Anyone who has ever pursued business litigation against foreign companies or their advisors in a U.S. court knows that it’s not a picnic. However, this recent First Circuit opinion provides some hope for weary plaintiffs.
KPMG-Belgium was the auditor for Lernout & Hauspie Speech Products NV, the Belgian software maker that collapsed in 2002 under allegations of accounting fraud. A securities fraud class action was filed against KPMG-Belgium and others in Masschusetts federal court.
KPMG-Belgium refused to comply with the plaintiffs’ discovery requests on the grounds that producing the papers would violate Belgian law. The plaintiffs moved to compel the production of the documents, which the federal magistrate handling discovery matters in the lawsuit approved. KPMG-Belgium then mounted a collateral attack of that discovery order in the foreign court. They filed a ex parte petition with a Belgian court seeking to enjoin the plaintiffs from proceeding with the requested discovery, and requested a mere 1 million euros fine for each violation of the proposed injunction.
The plaintiffs fought back and persuaded the Massachusetts federal district court to issue issued an antisuit injunction enjoining KPMG-Belgium from pursuing the Belgian injunction action, which KPMG-Belgium appealed to the First Circuit. The First Circuit affirmed the district court injunction order, holding that when “a party institutes a foreign action in a blatant attempt to evade the rightful authority of the forum court, the need for an antisuit injunction crests.”
As I write this, KPMG-Belgium has not decided how to respond to the First Circuit’s decision. However, non-compliance could result in severe sanctions, such as entry of judgment or a fine. This will be an interesting case to follow.
Thanks to the 10b-5 Daily blog for the pointer to this case.