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Case Notes

General Interest
Attorneys’ Liability
Accountants’ Liability
D&O Liability
Professional Liability Insurance 

General Interest

2nd Cir.: Part of NY Conduct Rule Violates First Amendment

Hayes v. State of New York Attorney Grievance Committee of the Eighth Judicial District, 10-1587-cv

The Second Circuit held that part of Rule 7.4 of the New York Rules of Professional Conduct violates the First Amendment and is unconstitutionally vague.

Extending the Statute of Limitations on Professional Malpractice Claims in Georgia

Newell Recycling of Atlanta, Inc. v. Jordan Jones & Goudling, Inc., 288 Ga. 236, ___ S.E.2d ___ (2010)

The Newell case questions the limitations period for legal malpractice claims where an attorney has provided services pursuant to a engagement letter or fee agreement.

Ninth Circuit Holds That Market Efficiency Not Required for Loss Causation Defense

Miller v. Thane Int'l, 2010 WL 3081488 (9th Cir. Aug. 9, 2010)

A lack of stock price reaction to a corrective disclosure can support an affirmative defense of lack of loss causation under Section 12(a)(2) even in an inefficient market.

Second Circuit Clarifies Application of PSLRA Safe Harbor for Forward-Looking Statements

Slayton v. American Express Co., 2010 WL 1960019 (2d Cir. May 18, 2010)

In Slayton v. American Express Co., the court rejected plaintiffs' argument that a forward-looking statement must be separately identified as such.

No Class Arbitration on Parties Who Are Silent on the Issue

Stolt-Nielsen S.A. v. AnimalFeeds International Corp., U.S. Supreme Court No. 08-1198 (April 27, 2010)
The Stolt-Nielsen decision limits arbitrators from permitting class-wide arbitration based on the presumed intent of parties where the agreement is silent.

Supreme Court Settles Section 10(b) Dispute over Limitations Period

Merck & Co., Inc. v. Reynolds, U.S. Supreme Court No. 08-905 (April 27, 2010)
The Court in Merck & Co. v. Reynolds holds that limitations begin to run when a plaintiff has or should have discovered all "facts constituting the violation," including that the defendant acted with scienter.

In re Washington Mutual, Inc. Securities Litigation

08-md-1919 (W.D. Wash. Oct. 27, 2009).
Federal Court in Washington Denies Motion to Dismiss by Auditor, Underwriters, Ds&Os in WaMu Securities Class Action.

Attorneys’ Liability

Ohio Federal Court Upholds "Loss Prevention Privilege" to Prevent Discovery in Legal Malpractice Action

Tattletale Alarm Systems, Inc. v. Calfee, Halter & Griswold, LLP, 2011 WL 382627 (S.D. Ohio Feb. 3, 2011)

The court held that internal "loss prevention" communications among attorneys at the defendant law firm were protected by the attorney-client privilege.

Second Circuit Issues Three Opinions Dealing with Attorney Conflicts

Read the casenotes on Murray, Trautenberg, and Nordwind

Outside Counsel Not Liable Under Section 10(b) for Involvement in Preparing Public Disclosures

Pacific Inv. Mgmt. Co. LLC v. Mayer Brown LLP, 2010 WL 1659230 (2d Cir. Apr. 27, 2010)

An outside law firm may not be responsible under Section 10(b) for behind-the-scenes involvement in preparing public disclosure documents.

Reneker v. Offill

08-cv-1394-D (N.D. Tex. Oct. 28, 2009).
Federal Court in Texas Dismisses Receiver’s Claims Against Law Firm.

David J. Sacks, P.C. v. Haden

266 S.W.3d 447 (Tex. 2008)
No Parol Evidence to Cap Fees in Hourly-Fee Contract.

Musaelian v. Adams

(2009) 45 Cal. 4th 512
Attorney Who Responds In Pro Per To A Filing Abuse May Not Recover Attorneys Fees as a Sanction Against Plaintiff.

Bak v. MCL Financial Group

(2009) 170 Cal.App.4th 1118
Arbitrator Authorized To Sanction Attorney for Discovery Abuses.

Flying J Inc v. TA Operating Corp.

(2008) 160 Cal.App.4th 377
Utah Court Rejects Per Se Rule for Disqualification of Counsel.

Stroud v. Tunzi

(2008) 160 Cal.App.4th 377
California’s Second Appellate District holds that any written modification to a contingent attorneys’ fee agreement must meet all of the statutory standards as the original agreement.

Fergus v. Songer

(2007) 150 Cal. App. 4th 552 (rev. den. 7/25/07)
The Court of Appeals for the Second District of California holds that an attorney’s reasonable fee cannot be measured by a contingent fee under a void contingency fee agreement.

Roush v. Seagate Technology, LLC

(2007) 150 Cal. App. 4th 210 (rev. den. 07/25/07)
In cases where clients share the same attorney, attorneys should be aware of their seperate ethical duties to each client and take steps to protect the attorney client privilege.

PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP

(2007) 150 Cal. App. 4th 384
Fourth Circuit held that a firm is liable for acts of a non-equity partner regardless of internal agreements concerning the partner's separate practice.

Expansion Pointe Properties LP, v. Procopio, Cory, Hargreaves & Savitch, LLP

(2007) 152 Cal. App. 4th 42
The Court of Appeals for the Second District of California holds that counsel for an insurance carrier has no attorney-client relationship with the carrier’s reinsurer.

Rose v. Hudson

(2007) 153 Cal. App. 4th 641
The legal malpractice statute of limitations applies to a criminal malpractice claim initiated after legal services were rendered despite a delay in obtaining post-conviction relief.

Selten v. Hyon

(2007) 152 Cal.App.4th 463 (rev. den. 9/12/07)
The decision voids a contingent fee contract between a client and a non-lawyer for unlawful referral services but permits quantum meruit recovery for lawful services rendered by the non-lawyer.

Siebel v. Mittlesteadt

(2007) 41 Cal. 4th 735
The Supreme Court of California holds that a post-trial settlement that does not amend an underlying judgment does not eliminate the “favorable termination” element of a malicious prosecution action.

Wimsatt v. Superior Court (Kausch)

(2007) 152 Cal. App. 4th 395
A strict approach to mediation confidentiality prevents courts from exploring and justly deciding controversies that might arise out of mediated agreements.

Shandralina G. v. Homonchuk

(2007) 147 Cal. App. 4th 395
The Court of Appeals for the Fourth District of California holds that an attorney who had inadvertent contact with his opponent’s expert will not be disqualified if not exposed to confidential information.

Zenith Ins. Co. v. O’Connor

(2007) 148 Cal. App. 4th 998
The Court of Appeals for the Second District of California holds that counsel for an insurance carrier has no attorney-client relationship with the carrier’s reinsurer.

Accountants’ Liability

Third Circuit Rejects Fraud-Created-the-Market Theory

Malack v. BDO Seidman, LLP, 617 F.3d 743 (3d Cir. 2010)

The Third Circuit, in the process of affirming the district court’s denial of class certification in a securities fraud class action, rejected the fraud-created-the-market theory.

Sixth Circuit Applies Imputation Rule to Dismiss Professional Negligence Claim

In re NM Holdings Co., LLC, 622 F.3d 613 (6th Cir. Sept. 30, 2010)

The Sixth Circuit's decision affirms that reliance is part of the causation element of a professional negligence claim.

New York High Court Reaffirms In Pari Delicto Doctrine

Kirschner v. KPMG LLP, et al. (N.Y. Oct. 21, 2010)

Principles of in pari delicto and imputation bar a corporation from shifting responsibility for the fraudulent acts of its own insiders to third parties.

Court Reaffirms Limits on Auditor Liability to Third Parties

BDO Seidman, LLP v. Banco Espirito Santo Int’l (Fla. 3d DCA June 23, 2010)

The Third District Court of Appeals recently reaffirmed legal principles that are particularly relevant to public accounting firms.

Work Product Protection Not Waived by Disclosure to Auditors

United States v. Deloitte LLP, 2010 U.S. App. LEXIS 13226 (D.C. Cir. June 29, 2010)

The D.C. Circuit recently upheld protection for attorney work product disclosed to an auditor during its audit.

Executive Fraud Bars Trustee's Claims Against Auditors

In re Parmalat Securities Litigation, No. 04 MD 1653, 2009 WL 2996509 (Sept. 21, 2009).
Parlamat reaffirms the doctrine of in pari delicto as a defense to claims against secondary actors by former clients who engaged in fraud or other serious wrongdoings.

The Pennsylvania Supreme Court Limits Availability of In Pari Delicto

Official Committee of Unsecured Creditors of AHERF v. PriceWaterhouseCoopers, No. 38 WAP 2008, 2010 WL 522830 (Pa. Feb. 16, 2010).
The court's recent decision holds that the in pari delicto defense is not available to auditors accused of colluding with management to misstate corporate finances.

Second Circuit Dismisses Securities Fraud Claims Against Accounting Firm

Second Circuit upholds the dismissal of securities fraud claims by shareholders of Doral Financial Corp.

SEC v. Strauss, et al.

09-Civ-4150 (S.D.N.Y. Oct. 28, 2009).
Federal Court in New York Denies Defendants' Motion to Compel Shared Access to D&T Workpapers in SEC Action.

In re iMergent Securities Litigation

No. 2:05-CV-204, 2009 WL 3731965 (D. Utah Nov. 2, 2009)
iMergent Court Dismisses Section 10(b) Claim Against Independent Auditor On Scienter Grounds.

In the Matter of Hall, et al.

Admin. Proc. File No. 3-12208, Exchange Act Rel. No. 61162 (Dec. 14, 2009).
SEC Upholds Dismissal of Rule 102(e) Charges Against Independent Auditors.

SEC and PCAOB Simultaneously Settle Fraud Case Against Registered Accounting Firm and Accountant

The PCAOB and the SEC simultaneously settled an enforcement action involving a registered public accounting firm and the firm's principal partner.

Horizon Asset Mgmt., Inc. v. H&R Block, Inc.

Nos. 08-1593, 08-1670, 2009 WL 2870505 (8th Cir. Sept. 9, 2009).
Eighth Circuit Addresses Restatements as a Factor Opposing Inference of Scienter.

McAdams v. McCord

No. 09-1303, 2009 WL 3350036 (8th Cir. Oct. 20, 2009).
Eighth Circuit Affirms Dismissal of Section 10(b) Claim Against Outside Auditors on Loss Causation Grounds.

Ernst & Young Ltd. Bermuda, et al. v. Quinn, et al.

09-cv-1164 (D. Conn. Oct. 26, 2009).
Federal Court in Connecticut Compels Arbitration of Derivative Claims Asserted Against EY Bermuda and EY LLP, and Stays State Court Action.

Aaron v. Aguirre

No. 06-CV-1451-H, 2007 WL 959083 (S.D. Cal. Mar. 8, 2007)
Auditing and Accounting Services Do Not Constitute “State Action” in § 1983 Case

Alpert v. Riley

No. H-04-CV-3774, 2007 WL 963982 (S.D. Tex. Mar. 29, 2007)
Accountant’s Production of Tax Records under Subpoena Does Not Create Liability

PricewaterhouseCoopers, LLP v. Massey

860 N.E.2d 1252 (Ind. Ct. App. 2007)
Auditors Do Not Owe Directors an Independent, Special Duty

Rocker v. KPMG LLP

148 P.3d 703 (Nev. 2006)
Particularity Requirement Relaxed When Evidence of Fraud Is in the Hands of Defendants

Xerion Partners I LLC v. Resurgence Asset Mgmt., LLC

474 F. Supp. 2d 505 (S.D.N.Y. 2007)
Court Enforces Pleading Particularity Requirements and Rejects Fraud by Hindsight

Tricontinental Industries, Ltd. V. PricewaterhouseCoopers, LLP

475 F.3d 824 (7th Cir. 2007)
In Dismissing Claims, Court Examines the “Primary Intent” of Auditor’s Client

In re SeraCare Life Sciences, Inc.

No. 05-CV-2335-H, 2007 WL 935583 (S.D. Cal. Mar. 19, 2007)
Court Examines Confidential Witness Rules, Substantial Participation

Overton v. Todman & Co.

478 F.3d 479 (2d Cir. 2007)
Second Circuit Finds Primary Liability for Failure to Correct Certified Opinion

First State Bank v. Daniel & Assocs.

478 F. Supp. 2d1279 (D. Kan. 2007)
Cause of Action For Malpractice Accrues at Notice of Faulty Accounting

In re Bristol-Myers Squibb Derivative Litig.

No. 02 Civ. 8571, 2007 WL 959081 (S.D.N.Y. Mar. 30, 2007)
Lack of Demand Leads to Dismissal in Derivative Action

Lattanzio v. Deloitte & Touche LLP

476 F.3d 147 (2d Cir. 2007)
Second Circuit Examines Who, When, and How in Securities Fraud Case

Bank of Am., N.A. v. Deloitte & Touche, LLP

No. 062218BLS1, 2006 WL 3725566 (Mass. Super. Dec. 1, 2006)
Court Examines Pennsylvania Laws For Conspiracy, Aiding & Abetting, and Negligent Misrepresentation

Official Comm. of Unsecured Creditors of Allegheny Health, Educ. & Research Found. v. PricewaterhouseCoopers, LLP

No. 2:00cv684, 2007 WL 141059 (W.D. Pa. Jan. 17, 2007)
Summary Judgment for Auditors Required Under Doctrine of in Pari Delicto

In re Refco, Inc. Sec. Litig.

No. 05 Civ. 8626, 2007 WL 1280649 (S.D.N.Y. Apr. 30, 2007)
Securities Class Action Alleging Violations of Section 11 and 10(B) Survives Auditor’s Motion to Dismiss

In re Bally Total Fitness Securities Litig.

Skilling v. United States, Docket No. 08-1394 (U.S. June 24, 2010); Black v. United States, Docket No. 08-876 (U.S. June 24, 2010); Weyhrauch v. United States, Docket No. 08-1196 (U.S. June 24, 2010).
Reasonable Inference of Scienter Not Enough For Securities Fraud Claims

D&O Liability

Honest Services Fraud: Skilling, Black, and Weyhrauch

Skilling v. United States, Docket No. 08-1394 (U.S. June 24, 2010); Black v. United States, Docket No. 08-876 (U.S. June 24, 2010); Weyhrauch v. United States, Docket No. 08-1196 (U.S. June 24, 2010).
In a set of opinions handed down on June 24, 2010, the Supreme Court significantly narrowed the scope of the honest services fraud statute but stopped short of striking down the statute as unconstitutionally vague.

In re Chiron Corporation Securities Litigation

No. C-04-4293 (N.D. Cal. Nov. 30, 2007)
California District Court Rejects Class Action Settlement Based on Unreasonable Fees, Inadequate Notice and Potential Conflicts of Interest

Professional Liability Insurance

Second Circuit Issues Three Opinions Dealing with Attorney Conflicts

1. Murray v. Metropolitan Life Ins. Co., No. 09-3716-cv, 2009 WL 3080462 (2d Cir. Sept. 29, 2009).
2. Trautenberg v. Paul, Weiss, Rifkind, Wharton & Garrison L.L.P., No. 08-2010-cv, 2009 WL 3259560 (2d Cir. Oct. 13, 2009).
3. Nordwind v. Roland, No. 07-4862-cv, 2009 WL 3320493 (2d Cir. Oct. 16, 2009).

PAJ, Inc. v. Hanover Ins. Co.

(2008) WL 109071 (Tex. Jan. 11, 2008).
In a five to four decision, the Texas Supreme Court recently held that an insurer was obligated to provide coverage for an advertising injury claim despite late notice of suit because the insurer suffered no prejudice.

Adobe Systems, Inc. v. St. Paul Fire & Marine Insurance Co.

No. 06-CV-1451-H, 2007 WL 959083 (S.D. Cal. Mar. 8, 2007)
California Court Rules That Intentional Violation of Licensor’s Copyright and Breach of Contract Are Covered Under E&O Policy

MegAvail, Inc. v. Illinois Union Insurance Co.

2007 WL 3232605 (D. Or. Nov. 1, 2007)
Settlement Payment Not Recoverable as Damages from Breach of Duty to Defend

Star Ins. Co. v. Berry Insurance Agency

2007 WL 3226533 (10th Cir. Oct. 31, 2007)
No Coverage Under Claims-Made-and-Reported Policy Where Claim Not Reported Within Policy Period

Am. Center for International Labor Solidarity v. Federal Insurance Co.

2007 WL 2985006 (D.D.C. Oct. 15, 2007)
EEOC Proceeding Constitutes a “Claim” for Which Insured Failed to Provide Notice “as Soon as Practicable”