Symbol Technologies' Massive Malpractice Action Against Deloitte

Symbol Technologies' Massive Malpractice Action Against Deloitte Is Reinstated
Mark Fass
New York Law Journal
November 02, 2009


A Brooklyn appeals panel has reinstated a massive malpractice action against the accounting firm Deloitte.

A Supreme Court judge in Suffolk County, N.Y., had dismissed plaintiff Symbol Technologies' complaint in June 2008 on various grounds, including the statute of limitations and the doctrine of in pari delicto, or "equal fault."

On Friday, a unanimous panel of the Appellate Division, 2nd Department, modified that order and reinstated the malpractice claim.

Specifically, the panel found that Symbol Technologies had sufficiently alleged that the "continuous representation" exception to the statute of limitations and the company's amended complaint "trigger[ed]" the "adverse interest" exception to the in pari delicto doctrine.

"Symbol's pleading is sufficient to establish that the parties mutually contemplated that Deloitte's work and representation for each audit year would continue after the issuance of the audit opinion/report and, therefore, the continuous representation doctrine applies," Justice Leonard B. Austin wrote for the 4-0 panel in Symbol Technologies v. Deloitte & Touche, 2008-06642.

He later added, "In its amended complaint, Symbol set forth sufficient allegations that members of its senior management committed accounting fraud for their own benefit and totally abandoned its interest, thereby triggering the adverse interest exception."

Justices Reinaldo E. Rivera, Anita R. Florio and Ariel E. Belen joined the decision.

Symbol's lawsuit against its former auditing firm stems from an accounting-fraud scandal at Symbol that culminated with the technology giant agreeing to pay the Securities and Exchange Commission $37 million and shareholders an additional $100 million.

The SEC had charged Symbol, a Long Island, N.Y.,-based supplier of mobile information systems, and 11 of its former executives with numerous fraudulent accounting practices that together overstated the company's reported revenue for the fiscal years of 1998 through 2001 by more than $230 million and its pre-tax earnings by more than $530 million.

The fraud resulted in overpayments to Symbol's senior management of more than $100 million.

At least eight former Symbol executives have pleaded guilty to various charges stemming from the fraud. The company's former chief executive, Tomo Razmilovic, remains a fugitive, living in Bussevik, Sweden.

Symbol sued Deloitte & Touche, now known as Deloitte, in November 2005, alleging the "Big Four" auditor had failed to detect the fraud. The company's complaint does not specify the amount of damages sought.

Last June, Suffolk Supreme Court Justice Elizabeth Hazlitt Emerson concluded that Symbol's claims were time barred and dismissed the case. She ruled that an audit restatement performed by Deloitte constituted a separate engagement and therefore did not trigger the continuous representation doctrine. She also ruled that the "equal fault" of the company's corporate management served as an additional bar to its claims.

The 2nd Department disagreed on both accounts, and reinstated the cause of action for nonmedical professional malpractice.

CONTINUOUS REPRESENTATION

In holding that Symbol sufficiently pleaded continuous representation, the panel noted that, according to Symbol's complaint, Deloitte had a continuing obligation to remedy defects in the 1998-to-2001 statements and had in fact done so. The auditing firm also continued to provide services through 2003 without seeking new engagement letters.

The appellate panel ruled that the company had "set forth sufficient allegations that members of its senior management committed accounting fraud for their own benefit and totally abandoned its interest, thereby triggering the adverse interest exception" to the in pari delicto doctrine.

However, the panel upheld the dismissal of the causes of action alleging fraud and misrepresentation, agreeing they were duplicative of the malpractice claim.

In 2006, Deloitte settled a class action filed on behalf of Symbol's investors for $24 million. Symbol was purchased in 2007 by Motorola for $3.9 billion.

Michael G. Kruzynski and Thomas J. Dargan of Melville, N.Y.-based Lewis Johs Avallone Aviles and Daniel B. Huyett and William P. Thornton Jr. of Steven & Lee represented Symbol Technologies.

Jay B. Kasner, Gregory A. Litt and Robert A. Fumerton of Skadden, Arps, Slate, Meagher & Flom and Scott M. Karson of Lamb & Barnosky in Melville represented Deloitte.

"Deloitte believes the action is without merit and intends vigorously to defend this matter," Deloitte said in a statement.