In a groundbreaking opinion, the New Jersey Supreme Court ruled in NCP Litigation Trust v. KPMG LLP, 901 A.2d 871 (N.J. 2006), that under New Jersey law "innocent" shareholders, acting through a litigation trust, may sue a corporation's auditor for negligently failing to detect the fraud of the corporation's officers and directors. The Court rejected the argument - accepted by many other courts - that the "imputation doctrine" prevents such claims because the wrongdoing of the officers and directors is imputed to the corporation and the trust suing on its behalf. At the same time, the Court stated that the imputation doctrine could still provide a defense against claims benefiting large shareholders, who might not be deemed "innocent" because of their ability to oversee the company's operations.

To read FKSA's memorandum on the NCP decision, click here.