Livent Inc., through its special receiver, sued its former auditor, Deloitte & Touche, for negligence and breach of contract in failing to detect a massive fraud perpetrated by Livent's senior management.
The trial judge found Deloitte negligent in its conduct of the 1997 audit and awarded Livent $118 million in damages.
Deloitte appealed, arguing that the ex turpi causa and corporate identification doctrines barred the claim, and that its negligence did not cause the losses.
Livent cross-appealed the trial judge's refusal to award damages for the 1996 audit and the 25% reduction for contingencies.
The Court of Appeal dismissed both the appeal and cross-appeal, holding that the ex turpi causa doctrine could not shield an auditor from liability for failing to detect the very fraud it was engaged to uncover, and that Deloitte's negligence was the proximate cause of Livent's increased liabilities.