Grant Thornton Wins Securities Class-Action Suit
Grant Thornton International Ltd. has prevailed in a class-action lawsuit brought by three Louisiana pension funds against the firm.
The pension funds, Firefighters’ Retirement System, Municipal Employees Retirement System of Louisiana, and New Orleans Firefighters’ Pension & Relief Fund, filed suit against 23 defendants in a state court, including Grant Thornton and Citco Group Limited, claiming unjust enrichment, breach of contract, negligent misrepresentation and other claims in violation of Louisiana securities laws as a result of a $100 million investment loss.
In April 2008, the pension funds bought 100,000 Series N shares offered and issued by FIA Leveraged Fund for $100 million. The hedge fund was based in the Cayman Islands and later went bankrupt. After a series of investment transactions initiated by FIA Leverage Fund, the pension funds tried to redeem their Series N shares in March 2011, but the shares could not be redeemed, and the plaintiffs realized the investment was illiquid. Thus, the shares, for which there was no market, were valueless. Grant Thornton was sued by the three Louisiana public pension funds seeking recovery of $100 million lost by the bankrupt hedge fund whose financial statements were audited by GT.
On appeal to the U.S. District Court for the Middle District of Louisiana, presiding judge Shelly D. Dick agreed that the plaintiffs had not met their burden to establish jurisdiction over Grant Thornton’s U.K. parent, Grant Thornton International Ltd. Judge Dick held that the pension funds had not pleaded any direct or purposeful communication by Grant Thornton International Ltd. directed at the United States from which the claims arose. The judge issued the ruling on September 15.
Grant Thornton International Ltd. argued that it had no contacts with Louisiana or the United States, even though its U.S. member firm Grant Thornton is based in Chicago and has offices throughout the country. Therefore, according to Grant Thornton International, the court cannot constitutionally exercise personal jurisdiction over Grant Thornton International Ltd. The international network argued that it is based abroad in London, not Chicago.
“Per the declaration provided by the Head of Finance-Treasurer of GTIL, the Grant Thornton network ‘consists of member firms that are separate legal entities, each organized under the laws of its own jurisdiction.’ GTIL is a ‘separate legal entity from each of the Grant Thornton member firm, and is not licensed to provide accounting or auditing services in any jurisdiction.’ In the present case, the only apparent contacts that GTIL has with the forum—the United State—is a registered agent for the service of process in Chicago, Illinois,” said the court.
The U.S. District Court for the Middle District of Louisiana cited a Supreme Court decision in a 1952 case, Perkins v. Benguet Consolidated Mining Company, which found that a foreign corporation was subject to general personal jurisdiction in the United States despite being incorporated under the laws of a foreign state. But in that case the company held directors’ meetings, received business correspondence, did banking and stock transfers, paid salaries and bought machinery. However, in the case of Grant Thornton International, the pension funds did not contend that the firm network engaged in those activities. As in the Perkins case, Grant Thornton International had registered agents for the service of process in the state.
In a more recent case decided earlier this year, Patterson v. Aker Solutions Incorporated, the Fifth Circuit Court of Appeals held that a U.S. District Court did not have general jurisdiction over a foreign corporation.
In the case of Grant Thornton International Ltd., the court did not find the international network fell under that jurisdiction. “Given that GTIL is not incorporated under the laws of any state in the United States, nor does it have its principal place of business in the United States, the mere fact that GTIL has a registered agent for the service of process alone, absent any other contact with the United States, does not make GTIL’s contacts with the United States so ‘continuous and systematic’ as to render [it] essentially at home’ in the United States,” said the court.
The law firm Stroock & Stroock & Lavan represented Grant Thornton International in the case. “The court found that Grant Thornton International Ltd is a non-practicing international umbrella entity, incorporated in England and Wales and headquartered in London, which performs no audit work,” Stroock noted. “The court then evaluated Grant Thornton International Ltd.’s alleged contacts with the United States and found that it had insufficient contacts with the United States for either general or specific personal jurisdiction.”
The Stroock partner who represented Grant Thornton on the appeal, James Bernard, and special counsel David Cheifetz were gratified by the decision. “We are extremely pleased with the court’s decision, including that Grant Thornton International Ltd is a non-practicing U.K.-based umbrella entity that had nothing to do with the audit reports or transactions at issue in this case and had no relevant contacts with the U.S. that would subject it to the jurisdiction of U.S. courts,” they said in a statement.