cover these losses, service its massive debt, and hide the personal diversion of funds by Parmalat chief executive officer Calisto Tanzi and his family.*fn15 But cash could be obtained only so long as Parmalat appeared to be a sound investment. To this end, insiders at Parmalat and Grant Thornton S.p.A.*fn16 ("GT-Italy") concocted a scheme involving misleading transactions and off-shore entities that created the appearance of financial health.*fn17 One such transaction, for example, involved a fictitious sale of 300,000 tons of powdered milk to Cuba for $620 million.*fn18 Loans obtained on the basis of this transaction were used to service debt and obtain more loans.*fn19 In short, Parmalat and its confederates were operating something akin to a Ponzi scheme.
Italian law obliged Parmalat to switch auditors in 1999. Concerned that new auditors would discover and disclose the fraud, Parmalat and GT-Italy moved the allegedly fictitious financing transactions to Bonlat, a new company incorporated in the Caribbean that would continue to be audited by Grant Thornton.*fn20 Parmalat then hired Deloitte Italy as its auditor. Deloitte offices in numerous countries audited Parmalat and its subsidiaries and affiliates as part of this worldwide engagement.*fn21 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 fraud, yet certified the company's financial statements as substantially accurate.*fn22
By late 2003, the scheme became unsustainable. Parmalat had a liquidity crisis, and the ensuing collapse was rapid. In early December, Parmalat could not pay certain maturing bonds.*fn23 By December 11, the company's stock had lost half its value.*fn24 Trading was suspended for days by Italian regulators.*fn25 Parmalat's bonds rapidly lost value as well.*fn26 On December 19, the company announced that a Bank of America account allegedly held by its Bonlat affiliate that supposedly contained $4.9 billion did not exist.*fn27
Parmalat filed for bankruptcy in Italy on December 24 and was declared insolvent three days later.*fn28 Italian authorities thereafter indicted a number of Parmalat executives and insiders as well as the company's auditor, Deloitte Italy. Authorities also arrested many individuals connected with the fraud and seized their assets.*fn29
The Deloitte defendants move for summary judgment dismissing plaintiffs' claims under Sections 10(b) and 20(a) of the Exchange Act. Alternatively, they assert that they are entitled 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").*fn30
A. Summary Judgment Standard
Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law.*fn31 Where, as here, the burden of proof at trial would fall on the nonmoving party,*fn32 it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the non-movant's claim.*fn33 In that event, the non-moving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.*fn34
B. Vicarious Liability After Stoneridge
The Deloitte defendants first challenge plaintiffs' claim that DTT is vicariously liable on a respondeat superior theory for federal securities law violations of its alleged agent, Deloitte Italy. This claim, they argue, cannot survive the Supreme Court's decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.,*fn35 which, in their view, foreclosed common law theories of secondary liability for Exchange Act claims. Section 20(a) of the Exchange Act, the Deloitte defendants argue, now is the exclusive basis for vicarious liability for Exchange Act violations.*fn36
In Stoneridge, the Supreme Court held that "[r]eliance by the plaintiff upon the defendant's deceptive acts is an essential element of the Section10(b) private cause of action."*fn37
The Court stated that "[t]he conduct of a secondary actor must satisfy each of the elements or preconditions for liability" and concluded that Section 10(b) "does not incorporate common-law fraud into federal law."*fn38
Were it considered in a vacuum, aspects of the Stoneridge Court's reasoning would seem to apply also to common law agency principles.*fn39 Nevertheless, Stoneridge did not deal with the question presented here, viz. whether a principal is liable vicariously for an Exchange Act violation committed by its agent acting within the agent's scope of employment. There are substantial reasons why its holding should not be extended, at least by a district court.
At 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 old.*fn40 The Second Circuit -- and nearly every other circuit to have considered the question -- expressly has permitted the application of the common law principle of respondeat superior to hold principals liable for Section 10(b) violations by their agents.*fn41 While there doubtless are circumstances in which a Supreme Court decision so undermines the viability of established circuit precedent as to justify a district court in concluding that it need not follow previously binding circuit law, this Court is not persuaded that this is such an instance.
The typical defendant in a Section 10b-5 or other Exchange Act case is a corporation. Corporations and other legal entities, as we frequently instruct juries, are not living, breathing human beings and therefore can act only through their agents. In consequence, acceptance of the Deloitte defendants' argument would confine liability for securities law violations committed by corporate officers and employees to the individual malefactors and limit recovery against the corporations that employed them and, frequently, benefitted from the securities violations. This in turn would undermine the ability of defrauded investors to obtain meaningful compensation, as individual corporate employees who are personally culpable in the usual case seldom are capable of paying judgments of the requisite magnitude.*fn42 It could undermine as well government efforts to enforce the securities laws against corporations and other business entities.
If the Supreme Court in Stoneridge intended any such transformation of this long-settled principle of American law, it presumably would have made its intention clear. It did nothing of the sort. Accordingly, this Court declines to do so here.
The Eleventh and District of Columbia Circuits have not spoken on this precise issue.
1. Respondeat Superior Liability for Section 10(b) Violations by Deloitte Italy
Whether DTT may be held liable for the securities violations and other actions of Deloitte Italy turns on whether DTT had a principal-agent relationship with that member firm.
An agency relationship exists under New York law*fn43 when there is an agreement between the principal and the agent that the agent will act for the principal, and the principal retains a degree of control over the agent.*fn44 The element of control often is deemed the essential characteristic of the principal-agent relationship.*fn45 "When the existence of an agency relationship is uncertain, the courts often look to control as a critical indicator."*fn46
To bind a principal, "an agent must have authority, whether apparent, actual or implied."*fn47 Actual authority arises from a principal's direct manifestations to the agent.*fn48 It "'may be express or implied, but in either case it exists only where the agent may reasonably infer from the words or conduct of the principal that the principal has consented to the agent's performance of a particular act.'"*fn49
The Deloitte defendants contend that plaintiffs have failed to raise a genuine issue of material fact as to whether DTT and Deloitte Italy had a principal-agent relationship. Plaintiffs, however, point to numerous facts that could be taken as indicating that DTT structured and conducted itself in a manner that permitted it to exercise control over its member firms, including Deloitte Italy.
To begin with, DTT exercised substantial control over the manner in which the member firms conducted their professional activities. Each member firm agreed in DTT's governing document, the Articles of the Verein, to "support and adhere to the purposes and policies of the Verein" and to "be bound by the requirements contained in resolutions and protocols . . . including . . . those regarding professional standards and methodologies."*fn50 DTT set the policies that 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 used.*fn51 It required member firms to sign license agreements pursuant to which they agreed to comply with DTT's "quality standards, specifications, directions, and procedures"*fn52 and required a review of each member firm's compliance every three years.*fn53
DTT had control over the acceptance and rejection of engagements by member firms and required use of the company name.*fn54 DTT's rules prohibited member firms from suing each other*fn55 and required that one member firm accept client work referred from another member firm.*fn56 DTT could arrange, with the approval of the transferring firm, for the transfer of employees from one member firm to another.*fn57
DTT played also a substantial role in the legal and risk management affairs of member firms.*fn58 Member firms, with the exception of DT-US, generally did not have in-house legal counsel, but relied instead on DTT's legal staff.*fn59 DTT instructed auditors to refer press inquiries to DTT and, where lawsuits naming a member firm were threatened or filed, DTT lawyers reviewed the work papers of that member firm.*fn60 In addition, DTT required member firms to purchase specified levels of insurance coverage.*fn61
The Deloitte defendants contend that the manner in which DTT is structured does not demonstrate control.*fn62 Some courts have adopted that view.*fn63 But plaintiffs do not rely upon DTT's structure alone.
DTT's Professional Practice Manual states that "differences of opinion between Member Firms . . . should be resolved" by referring such matters "to the Chairman and Chief Executive for resolution."*fn64 Moreover, there is evidence that DTT exercised that authority in the specific context of the Parmalat engagement.
In 2002, Deloitte Brazil and Deloitte Italy had a difference of opinion about how to treat certain related party transactions in which Parmalat Brazil had engaged. Wanderley Olivetti of Deloitte Brazil concluded that the audit report should include an emphasis paragraph describing the transaction. Deloitte Italy disagreed and requested that DTT "arbitrate the matter."*fn65 James Copeland, the chief executive officer of DTT, appointed Richard Murray to do so. Murray described his assignment as one that "invoked the CEO's responsibility to resolve differences in accordance with the dispute resolution provisions of . . . the practice manual."*fn66
Murray held a conference call during which the "principal business . . . was [his] declaration of [his] conclusion" about the appropriate disclosure. He characterized the call as "an announcement of [his] recommendation jointly to the two firms and an acceptance by each firm that they would abide by the decision."*fn67 He concluded that "[n]on-disclosure [of the transaction] . . . [wa]s unacceptable."*fn68
The Deloitte defendants argue that DTT neither controlled nor had authority to control Deloitte Brazil's decisions about the audit report. They emphasize Murrary's characterization of his role as arriving at a "voluntary," "consensus" solution following consultation with Deloitte Italy and Deloitte Brazil.*fn69 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 Brazil how to conduct its audits of the financial statements of Parmalat Brazil, and it did not do so."*fn70
The testimony upon which the Deloitte defendants rely would support a conclusion at trial that DTT did not control the outcome of the Deloitte Brazil -- Deloitte Italy dispute*fn71 and even, perhaps, a conclusion that DTT lacked the authority to dictate the outcomes of disputes among member firms generally. But the standard on a motion for summary judgment is different. Here the Court is obliged to view the evidence in the light most favorable to the plaintiffs. And by that standard, the argument falls short.
The Deloitte defendants' position ignores the DTT Practice Manual, which confers authority to resolve disputes on DTT's chief executive officer, and Deloitte Italy's request that the matter be "arbitrate[d]," a word that means, or is at least susceptible of interpretation as referring to, a binding determination by a third party. Against the background of these documents, the characterizations of the authority and roles of Messrs. Copeland and Murray reasonably could be viewed as self-serving and unpersuasive attempts to put a helpful face on otherwise unhelpful facts. Were 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 controlled or influenced a particular audit report of a member firm, taken together with plaintiffs' structural evidence,*fn72 is sufficient to permit the conclusion, under even the most stringent standard, that the global entity controlled the member firm.*fn73
The Deloitte defendants argue also that Rodonich v. House Wreckers Union Local 95*fn74 stands for the proposition that Deloitte member firms were not DTT agents even if DTT did decide 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 international union, concluding that it could not be held liable as a principal for Local 95's imposition of discipline on a member.*fn75 In Rodonich, however, the local had the power to impose discipline pursuant to the union's constitution. The international had only the authority to conduct an appellate review of that decision. The local could not and did not act at the international's direction at any stage of its own decision making process.*fn76 Here, in contrast, there is evidence that would permit the conclusion that DTT had the power to impose its will on a member firm's professional judgment and that it exercised that power to dictate to Deloitte Brazil an outcome favorable to Deloitte Italy.
In all the circumstances, the totality of the evidence -- including evidence concerning the structure and internal relationships of Deloitte generally, DTT's authority over the professional practices of the member firms, and DTT's exercise of that authority in connection with the Parmalat engagement -- raises a genuine issue of material fact as to whether Deloitte Italy was an agent of DTT with respect to the Parmalat engagement. Accordingly, DTT is not entitled to summary judgment dismissing the claims against it to the extent they rest on the theory that DTT is liable on the basis of respondeat superior for any Section 10(b) liability that Deloitte Italy may have to plaintiffs.
2. Section 20(a) Liability
The DTT next contends that it is entitled to summary judgment dismissing plaintiffs'
Exchange Act Section 20(a) claim.
Section 20(a) provides that: "[e]very person who, directly or indirectly, controls any person liable under any provision of this chapter . . . shall also be liable jointly and severally with and to the same extent as such controlled person to any person whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action."*fn77 DTT 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 that the record indisputably establishes that it acted in good faith and did not induce the act or acts constituting the alleged violations.*fn78
Control of a primary violator under Section 20(a) may be demonstrated by "showing that the defendant 'possessed the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.'"*fn79 "[O]nly the ability to direct the actions of the controlled person, and not the active exercise thereof" is required to establish control.*fn80 DTT argues that control for Section 20(a) purposes must extend to the transaction in question, whether or not it was exercised.*fn81 As this Court already has ruled in this case, however, the plain language of Section 20(a), requires control only of a person or entity liable under the chapter, not of the transaction constituting the violation.*fn82
Requiring a plaintiff to prove not only that the defendant controlled the person or entity, but also that the defendant exercised control over the transaction constituting the violation, would be in serious tension and probably inconsistent with the language of the statute. It would be inconsistent also with this Court's oft-stated view that a plaintiff relying on Section 20(a) is not obliged to allege or prove a controlling person's culpable participation in the violation*fn83 and with this Court's prior ruling in this case.*fn84
Even if the Court adopted the view put forth by defendants, it would not reach a different result. As discussed above, plaintiffs have presented sufficient evidence that DTT had the ability to influence the preparation of member firms' audit reports generally and the Parmalat audit report prepared by Deloitte Brazil specifically. Thus, whether or not DTT's control must extend to the transaction in question need not affect the analysis of this issue. The Court concludes that plaintiffs have shown that there is a genuine issue of material fact as to whether DTT was a controlling person.*fn85
b. Good Faith
Good faith is an affirmative defense. "It is not enough on a motion for summary judgment to demonstrate that plaintiffs fall short of producing evidence of culpable conduct; rather, the defendant[s] must put forth [their] own evidence of this defense sufficient to direct a conclusion of law that [they are] entitled to the defense."*fn86
The Deloitte defendants first argue that they have shown affirmatively that DTT acted in good faith. They point to the fact that there is no evidence that DTT had reason to know of or recklessly disregarded any fraud by Deloitte Italy in connection with the Parmalat audits.*fn87
Plaintiffs do not dispute this. But this alone is insufficient to demonstrate good faith, as it does not exclude the possibility that DTT was, for example, wilfully blind to a violation.*fn88
The Deloitte defendants next point to evidence indicating that DTT had an appropriate compliance review system in place. A court may consider such structures in deciding whether an entity's acts or omissions were in good faith.*fn89 However, the existence of a compliance review system alone is not sufficient to establish a good faith defense on a motion for summary judgment. In SEC v. Lum's, Inc., for example, the district court found the issue of Lehman Brothers' good faith "close," despite testimony by several witnesses about the company's compliance department and the procedures it took to ensure that employees were kept apprised of how to comply with securities laws.*fn90 Here, the Deloitte defendants' evidence relates only to DTT's procedures and policies, but not to how those procedures and policies actually were implemented during the period in question.*fn91 The lack of such evidence alone precludes this Court from ruling as a matter of law that defendants acted in good faith.
Third, the Deloitte defendants argue that the evidence demonstrates that DTT's actions and recommendations plainly were made in good faith when issues involving Parmalat audits were brought to its attention.*fn92 By way of illustration, they point to the incident involving a difference of opinion between Deloitte Brazil and Deloitte Italy about the appropriate treatment of a Parmalat Brazil transaction.*fn93 They contend that their actions with respect to this incident demonstrate their good faith because DTT ultimately recommended disclosure of the transaction.*fn94
To plaintiffs, the same incident demonstrates DTT's willful blindness, as they argue the incident raised warning signs that DTT intentionally ignored.*fn95
The Deloitte defendants agree with plaintiffs that the Deloitte Brazil - Deloitte Italy dispute raised red flags, but argue that DTT responded to these warning signs appropriately.*fn96 Jorge Pena of DTT testified that DTT wanted to know whether the non-disclosure of the transaction involved in the dispute was limited to Parmalat Brazil or whether, instead, other Parmalat subsidiaries had not disclosed similar transactions. He had heard, for instance, that Parmalat Argentina had been involved in such a transaction.*fn97 After looking into the matter, however, Pena learned that the transaction involving Parmalat Argentina had been disclosed properly.*fn98 This indicated to Pena that the dispute over the treatment of the transaction was a "Brazilian issue," not the result of, say, the policy or influence of the parent Parmalat corporation.*fn99 To DTT, that rendered the issues raised by the dispute "far less important."*fn100
Certainly, the facts that DTT (a) resolved the dispute between Deloitte Italy and Deloitte Brazil by deciding that some form of disclosure was necessary and (b) examined how a similar transaction involving Parmalat Argentina had been treated would tend to support a conclusion that DTT was not willfully blind to Deloitte Italy's alleged violations. It is insufficient, however, 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 have known that [the] primary violator . . . was engaged in fraudulent conduct, but . . . did not take steps to prevent the primary violation.'"*fn101 Here, the Deloitte defendants ask the Court to conclude as a matter of law that DTT's limited investigation was sufficient. The Court declines to do so. While a jury might so find, a jury would be entitled to conclude also that the issue raised by the disclosure dispute merited more than merely looking to see how one similar transaction had been reported. Indeed, Pena himself testified that DTT originally had been concerned that the pressure not to disclose the transaction had come from Parmalat itself, not the Brazilian subsidiary. But there is no evidence that DTT ever questioned Deloitte Italy about whether it was receiving client pressure 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.
1. Control Person
The Deloitte defendants next contend that DT-US is entitled to summary judgment because it did not control DTT. Plaintiffs, however, respond with at least three meritorious arguments.
First, plaintiffs contend DT-US controls DTT through the many DT-US partners that occupy key DTT positions.*fn102 They point to the fact that the chief executive officer of DTT always has been a DT-US partner.*fn103 Indeed, James Copeland, DTT's chief executive officer during the period relevant here, was simultaneously DT-US's chief executive officer.*fn104 Additionally, DTT's chief financial officer was also the chief financial officer of DT-US, and DTT's head of legal and regulatory affairs and DTT's director of independence were former and current DT-US partners, respectively.*fn105
This 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 with a parent and its subsidiary can and do "change hats" to represent the two corporations separately, despite their common ownership.'"*fn106 But it certainly is relevant that several DT-US partners, including many who held key leadership positions at DT-US, simultaneously held officer positions at DTT.
Second, plaintiffs contend that DTT and its member firms depend on DT-US for financing. It is uncontroverted that member firms provide DTT's main source of funding and that DT-US contributes a significant portion of those funds, for example $80 million out of a $218 million budget in 2001.*fn107 Additionally, DT-US provided loans to DTT and guaranteed DTT's bank financing.*fn108 While the provision of funds alone is insufficient to support a finding that one entity controlled another, the contribution of a significant portion of one entity's operating costs is a factor that may indicate control.*fn109
Plaintiffs point also to what they assert was a specific instance of DT-US's control of DTT. When DTT deliberated whether to separate its consulting function from its audit function, DT-US partners voted for the proposal before other member firms voiced their agreement.*fn110 The DTT board of directors then conditionally approved the transaction.*fn111 Following the vote, however, DT-US changed its mind and concluded that separating Deloitte Consulting from DTT was too risky. Apparently without soliciting the opinions of other member firms, DTT management agreed with DT-US to withdraw the plan from the board's consideration.*fn112 From this, a jury reasonably 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 positions at DTT, including the position of chief executive officer, and that DT-US, through loans and outright contributions provided a large portion of DTT's funding. There is evidence also of at least one instance in which DT-US may have influenced DTT's decision making. Considering the totality of the circumstances, the Court concludes that plaintiffs have shown there is a genuine issue of material fact as to whether DT-US controlled DTT.
2. Good Faith
The Deloitte defendants assert only that DT-US did not know of any fraud relating to Parmalat Finanziaria.*fn113 As discussed above, this assertion is insufficient to "'direct a conclusion of law that [DT-US] is entitled to the defense."*fn114 The Court thus concludes that DT-US is not entitled to summary judgment on the control person issue.
1. Control Person
As Copeland was the chief executive officer of DT-US and DTT, plaintiffs have met
their burden to demonstrate a genuine issue of fact as to whether Copeland was a control person of both entities.*fn115
2. Good Faith
The 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 has 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 judgment determining that they are not jointly and severally liable for any fraudulent conduct pursuant to Section 21D(f)(2)(A) of the PSLRA, which limits joint and several liability to defendants who commit knowing rather than merely reckless violations of the securities laws.*fn116
According to the Senate Report, this amendment was intended to protect deep-pocket defendants who "bear very little responsibility" for an alleged securities violation from being sued and potentially held liable for 100 percent of the damages.*fn117 The legislative history indicates no intent to alter traditional principles of vicarious liability under which liability is attributed to one party based on the actions of another party regardless of the first party's mental state. The Court thus concludes that the Deloitte defendants are not entitled to summary judgment on this claim.
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.