Alerts

New York’s Highest Court Rejects Liability for Third-Party Professionals Who Allegedly Assist Corporate Officers’ Alleged Fraud

October 27, 2010

In an important decision last week, the New York Court of Appeals reaffirmed limits on the ability of corporations and those who sue on their behalf (such as bankruptcy trustees and derivative plaintiffs) to bring claims against professional advisors, including auditors and law firms, for allegedly assisting or failing to detect wrongdoing by the corporation’s own management. The 4-3 opinion reinforced centuries-old doctrines of in pari delicto and imputation in response to questions regarding New York law that were certified by the U.S. Court of Appeals for the Second Circuit and the Delaware Supreme Court. The Court of Appeals rejected approaches by Pennsylvania and New Jersey courts and confirmed that these common-law doctrines remain valid defenses to claims on behalf of a corporation against its outside advisors.