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Otto Candies LLC v. KPMG LLP

Superior Court of Delaware

April 25, 2018

OTTO CANDIES, LLC, et al. Plaintiffs,
KPMG LLP, et al. Defendants.

          Submitted: January 31, 2018

         Upon Defendants KPMG LLP, KPMG International Cooperative, and KPMG Cardenas Dosal, S. C. 's Motions to Dismiss, DENIED.

         Upon Plaintiff Otto Candies, LLC, et al.'s Motion Requesting Judicial Notice of Defendant KPMG International's Press Releases, DENIED.

          David E. Ross, Esquire, Ross Aronstrom & Moritz LLP, Wilmington, Delaware, Terry L. Wit, Esquire (pro hac vice), A. William Urquhart, Esquire (pro hac vice), Derek L. Shaffer, Esquire (pro hac vice), Quinn Emanuel Urquhart & Sullivan, LLP, San Francisco, California, Attorneys for Plaintiffs.

          Timothy Jay Houseal, Esquire, Jennifer M. Kinkus, Esquire, William E. Gamgort, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, John K. Villa, Esquire (pro hac vice), Ana C. Reyes, Esquire (pro hac vice), Williams & Connolly LLP, Washington, D.C., Attorneys for Defendant KPMG International Cooperative.

          Todd C. Schlitz, Esquire, Drinker Biddle & Reath LLP, Wilmington, Delaware, Robert A. Scher, Esquire (pro hac vice), Jonathan H. Friedman, Esquire (pro hac vice), Foley & Lardner LLP, New York, NY, Christopher M. Cutler, Esquire, Lori A. Rubin, Esquire, Foley & Lardner LLP, Washington, D.C., Attorneys for Defendant KPMG LLP.

          Kevin R. Shannon, Esquire, Matthew F. Davis, Esquire, Christopher N. Kelly, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware, Jack B. Jacobs, Esquire, Sidley Austin LLP, Wilmington, Delaware, Michael C. Kelley, Esquire (pro hac vice), Jose F. Sanchez, Esquire (pro hac vice), Sidley Austin LLP, Los Angeles, CA, Gregory G. Ballard, Esquire, Sidley Austin LLP, New York, NY, Attorneys for Defendant KPMG Cardenas Dosal, S.C.


          Paul R. Wallace, Judge.


         Defendants KPMG International Cooperative ("KPMG International"), KPMG LLP ("KPMG US"), and KPMG Cardenas Dosal, SC ("KPMG Mexico") each move to dismiss Plaintiffs' suit, which arises from alleged fraud carried out by Oceanografia S.A. de C.V. ("Oceanografia"), an offshore oil services company, Citigroup Inc. ("Citigroup"), and Citigroup's Mexican subsidiaries, Grupo Financiero Banamex S.A. de C.V. and Banco Nacional de Mexico, S.A. ("Banamex"). [1] Plaintiffs allege that Citigroup and Banamex provided Oceanografia with multimillion dollar cash advances on invoices later discovered to be forged.[2]Plaintiffs further allege that had the defendant auditing firms "disclosed the systemic internal control deficiencies and failures at Oceanografia, Banamex and Citigroup, which allowed the fraud to fester and grow, Plaintiffs' damages would have been prevented or substantially reduced."[3]


         The plaintiffs in this action are creditors of Oceanografia and include: (i) shipping companies that provided services or vessels to Oceanografia;[4] (ii) holders of bonds issued by Oceanografia;[5] and (iii) a bank that had loaned funds to Oceanografia (collectively, "Plaintiffs").[6]

         Defendants are KPMG International, a Swiss-incorporated cooperative;[7]KPMG US, a member firm of KPMG International incorporated in Delaware;[8] and KPMG Mexico, another member firm of KPMG International, incorporated in Mexico (collectively, "KPMG Defendants").[9]

         The cash advance program began in 2008, when Citigroup opened a credit line for Oceanografia.[10] Oceanografia increasingly utilized the credit line, and by 2014, the cash advance limits on the line had grown by approximately 500%.[11] The advances were secured by invoices reflecting services provided to Pemex, Mexico's oil and gas company. Plaintiffs allege that these invoices were forged "from at least August 2013 to February 2014, " but that "[o]n information and belief, even before September 2013, starting as early as 2010, Oceanografia submitted invoices with false signatures of Pemex employees to Citigroup to obtain cash advances from Citigroup."[12]

         The forgeries were reported in February 2014.[13] The Mexican government placed Oceanografia in receivership following the discovery.[14] Criminal proceedings were brought against Oceanografia and Citigroup in Mexico, and by the United States Department of Justice and the Securities and Exchange Commission against Citigroup here in the United States.[15]

         KPMG Mexico began auditing Oceanografia in 2010 and served as its independent auditor until 2014.[16] KPMG Mexico has additionally served as independent auditor to Banamex since 2005.[17] KPMG U.S. has served as Citigroup's independent auditor since 2010.[18]

         Plaintiffs brought suit in February 2016, alleging three counts of negligent misrepresentation claiming that KPMG Mexico and KPMG U.S. negligently misrepresented their audit opinions for Oceanografia, Citigroup and Banamex, and that KPMG International is vicariously liable for those failures. Plaintiffs say that the firms' failure to detect and prevent Oceanografia's fraudulent scheme has cost them $1.1 billion in damages.

         KPMG Defendants moved immediately for protective orders on Plaintiffs' jurisdictional discovery requests.[19] This Court granted the orders in part, and appointed a Special Master to resolve the parties' disputes.[20] The Court later adopted the Special Master's report.[21]

         KPMG Defendants now move to dismiss Plaintiffs' suit on the following grounds: lack of jurisdiction; forum non conveniens; the statute of limitations; and failure to state a claim.


         Where a Superior Court Civil Rule 12(b)(1) argument is raised alongside a 12(b)(6) claim in a motion to dismiss, the Court must first consider whether the claims are properly analyzed under 12(b)(1) or 12(b)(6). "Although both defenses may result in dismissal, whether a motion to dismiss is based upon subject matter jurisdiction or upon failure to state a claim is a question having important implications."[22] The burden of establishing the Court's subject matter jurisdiction lies with the party seeking the Court's intervention.[23]

         When considering a motion to dismiss pursuant to Superior Court Civil Rule 12(b)(6)-that is, for failure to adequately state a claim-the Court will:

(1) accept all well pleaded factual allegations as true, (2) accept even vague allegations as "well pleaded" if they give the opposing party notice of the claim, (3) draw all reasonable inferences in favor of the non-moving party, and (4) [not dismiss the claims] unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances.[24]

         The Court must accept as true all well-pleaded allegations.[25] And every reasonable factual inference will be drawn in the non-moving party's favor.[26] But the Court will "ignore conclusory allegations that lack specific supporting factual allegations."[27]

         "Dismissal is warranted where the plaintiff has failed to plead facts supporting an element of the claim, or that under no reasonable interpretation of the facts alleged could the complaint state a claim for which relief might be granted."[28] But, if the Court engages the standards described and finds the claimant may recover, the Court must deny the motion to dismiss.[29]

         IV. ...

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