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Merrimack College v. KPMG LLP (Lawyers Weekly No. 12-054-17)

COMMONWEALTH OF MASSACHUSETTS SUFFOLK, ss. SUPERIOR COURT. 1484CV02098-BLS2 ____________________ MERRIMACK COLLEGE v. KPMG LLP ____________________ MEMORANDUM AND ORDER ALLOWING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT Merrimack College incurred substantial financial losses because its former financial aid director, Christine Mordach, deliberately approved fake Perkins loans for many students without their knowledge.1 For years Mordach awarded far more financial aid than she was authorized to spend. She made the college’s financial aid budget appear balanced by replacing grants and scholarships with fake Perkins loans, the proceeds of which were used to pay tuition owed to Merrimack. Ms. Mordach pleaded guilty to federal criminal charges of mail and wire fraud. Merrimack seeks to recover its losses from its former auditor, KPMG LLP. Merrimack claims that KPMG noticed but did not follow up on discrepancies in some student loan accounting and deficiencies in internal controls for such loans, and as a result failed to discover Mordach’s fraud. Merrimack asserts that KPMG was negligent, breached its contract, and violated G.L. c. 93A. KPMG has moved for summary judgment on several grounds, including that Merrimack’s claims are barred under the equitable doctrine known as in pari delicto because Mordach committed fraud to benefit her employer and her deliberate wrongdoing on behalf of Merrimack was far worse than KPMG’s alleged negligence. The Court agrees that, in light of the undisputed material facts, Merrimack’s claims are barred by the in pari delicto doctrine. Under these circumstances, Merrimack is legally responsible for Mordach’s misconduct. Merrimack is also 1 The Perkins Loan program provides “low-interest loans to financially needy students” at institutions of higher education that are funded with federal monies, matching contributions by each participating school, and repayment of prior loans. De La Mota v. United States Dept. of Educ., 412 F.3d 71, 74 (2d Cir. 2005). “The schools independently determine eligibility, advance funds, collect payments[,] and make decisions concerning loan forgiveness.” Id.; see also 20 U.S.C. §§ 1070 et seq. – 2 – bound by the allegations in its complaint that Mordach engaged in intentional fraud. That deliberate misconduct by Merrimack’s employee was far more serious than KPMG’s purported negligence. Finally, the Court is not persuaded that Massachusetts should recognize, on public policy grounds, an exception to this doctrine for claims against an allegedly negligent outside auditor. The Court will therefore allow KPMG’s motion and dismiss this action. 1. Legal Background. “The doctrine of in pari delicto bars a plaintiff who has participated in wrongdoing from recovering damages for any loss resulting from the wrongdoing.” Choquette v. Isacoff, 65 Mass. App. Ct. 1, 3 (2005). It reflects an equitable and policy judgment that courts should “not lend aid to parties who base their cause of action on their own […]

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Posted by Massachusetts Legal Resources - May 17, 2017 at 11:07 pm

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