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ROSENBLATT v. ERNST & YOUNG INTERN.

March 1, 2000

RICHARD D. ROSENBLATT, PLAINTIFF,
V.
ERNST & YOUNG INTERNATIONAL, LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Brewster, Senior District Judge.

ORDER

I. Introduction

Before the Court is Plaintiff Richard D. Rosenblatt's ("Plaintiff" or "Rosenblatt") Motion For Remand Concerning the Second Amended Complaint.

II. Background

A. Procedural Background

On January 12, 1999, Plaintiff filed his initial complaint in this action in the Superior Court of California, County of San Diego, North County Branch, naming as defendants three alleged residents of California: Ernst & Young, LLP ("EY-LLP"), James Pope ("Pope"), and a non-existent entity. On May 5, 1999, Plaintiff filed a First Amended Complaint ("FAC") in state court naming EY-LLP, Pope, Does 1-100, and, for the first time, Ernst & Young International, Ltd. ("EYI"). The FAC set forth six causes of action: (1) intentional misrepresentation; (2) negligent misrepresentation; (3) suppression of fact; (4) constructive fraud; (5) professional negligence; and (6) declaratory relief

On July 2, 1999, Plaintiff filed a Motion for Remand and Award of Attorneys' Fees. Plaintiff argued in his Motion for Remand that this Court lacks diversity jurisdiction over the instant case. Plaintiff argued that EYI is a Cayman Islands limited liability company ("LLC") with partners in California, and thus is a California citizen defeating diversity. Plaintiff further contended that EY-LLP and Pope are not sham defendants and, because they are California citizens, they defeat diversity.

On September 10, 1999, the Court entered an Order Tentatively Denying Plaintiffs Motion for Remand and Motion for Attorneys' Fees ("Sept. 10 Order"). The Court found that (a) EYI is a citizen of the Cayman Islands and not a California citizen and (b) EY-LLP and Pope are sham defendants because Plaintiffs claims against them are barred by the statute of limitations. However, the Court granted Plaintiff fifteen days to amend his FAC to show that the claims against EY-LLP and Pope are not barred by the statute of limitations. The Court deferred action on the pending motions to dismiss.

Plaintiff filed his Second Amended Complaint on September 28, 1999. The Second Amended Complaint's allegations are nearly identical to the First Amended Complaint; however, it adds a cause of action for breach of fiduciary duty.*fn1 On October 25, 1999, Plaintiff filed a Motion for Remand on the Second Amended Complaint, which is before the Court. In that motion, Plaintiff argues that his new cause of action for breach of fiduciary duty is not barred by the statute of limitations.*fn2

After briefing by the parties, on January 6, 2000, the Court held a hearing on the renewed Motion for Remand. At that hearing, the Court invited further briefing on the issue of damages in relation to the statute of limitations. The further briefing was complete with the filing of Plaintiffs supplemental reply memorandum on February 14, 2000.

B. Plaintiffs Factual Allegations*fn3

According to Plaintiffs SAC, his claims arise out of his activities beginning in 1972 as a "Name" in insurance syndicates organized through Lloyd's of London ("Lloyd's"). (SAC ¶ 11.) For the chance of large profits, "Names" accept the risk of unlimited liability on insurance coverage underwritten by the syndicates in which they invest. (SAC ¶ ¶ 9, 11, 16, 21.) Between 1981 and 1989, Arthur Young and Arthur Young International (collectively "AY"), through staff member Pope and others, provided accounting services to Plaintiff with respect to his Lloyd's affairs and other matters. (SAC ¶¶ 6, 12, 13.) According to Plaintiff, EYI succeeded to, and assumed all liabilities of, AY pursuant to AY merger; Plaintiff also states that EY-LLP at all times material was a "member" of EYI. (SAC ¶¶ 3, 29.)

Plaintiff alleges that in 1981, meetings took place between representatives of the firms on Lloyds' panel of auditors, including AY and in particular, Plaintiffs personal accountant Norman Raitz ("Raitz"), concerning the growing volume of information and evidence concerning the level of claims which were building up as a result of coverage of asbestos-related risks by many Syndicates over a number of years. (SAC ¶¶ 12, 22.) Raitz attended further meetings in 1981 and 1982 regarding the increasing level of exposure to asbestosrelated claims. (SAC ¶¶ 23, 24.) On February 24, 1982, several accounting firms from Lloyds' panel of auditors, including AY, sent a letter of alarm notifying Lloyd's of the impending asbestos-related claims and the inability of certain Syndicates to quantify their final liability ("Neville Russell Letter"). (SAC ¶ 26; Ex. 3.) Plaintiff alleges that, as instructed by Lloyd's, the panel of auditors, including AY, concealed the "impending asbestos disaster." (SAC ¶ 26.) Thus, Plaintiff alleges that "at the latest 1981," AY was fully aware of the serious financial danger facing Plaintiff and other Lloyd's "names" in Syndicates which had originally insured asbestos-related risks and continued to reinsure such risks in 1982 and thereafter. (SAC ¶ 27.) Plaintiff claims that had he been informed by AY and E & Y*fn4 of its findings regarding the impending "asbestos disaster" Plaintiff could have avoided investing with Lloyd's, or at least with Lloyd's syndicates reinsuring asbestos-related policies. (SAC ΒΆ 30.) Plaintiff ...


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