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September 2014: Victory over Auditors for Parmalat

September 2014

On June 25, 2014, Quinn Emanuel obtained a major victory in the U.S. Court of Appeals for the Seventh Circuit on behalf of Dr. Enrico Bondi, the Extraordinary Administrator (akin to a U.S. bankruptcy trustee) of the estate of Parmalat. The Seventh Circuit reversed a judgment against Dr. Bondi and ordered that the case should proceed anew in Illinois state court.

Parmalat collapsed in 2003 after revelation of fraud undertaken by several high-ranking insiders. In 2004, the firm filed suit on Dr. Bondi’s behalf in Illinois state court against Parmalat’s auditor Grant Thornton S.p.A. and its affiliated U.S. and international entities. The suit asserted causes of action for, among other things, accounting malpractice in failing to detect and to report the fraud. Grant Thornton removed the case to the U.S. District Court for the Northern District of Illinois (“N.D. Ill.”) as related to a Parmalat bankruptcy proceeding that was then pending in the U.S. District Court for the Southern District of New York (“S.D.N.Y.”); Dr. Bondi’s case was then transferred to S.D.N.Y. Although a federal statute, 28 U.S.C. § 1334(c)(2), provides for mandatory abstention and remand to state court of a case like Dr. Bondi’s if it can be “timely adjudicated” in state court, S.D.N.Y. denied Dr. Bondi’s motion for that relief. S.D.N.Y. then denied Dr. Bondi’s request to take an immediate appeal. The case proceeded on the merits in S.D.N.Y., and, several years later, S.D.N.Y. granted summary judgment against Dr. Bondi on the ground that Illinois’ in pari delicto (in equal fault) doctrine is a complete defense to Dr. Bondi’s action; the court reasoned that the former Parmalat insiders had participated in the fraud on behalf of the company, and that Dr. Bondi stands in the company’s shoes and cannot sue other alleged collaborators in the fraud.

Quinn Emanuel filed Dr. Bondi’s appeal to the U.S. Court of Appeals for the Second Circuit, and persuaded the Second Circuit to reverse S.D.N.Y.’s judgment on the ground that S.D.N.Y. should have abstained from exercising jurisdiction; the Second Circuit instructed S.D.N.Y. to transfer the case back to N.D. Ill. so that court could in turn remand the case to Illinois state court. The case was transferred back to N.D. Ill., but, before that court remanded the case to Illinois state court, Grant Thornton filed a motion requesting N.D. Ill. to retain jurisdiction and to enter judgment in Grant Thornton’s favor. Grant Thornton’s asserted basis was that a recent decision by the Seventh Circuit had clarified what previously was unsettled Illinois law on in pari delicto.