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N.Y. Court Rejects Wider Liability For Third-Party Financial Professionals

Publication Date: 
October 21, 2010
Securities Regulation & Law Report - BNA
Christian Bruce

Professor Kathleen Sullivan is quoted by the Bureau of National Affairs for her role in representing Marc S. Kirschner in the New York highest court decision involving Refco insiders. Here is the story:

New York's highest court, in a 4-3 ruling, Oct. 21 rejected pleas to allow broader liability for third-party financial professionals, pulling the plug on claims that outside financial advisers and others assisted or furthered corporate fraud (Kischner v. KPMG LLP, N.Y. Ct. App., No. 151, 10/21/10 ; Teachers' Retirement System of Louisiana v. PricewaterhouseCoopers LLP, N.Y. Ct. App., No. 152, 10/21/10).

The ruling by the New York Court of Appeals scuttles, for now, an effort to broaden liability under New York law for auditors, accountants, investment bankers, financial advisers, attorneys, and other professionals.


Kathleen M. Sullivan, Stanley Morrison professor of law at Stanford Law School, represented Kirschner in the Refco matter. Sullivan, a member of Quinn Emanuel Urquhart & Sullivan, told BNA that the case will now go back to federal court, where arguments about the role of insiders will continue.

“We are gratified that three judges including the Chief Judge would have adopted our arguments and permitted the Trustee to pursue his claims against professional service providers who acted wrongfully in connection with corporate insider fraud,” Sullivan said in an Oct. 21 e-mail to BNA.

“We are disappointed that the majority decided that New York should not follow the approaches of Pennsylvania, New Jersey and other states that allow corporate successors broader freedom to pursue such claims for the benefit of innocent stakeholders harmed by a company's collapse. The majority's decision does continue to recognize that a corporate insider's conduct is not imputed to the corporation when the insider acts adversely to the corporation, and we will continue to argue that the corrupt Refco insiders acted adversely to the Refco companies when the case returns to the federal courts,” she said.