The U.S. Court of Appeals for the Sixth Circuit has referred questions to the Pennsylvania Supreme Court in a case involving PricewaterhouseCoopers that could set a precedent for accountant liability.

The case revolves around the creditor's committee for the bankrupt Allegheny Health, Education and Research Foundation. A group of officers, including the former CFO, admitted to knowingly misstating AHERF's finances in the figures they provided to PwC in 1996 and 1997. The court needed to decide whether the creditor's committee has the right to sue PwC for knowingly assisting in the AHERF officers' misconduct by issuing clean audit opinions before the company collapsed in bankruptcy in 1998. PwC won the first round of litigation in a lower court, according to Law.com.

The questions from the appeals court involve the legal doctrine of "in pari delicto," Latin for "in equal fault," in which a plaintiff cannot assert a claim against a defendant if the plaintiff also bears fault. The creditor's committee effectively stands in the place of the now bankrupt healthcare provider, whose former officers originally misstated the organization's finances over a decade ago.

In one of his questions for the higher court, Circuit Judge Thomas L. Ambro asked, "Does the doctrine of in pari delicto prevent a corporation from recovering against its accountants for breach of contract, professional negligence, or aiding and abetting a breach of fiduciary duty, if those accountants conspired with officers of the corporation to misstate the corporation's finances to the corporation's ultimate detriment?"

He deferred to the higher court on the matter. "Extending in pari delicto to a breach-of-fiduciary-duty action without guidance from the Supreme Court of Pennsylvania gives us pause," he wrote.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access