611 F. App'x 34
2d Cir.2015Background
- MF Global Inc. (MFGI), a futures commission merchant, allegedly misused customer segregated commodity accounts in 2010–2011, violating the Commodity Exchange Act and CFTC regulations.
- PricewaterhouseCoopers LLP (PwC) audited MFGI in 2010–2011 pursuant to applicable regulations; plaintiffs allege PwC negligently failed to detect accounting/internal control deficiencies that enabled MFGI’s misconduct.
- Plaintiffs (class representatives and assignee of MFGI’s SIPA trustee) sued PwC for breach of fiduciary duty on behalf of MFGI and for professional negligence on behalf of customers.
- District court dismissed: (1) MFGI’s claims against PwC as barred by New York’s in pari delicto doctrine; and (2) customers’ professional negligence claims for lack of privity/near-privity. Plaintiffs appealed.
- Second Circuit affirmed, applying New York law to bar MFGI’s claims and BDO Seidman/near-privity doctrine to reject customer claims; it also held the affirmative defense could be resolved at the 12(b)(6) stage where it appears on the face of the complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MFGI’s claims against PwC are barred by in pari delicto | In pari delicto should not bar MFGI’s claims because PwC performed a special regulatory function under federal rules; also audits predated some misuse so not sufficiently linked | MFGI (through officers/directors) participated in the wrongdoing; New York in pari delicto forbids recovery by a wrongdoer and applies here | Affirmed: MFGI’s claims barred by New York in pari delicto; federal cases cited do not preempt state defense; linkage between audit failures and later misuse is sufficient; dismissal on 12(b)(6) appropriate |
| Whether federal regulatory principles (Bateman Eichler / Pinter) preclude applying state in pari delicto | Federal common-law limits on in pari delicto should prevent state-law defense from undermining federal regulatory scheme | No federal statute preempts New York law; Bateman/Pinter addressed federal common law and do not control application of state affirmative defense here | Affirmed: No preemption; New York in pari delicto governs state-law claims |
| Whether customers may sue PwC for professional negligence absent privity (near-privity) | PwC’s audits served customers; audits were tailored to regulators but plaintiffs as customers relied as a class — linking conduct not limited to direct communications | Under New York law, plaintiffs must satisfy "near-privity" (awareness of purpose, known party, linking conduct); PwC did not know particular customers or directly link to them | Affirmed: Customer negligence claim dismissed for lack of privity/near-privity (BDO Seidman controls) |
| Whether an affirmative defense (in pari delicto) can be adjudicated on a pre-answer motion | Plaintiffs contend resolution should await adjudication of D&O defendants’ liability | Affirmative defenses that appear on the face of the complaint may be resolved on 12(b)(6) | Affirmed: in pari delicto adjudicable at motion to dismiss where complaint shows the defense |
Key Cases Cited
- Kirschner v. KPMG LLP, 15 N.Y.3d 446 (N.Y. 2010) (New York in pari delicto bars a corporation’s suit when corporate officers participated in wrongdoing)
- BDO Seidman, LLP v. Sec. Investor Prot. Corp., 222 F.3d 63 (2d Cir. 2000) (near-privity elements and limits on accountant liability to customers)
- Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (U.S. 1985) (federal common-law limits on invoking in pari delicto in federal securities context)
- Pinter v. Dahl, 486 U.S. 622 (U.S. 1988) (federal common-law considerations in precluding certain claims to preserve regulatory schemes)
- Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (N.Y. 1985) (privity/near-privity standard for accountant negligence under New York law)
- Iowa Pub. Employees’ Ret. Sys. v. MF Global, Ltd., 620 F.3d 137 (2d Cir. 2010) (affirmative defenses may be raised on a pre-answer motion if apparent on the complaint)