PwC Prevails In Decision On AIG “In Pari Delicto” Case

The Supreme Court of the State of Delaware issued an opinion on January 3rd, 2011 affirming the dismissal of claims against PricewaterhouseCoopers (PwC) in the Teachers Retirement System of Louisiana derivative suit.  This suit, as described further below, relates to an earlier fraud case at AIG.

…The New York Court of Appeals accepted the certified question, and issued an opinion holding that the in pari delicto doctrine would bar such a derivative claim.3

4) In their supplemental briefing, Derivative Plaintiffs argued that the Kirschner decision is not binding on the issue of imputation of wrongdoing, which, they claim, is a question of Delaware law.

5) We reject this argument for two reasons. First, Derivative Plaintiffs acknowledged in their Opening Brief that, under the facts of this case, imputation is a question of New York law. Second, in our certification request, this Court sought resolution of a “determinative question[] of New York law . . . .”4

The Kirschner decision provided a determinative answer, which this Court must follow….

1A.I.G., Inc. v. Greenberg, 965 A.2d 763 (Del. Ch. 2009).

2Teachers’ Retirement System of Louisiana v. PricewaterhouseCoopers LLP, 998 A.2d 280, 282-3

(Del. 2010).

3 Kirschner v. KPMG LLP et al., 2010 WL 4116609 at *14 (N.Y.).

A PwC spokesperson provided this comment on the decision to me:

“In affirming the dismissal of these claims, the Delaware Supreme Court followed the definitive statement of law already issued by New York’s highest court.  In October, the New York court rejected calls to alter 200 years of legal precedent to bring about the expansion of third-party liability sought by derivative plaintiffs. The Delaware Supreme Court considered that advice and affirmed the dismissal of the derivative claims.”

As I predicted in my post at Forbes on December 30th, PwC prevailed because the Delaware Supreme Court had little choice but to follow New York’s direction regarding in pari delicto, barring a strong argument otherwise from the plaintiffs.  Stuart Grant, attorney for the plaintiffs, did not make one.

AIG shareholders returned to Delaware’s Supreme Court on December 15th to pursue claims against General Re Corp., insurer ACE Ltd., insurance broker Marsh & McLennan Cos. and PricewaterhouseCoopers (PwC) over an alleged bid-rigging scheme involving insurance contracts. The dismissal of claims against the third-party conspirators was affirmed in an opinion published yesterday.

According to reports of the oral arguments from Bloomberg:

Stuart Grant, attorney for the plaintiffs, told the court that, “upholding the lower court ruling would allow wrongdoers to “get away scot-free.”  He said their job was “to make sure damages lie where the fault lies.”

Allowing investor suits against auditors in such fraud cases would provide “some level of accountability” for accounting firms, Grant noted.

In spite of a recent opinion by the New York State Court of Appeals in the AIG shareholders’ case against PwC, Grant argued PwC should also be held accountable for missing the scheme.

PwC’s audit client – the AIG shareholders – asked the court to hold PwC responsible for missing a scheme that’s cost them more than $2.3 billion in settlements since 2006. But PwC’s attorney, Thomas Rafferty, said the firm and its partners shouldn’t be blamed because the alleged “bad guys” tried to hide their bad actions from PwC. (This is even though PwC settled for $97.5 million with the Ohio Public Employees Retirement System in a related case.)

“We had auditors in this case who were hoodwinked by their client,” he said. Investors are asking for the right to sue accountants “because their client fooled them.

I listened to the oral arguments. I may disagree with the points made by attorney Thomas Rafferty, but he argued his case for PwC better and more strenuously.

During oral arguments before the Delaware Supreme Court on December 15, Mr. Grant tried to correct the tactical error regarding imputation and Delaware vs. New York Law noted in the opinion with this excuse:

“Just because wisdom comes late it should not be ignored.”

That plea, obviously, cut no mustard with the justices.

9 replies
  1. Francine
    Francine says:


    Legal precedent is an obstacle here, but more so the evils of a judicial closed mind. “In pari delicto” is an obsolete, archaic concept when it comes to third party liability. And imputation is simply stupid. The judges, because of stubbornness or selfishness, refuse to admit the unjust result when they forbid shareholders, who cannot influence management and the board on a day to day basis via current proxy and shareholder non-rights provisions, to sue third-parties because they are deemed equally at fault with conniving, thieving executives who are equivalent to the corporation suing them. It’s nuts.

  2. David
    David says:

    Shouldn’t we ask the question: Is it reasonable that a CPA doing his job conscientiously and in accordance with GAAS would have missed this scheme?I

    I can see where auditors could actually be fooled by the clients here. In any case, an auditor would not necessarily be a fool for missing a bid rigging scheme. Would an auditor even ask about unsucessful bids or why a certain contract wasn’t bidded on? In any case, I don’t know that PWC was negligent for missing such a scheme.

    I think the question to be asked with respect to AIG’s liability on the credit default swaps should be the same. And PWC may have a lot bigger problem there.

  3. Slightly Less Sceptical
    Slightly Less Sceptical says:


    Would agree with you entirely. But that would be a decision on fact, and thus judged at trial. This is about what is effective immunity.

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