Only the wrongful actions of agents at senior levels of corporations

will be imputed to the corporation for purposes of the rule 

that any recovery by wrongdoers is blocked.

Merrimack College v KPMG Massachusetts SJC (2018)

FACTS

A bookkeeper in the accounting office of a college made fraudulent entries putting debt onto students improperly.   An accounting firm had audited the college and issued an opinion that the books were clean.  When students complained of debts they never incurred, a new accounting led to a bookkeeper pleading guilty to fraud. The school paid $6M to students and sued the accounting firm.

ISSUE

The narrow point of the case was how to apply the rules of responsibility for agents’ intentional acts. The college said the accountants were careless, negligent. The accountants said the wrongdoer was employed by the college who should not be able to seek recovery for the acts of its own agents.

RULING

Massachusetts highest Court ruled that since the bookkeeper was not a top college official, that bookkeeper’s acts did not get attributed to the college for purposes of the rule blocking recovery by intentional wrongdoers. The college could bring its negligence case against the accountants and any negligence of the college in the way it hired and supervised the bookkeeper would diminish any recovery by the college proportionately.

COBB COMMENT

Recovery is determined by categories of claims and there will always be facts straddling borders.  Corporate responsibility is clear under agency rules for cases where no intentional acts are involved. For such cases contributory negligence rules apply.

The kind of responsibility of an organization, for an agent who commits intentional wrongs, that will block claims by that organization against others, exists only when top officials are in on the wrongdoing.