Page 84 - The Handbook - Law Firm Networks 2018
P. 84
The Handbook: Law Firm Networks
exist. Parmalat filed for bankruptcy in Italy. The Italian government indicted Parmalat officials and
some executive employees and partners of Grant Thornton–Italy. Vicarious liability claims were filed
against Deloitte Touche Tohmatsu (DTT), the network Swiss Verein,373 Deloitte U.S., Grant Thornton
International (GT International), and Grant Thornton U.S.
GT International was alleged to have the power to control GT-Italy. It could remove partners of GT-Italy,
expel GT-Italy from the network, own the intellectual property, and make admission and policy decisions.
The court refused to dismiss because it found that there could be an agency agreement. It would be for a jury
to decide.
Deloitte Touche Tohmatsu was alleged to have intervened in audit personnel decisions of Deloitte-Brazil.
Deloitte-Italy allegedly sought input from DTT.374 The court refused to dismiss the claim that Deloitte-U.S.
could be acting as the agent of Deloitte-Italy. The court held that there was no basis for the control allegation
and dismissed that part of the complaint. The cases were subsequently settled, and the plaintiffs received $15
million from Deloitte and Grant Thornton.
Banco Espirito Santo v. BDO Seidman International was another case dealing with alleged vicarious
liability. In 2007, BDO Seidman (Seidman) was found negligent in a case brought against it by Banco
Espirito Santo. However, the trial court found that the plaintiff failed to adduce sufficient evidence to allow
the jury to decide whether BDO International (International) was liable on an actual-agency basis for the
actions of Seidman and, therefore, responsible for the alleged negligence of Seidman. Seidman was sued
with respect to audit. It had not discovered the multi-million dollar audit fraud. A vicarious liability claim
was asserted against International. The theory was that International was the agent of Seidman.
The trial judge entered judgment for International on the grounds that plaintiffs had failed to present
sufficient evidence of actual agency. The question was whether the lack of discovery of fraud occurred in the
context of the member firm agreement. The case was remanded for a jury to decide on appeal.
The following questions arose during the trial: Did International acknowledge BDO Seidman would act for
it? Did Seidman accept agency of International? Did International have the power to control Seidman? The
analysis showed that in International’s documents it stated that one of its purposes was to “manage” and
“control” member firms.375 For example, International could require personnel from member firms to work
on a particular matter. International controlled the intellectual property, audit manuals, and procedures, and
had the right to review all matters.
The fundamental question was whether there was in fact an agency relationship. If there was such a
relationship, the issue was whether the negligence occurred within the scope of the agency. Plaintiff argued
that Seidman was following the manual, and that International controlled the branding and could terminate
Seidman. The judge only permitted the theory of actual agency to be asserted at trial. The jury decided there
was no actual agency.
373 See supra Chapter 1, What is a Professional Services Network? DTT is the network to which all of the Deloitte Touche independent members
belong.
374 Philip Smith, Auditors Settle with Parmalat Investors, ACCOUNTANCY AGE (November 20, 2009),
www.accountancyage.com/print_artice/aa/new/1785205/auditors-settle-parmalate.asp.
375 David Jetuah, BDO Case May Set Precedent for Umbrella Bodies’ Liabilities, ACCOUNTANCY AGE (May 2008). In the pleadings, “Banco ES
claims that BDO International had ‘the right to control’ over BDO Seidman. ‘BDO International controls BDO Seidman right down to how they type
their letters.’ BDO International claims control relations were not so strict with only ten people working at the umbrella body and described the
control claims are ‘puffery.’ BDO cannot come in during an audit and say to them ‘do it this way.’”
www.accountancyage.com/print_artice/aa/news/175912/bdo-set-precedent-umbrella.asp.
375 David Jetuah, BDO International Dismissed but Must Prove Why They Should Not be Culpable, ACCOUNTANCY AGE (March 2008),
www.accountancyage.com/print_artice/aa/news/175912/bdo-international-dismissed.asp.
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exist. Parmalat filed for bankruptcy in Italy. The Italian government indicted Parmalat officials and
some executive employees and partners of Grant Thornton–Italy. Vicarious liability claims were filed
against Deloitte Touche Tohmatsu (DTT), the network Swiss Verein,373 Deloitte U.S., Grant Thornton
International (GT International), and Grant Thornton U.S.
GT International was alleged to have the power to control GT-Italy. It could remove partners of GT-Italy,
expel GT-Italy from the network, own the intellectual property, and make admission and policy decisions.
The court refused to dismiss because it found that there could be an agency agreement. It would be for a jury
to decide.
Deloitte Touche Tohmatsu was alleged to have intervened in audit personnel decisions of Deloitte-Brazil.
Deloitte-Italy allegedly sought input from DTT.374 The court refused to dismiss the claim that Deloitte-U.S.
could be acting as the agent of Deloitte-Italy. The court held that there was no basis for the control allegation
and dismissed that part of the complaint. The cases were subsequently settled, and the plaintiffs received $15
million from Deloitte and Grant Thornton.
Banco Espirito Santo v. BDO Seidman International was another case dealing with alleged vicarious
liability. In 2007, BDO Seidman (Seidman) was found negligent in a case brought against it by Banco
Espirito Santo. However, the trial court found that the plaintiff failed to adduce sufficient evidence to allow
the jury to decide whether BDO International (International) was liable on an actual-agency basis for the
actions of Seidman and, therefore, responsible for the alleged negligence of Seidman. Seidman was sued
with respect to audit. It had not discovered the multi-million dollar audit fraud. A vicarious liability claim
was asserted against International. The theory was that International was the agent of Seidman.
The trial judge entered judgment for International on the grounds that plaintiffs had failed to present
sufficient evidence of actual agency. The question was whether the lack of discovery of fraud occurred in the
context of the member firm agreement. The case was remanded for a jury to decide on appeal.
The following questions arose during the trial: Did International acknowledge BDO Seidman would act for
it? Did Seidman accept agency of International? Did International have the power to control Seidman? The
analysis showed that in International’s documents it stated that one of its purposes was to “manage” and
“control” member firms.375 For example, International could require personnel from member firms to work
on a particular matter. International controlled the intellectual property, audit manuals, and procedures, and
had the right to review all matters.
The fundamental question was whether there was in fact an agency relationship. If there was such a
relationship, the issue was whether the negligence occurred within the scope of the agency. Plaintiff argued
that Seidman was following the manual, and that International controlled the branding and could terminate
Seidman. The judge only permitted the theory of actual agency to be asserted at trial. The jury decided there
was no actual agency.
373 See supra Chapter 1, What is a Professional Services Network? DTT is the network to which all of the Deloitte Touche independent members
belong.
374 Philip Smith, Auditors Settle with Parmalat Investors, ACCOUNTANCY AGE (November 20, 2009),
www.accountancyage.com/print_artice/aa/new/1785205/auditors-settle-parmalate.asp.
375 David Jetuah, BDO Case May Set Precedent for Umbrella Bodies’ Liabilities, ACCOUNTANCY AGE (May 2008). In the pleadings, “Banco ES
claims that BDO International had ‘the right to control’ over BDO Seidman. ‘BDO International controls BDO Seidman right down to how they type
their letters.’ BDO International claims control relations were not so strict with only ten people working at the umbrella body and described the
control claims are ‘puffery.’ BDO cannot come in during an audit and say to them ‘do it this way.’”
www.accountancyage.com/print_artice/aa/news/175912/bdo-set-precedent-umbrella.asp.
375 David Jetuah, BDO International Dismissed but Must Prove Why They Should Not be Culpable, ACCOUNTANCY AGE (March 2008),
www.accountancyage.com/print_artice/aa/news/175912/bdo-international-dismissed.asp.
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