A New York federal court judge has ruled that Deloitte & Touche must stand trial in a class-action suit over its Italian affiliate's audits of collapsed dairy processor Parmalat.

Deloitte had sought to dismiss the case against Deloitte Touche Tohmatsu, Deloitte & Touche LLP and former CEO James Copeland, claiming they could not be held liable for the audits conducted by Deloitte's Italian affiliate because the firms were legally separate entities. The case could have implications for other Big Four firm networks and the legal liability of their international and country-specific member firms.

The ruling by Judge Lewis Kaplan of U.S. District Court for the Southern District of New York rejected a summary judgment motion to dismiss the shareholder class-action suit.

"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,'" wrote Kaplan. "Member firms therefore use the Deloitte name when serving international clients 'in order to project the image of a cohesive international organization.'"

Judge Kaplan also rejected Deloitte's claim of a precedent in the Supreme Court's recent decision in the Stoneridge case.

"Were it considered in a vacuum, aspects of the Stoneridge court's reasoning would seem to apply also to common law agency principles," he wrote. "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."

Deloitte said that it still believes it will prevail in the case

“Obviously, we are disappointed in the judge’s decision, but we are confident of victory at any trial of this matter," said a statement e-mailed by spokesperson Deb Harrington.  "As the court pointed out, the evidence presented by the Deloitte defendants would support a jury verdict in their favor, but for purposes of summary judgment, it was 'obliged to view the evidence in the light most favorable to the plaintiffs,' and therefore could not grant the motion 'as a matter of law.' 

"Deloitte US issued no audit reports on Parmalat and had nothing to do with Parmalat's alleged misconduct. In fact, the same judge has dismissed two complaints filed against Deloitte US for their audits of Parmalat's US operations. Deloitte Touche Tohmatsu is a Swiss Verein (membership association) and provided no services of any kind to any Parmalat entity.”

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