The opinion of the court was delivered by: JOHN LIFLAND, Senior District Judge
Plaintiffs Rocker Management, LLC, Rocker Partners, LP, Rocker
Offshore Management Company, Inc., and Compass Holdings Ltd.
(collectively, "Rocker") have asserted claims under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5,
17 C.F.R. § 240.10b-5, promulgated thereunder by the United States
Securities and Exchange Commission ("SEC"), against Defendants
Jozef Lernout, Pol Hauspie, Gaston Bastiaens, Carl Dammekens,
Allan Forsey, Ellen Spooren, Erwin Vandendriessche, Gerald
Calabrese,*fn1 Klynveld Peat Marwick Goerdeler
Bedrijfsrevisoren (a/k/a KPMG Bedrijfsrevisoren or KPMG Belgium),
KPMG International ("KPMG"), KPMG UK, KPMG LLP ("KPMG US"),*fn2
Paul Behets, and SG Cowen Securities Corporation
("Cowen").*fn3 Plaintiffs also assert state law claims for
tortious interference with prospective economic advantage,
conspiracy to tortiously interfere, and aiding and abetting
Before the Court is the Motion of Defendant KPMG US to dismiss
the Amended Complaint pursuant to Federal Rules of Civil
Procedure 12(b)(6) and 9(b). For the reasons set forth below, the
Motion of Defendant KPMG US will be granted.
The facts of this case are described at length in the Court's
June 7, 2005 Memorandum and Order denying the motions to dismiss
on behalf of individual defendants Jozef Lernout, Pol Hauspie,
and Gaston Bastiaens. Allegations relevant to resolving this
motion are discussed herein, and, as noted, are taken from the
Plaintiff Rocker Management LLC ("Rocker Management") is a New
Jersey company that administers and manages Plaintiff hedge fund Rocker
Partners LP ("Rocker Partners"). (Am. Compl. ¶ 10). Plaintiff
Rocker Offshore Management Company, Inc. ("Rocker Offshore") is a
New York corporation that manages Plaintiff hedge fund Compass
Holdings, Ltd.*fn4 (Id.).
Defendant KPMG US is a public accounting firm based in the
United States and a member of KPMG International, a Swiss
Association and one of the world's leading financial service
providers. (Am. Compl. ¶¶ 23, 26).
Plaintiffs engaged in "short selling," which means identifying
and purchasing stock that they expect to decline in price. (Am.
Compl. ¶¶ 5, 11). Profits result from borrowing stock from
various sources, selling that stock at current market prices,
purchasing shares of the stock at a lower price to "cover" the
original position, and then returning the stock to the original
Plaintiffs began to short sell Lernout & Hauspie Speech
Products N.V. ("L&H" or "the Company") stock in June 1998. (Am.
Compl. ¶¶ 6, 100). The price of L&H stock subsequently increased,
forcing Plaintiffs between December 1999 and March 2000 to purchase stock at a loss to cover their
own short positions. (Id. ¶¶ 6, 104). Plaintiffs charge that
the increase in L&H stock prices was the result of fraud on the
part of L&H and/or SG Cowen. Plaintiffs further allege that the
rise in L&H stock may be attributed to certain financial
statements issued by L&H for the fiscal year 1998, which
overstated L&H revenue. (Am. Compl. ¶¶ 51-52, 259). L&H's
independent auditor was Defendant KPMG Belgium.
On April 9, 1999, KPMG Belgium published its Independent
Auditor's Report on L&H's financial statements for the year
ending December 31, 1998 (Id. ¶ 51). KPMG Belgium allegedly
made several false statements in those certified financials.
First, financial statements falsely reported L&H's 1998 revenues.
KPMG Belgium itself withdrew its own certification in late 2000
and disclosed to the investing public that its financial
statements "should not be relied upon." (Id. ¶¶ 4, 123). L&H's
Audit Committee later acknowledged that the statements inflated
L&H's actual income by nearly $28 million (including by 24% and
23% in the last two quarters of 1998, respectively). Second, KPMG
Belgium represented that it conducted an "independent" audit,
thereby indicating that it had no financial interest or ties to
L&H management. In fact, the KPMG "global account partner" for
L&H who was responsible for overseeing the audit, Paul Behets, took a position with a L&H-related entity shortly after
overseeing and certifying these falsified financials. (Id. ¶
267). Third, KPMG Belgium represented that "[w]e conducted our
audits in accordance with generally accepted auditing standards
in the United States." In fact, the financials violated many
important aspects of United States generally accepted accounting
principles ("GAAP"), including the backdating of contracts,
contracts entered into with related parties, and the existence of
side agreements releasing customers of their obligation to pay.
(Id. ¶¶ 209-10). Finally, KPMG Belgium represented that the
financials were "free of material misstatements," and that the
financials "present fairly, in all material respects, the
financial position of Lernout & Hauspie Speech Products, N.V.,"
when, in fact, they falsely inflated L&H's revenue by almost $28
million. (Id. ¶ 52).
At times, the Amended Complaint uses "KPMG" to refer
collectively to KPMG Belgium, KPMG US, and KPMG UK. As to KPMG
US, Plaintiffs base their Section 10(b) claim on KPMG Belgium's
audit report on L&H's 1998 financial statements. (Am. Compl. ¶¶
26, 51-53, 101, 293). The Amended Complaint alleges that Robert
P. McLamb, a KPMG partner who worked from both the UK and US
offices, id. ¶ 37, "worked extensively on the L&H audits and
reviews" during the relevant time period, id. ¶ 187. However,
there are no allegations that KPMG US issued any audit opinions of its own or
made any statements connected to the L&H audits.
A. Motion to Dismiss Pursuant to Federal Rule of Civil
A motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6) should be granted only if it "appears beyond doubt that
the plaintiff can prove no set of facts in support of his claim
that would entitle him to relief." In re Cybershop.com Sec.
Litig., 189 F. Supp.2d 214, 223 (D.N.J. 2002) (quoting Conley
v. Gibson, 355 U.S. 41, 45-46 (1957)). When resolving a motion
to dismiss, a district court must accept all well-pleaded
allegations in the complaint as true, and view them in the light
most favorable to the plaintiff. Doug Grant, Inc. v. Greate Bay
Casino Corp., 232 F.3d 173, 183 (3d Cir. ...