On August 5, U.S. Southern District Judge Victor Marrero denied PricewaterhouseCoopers’ (PwC) motion for summary judgment with respect to a $1 billion professional malpractice suit filed by the plan administrator for the now-defunct MF Global Holdings Ltd. (MF Global).

The suit accuses PwC of dispensing negligent accounting advice to MF Global on how to handle European sovereign debt deals that generated short-term income but saddled it with significant future liabilities.  The malpractice cause of action is the last remaining piece of MF Global’s three-claim lawsuit filed against PwC in August 2014 following MF Global’s collapse and Chapter 11 filing in October 2011.  PwC had acted as an outside auditor and accountant for MG Global before it went bankrupt.  MF Global is seeking at least $1 billion for PwC’s “extraordinary and egregious professional malpractice and negligence,” claiming that the accounting decisions PwC approved were substantial causes of MF Global’s bankruptcy.

After unsuccessfully moving to dismiss and upon conclusion of discovery, PwC moved for summary judgment.  PwC argued that MF Global could not overcome the affirmative defense of in pari delicto, i.e., that MF Global was equally responsible for the alleged malpractice because of its decision to implement PwC’s strategies, and that it could not show that PwC’s accounting advice caused MF Global’s collapse and subsequent harm to shareholders.  Judge Marrero denied summary judgment on both the equal fault and causation grounds, finding that “PwC has not satisfied its burden of demonstrating the absence of any genuine issue of material fact.”

Under the in pari delicto doctrine, “the pleadings and undisputed facts presented in the course of litigation must establish intentional wrongdoing by the plaintiff that is the subject of the litigation,” Judge Marrero wrote.  Judge Marrero held that PwC’s “broad reading of the doctrine” was “not in line” with New York law and would “insulate an auditor from liability whenever a company pursues a failed investment strategy after receiving wrongful advice from an accountant.”  The court concluded that “the record presented by [MF Global] could support a reasonable jury finding that MF Global developed preliminary conclusions about sale accounting in good faith and consistently asked PwC to review its conclusions,” but that MF Global still must prove that it “innocently accepted PwC’s negligent advice.”  On the causation issue, Judge Marrero found that the “resulting complex factual determination as to what harm to MF Global was caused by the negligent accounting advice and what harm was caused by the [company’s European sovereign debt strategy] is one for a factfinder to resolve.”

The case is captioned MF Global Holdings Ltd. v. PricewaterhouseCoopers LLP, case number 1:14-cv-02197, in the United States District Court for the Southern District of New York.