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In re Parmalat Securities Litigation


February 23, 2009


The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.

This document relates to: 04 Civ. 0030


Deloitte & Touche LLP ("DT-US") moves for reconsideration of this Court's recent decision denying its motion for summary judgment dismissing the complaint.*fn1

DT-US argues that none of the three specific factors cited by the Court in denying summary judgment alone is sufficient to support a jury finding that DT-US controlled Deloitte Touche Tohmatsu ("DTT"). DT-US incorrectly considers each factor in isolation.*fn2 Taking those factors -- viz., evidence that (1) several DT-US partners, including many who held key leadership positions at DT-US, simultaneously held senior officer positions at DTT, (2) DT-US provided a significant portion of DTT's funding, and (3) DT-US in at least one instance influenced DTT's decision making -- together, a jury reasonably could conclude it was more likely than not that DT-US controlled DTT and that DTT thus was its agent. Moreover, DT-US's motion ignores the Court's statement that "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."*fn3

In other words, it neglects the fact that the Court's conclusion rested not only on the three specific factors discussed in the opinion, but an abundance of other evidence that properly might be considered by a jury in resolving the agency and control issues.

Aside from the specific points discussed in the previous opinion, the evidence suggests that DTT is part of an international organization that is disproportionately dependent upon and influenced by a single member firm: DT-US. DT-US is DTT's largest member firm and contributes the largest portion of DTT's operating costs.*fn4 As of 2000, it represented more than fifty percent of DTT's assets.*fn5 In the words of James Copeland, chief executive officer of both DT-US and DTT, DT-US wielded "significant" influence over DTT's board of directors*fn6 and controlled more seats on the board than any other member firm.*fn7 Without DT-US, said Mr. Copeland, DTT would "cease[] to be a credible global firm."*fn8 DT-US held equity in and had the right to select directors of some member firms.*fn9 Indeed, DT-US partners were seconded to some member firms to serve as their chief executive officers or in other high ranking positions.*fn10 Thus, while a jury would not be obliged to find that DT-US controls DTT, it certainly cannot be said, at least at this stage, that it a jury could not rationally so conclude.

DT-US argues also that the Court misapprehended the facts regarding the third factor, DT-US's possible influence over DTT's decision making. The decision at issue was whether to approve the separation of Deloitte Consulting from DTT. DT-US contends that, as part of this process, each member firm had to decide independently whether to spin off its own consulting function from its auditing function. DT-US independently made the decision not to separate its consulting function from its accounting practice. DTT then concluded that, without the participation of DT-US, the separation of the global consulting practice from DTT was not viable and removed the proposal from the board's consideration.*fn11 According to DT-US, this incident does not demonstrate DT-US's control of DTT because DT-US's decision was "DT US's alone to make."*fn12

DTT's subsequent choice not to proceed with the worldwide transaction was based solely on the practical reality that it would fail without DT-US's participation.

As an initial matter, the draft minutes of the DTT board's March 28, 2003 meeting offer an alternative view of the facts. The minutes state that "the proposal to separate Deloitte Consulting from DTT, previously conditionally approved by the Board . . . had been withdrawn. The leadership of the US Firm had concluded that the risk of the transaction was unacceptable . . . and they could not recommend it."*fn13 Thus, a permissible reading of this document indicates that DT-US concluded that the worldwide transaction was too risky, in consequence of which DTT dropped its plan to spin off Deloitte Consulting. This document thus is susceptible of the interpretation that DTUS influenced, and possibly controlled, DTT's decision. Because the Court must view the facts in the light most favorable to the plaintiffs and resolve all factual ambiguities in their favor,*fn14 the Court must credit this version of the facts for the purpose of considering DT-US's motion for summary judgment.

To be sure, DT-US's version of the facts is more than plausible. But even if the Court were permitted to accept DT-US's version on this motion, it would not change the result. According to DT-US's version of the facts, DT-US's consulting practice was so substantial compared to all other member firms' practices combined that there was "no reason for DTT to consider further Deloitte Consulting's withdrawal from DTT" once DT-US decided it would not separate its consulting firm from its accounting practice.*fn15 In other words, DT-US's unilateral decision caused the DTT board to drop the proposal from its agenda. From this, a jury reasonably could infer that DT-US at least influenced and possibly controlled DTT's decision on the subject.

In light of all the evidence, considered together, a reasonable jury could conclude that it is more likely than not that DT-US controlled DTT. DT-US's motion for reconsideration [04MD1653 docket item 1672, 04 Civ. 0030 docket item 1043] is denied.


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