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The Trustee of a litigation trust formed
as part of a bankruptcy Plan of Reorganization first
brought suit in federal court against the Company’s
former accountants. The gravamen of the allegations was
that the accountants ignored “numerous ’red flags’” that
should have alerted them to accounting fraud that led to
the Company’s financial ruin. After dismissal of some of
the federal claims and withdrawal of others, the Trustee
pursued state law claims in the Superior Court for
alleged fraud, negligent misrepresentation, violation of
Chapter 93A, and professional malpractice. The Trustee
asserted claims on behalf of shareholders, creditors and
the Company itself.
The Court dismissed all of the claims
asserted on behalf of shareholders and creditors. The
Court held that the fraud, negligent misrepresentation
and professional malpractice claims were defective for
failure to allege that the accountants intended any of
their annual audits to “reach and influence” any of the
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plaintiffs. “At this stage of the pleadings in this
case – said to be the fifth proposed complaint – this
failure is significant, and must been seen as more than
just a scrivener’s oversight. It seems quite appropriate
for this Court to decline to infer that the necessary
allegations relating to Deloitte’s intent can be made .
. . .” The Court also dismissed the Chapter 93A claim on
the basis that there was no commercial relation-ship
between the accountants and the plaintiffs to support
the claim.
With regard to the claims brought on
behalf of the Company, however, the court dismissed only
some of the claims as time barred. Because the complaint
expressly alleged the involvement of the Company’s
officers in the alleged wrongdoing, the knowledge of
those officers was imputed to the Company. As a result,
a number of the claims were barred by the statute of
limitations. The claims that related to audits performed
within the limitations period survived the motion to
dismiss.
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