OTTO CANDIES, LLC, et al. Plaintiffs,
KPMG LLP, et al. Defendants.
Submitted: January 31, 2018
Defendants KPMG LLP, KPMG International Cooperative, and KPMG
Cardenas Dosal, S. C. 's Motions to Dismiss, DENIED.
Plaintiff Otto Candies, LLC, et al.'s Motion Requesting
Judicial Notice of Defendant KPMG International's Press
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
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.
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.
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.
MEMORANDUM OPINION AND ORDER
R. Wallace, Judge.
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").
allege that Citigroup and Banamex provided Oceanografia with
multimillion dollar cash advances on invoices later
discovered to be forged.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
FACTUAL AND PROCEDURAL BACKGROUND
plaintiffs in this action are creditors of Oceanografia and
include: (i) shipping companies that provided services or
vessels to Oceanografia; (ii) holders of bonds issued by
Oceanografia; and (iii) a bank that had loaned funds
to Oceanografia (collectively,
are KPMG International, a Swiss-incorporated
cooperative;KPMG US, a member firm of KPMG
International incorporated in Delaware; and KPMG Mexico,
another member firm of KPMG International, incorporated in
Mexico (collectively, "KPMG
cash advance program began in 2008, when Citigroup opened a
credit line for Oceanografia. Oceanografia
increasingly utilized the credit line, and by 2014, the cash
advance limits on the line had grown by approximately
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
forgeries were reported in February 2014. The
Mexican government placed Oceanografia in receivership
following the discovery. 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
Mexico began auditing Oceanografia in 2010 and served as its
independent auditor until 2014. KPMG Mexico has
additionally served as independent auditor to Banamex since
2005. KPMG U.S. has served as
Citigroup's independent auditor since 2010.
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.
Defendants moved immediately for protective orders on
Plaintiffs' jurisdictional discovery
requests. This Court granted the orders in
part, and appointed a Special Master to resolve the
parties' disputes. The Court later adopted the
Special Master's report.
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.
STANDARD OF REVIEW
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." The burden of establishing the
Court's subject matter jurisdiction lies with the party
seeking the Court's intervention.
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.
Court must accept as true all well-pleaded
allegations. And every reasonable factual
inference will be drawn in the non-moving party's
favor. But the Court will "ignore
conclusory allegations that lack specific supporting factual
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." But, if the Court engages the
standards described and finds the claimant may recover, the
Court must deny the motion to dismiss.