Teachers’ Retirement System of Louisiana v. General Re Corporation, et al., No. 451, 2009 (Del. Supr., Dec. 29, 2010), read Order here. The Delaware Supreme Court in a one-paragraph Order affirmed the Court of Chancery’s dismissal of claims, which were based on New York law, against co-conspirators who were alleged to have conspired in a fraud that injured shareholders of AIG. The Delaware Supreme Court has not yet ruled on the related claim against the auditor, PricewaterhouseCoopers ("PwC").
We previously wrote here about the Delaware Supreme Court asking New York’s highest court for a ruling on the controlling New York law regarding the central issue of in pari delicto. See overview of related Chancery decision (that addressed many other issues) here.
Francine McKenna has been following the tortuous procedural history of this case, and related cases, closely on her blog called Re: The Auditors. Today she wrote for Forbes here about the policy implications and other aspects of the case. Excerpts from her description of the recent background of the case, that in some ways made the Supreme Court’s Order predictable, include the following:
The New York Court of Appeals decided on October 21, 2010, by a vote of 4-3, to “decline to alter our precedent relating to in pari delicto, and imputation and the adverse interest exception, as we would have to do to bring about the expansion of third-party liability sought by plaintiffs here.”
That’s why the AIG shareholders were back in the Delaware Supreme Court last week for a final shot at justice. Instead, Delaware may be obligated to follow New York law with regard to PwC. The decision by the New York Court of Appeals was, I believe, flawed, based on obsolete principles, and strongly biased towards corporate interests rather than shareholder and investor interests.
The AIG shareholders may lose their case against PwC. But, more importantly, if the Delaware Supreme Court affirms the Motion to Dismiss against PwC too, shareholders will probably lose against auditors in New York in any case where a company’s executives are found to have committed fraud if they didn’t completely abandon the company’s interests while pursuing that fraud.
She wrote in more detail here about the New York Court of Appeals decision on the in pari delicto issue, in reply to the Delaware Supreme Court’s request. See generally, her review of the recent complaint filed against Ernst & Young by New York Attorney General (and soon to be Governor) Andrew Cuomo, here.