Parmalat ruling leaves global networks exposed

A US ruling that Deloitte could be liable for the actions of its Italian network over the Parmalat fraud will make global firms more vulnerable to future lawsuits.

The New York District Court last week dismissed an attempt by Deloitte to have a class action thrown out.

Shareholders claim the global network should be held responsible for Deloitte Italy’s alleged fraudulent activities as auditor of the collapsed Italian dairy giant.

One legal expert said the US ruling might ‘act as a break’ to efforts by leading firms to market themselves as global organisations and lead to a rise in class actions.

Parmalat said: ‘Obviously we are disappointed in the judge’s decision but we are confident of victory at any trial of this matter. As the court pointed out, the evidence presented by the Deloitte defendents would support a jury verdict in their favour.’

Parmalat collapsed in 2003 after reportedly understating its debt by nearly $10bn and overstating its net assets by $16.4bn.

The plaintiffs, purchasers of Parmalat securities between January 5, 1999 and December 18, 2003, are looking to hold the firm liable on a global basis, which has lead to DTT efforts to distance itself from claims levelled at its Italian member firm.

But Judge Lewis Kaplan ruled that Deloitte was not exempt from rules governing a superior’s liability for the action of a subordinate, known as vicarious liability. ‘The legislative history indicates no intent to alter traditional principles of vicarious liability… The court thus concludes the Deloitte defendants are not entitled to summary judgment on this claim,’ Kaplan said.

Deloitte is headquartered in New York but it also set up in Switzerland as an association – or ‘verein’.

Deloitte claims this is a separate legal entity, which only provides an umbrella for its global network.