Dismissal of Claims Against PwC Ireland Over Audits of Madoff-Invested Funds

On July 30, 2010, the United States District Court for the Southern District of Florida granted a motion to dismiss by Cravath client PricewaterhouseCoopers Ireland (“PwC Ireland”), which was one of a number of defendants in a putative securities class action by investors in a series of offshore funds that invested with Bernard Madoff and lost the fund assets as a result of Madoff’s Ponzi scheme. PwC Ireland audited the financial statements of the funds, which were managed by Optimal Investment Services and administered in Ireland.

The Court dismissed the claims under Section 10(b) of the Securities Exchange Act of 1934 under the Supreme Court’s recent ruling in Morrison v. National Australia Bank, which restricts 10(b) claims to purchasers of securities listed on an American exchange, or the purchase of other securities in the United States. The plaintiffs here purchased shares in a non-exchange-listed foreign investment fund closed to U.S. investors. The Court held that plaintiffs’ intent to invest in a fund that purchased securities listed on an American exchange (the stocks purportedly traded by Madoff) did not meet Morrison’s test for extraterritorial application of the securities laws.

In an important statement of the limits of jurisdiction in U.S. courts over foreign professional services firms, the Court further ruled that there was no personal jurisdiction over PwC Ireland in either Florida or New York. The Court agreed with PwC Ireland that an Irish auditing firm conducting an audit in Ireland of a non-U.S. client is transacting business in Ireland.

Finally, the Court granted PwC Ireland’s motion to dismiss the entire action for forum non conveniens in favor of Ireland. The Court held that Ireland was an adequate alternative forum, and was not rendered inadequate by the fact that Irish courts do not allow opt-out damages class actions.

The Cravath team included partner Antony L. Ryan, senior attorney Samira Shah, practice area attorney Paul E. Rosenthal and associates Rebecca R. Silber, Nathan J. Berkebile, Aaron J. Feigenbaum, Trevor M. Broad and Alejandro H. Cruz.