14 September 2009
BDO International, B.V. (BDO International) was ruled not liable for a $170 million compensatory damages award against its US Member Firm, BDO Seidman LLP. The Florida jury’s verdict came on the heels of a directed verdict by the court finding BDO International not liable as a matter of law for the $351 million in punitive damages previously awarded against BDO Seidman LLP in the same case.
In 2007, BDO Seidman LLP was found negligent in a case brought against it by Banco Espirito Santo. However, the trial court found that the plaintiff failed to adduce sufficient evidence to allow the jury to decide whether BDO International was liable on an actual-agency basis for the actions of BDO Seidman LLP and, therefore, responsible for the alleged negligence of BDO Seidman LLP.
The Third District Court of Appeals disagreed, saying that the trial court erroneously held that BDO International could not be liable on an actual-agency basis for the actions of BDO Seidman LLP as a matter of law. In reaching this conclusion, the appellate court determined that a three-part test should be used to decide whether BDO Seidman LLP was an agent of BDO International (agency is one of several theories under US law that may make one entity legally responsible for the acts of another):
- Did BDO International acknowledge that BDO Seidman LLP would act for it?
- Did BDO Seidman LLP accept the agency?
- Did BDO International have the power to control BDO Seidman LLP?
The appellate court further held that, even if agency is established, “[t]he trier of fact would then still have to decide whether the agent’s alleged negligence occurred within the scope of the Member Firm Agreement.” (See March 2008 “Legal Alert: Florida Appeals Court Decision – BDO International Can Be Liable for the Actions of BDO Seidman LLP” on this decision.)
The case was remanded to the trial court, and a trial was held on whether BDO Seidman LLP was an agent of BDO International and whether the Member Firm’s alleged negligence occurred within the scope of the agency relationship.
At closing argument, plaintiff focused on the element of “control.” In particular, plaintiff argued that:
- BDO Seidman LLP was required to follow the international audit manual and, thus, its work was controlled by BDO International.
- BDO International controlled branding and therefore could “police the brand.”
- BDO International had the “right to fire” BDO Seidman LLP by terminating its Member Firm Agreement.
The jury deliberated for about one hour before returning a verdict in favor of BDO International. The first question on the verdict form asked: “Was BDO Seidman an actual agent of BDO International, B.V.?” The jury answered “No.” As a result, the jury did not have to reach the second question, which asked whether BDO Seidman LLP’s actions were within the scope of the agency relationship.
For more information about the BDO International decision, or any other matter raised in this Client Alert, please contact any of the following lawyers on our Accountants’ team:
at +1 312 701 7268,
at +1 312 701 7326, or
at +1 312 701 8733.
Learn more about our Professional Liability practice.