Gold v. Deloitte & Touche LLP (In re NM Holdings Company, LLC)
- Citation:
- United States Court of Appeals for the Sixth Circuit, Case No. 09-1870, Opinion Affirming District Court Ruling, September 30, 2010.
- Tag(s):
-
- Ruling:
- Chapter 7 Trustee’s claim against Deloitte & Touche LLP, for professional negligence failed to state claim because Michigan state law “sole-actor rule” prevented Trustee from establishing reliance upon Deloitte’s audits, and that reliance, while not a per se element of professional negligence, is necessary to prove causation element of such a claim. The Michigan “sole-actor rule” is itself an exception to the adverse interest exception, which in turn is an exception to the general rule of imputing the wrongful conduct of a corporate officer to the in turn corporation. Under the adverse interest exception, where a wrongdoer acts contrary to the interests of the corporation, the wrongdoer’s conduct would not ordinarily be imputed to the corporation. However, the Court found that where the wrongdoer is in fact essentially the corporation, thus a “sole-actor”, the corporation will be imputed with that wrongdoing and therefore cannot place reliance upon those wrongful acts. Further, the Court held that the Trustee could not use reliance by the Debtor’s creditors to establish the causation element; as a bankruptcy trustee has no standing generally to sue third parties on behalf of the estate’s creditors. Rather, a trustee may only assert claims held by the Debtor itself.
- Procedural context:
- Appeal from final judgment of district court granting Defendant's motion to dismiss Plaintiff Chapter 7 Trustee's claim alleging professional negligence.
- Facts:
- A group of companies collectively known as Venture filed for Chapter 11 bankruptcy in March 2003. In January 2006, its bankruptcy proceeding was converted into a Chapter 7 liquidation and Plaintiff/Appellant was appointed. All of the equity interest in Venture was held by Venture Holdings Trust, with Larry Winget being the Trust’s sole beneficiary. Winget was also the CEO and sole director of Venture. For a number of years before Venture filed for bankruptcy, Winget allegedly caused Venture to enter into a series of transactions with companies that were wholly owned or controlled by Winget. Beginning in 1987, Deloitte & Touche LLP, was retained by Venture to conduct annual audits and quarterly reviews of Venture’s financial statements. Trustee filed suit in Michigan state court, later removed to district court by Deloitte, alleging that Deloitte negligently performed its audits by failing to uncover and report unsound related-party transactions entered into by Winget and those transactions provided little or no consideration and/or less than reasonably equivalent value to the Debtor. District Court granted Deloitte's motion to dismiss pursuant to Rule12(b)(6) of the Federal Rules of Civil Procedure on the basis that Gold had failed to state a claim upon which relief can be granted. Trustee appealled.
- Judge(s):
- Gilman and White, Circuit Judges; Watson, District Judge sitting by designation; All concurring. Opinion by Ronald Lee Gilman, Circuit Judge.
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