A federal appeals court in Chicago said auditor Grant Thornton LLP must again face a lawsuit over its alleged role in the collapse of Italian dairy company Parmalat SpA, while lamenting that its decision puts the nearly 10-year-old case on the brink of starting anew.
Wednesday's decision by the 7th U.S. Circuit Court of Appeals overturned an April 2013 dismissal of the case by U.S. District Judge John Darrah in Chicago. The appeals court ordered that the case be moved to a state court in Cook County, which includes Chicago, where Grant Thornton is based.
Known for its long-shelf-life milk, Parmalat filed for insolvency protection in Italy in December 2003 after uncovering a 4 billion euro (US$5.45 billion) hole in its balance sheet. The Collecchio, Italy-based company was restructured in 2005, and is now controlled by France's Lactalis Group.
After the collapse, Parmalat's new management, led by foreign representative and onetime Chief Executive Enrico Bondi, sued dozens of banks and auditors, accusing them of enabling insiders to loot the company before it became insolvent.
In a lawsuit launched in August 2004 in Cook County and later moved to the Chicago federal court, Parmalat accused Grant Thornton of conducting fraudulent audits in violation of state law.
The case wound its way to New York, where U.S. District Judge Lewis Kaplan ruled in 2009 that the "new" Parmalat could not recover for the "old" Parmalat's wrongdoing.
But in 2012, the federal appeals court in New York returned the case to the Chicago federal court. Rather than send it to the Cook County court, as Parmalat requested, Darrah adopted Kaplan's findings and dismissed the case.
Writing for a three-judge 7th Circuit panel on Wednesday, Circuit Judge Richard Posner said "we can't be certain" that the law was "so clearly" in Grant Thornton's favor that dismissal was justified.
"If we knew that Judge Kaplan's opinion rejecting Parmalat's claim against Grant Thornton would persuade the Illinois courts, then affirming Judge Darrah would bring this litigation to a close before it had a chance to exceed the length of the Trojan War (10 years)," Posner wrote. "But we can't be certain what the Illinois courts will do."
Had the case been returned to Cook County two years ago, "the litigation might well be at an end rather than on the brim of restarting," Posner added.
In a statement, Grant Thornton said it is confident the state court will agree that Parmalat and its representatives "cannot sue based on their own wrongdoing."
Greg Taylor, a lawyer for Parmalat, wrote in an email that he is pleased with the decision.
"Had the court accepted Grant Thornton's arguments, auditing firms could essentially escape liability for their own malpractice in cases involving corporate fraud," he said.
The case is Parmalat Capital Finance Ltd v. Grant Thornton International et al, 7th U.S. Circuit Court of Appeals, No. 13-2245.
(Reporting by Jonathan Stempel in New York; Editing by Howard Goller, Andre Grenon and Dan Grebler)