Court Reinstates Malpractice Suit Against Deloitte

A malpractice lawsuit against Deloitte that was filed by Holtsville, N.Y.-based Symbol Technologies can proceed, an appeals court in New York has ruled.

The ruling overturns a New York Supreme Court judge’s dismissal of a complaint that the supplier of mobile data capture and delivery equipment filed in June 2008. In November 2005, Symbol sued Deloitte claiming failure to detect alleged accounting fraud, but the judge cited a statute of limitations for nonmedical malpractice claims and dismissed the suit.

In the new decision, the New York Supreme Court, Appellate Division found that Deloitte continued to provide Symbol with auditing services, including an audit restatement, beyond the scope of the statute of limitations. Therefore, Deloitte provided a “continuing obligation” to Symbol that is exempt from the statute of limitations, the appeals court’s opinion stated.

The complaint stemmed from Securities and Exchange Commission charges of fraudulent accounting practices against Symbol and 11 former executives. The SEC charges included overstating revenue for fiscal years from 1998 through 2001, which the SEC said resulted in an impact of over $230 million on Symbol's reported revenue and over $530 million on its pre-tax earnings (see Symbol to Pay $138M to Settle SEC Charges, Shareholder Lawsuit). Symbol did not admit or deny the SEC charges and agreed to settle them and a class-action shareholder lawsuit.

The appeals court found that Deloitte was actively engaged as Symbol’s auditor in remedying problems related to the SEC charges. “No separate engagement letter was obtained by Deloitte for the remedial accounting services it performed,” Justice Leonard B. Austin wrote for the court in Symbol Technologies v. Deloitte & Touche. "Symbol's allegation that Deloitte continued to provide auditing services through the end of 2003 in connection with the restatement of its audits without seeking the execution of new engagement letters suggests the continuation of their professional relationship.”

Michael G. Kruzynski, a partner at Lewis Johs Avallone Aviles in Melville, N.Y., and attorney for Symbol, said he is pleased with the ruling in that it gives the green light for Symbol to continue with its suit. Further proceedings are pending a discovery phase, he added.

“The court held only that plaintiffs had alleged enough to proceed to discovery,” Deloitte said in a statement. “Deloitte believes that the claims asserted against it are meritless and intends to defend this case vigorously.”