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. T H A B A U L T *, as R ece i verof A m bas s adorI ns ur ance C om pany

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D O R IS JU N E C H A IT , as R e p re se n tativ e o f th e E sta te o f Ar n o l d Cha i t ; PRI CEW ATER HO USECO OPERS LLP

Pr i c e W a t e r ho us e Coope r s LLP,
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A m icus C u ri ae fo r th e C o u rt

OPI NI ON O F THE COURT

FU E N T E S, C i r cui tJ udge.
F o r o v e r 2 0 y e a rs, th e In su ra n c e C o m m iss io n e r f o r th e S tate of V er m ont( t he “Com m i s s i oner ”) h as s erved as r ece i verof A m bas s adorI ns ur ance C om pany( “A m bassa dor ” or“the co mpa n y ” ) a n d s o u g h t t o r e c o v e r d a ma g e s f o r c l a i ms pai d on i ns ur ance pol i ci es fol l ow i ng t he company ’ s dow nw ar d s pi r al and u lti m a te c o llap se . In 1 9 8 5 , the C o m m iss io n e r b ro u g h t a 1 pr o fe ssi onal m al pr act i ce c l ai m agai ns tC ooper s & L ybr and (“C o o p ers” ), o n b e h a lf o f th e c o m p an y , all eg ing that C o o p ers fai l ed t o di scl ose the i nsolvency of A m bassado r foll ow i n g th e ir 1981 and 1982 audi tand negl i gent l yi s s ued unqual i fi ed and favor abl e audi topini ons w i t h know l edge thatt he fi nanci al stat em en ts w ere u n tru e a n d m aterial lyu n d erstated the c o m p an y ’s l os s r es erves . A t tr ial in the U ni t ed St at es D i s t r i ctC our tfort he D i s t r i ctof N ew J er s ey , t he C om m i s s i onerpr es ent ed a tr adi t i onal m alpra cti ce claim an d p rov ed to the jurythat b u t fo r C o o p ers’s n e g lig e n c e , A m b a ss a d o r w o u ld n o t h a v e c o n tin u e d to w rite insu ran ce pol i ci es , w hi ch r es ul t ed i n i t s ul t i m at e fa i l ur e. A tt he cl os e of a ni ne- w eek tr i al , t h e jury aw ar ded the St at e of V erm ont $119. 9 m i l l i on i n damages

. T he j udgm entr eac hed $182. 9 m i l l i on4 a f ter th e D istric t C o u rt a d d e d p re ju d g m e + 6 6 6 6 + n t in ter e st. P ric e w a ter h o u se C o o p e rs ( “ P w C ” ), th e su c c e ss o r in in te re st to C ooper s , appea l s t he j ur yver di ct

. W e w i l l aff i r m t he j ur y ’ s ver di ct in its e n tir e ty.
I . Fac t ual Backg r ound
A m b a ss a d o r w a s a n in su ra n c e c o m p a n yin c o rp o ra ted in V erm ont , w i t h i t s pr i nci pal pl ace of bus i nes s i n N or t h B er gen, N ew J er s ey . A r nol d C hai t( “C hai t ”) founded A m bas s adori n 1965 and serv ed as th e c o m p an y ’s p reside n t and ch ief e x ec u ti v e o ff icer. A m bas s ador w as a s urpl us l i nes i ns ur ance company , w hi ch i ns ur ed hi gh- r i s k bus ines ses and i ndi vi dual s w ho w er e unabl e t o get in su ra n c e f

ro m o th e r c o m p a n ies a t s tan d a rd ra tes . In 1 9 7 1 , C h a it for m ed a hol di ng company t o r ai s e capi t al forA m bas s adornamed A m b a s s a d o rGr o u p . Cha i ta n d h i s wi f e , Dor i s Cha i t , o wned appr oxi m at el y 65% of t he A m bas s ador G r oup s t ock; t he r emai nder w a s p u b lic ly h e ld

. B yvi r tue of i t s V erm ontdom i ci l e, A m bas s adorw as r egul at ed byt he V erm ontD epart m entof B anki ng and I ns ur ance ( t he “I ns ur ance D epart m ent ”)

. A ccor di ng t o V erm onts t atut e, A m b a ss a d o r w a s re q u ire d to f ile an a n n u a l f

in a n c ial s tate m e n t w ith t he I ns ur ance D epart m ent( “annua l V erm onts t at ement ”) eac h y ear byM ar ch 15th. T he appl i cabl e s t atut e r equi r ed the annua l V erm onts t at ement t o be “ver i fi ed by oath of tw o of i t s exec ut i ve o f f ice rs,” b u t d id n o t r e q u ire th a t th e sta tem e n t b e a u d ited . S e e V t. St at

. A nn. t i t

. 8, § 3561 (19 8 4 ). T he s t atut e al s o author i zed per i odi c on -si t e exa m i nat i ons byt he I ns ur ance D epart m ent exami ner s . I d. § 3563.
A m bass adorw as al s o r equi r ed t o fi l e an a nnual fi nanci al s t at ement w i t h t he Secur i t i es and Exchange Com m i s s i on ( “annua l SE C s t at ement ”)

. U n l i ke the annua l V erm onts t at ement , t he annua l SE C s t at ement had t o be audi t ed. T o au d itt he A m bas s ador G r oup’ s annual SE C s t at ement s t hat w er e fi l ed betw een 1979 a nd 1 9 8 2 , A m bas s adorr et ai ned C ooper s . C ooper s di d notaudi tt he annual V erm onts t at eme n ts tha tA m bas s adorfi l ed w i t h t he I ns ur ance D epart m ent ; how evert hes e s ta t ement s i ncorpor at ed Coo p e r s ’ s l o s s r e s e r v e s c a l c u l a t i o n s f r o m t h e a u d i t e d a n n u a l SECA n insur ance c om pan y ’s surpl us i s a m easurem ent of t he ex cess 2 o f asse ts o v er l iabili ti es. R eg u lat o rs typ icall y restri ct an insu rer’s p o lic yu n d e rw ri tin g to a m u ltip le o f its u n re s tr ic te d s u rp lu s . 5 st at em ents

. F rom Jan u aryto M ay1 9 8 1 , tw o V e rm o n t state ex am iners conduct ed an on- s i t e exa m i n at i on of A m bas s ador ’ s annual V erm onts t at ement s for t he fi ve- y ear per i od endi ng D ece m ber31, 1979, and det ect ed no s i gni fi cantpr obl ems. I n par t i cul ar , t he V erm on tst at e exam i ners concluded th a tA m bassado r’ s l oss re se rv e s re p o rte d in 1 9 7 9 w e re a d e q u a te. T h e f irst d o w n tu rn in A m bas s ador ’ s fi nanci al s t r ength w as r efl ect ed i n i ts 1 9 8 1 annual S E C sta tem e n t, w h ich sh o w e d a n u n d e rw riting lo ss . T h e re a f ter , in F ebruary19 82 , A m bassado r G roup’s s t oc k p r i c e dr op pe d b ya l mo st hal f. A m bassa d o rG r oup’ s 1982 annual SE C s t at ementr ecor ded an over al l l os s and s how ed a dr op i n i t s “s urpl us . ” I n A pr i l 1983, 2 A m bas s adoral s o fai l ed s eve n of the N at i onal A s s oci at i on of I ns ur ance C om m i s s i oner s ’ s ear l y w arni ng t es t s t hatt he I ns ur ance D e p a rt m e n t u s e d to m o n ito r i n s u re rs ’ f in a n c ia l c o n d itio n . Fol l ow i ng t hi s dow ntur n, i n M ar ch 1983, t he Insur ance D epart m entr et ai ned K r amer C api t al C ons ul t ant s ( “K r amer ”) , an i ndepende ntfi nanci al cons ul t i ng fi r m fori ns ur ance compani es and reg u lat o rs, to co n d u ct a sp ec ial ex am in a tion o f A m b assa d o r, i ncl udi ng i t s l os s r es erves . K r amer , r el y i ng on C ooper s ’ s audi t ed annual SE C s t at ement s , concl uded thatthere w er e no mat er i al defi ci enci es i n A m bas s ador ’ s r epor t ed l os s r es erves and t hati tw as so lven t

. N onethel es s , i tr epor t ed thatA m bas s ador ’ s “fi nanci al cond it ion has m at er i al l ydet er i or at ed, and the [c ] om panym aybe deemed t o be oper at i ng i n a haz ar dous fi nanci al condi t i on. ” ( A pp. 2038. ) I n l i ght of t hi s r epor t , t he Ins ur ance D epart m entpr es ent ed C hai tw i t h a pl an r equi r i ng A m b ass adort o hal ti t s gr ow t h by r educi ng pr emi um vol um es by30%

. C hai tacc ept ed the pl an but h e f ail ed to ab ide b yitan d co n ti n u ed to inc rea se A m b assa d o r’s pr emi um vol um es . I n Sept ember1983, t he I ns ur ance D epart m ent or de r e d Am b a s s a d o rt o c e a s e p a yme n to f d i v i d e n d s a n d o r d e r ed K ra m e r t o re s u m e its o n -s ite e x a m in a tio n .“I ns ol vent ” i s defi ned as a debt or“havi ng l i abi l i t i es t hatexce ed 3 t he val ue of as s et s ” or t he i nabi l i t yt o paydebt s as t heyfal l due or i n t he us ual co ur s e of bus i nes s . See B l ack’ s L aw D i ct i onary812 (8 th e d . 2 0 0 4 ). T he C om m i ssi on er present ed evi den ce att ri al regar ding C oo pers’ 4 1 9 8 2 au d it , h o w ev er, th e D istri ct C o u rtd eterm ine d th at th e jury coul d onl ybe as ked w hetherC ooper s w as negl i genti n the 1981 a u d it an d , if s o , w h e th e r th a t n e g lig e n c e c a u se d d a m a g e s to A m b a s s a d o r. T h is ru lin g is n o t b e f o re u s . 6 W i t hi n t w o m ont hs , K r ameri s s ued a r epor tconcl udi ng t hat A m bas s adorw as $3 m i l l i o n i n s o l vent

. I m m edi at el y , t he I ns ur ance 3 D e p a rtm e n t f

iled a c o m p lain t ag a in st A m b a ss a d o r in V erm on t sta te cour t , s eeki ng t o enj oi n A m bas s adorfr om cond u cti ng fur t her b u sine ss an d to h a v e the C o m m issi o n er a p p o inted as re ce iver. B ased o n i t s concl us i on t hat“i ti s uns afe and i nexpedi entfor A m bas s adort o cont i nue bus i n ess , ” the s t at e courtappoi nt ed the C om m i s s i oneras A m bas s ador ’ s r ece i ver . ( A pp. 1789. ) I n 1984, t he C om m i s s i onerconcl uded thatA m bas s adorcoul d notbe s uccessfu ll yr ehabi l i t at ed and, acc or di ngl y , obt ai ned an or derof l i qui dat i on. I n M ay 1985, t he C om m i s s i onerfi l ed thi s act i on i n t he U ni t e d St a t e s Di s t r i c t Cou r t f o r t h e Di s t r i c t o f New J e r s e y . T he compl ai ntal l eged, among other t hi ngs , negl i gentm i s m anage m ent and mi s fea s ance , br eac h of fi duci arydut y , fraud and negl i gent m isr ep rese n tat ion ag ains t A rno ld and D o ri s C h ait an d R ich ard T afr o, A m bas s ador ’ s for m ervi ce pr es i dentof fi nanc e. R el evant her e, t he compl ai ntal s o as s er t ed a c aus e of a ct i on fornegl i gent a u d itin g p ra c tic e s a g a in s t C o o p e rs . I n hi s cl ai m agai ns tC ooper s , t he C om m i s s i oneral l eged that C ooper s w as negl i genti n i t s audi tof A m bas s ador ’ s 1981 and 1982 fi nanci al s t at ement s . Speci fi cal l y , t he C om m i s s i onercl ai m ed that 4 as a r esul tof it s auditof A m b a ssador G roup an d it s subsi diar i es, C ooper s ei t herknew ors hould h av e k now n i n ear l y1982 t hat A m bas s ador w as onl ym ar gi nal l ys ol ventand s houl d nothave cont i nued w r i t i ng new i ns ur ance pol i ci es . H e furt heral l eged that i f C ooper s had i s s ued the adve r s e audi topi ni on t hati ts houl d haveFort he purpos es of ourdi s cus s i on goi ng forw ar d, w e w i l l r efe r 5 to C o o p e rs a n d P w C c o lle c tiv e ly as P w C

. D o ris C h a it an d R ich a rd T a f ro w e re d ism iss e d in d iv id u a llyw ith 6 pr ej udi ce b ef

or e tr i al pur s uantt o s et t l ementagr eement s w i t h t he C o m m is s io n e r. 7 th e re g u lato r s c o u ld h a v e a c ted to p ro tec t A m b a ss a d o r a n d its p o lic yh o ld e rs , c la im a n ts a n d c re d ito rs . I n N ovem b er1997, fol l ow i ng C hai t ’ s death, the Est at e of A r nol d C hai t( the “E stat e”) w as s ubs t i tut ed as a def endanti n t he Co mmi s s i o n e r ’ s a c t i o n . Coo p e r s , a n a t i o n a l a c c o u n t i n g f i r m, su b s equent l y m er ged w it h P ri ce W aterh o u se to fo rm Pr i ceW at erhous eC ooper s ( “Pw C ”) i n 1998. In t he y ear s t hat 5 fol l ow ed, Pw C fi l ed numero u s m ot i ons , s eeki ng, among ot her t hi ngs , s um m aryj udgm entand s ep ara t e tr i al s fort he C om m i s s i oner ’ s cl ai m s agai ns tPw C and the Est at e. A l l t he m ot i ons w er e deni ed. A ppr oxi m at el ys ix w eeks befor e tr i al , t he D is tr ic t C o u rt , s u a s

p o n te , en tered defa ul tagai ns tC hai t ’ s es t at e, p u rsu a n t to F e d e ra l R u le o f C iv il P ro c e d u re 5 5 (a ), f o r fa ilu re to compl yw i t h a C our tor dert o s eek r epl ace m ent c o u n s el ornot i fy t he C ou rtof it s i ntention s w ith regard t o the l i t i gati on . T he case a g a in st th e E sta te a n d P w C th e n p ro c e e d e d to trial. 6
A t th e c lo se o f

th e e v id e n c e , the D istric t C o u rt su a sp o n te ent er ed a de faul tj udgm entagai ns tt he E s t at e, pur s uant t o Feder al R ul e of C i vi l Pr ocedur e 55( b) ( 2) , r emovi ng t he E s t at e’ s l i abi l i t yas an issue fo r th e jury , req u ir ing the ju ryto o n ly c o n side r C h ait ’s per cent age of

faul t , and i ns t ruct ed the j ur yacc or di ngl y . A ft er del i ber a t i n g f

o rl e s s t h a n t wo d a y s , t h e j u r yr e a c h e d a v e r d i ct a g a in s t P w C a n d th e E s ta te a n d a w a rd e d to ta l d a m a g e s o f $ 1 1 9 .9 m i l l i on t o t he C om m i s s i oner . T he j ur yapp or t i oned 60% of the fa u ltto C h aitan d the re m ainin g 4 0 % to P w C

. F o ll o w ing the ju ry ver di ct , t he D i s t r ict C o u r tadded $63 mi l l i on i n pr ej udgm ent in ter e st to th e ju ry ’s d a m a g e s a w a rd , rais in g th e to tal li a b ili tyto $ 1 8 2 .9 m ill io n . B e c a u se P w C w a s d e e m e d jo in tlya n d se v e ra lly l i abl e under N ew J er s ey ’ s t hen- appl i cabl e l aw , Pw C w as l i abl e for t he ent i r e $182. 9 m i l l i on j udgm ent

. Pw C now appea l s t he D i s t r i ctTh e Di s t r i c t Co u r t h a d s u b j e c tma t t e rj u r i s d i c t i o n u n d e r2 8 U. S

. C. 7 § 1332 bas ed on di ver s i t yof ci t i zens hi p. W e have j ur i s di ct i on u n d e r 2 8 U .S .C . § 1 2 9 1 . P w C f ile d a tim e ly n o tic e o f

a p p e a l. 8 C o u rt’s f in a l ju d g m e n t. 7
O n a p p e a l, P w C a rg u e s th a t th e D istric t C o u rt e rre d (1 ) in notent ering jud gm entforPw C as a mat t erof l aw forl ack of compensa bl e i njury t o A m bas s adoron t he bas i s t hatdeepe ni ng inso lven c y c a n n o t be u sed as a m ea su re o f d am ag es f o r a negl i gence cl ai m ; ( 2) i n not gr ant i ng j udgm entt o Pw C as a mat t er of l aw forl ack of

pr oxi m at e ca us at i on; ( 3) i n not ent er i ng j udgm ent as a m at t er of l aw on P w C ’s in p a ri d e licto defe ns e; ( 4) i n deny i ng P w C ’s m o tio n f

o r a se p a ra te tria l b e c a u se th e E sta te w a s in d e f a u lt and no j ur yi s s ues r emai ned as t o C hai t ’ s l i abi l i t y ; ( 5) byent er i ng an exc es s i ve damages aw ar d; ( 6) i n aw ar di ng $63 m i l l i on i n pr ej udgm enti nt er es t ; and ( 7) i n appl y i ng N ew J er s ey l aw on j oi ntand se v e ra b le lia b ili tyra th e r th a n V e rm o n t law . W e a d d re ss e a c h in tu rn . I I . D eepeni ng Ins ol vency an d D am ages t o A m bass ador
O n appea l , Pw C cont ends t hat t he C om m i s s i oner ’ s cas e w as bas ed on a theory of damages for“dee peni ng i ns ol vency ” and that s uch a theorycannotbe us ed as a me asure of damages foran i nd epen den tcause o f act i on such as m al pract i c e . P w C al so m ai n t a i n s t h a ti twas e r r o rf o rt h e Di s t r i c tCou r tn o tt o ent er s umma r yj u d g me n ti n f a v o ro f PwC be c a u s e t h e Commi s s i o ner fai l ed t o pr ove thatPw C ’ s al l eged negl i gence r es ul t ed i n any c o g n iza b le h a rm to A m b a ss a d o r. A c c o rd in g to P w C , o n ly A m bas s ador ’ s pol i cyhol der s and cr edi t or s s uffe r ed harm , nott he c o m p a n y . W hi l e w e do n oti gnor e the undi s put ed fa ctt hatt her e w as r efe r ence m ade t hr oughout t hi s cas e t o “dee peni ng i ns ol vency ” as a meas ur e of damages for Pw C ’ s negl i gence , w e conc l ude thatt he damages pr es ent ed t o t he j ur y w er e base d on t r adi t i onal N ew J er s eyI n den y i ng Pw C ’ s m ot i on fors um m aryj udgm entas t o t he 8 C om m i s s i oner ’ s cl ai m and t he m ot i on t o s t r i ke t he “w rongful corpor at e l i fe” dam ag es t heory , t he D i s t r i ctC our tengage d i n a c h o ice of law analy si s and co ncluded t hat N ew Jer seyl aw w o u ld con t rol t he sub st anti ve is sues. T he part i es do notdi s put e thatN ew J er s eyl aw appl i es t o t he s ubs t ant i ve i s s ues and onl ydi s put e the appl i cabi l i t yof N ew J er s ey ’ s l aw i m pos i ng j oi nt and seve r al lia b ility. S e e in f

ra P a rt V II I. 9 t or tdamages

. U nder N ew J er s eyl aw , t he meas ur e of da m ages for

8 a negl i gence act i on ar e the damag es pr oxi m at el ycaus ed by defe nd ant’ s cond uct. S ee S chroed er v. P erkel , 43 2 A

. 2d 83 4 (N

. J. 1 9 8 1 ); G le itm a n v . C o s g ro v e , 2 2 7 A .2 d 6 8 9 , 6 9 2 (N .J . 1 9 6 7 ). A s t o damages , t he D i s t r i ct C our t i ns t ruct ed t he j ur y at t he cl os e of trial th a t:
T he V erm ontC om m i s s i oners eeks damages fort he netl os s A m bas s ador i ncurr ed fr om i t s cont i nued oper at i on aft erM ar ch 31s t , 1982. T he V erm ont C om m i s s i onercont ends t hat[Pw C ] i s l i abl e fors uch damages beca us e A m bas s ad o r w oul d have be en pr event ed fr om w r i t i ng new bus iness i f [Pw C ] had conduct ed an a udi t of [A m bas s ador ] y ear - end 1981 fin an cial st atem en ts i n a n o n -ne g lig e n t m an n er. A ccor di ngl y , t he [Com m i s s i oner ’ s ] t heoryof damages i s t hat , because of [ Pw C ’ s ] al l eged n e g lig e n t au d it, A m b a ss a d o r w a s p e rm itt e d to cont i nue t o w r i t e new bus i nes s u n t i l N ovember9, 1 9 8 3

. D u ri n g tha t ti m e, th e [ C o m m issi o n er] c o n ten d s th a t th e in su ra n c e th a t [ A m b a ss a d o r] w ro te pr oduced c l ai m s t hatcos tt he com pany m or e than the p r e mi u ms , p l u s i n t e r e s ta n d o t h e ri n v e s t me n ti n c o me on t hos e pr emi um s , i tcol l ect ed fort h at i ns ur ance . T h e [ C o m m iss io n e r] cla im s tha t th is a m o u n t eq u a ls $119. 9 m i l l i on and tha tt hi s cons t i tut es t he company ’ s dama g es. . . . Y ourj ob as j ur or s w i l l be t o cons i dert he evi dence t hat t he [Com m i s s i oner ] has pr es ent ed r el at i ng t o A m bas s ador ’ s i ns ol venc y and i t s conseq uen ces.T he net inte r es texpens e w as t he di ffe r ence betw een the cos tof 9 b o rr o w in g a n d th e in te re s te d e a rn e d o n p re m iu m s c o lle c te d

. 10 ( A pp. 1504- 05. ) T he ques t i on of w hether Pw C ca u s ed A m b a s s a d o r ’ s d e e p e n i n g i n s o l v e n c y w a s n e v e r p u tb e f o r e t h e j u r y. R ather , on t he ques ti on of damages , t he ver di cts heetas ked the j ur or s : “H as t he [Com m i s s i oner ] pr oven by a pr eponder ance of the evi dence t hat[Pw C ’s] b reach w as a pr oxi m at e ca us e of any da m ag es th a t th e [ A m b a s s a d o r] m a y h a v e in c u rr e d ? ” (A p p . 2 4 0 .) ( emphasi s added)

. T he j ur y r es ponded: “Y es . ” I d. T he j ur yw as t hen aske d t o det erm i ne the t otalda m ag es i ncurr ed byA m bas s ador t hat t he C om m i s s i oner pr oved bya pr eponder ance of the evi dence

. D es pi te P w C ’s co n tention , the ju ryw as nots i m pl ypr es ent ed w i t h a compar i s on of A m bas s ador ’ s bal ance s heet s at t he poi ntof w r ongdoi ng and at t he poi nt of i ns ol vency t o s how t he harm done t o t he corpor at i on and t o m eas ur e the damages

. I ns t ead, t he C om m i s s i onerpr oved ac tual damages : it emi zed, s peci fi c, and a v o id a b le lo ss e s th a t A m b a ss a d o r in c u rre d b yc o n ti n u in g its oper ati o n s bey ond t he dat e of Pw C ’ s negl i gentaudi t s . T he d a m a g e s th a t w e re p re s e n te d to th e ju ry w e re A m b a s s a d o r’ s $ 1 1 9 .9 m i l l i on netl os s fr om cont i nui ng oper at i ons aft erM ar ch 31, 1982, t he dat e t h a t PwC c o mpl e t e d i t s 1 9 8 1 a u d i t o f Am b a s s a d o r . T he damages w er e compri s ed of $188. 2 m i l l i on i n t ot al cos t s i ncurr ed fr om cont i nui ng oper at i ons pas t M ar ch 31, 1982 l es s $80. 9 m i l l i on i n netpr emi um s earned on the i ns ur ance pol i ci es t hatA m bas s ador w rot e aft er t h is d a te, pl us $1 2. 6 m i l l i on for t he n eti nter est expens e. ( A pp. 1886. ) T he t ot al cos t i ncurr ed from co n ti nui ng

9 oper at i o n s , $188. 2 m i l l i on, i ncl uded the netcos tof cl ai m s i ncurr ed, oper at i ng and r ece i ver s hip ex pens es , and di vi dends pai d t o t he par entcompany . ( A pp. 1886. ) The netcos tof cl ai m s i ncurr ed in c lu d e d f

u tu re u n p a id c la im s . U ndoubt edl y , t hes e l os s es , w hi ch ar os e fr om t he cont i nued w ri ti n g o f in su ran ce p o li cies, ha d an im p ac t on A m b a s s ad o r’s so lv e n c ya n d in c re a se d A m b a ss a d o r’s liab ili ties . T h is in c re a se in A m bas s ador ’ s l i abi l i t i es w as caus ed byPw C ’ s negl i gence and thus w as p rop erlyco n side red as da m ag es pro x im atelyca u sed b yP w C ’s n e g lig e n c e .11 R e ly in g o n In re C itX C o rp . (“C itX ” ), P w C a sk s u s to h o ld t hatw hene v er a pl ai nt i ff makes r efe r ence t o “dee peni ng i ns ol vency ” or “an i nj ur yt o t he D ebt or ’ s corpor at e pr oper t yfr om th e f ra u d u len t ex p a n sio n o f c o rp o ra te d e b t an d p ro lo n g a tio n o f its corpo rate li fe, ” as par tof i t s expl anat i on of damages i n a negl i gence act i on, r ecove r yi s notperm issi bl e. ( A ppel l antB r . at 2 4 -2 9 (c iti n g 4 4 8 F .3 d 6 7 2 , 6 7 7 (3 d C ir. 2 0 0 6 )). H o w e v e r, C itX does nots uppor tt hi s pr opos i t i on. W hen a pl ai nt i ff br i ngs an ac t i on fo r p rof essio n al n eg li g en ce an d p rov es th at th e d ef en d an t’ s n eg li g en t con d u ct w as th e p rox im ate c au se o f a co rpo rati o n ’s i ncr eas ed l i abi l i t i es , decr eas ed fai r m arket val ue, orl os tpr ofi t s , t he p la in tif f m a yre c o v e r d a m a g e s in a c c o rd a n c e w ith s ta te la w . In O f f icia l C o m m . o f U n se c u re d C re d ito rs v . R .F . L a f f e rty & C o . , (“L af

fe rty ”), w e he ld th at the P en n sy lvan ia S u p rem e C o u rt w oul d r ecogni ze deepe ni ng i ns ol vencyas an i ndepende ntcaus e of act i on w her e i tcaus es damage t o corpor at e pr oper t y . 267 F. 3d 347, 3 5 1 (3d

. C ir2 0 0 1 ). W e d ef ined d ee p en ing inso lven cy as “a n injury t o the D ebt or s ’ corpor at e pr oper t y fr om t he fr audul en t expans i on of corpor at e debtand pr ol ongat i on of corpor at e li fe

. ” I d. at347. W e fu rth er ex p lai n ed that “p rolo n g ing an inso lven t co rpo rati o n ’s life th ro u g h b a d d e b t m a y sim p ly c a u se th e d iss ip a tio n o f c o rp o ra te as s et s ” and t hat s uch har m “ca n be aver t ed, and t he val ue w i t hi n an i ns ol vent corpor at i on s al vaged, i f t he corpor at i on i s di s s ol ved i n a t i m el ym anner , r at h er t han keptafl oatw i t h s pur i ous debt

. ” I d. at 350. L aff

er t yw as deci ded underPenns y l vani a l aw , unl i ke the in s ta n t c a s e w h ic h is c o n tr o lle d b yN e w J e rs e yla w . Subse quent l yi n C i t X , t he trus t ee of a bankrupti nt ern et co m p an y , C itX C o rpo rati o n , Inc

. (“C itX ”), su e d th e c o m p an y ’s acc ount i ng fi r m form al pr act i ce a nd deepe ni ng insol vency . 448 F. 3d at675. T he ac count i ng fi r m compiled C i t X ’ s fi nanci al s t at ement s fr om J ul y1997 t hr ough D ece m ber31, 19 9 9

. U s i ng t hes e f i n a n c i a l s t a t e me n t s a ts har ehol derm eet i ngs , C i t X r ai s ed over $1, 000, 000 i n equi t y , al l ow i ng i tt o cont i nue i t s o p era t i ons and acc rue mi l l i ons of dol l ar s i n debt

. I d. at676. T he trus t ee a l l eged t hatt he ac count i ng fi r m had “dr amat i cal l yde e p e n e d t he i ns ol vency o f C itX , an d w ro n g f

u llye x p a n d e d th e d e b t o f C itX a n d w a ste o f

its i l l egal l yr ai s ed ca pi t al , byper m i t t i ng C i t X t o i ncuraddi t i onal debt12 byvi r tue of t he compi l at i on s t at ement s pr epar ed and r el i ed upon by th ir d p a rt ie s .” Id . a t 6 7 7 (i n te rn a l q u o ta tio n s o m itte d ).
W e det erm i ned thatt her e w as no har m t o the pl ai nt i ff c o rp o ra tio n b e c a u se th e im m e d iate re su lt o f th e d e f e n d a n t’s a u d it w as to incre ase C itX ’s ca p it al an d red u ce it s d eb t th rou g h an ex tr a $ 1 ,0 0 0 ,0 0 0 in in v e stm e n ts. Id . T o th e e x ten t th a t th e e x tra c a p ital, w hi ch dec r eas ed C i t X ’ s i ns ol vency , e x t ended the corpor at i on’ s l i fe an d all o w ed m an ag em en t t o incu r m o re d eb t, the u lt im ate h arm w a s c a u se d b y m ism a n a g e m e n t, n o t th e a u d ito r. Id . at 6 7 8 . In th is c a se , o n th e o th e r h a n d , the ju ryf o u n d th a t th e n e g lig e n t au d it pr oxi m at el ycaus ed an i ncr eas e i n l i abi l i t i es t hr ough t he w r i t i ng of m or e i ns ur ance pol i ci es . T he au d iti n t he pr es entcas e had a n im m e d iate n e g a tiv e c o n se q u e n c e , as c o n tra ste d w ith the im m e d iate po si t i ve co nsequ ence foll ow i ng t he aud i ti n C i t X

. In ot her w ords, t he damages her e ar e l os s es i ncurr ed on i ns ur an ce pol i ci es t hat w o u ld n o t h a v e b e e n w ri tte n b u t f o r C o o p e rs ’s n e g lig e n c e . I n a f f i r m i ng t he D i s t r i ctC our t ’ s gr antof s um m aryj udgm ent o n b e h a lf

o f th e a c c o u n tin g f

irm in C itX , w e sta te d th a t L a f f e rty had “ne verhel d t hat[dee peni ng i ns ol vency ] w as a val i d t heoryof d a m a g e s fo r a n in d e p e n d e n t caus e of act i on .” Id . a t 6 7 7 (e m p h a sis in o rig in a l). W e e x p lain e d th a t th e “ sta tem e n ts in L a f f e rtyw e re in th e c o n tex t o f

a d e e p e n in g -in so lv e n c yc a u se o f a c tio n ,” a n d h e ld t hat“[t ] heys houl d notbe i nt erpr et ed t o cr eat e a nove l theoryof damages foran i ndepende nt caus e of act i on l i ke m al pr act i ce. ” I d. T h e C itX co u rtalso stat ed that “[ t] h e d ee p en ing o f a firm ’s i ns ol vencyi s notan i ndepende ntfor m of corpor at e damage. ” I d. a t 6 7 8 (c itatio n o m itt e d ). H o w e v e r, w e f u rth e r e x p lain e d th a t:
W h e r e a n i n d e p e n d e n t c a u s e o f a c t i o n g i v e s a f

i r m a rem edyfor t he incr ease i n it s l i abil i t i es, t he d ecrease in f air asse t valu e, or its l o st pro fit s, then the f irm m ayr ecove r , w i t houtr efe r ence t o t he i nci dent al im p a c t u p o n th e s o lv e n c yc a lc u la tio n . 448 F. 3d at678 ( quot i ng Sabi n W i l l et t , T he Shal l ow s of D eepe ni ng In s o lv e n c y , 6 0 B u s . L a w . 5 4 9 , 5 5 2 -5 7 (2 0 0 5 ))

. W hati s i m por t antt o not e att hi s jun ctur e i s thatw hether13 d ee p en ing inso lven cyco n sti tutes a v ali d theo ryo f d a m a g e s fo r a h arm is a m att er that is u n iqu ely su b ject t o stat e law p ri n ciples. It is w e ll se ttl e d ju risp ru d e n c e th a t as a f e d e ra l co u r t s itt in g in di ver s i t y w e ar e r equi r ed t o appl y t he l aw of t he s t at e. E r i e R

. C o. v. T om pki ns , 304 U

. S. 64, 78 ( 1938) ; s ee a l s o C om m onw eal t h of Penns y l vani a v. B r ow n, 373 F. 2d 771, 777 ( 3d C i r . 1967) ( s t at i ng t hati n di ver s i t y cas es , “w her e the appl i cabl e rul e of de ci s i on i s t he sta te la w , itis th e d u tyo f th e f e d e ra l co u rt to a sc e rta in a n d a p p ly t hat l aw , even th o u g h ithas no tbeen exp ou nd ed b yt he h i gh est cour tof the s t at e”). A s in Laff er t y , C i t X exami ned dee peni ng i ns ol vencyas a theoryof damages under Penns y l vani a l aw , w hi ch is n o t b in d in g in th is c a s e . I n t hi s cas e, w e are p ers uaded byN ew J er s eyl aw t hatt he C o m m issi o n er’s tort dam ag es th eo ry w as a p p rop ri ate f o r P w C ’s negl i gent conduct

. Pw C as s er t s t hat “ther e i s no r eas on t o bel i eve t hatN ew J er s ey w oul d author i ze ‘ deepe ni ng i ns ol vency ’ damages b ey o n d w h at i s au tho ri ze d b yL af fe rtyan d C itX

. ” (A p p ell an t B r. 28. ) A l t h o u g h n e i t h e rt h e New J e r s e yl e g i s l a tu r e n o rt h e New J e r s e y S u p r e m e C o u r th a s a u t h o r i z e d a “ d e e p e n i n g i n s o l v e n c y” caus e of a ct i on, contr ary t o Pw C ’ s as s er t i on, t her e has been a t r end among t he s t at e’ s cour t s t ow ar d r ecogni zi ng “dee p eni ng i n s o l v e n c y ” d a ma g e s . I n NCP Li t i g . Tru s t v . KM P G, LL P , ( “ NCP I ”) , t he N ew J er s eySupr eme C our taddr es s ed the ques t i on of damages r es ul t i ng fr om t he i nfl at i on of a c om pany ’ s r evenue s and co n tin u a ti o n b ey o n d inso lven cy . 9 0 1 A

. 2 d 8 7 1 , 8 8 8 (N

. J. 2 0 0 6 ). I n N C P I , K M PG w as r et ai ned as t he ac count antfort he Phy s i ci an C o m p u ter N etw o rk, Inc (“P C N ”)

. Id

. at 87 3

. In th e m id-1 9 9 0 ’s tw o o f f ice rs o f P C N c o n d u c ted f ra u d u len t tra n sa c tio n s to ar t i fi ci al l yi nfl at e P C N ’ s r evenue s . I d. at 874. T he audi t or s fai l ed t o d e t e c tt he mi s r e pr e s e nt a t i on s i ni t i a l l y . Id. A ft e rK PM G uncover ed the misrep res ent at i ons y ear s l at er , t he companyw as for ced t o acknow l edge p r evi ous l yunr epor t ed l os s es of t ens of m ill io n s o f

d o llars . T h e d isc lo su re s re su lted in a c a sh f lo w d e f icit and PC N defa ul ti n g o n it s bank debt

. I n 1998, PC N fi l ed for bankrupt cy . I d. at876. U nder t he bankrupt cypl an, PC N as s i gned al l i t s pot ent i al ca u ses of act i on t o t he N C P L i t i gat i on T rus t( t he

“ Tr us t ” )

. I d. I n 2 00 2, t he Tr us ti ni t i a t e d s ui ta ga i ns tK PM G al l egi ng caus es of ac t i on for( i ) negl i g en ce ( i i ) negl i gent m i s r epr es ent at i on, ( i i i ) br eac h o f contr act , and ( i v) br eac h ofT he i n par i d el i ct o doctr i ne di ct at es t hata pl ai nt i ff w ho has 10 par t i ci pat ed i n w r ongdoi ng m ayno t rec overdamages r es ul t i ng fr om t he w r ongdoi ng. See B l ack’ s L aw D i ct i onary 806 (8th ed. 2 0 0 4 ).

14 fi du ci arydu t y . T he tri al cou rt grant ed K P M G ’s m oti on t o d i sm i ss the co m p lai n t. It rea so n ed that b ec au se th e w ron g d o ing o f P C N ’s corporat e off

i cers had t o b e i m pu t ed to t he com pan yand becau se u n d er in p a ri d e licto , t h e T ru s ts t o o d i n t h e s h o e s o f t h e c o m p a n y, PC N , PC N and the Trus t ’ s uncl ean ha nds barr ed the act i on. I d. 10 at877. T he A ppel l at e D i vi s i on aff i r m ed th e d i s m i s s al of the T rus t ’ s br eac h of fi duci ary d u ty cl ai m s and r ever s ed on al l t he r emai ni ng caus es of ac t i on, concl udi ng t hatt he in p a ri d e licto defe ns e i s notavai l abl e t o one w ho contr i but es t o t he mi s conduct s oughtt o be i m put ed. I d. at878.
O n appea l , the N ew J er s eySupr eme C our taff i r m ed the A ppel l at e D i vi s i on, hol d ing t hatbeca us e K PM G ’ s al l eged n e g l i g e n c e c o n t r i b u t e d t o t h e mi s c o n d u c to f o f f i c e r s a tP CN , K PM G w as barr ed fr om r ai s i ng t he in p a ri d e licto defe ns e. I d. at 890. I n doi ng s o, t he Supr eme C our texpl ai ned that “i nfl at i ng a c o rp o ra tio n ’s r e v e n u e s a n d e n a b lin g a c o rp o ra tio n to c o n tin u e in bus i nes s ‘ pas tt he poi ntof i ns ol vency ’ cannotbe co n side r ed a b e n e f i tt o t h e c o rp o r a t i o n . ” I d

. a t8 8 8

. Th e Ne w J e r s e yS u p r e me C our tr emanded t he ca s e fordi s covery , not i ng t hat the onl yi s s ue befor e i tw as t he appl i cabi l i t yof the i m put at i o n d o ct r i ne. I d. at 8 9 0

. O n r emand, t he t r i al cour t addr es s ed t he ques t i on of w hether N ew Jer seyj uri spruden ce recogn i zed deep ening i nsolvencyas a th e o ryo f h a rm to th e c o rp o ra tio n a n d h e ld th a t it w a s a leg a lly cogni zabl e harm . N C P Li t i gat i on T rus tv. K M PG , L L P, 945 A

. 2d 1 3 2 , 1 4 0 (N

. J. S u p er. C t. 2 0 0 7 ) (“ N C P II”). In N C P II, the c o u rt r ej ect ed ourl anguage i n C i t X and em br ace d t he theoryt hat corpor at e da m ag e coul d be found i n t he form of i ncr eas ed l i abi l i t i es , decr eas e i n fai ras s etval ue and l os tpr ofi t s , not i ng t hat s uch damage enc om pas s es t he s ame c o n ceptas deepe ni ng inso lven cy . Id. at 14 2 -14 3

. R ely ing o n the S u p rem e C o u rt ’s15 sta tem e n t in N C P I, th e trial c o u rt h e ld th a t:
W hethercour t s t erm i t“dee peni n g i ns ol vency ” or des cr i be i n det ai l t he gamut of d estruct i on t hatt he t er m i s m eantto em br ace , t he bot t om l i ne i s t he s ame. H arm i s har m . W her e t her e i s a har m , t he l aw pr ovi des a r emedy

. . . . T he ar t i fi ci al pr ol ongat i on of a n i n s o l v e n tc o rp o r a t i o n ’ s l i f e c a n h a r m a corpor at i on. W her e ther e i s a har m , t he l aw pr ovi des a re m e d y . Id . a t 1 4 4

. I n l i ghtof N C P I a n d N C P I I , w e ar e notas r es ol ut e that N ew Jer seyl aw w ou l d n ot r ecog nize d e epen i ng i nsolvencyas a ca u se o f a cti o n o r as a theo ryo f d am ag es. In th e e n d , w e a re s at i s fi ed t hat N ew J er s ey l aw pr ovi des for a r emedyfort r adi t i onal to rt dam ages t hat fl ow from w rongf ul condu ctt hat r esul t s in i ncr eas ed l i abi l i t i es , decr eas e i n fai r as s et val ue and l os tpr ofi t s of a c o rp o ra tio n . P w C al so asser t s that t he C om m i ssi on er fai l ed to est abli sh an i nj ur yt o A m bas s adors epar at e fr om an i nj ur yt o i t s cr edi t or s and t hus r ecove r yi s barr ed byC i t X

. Pw C ar gues t hat$89. 1 m i l l i on of th e C o m m iss io n e r’ s $ 1 1 9 .9 m ill io n d a m a g e s c a lcu latio n c o n sis ts o f n e t li a b ili ties f

ro m in su ra n c e p o licie s th a t A m b a ss a d o r w ro te betw een A pr i l 1, 1982 and N ovember 10, 1983 – t he exces s of the cl ai m s pai d outovert he pr emi um s r ece i ved and the i n ves t m ent i ncome on t hos e pr emi um s . A ccor di ng t o Pw C , t hi s am o u nt re p re se n ts a n in c re a se in th e liab il it ie s o f th e E sta te a n d a lo ss to A m b assa d o r’s po li cy h o lders, no t a disti n ct i n juryto A m b assa d o r. Fur t her , t he unpai d por t i o n o n thes e cl ai m s i s an i ncr eas e i n t he l i a b i l i t i e s o f

Am b a s s a d o ra n d a l o s s t o p o l i c yh o l d e r s . T o d a ywe hol d t hatan i ncr eas e i n l i abi l i t i es i s a har m t o t he companyand the l aw provides a r em edyw hen a plai nti ff p roves a neg l i gen ce cau se o f a c tio n . U n d er the f

ac ts of this case , w e a re sa ti sfied that a jury coul d pr oper l y hol d Pw C l i abl e for damages under tra di t i onal negl i gence and mal pr act i ce pr i nci pl es . Acc e p t i n g PwC’ s i n vi t at i on16 t o pr eventa pl ai nt i ff f r om r ecove r i ng damage s in a negl i gence a c t i o n w h e r e t h e r e h a s b e e n r e f e r e n c e t o d e e p e n i n g i n s o l v e n c y, w oul d r equi r e us t o i gnor e w el l

- s ett l ed N ew J er s eyt or tl aw doctr i ne, w hi ch w e ar e noti ncl i ned t o do. W e hol d t hatt r adi t i onal damages , s t emm i ng fr om actual harm of a def endant ’ s negl i gence , do notbecome i nval i d m erel ybeca us e theyhave the ef fec tof in c re a s in g a c o rp o ra tio n ’s in s o lv e n c y .

III . P rox i m ate C au se P w C argues t hat i t s audit s of A m bassado r w ere n o t a s ubs t an t i a l f

a c t o ri n th e I ns ur ance D epart m ent ’ s fai l ur e t o i nt ervene ear l i erand thatA m bas s ador ’ s damages r es ul t ed fr om s ever al ot her but

- forcaus es . Pw C cont ends t hatt he D i s t r i ctC o u rt shoul d not have c har ged the j ur yon t he s ubs t ant i al fac t ort est and i ns t ead sh o u ld h a v e e n ter e d ju d g m e n t in f a v o r o f P w C b e c a u se its n e g lig e n c e w a s “ s u f

f ic ie n tly re m o te ” o r “ in s ig n if ic a n t.” F in a l l y, Pw C as s er t s t hati ti s ent i t l ed t o a new t r i al beca us e the D i s t r i ct C our t r efus ed t o i ns t ruct t he j ur yon s uper s edi ng caus es , a di s t i nct caus at i on t es tr equi r i ng a s epar at e i ns t ruct i on. Fort he r eas ons s ta te d , w e re

je c t th e s e c o n te n tio n s . A

. Su bst an t i al Fa ct or T est
U nderN ew J er s eyl aw , w hen “m ul t i pl e fa ct or s contr i but [e] to th e c a u se o f th e a c c id e n t,” a d e f e n d a n t in a n e g lig e n c e a c tio n is n o t li a b le if

h is c o n d u c t w a s “ to o re m o telyo r in sig n if ica n tly r el at ed” t o t he i nj ur y . B r ow n v. U

. S. St ove C o. , 4 8 4 A

. 2 d 1234, 1243 ( N

. J

. 1984)

. T o i ncurl i ab i l i t y , t he def endant ’ s negl i gence m u s t b e “ a s u b s t a n t i a l f a c t o r i n b r i n g i n g a b o u t t h e i n j u r i e s . ” I d. (q u o tatio n s o m itt e d ). P w C a rg u e s th a t th e D istric t C o u rt sh o u ld have e nt er ed s um m ary j udgm ent i n favor of Pw C as a mat t erof l aw b e c a u s e P wC ’ s n e g l i g e n c e wa s r e mo t e a n d i n s i g n i f i c a n t

. P wC as s er t s t hati t s audi t s of A m bas s ador w er e nota s ubs t ant i al fac t or i n t he C om m i s s i oner ’ s fai l ur e t o i nt ervene e ar l i erbeca u se t he C o m m iss i onerdi d notr el yon Pw C ’ s audi topi ni ons but , r ather, r el i ed on numer ous t hi r d par t i es , i ncl udi ng i t s ow n exami ner s , w ho d id n o t u n d e rc o v e r A m b a s s a d o r’ s in s o lv e n c y . T he D i s t r i ctC our tdet erm i ned thatt he ques t i ons of17 p ro x im a te a n d in ter v e n in g c a u se s w e re to b e lef t to th e ju ryf

o r its fa ctua l determ ination

. In d en y ing P w C ’s m o ti o n fo r sum m ary j udgm ent , t he D i s t r i ct C our t pr oper l yr ecogni zed thatt he i s s ue of p rox im ate c au se c o u ld b e a d d resse d as a m att er of law “o n lyw h ere t he o u t c o me i s c l e a r o r whe n h i g h l y e x t r a o r d i n a r y e v e nt s or conductt akes p lace

. ” ( A pp. 138. ) T he D i s t r i ctC our tfound that P w C fa il ed to p rov ide e v iden ce that interve n ing ev en ts w ere “s uffi ci ent l yextr aor di nary ors o cl ear l yunr el at ed t o t he ant ece dent n e g lig e n c e th a t im p o s itio n o f li a b ility w o u ld b e u n re a s o n a b le .” ( A pp. 144 ( ci t at i on om i t ted). ) T he D i s t r i ctC our tal s o found that P w C dis pu t ed the fact s r egardi ng proxim at e cause, and th us, s u m m a ry ju d g m e n t w a s in a p p ro p ri a te

. Pw C r el i es on FD I C v. E r ns t & Y oung, 967 F. 2d 166, 169 ( 5t h C i r . 1992) , i n w hi ch the Feder al D epos i tI ns ur ance C om pany ( “FD I C ”) , as r ece i verfort he fa i l ed W es t ern Savi ngs A s s oci at i on (“W est ern”) , fi l ed neg l i gen ce and breach o f con t ractcl ai m s agai nst W estern ’s au d it o rs, E rnst & Y o u n g . In th e d istri ct co u rtthe F D IC ar gu e d t h a t“ i f

t h e a u d i t s h a d b e e n a c c u r a t e , . . . g o ver nm ent r egul at or s w oul d have pr event ed furt her l os s es . ” I d. T he di s t r i ct cour tgr ant ed s um m ary j udgm enti n favorof the audi t or s obs ervi ng t hatt he FD I C , as as s i gnee, s t ood i n t he s hoes of W es t ern and beca us e W es t ern al r eadyhad know l edge of i t s pr eca r i ous fi nanci al c o n d iti o n n e ith e r i t n o r th e F D IC c o u ld h a v e re lied o n th e a lleg e d ly n eg li g en t aud it s. T h e F ift h C ir cu itaf firm ed , n o tin g th at “[ i] f nobodyr el i ed on the audi t , t hen the audi tcoul d no t h av e bee n a s ubs t ant i al fac t ori n br i ngi ng aboutt he i nj ur y . ” Id. at170 ( quot at i on om i t t ed)

. T he Fi fth C i r cui t found t hatt he s ol e ow nerof W es t ern, J arr et t E

. W oods , di d notr el yon t he audi t s beca us e i tw as hi s ri sk y l endi ng pr act i ces t hatcr eat ed W es t ern’ s pr eca r i ous fi nanci al condi t i on. T he courthel d t hatW oods ’ s fr audul ent act i vi t i es w er e o n b eh al f of W es t ern and thus hi s know l edge a nd conduct w as i m put abl e t o W es t ern. T he Fi fth C i r cu itco ncl uded th a t th e F D IC c o u ld n o t m a in tain a s u it “ f o r a n e g lig e n tly per for m ed audi tupon w hi ch nei t hert he ow nernort he corpor at i on re lie d .” Id . a t 1 7 2

. W e bel i eve FD I C t o be i nappos i t e. T he Fi fth C i r cui t , found th a t th e F D IC h a d n o t re lied o n th e a u d its o n th e b a sis th a t th e so le o w n e r’s k n o w led g e a n d f ra u d u len t co n d u c t w e re im p u tab le to18 W es t ern. U nl i ke i n FD I C , w e w i l l noti m put e C hai t ’ s conductor k n o wl e d g e t o Amb a s s a d o r , a s d i s c u s s e d l a t e r . S e e i n f r a P a r tI V. B. T hus , Am b a s s a d o rd i d n o th a v e k n o wl e d g e o f Cha i t ’ s n e g l i g e nt c o n d u c t n o r o f

C h a it’s b re a c h o f

f id u c iar yd u tya s th e C E O , an d d id n o t kn o w that P w C n eg li g en tl y au d it ed it

. F u rth erm o re, th e re co rd in the instan t case estab lis h es th at A m b assa d o r reli ed o n P w C ’s fi nan ci al st at em ents

. A m bassado r i nco rporat ed P w C ’s l oss re se rv e s c a lcu latio n s f

ro m th e a u d ited a n n u a l S E C sta tem e n ts in to t he annu al V er m onts t at ement s A m bas s adorfi l ed w i t h t he I ns ur ance D epart m ent

. T he C om m i s s i oner ’ s i ndepende nt e x a m i n e r s r e l i e d o n t h e s e s a m e l o s s r e s e r v e c a l c u l a t i o n s . F i n a l l y, A m bas s adorr el i ed on the Pw C ’s l os s r es erves cal cul at i ons fr om t he audi t ed annua l SE C s t at ement s t o conti n u e w r i t i ng i ns ur ance p o lic ie s . Pw C al s o r el i es on M uh l v

. A m bas s adorG r oup, I nc. , N o. 2 8 4 1 4 / 8 5 ( N. Y. S u p . Ct

. S e p t

. 3 , 1 9 9 6 ) , a f f ’ d me m. s ub

. n o m. M u h l v. C o o p ers & L yb ran d , 6 6 0 N

. Y

. S

. 2 d 9 6 9 (A p p . D iv. 19 9 7 ), a c a se th a t in v o lv e s A m b a ss a d o r’s su b sid iar y , H o riz o n . In M u h l, t he N ew Y o rk S uper i nt endentof I ns ur ance br oughtan ac t i on on behal f of H or izon Ins ur ance C om panyagai ns tPw C , al l egi ng negl i gence bas ed on the s ame audi t s as t he ones ati s s ue i n t he i ns t antcas e. T he N ew Y o r k Super i nt endent , s i m i l art o t he C ommi s s i o n e r , a l l e g e d t h a th e wou l d h a v e i n t e r v e n e d e a r l i e rh ad h e k n o w n H o ri zo n ’s true fin an cial co n d it ion . T h e N ew Y o rk S u p rem e C ou rtgrant ed sum m aryj ud gm ent t o P w C on t he b a sis t hat t he N ew Y or k I ns ur ance r egul at or di d not r el y Pw C ’ s audi tof A m b assa d o r. T h e C o u rtalso em p h asi z e d that the N ew Y o rk i ns ur ance r egul at or s us ual l yr el i ed on thei r“ow n i ndependent exami nat i ons . ” I d. at 16. I n contr as t her e, the an n u al V erm ont s t at ement s t hat A m bas s ador fi l ed w i t h t he I ns ur ance D epart m ent i ncor por at ed Pw C ’ s l os s r es erves cal cul at i ons from t he audi t ed ann ual SE C st at em ents

. T hu s the C om m i ssi on er did rel yon t ho se lo ss re se rv e c a lcu latio n s, u n lik e th e N e w Y o rk S u p e ri n ten d e n t, w h o d is re g a rd e d th e re p o rt s o f o u ts id e a u d ito rs . A c c o rd ingly , w e beli eve thatt he D i stri ctC ou rt corre c tly c o n c lu d e d th a t th e re c o rd c o n tain e d f a c tu a l d isp u tes a s to p rox im ate c au se an d w h ethe r an yinterve n ing ev en ts cu t of f P w C ’s li ab il ity . T h ese q u esti o n s w ere p rop erlysu b m itted f o r th e jury ’s19 d e ter m in a tio n . V iew in g th e e v id e n c e in th e lig h t m o st f a v o ra b le to t he C om m i s s i oner , t he C our t di d noterri n deny i ng Pw C ’ s m ot i ons f o rj u d g me n ta s a ma t t e ro f l a w. B

. Jury Instruct i on on Su persedi ngC au se H a v in g d e ter m in e d th a t th e D istric t C o u rt p ro p e r ly su b m itt e d th e is s u e o f

p ro x im a te c a u se to th e ju ry , w e tu rn to Pw C ’ s cont ent i on t hati ti s ent it l ed t o a new t r i al beca us e the D is tr ic t C o u rt re f

u s e d to in s tru c t th e ju ry o n s u p e rs e d in g c a u s e s , a d is tin c t ca u sa tio n tes t u n d e r N e w Je rse ylaw re q u irin g a se p a ra te in stru c tio n . A su p e rse d in g c a u se is a n e v e n t o r c o n d u c t su f f icie n tly u n re late d to o r u n a n ticip a ted b ya d e f e n d a n t th a t w a rra n ts te r m i nat i on of l i abi l i t y , i r r es pect i ve of w hethert he def endan t’ s negl i gence w as orw as not a s ubs t ant i al fac t or i n br i ngi ng aboutt he h arm . P w C asse rt s tha t a j u ryco u ld h av e f o u n d that C h ait ’s ind ep en d en t and inten ti o n al m isco n d u ct, as w ell as f ail u res b ythir d p arti es su ch as th e C o m m issi o n er’s ind ep en d en t exa m iners, w ere s uper sed ing caus es of A m bas s ador ’ s i nj ur y . T he C om m i s s i oner r es ponds t hatPw C fai l ed t o req u es ta pr operi ns t ruct i on of

“ su p e rse d in g c a u se ” b e f o re th e D istric t C o u rt, a n d th u s f a iled to p re s e rv e th e is s u e f

o r a p p e a l.
1. W ai ver W e fi r s taddr es s t he C om m i s s i oner ’ s as s er t i on t hatPw C has w aive d this argu m en t. U n d er F ed era l R u le o f C ivil P roc ed u re 5 1 (c )(1 ), “[ a ] p a rtyw h o o b jec ts to a n in stru c tio n o r th e f a ilu r e to gi ve an i ns t ruct i on m us t do s o on t he r ecor d, s t at i ng di s t i nct l yt he m at t er obj ect ed t o and t he grounds for t he obj ect i on. ” W e bel i eve th is is s u e w a s n o t w a iv e d

. A s s how n in t he r ecor d, Pw C r eques t ed the fol l ow i ng i ns t ruct i on: “I f y ou fi nd t hat pl ai nt i ff’ s damages w er e the r es ul tof an i nt erveni ng caus e for w hi ch [Pw C ] i s notr es pons i bl e, t hen y ou w oul d fi nd t hatt he conduc tof [Pw C ] w as not a pr oxi m at e ca us e of t he pl ai nt i ff’ s d am ag es. ” ( A pp. 419. ) T he D i s t r i ctC our tdeni ed t hi s r eques tand adopt ed N ew Jerse yM odel C i vi l C har ge 7. 13 enti t l ed “P roxi m at e C ause, ” w hich provides that w h e re th ere i s a cl ai m of an i nt er veni ng ors uper s edi ng caus e, C i vi l C har ge 7. 14T he N ew J er s eyM odel C i vi l C harg es w ere r evi s ed i n O ct ober 11 2007 and thes e s ect i ons ar e now num ber ed 6. 13 and 6. 14 re s p e c tiv e ly. M odel C i vi l C harge 7. 14 s t at es , i n par t : “Y ou m us tdet erm i ne 12
w he t he r t he a l l e ge d i nt e r ve ni ng c a us e w a s a n i nt e r ve ni ng cause t hatdes t r oy ed the s ubs t an ti al caus al connec t i on betw een the defe ndant ’ s n eg li g en t ac ti o n s (or o m issi ons ) and t he acci den t/ i ncident / even tor i njury/ l oss/harm

. If i t did, t hen [P w C ’s ] negl i gence w as not a p roxi m at e ca us e of t he a c c id e n t/in c id e n t/e v e n t o r i n ju ry/lo s s /h a rm .” 20 s houl d al s o be char ged. N evert hel es s , t he D i s t r i ctC our tdi d not 11 i s s ue C i vi l C har ge 7. 1 4

. Fur t her m or e, t he r ecor d r efl ect s t hat 12 Pw C pr es er ved t hi s i s s ue for appea l by obj ect i ng t o the “abs ence of an i ns t ruct i on on m ul t i pl e caus es and i nt erveni ng caus e. ” ( A pp. 4 5 3

. ) B ec au se C iv il C h arg e 7

. 1 4 is ve rysim il ar to P w C ’s r eques t ed i ns t ruct i on and Pw C obj ect ed t o t he abs ence of s uch an i ns t ruct i on, w e concl ude t hatPw C ’ s cl ai m bas ed on the abs ence of a su p e rse d in g c a u se in stru c tio n w a s n o t w a iv e d

. T h u s, w e tu rn to t he mer i t s of the D i s t r i ctC our t ’ s deci s i on not t o i ns t ruct t he j ur yon s u p e rs e d in g c a u s e s . 2. T he D i s t r i ctC our t ’ s R ul i ng N ott o I ns t ructon

Super s edi ng C aus es U nd er N ew Jer seyl aw , “t he d octr i ne o f supe rs eding cau se f o c u se s o n w h e th e r ev e n ts or c o n d u c t th a t in ter v e n e su b se q u e n t to t he d e f e n d a n t ’ s n e g l i g e n c e a r e s u f f i c i e n t l y u n r e l a t e d t o or unant i ci pat ed byt hatnegl i gence t o w arr antt erm i nat i on of the defe ndant ’ s r es pons i bi l i t y . ” L ynch v. Schei ni nger , 744 A

. 2d 113, 125 (N

. J. 2000) ; s ee a l s o R es t at ement( Second) of Tort s § 440 co m m ent b ( 1965) ( “A s uper s edi ng caus e r el i eves t he ac t orfr om l i abi l i t y , i r r es pect i ve of w hether hi s ant ece dent negl i gence w as or w as not a subs t ant i al fac t or i n br i ngi ng about t he harm . T her efor e, if in lo o k in g b a c k f

ro m th e h a rm a n d tra c in g th e se q u e n c e o f e v e n ts byw hi ch i tw as pr oduced, i ti s found thata s uper s edi ng caus e has o p era ted, t h ere is no n ee d o f d eterm ining w h ethe r th e a ctor’s ant ece dent conductw as orw as nota s ubs t ant i al fac t ori n br i ngi ng ab o u t th e h arm . ”). A n interve n ing ca u se w h ich is fo rese ea b le or a21 nor m al i nci dent of t he ri s k cr eat ed bya t or t fea s or ’ s act i on does not r el i eve the t or t fea s orof l i abi l i t y . See Ly nch, 74 4 A

. 2 d at124 (qu o ti n g R a p p a p o rtv . N icho ls, 1 5 6 A

. 2 d 1 (N

. J. 1 9 5 9 )). O r di nar i l y , t he q u e s t i o n o f whe th eran i nt erveni ng events uper s edes a d e f e n d a n t ’ s l i a b i l i t yi s l e f tt o t h e j u r yf

o ri t s f actual determ i nati on . Id. H ow ever, w here t he evi den ce does no tsugg est anys uper s edi ng ori nt erveni ng caus e, i ti s i m pr operfort he tr i al cour tt o i ns t ructthe juryand perm i tt he j ur yt o s pecul at e thatone exi s t ed. See O ’ B r i en v. B ethl ehem St eel C orp. , 279 A

. 2d 827, 831 (N .J . 1 9 7 1 ).
A s n o ted a b o v e , the D istric t C o u rt f o u n d th a t P w C f

a iled to p ro v id e e v id e n c e th a t in ter v e n in g e v e n ts w e re “ su f f icie n tly extr aor di naryors o cl ear l yunr el at ed t o t he ant ece dentnegl i gence t hati m pos i t i on of l i abi l i t yw oul d be unr eason abl e. ” ( A pp. 144 (qu o tat ion o m itted).) W e a g ree . H o w ev er e g re g iou s C h ait ’s co n d u ct m ay h av e be en , w e can n o t co n clud e o n the re co rd b ef o re us t hatt he evi dence pr es ent ed att r i al i ndi cat es t hathi s conductw as s o unr el at ed t o Pw C ’ s negl i gen t co nductt hati tw oul d have ex ti n g u ishe d P w C ’s l iabili ty

. In ou r rev iew o f th e re co rd, w e a re s at i s fi ed thatt he D i s t r i ctC our tpr oper l yom i t t ed s u ch an i ns t ruct i on. I V . In P a ri D e licto
N extw e tur n t o Pw C ’ s ar gum entt hat C hai t ’ s i m pr oper conducts houl d have been i m put ed t o A m bas s ador , t r i gger i ng t he in p a ri d e licto doctr i ne and r el i evi ng Pw C of l i abi l i t y . “The doctr i ne of i n par i del i ct o p rov ides that a p lai n ti ff m ayn o t assert a cl ai m agai ns ta def

endanti f the pl ai nt i ff be ar s faul tfort he c laim .” L a f

f e rty , 2 6 7 F .3 d a t 3 5 4 . P w C a rg u e s th a t u n d e r th is doctr i ne a c orpor at e off i cer ’ s m i s conducti s i m put ed t o t he c o rp o ra tio n a n d a p lain tif f su in g o n b e h a lf

o f th e c o rp o ra tio n is barr ed fr om fi l i ng a thi r d par t ycl ai m i n w hi ch the pl ai nt i ff i s at f a u lt. P w C a rg u e s tha t b e c a u se th e D istric t C o u rt f o u n d th a t C h a it comm i t t ed gr os s negl i gence and br eac hed hi s fi duci aryduty , and beca us e t hatconducts houl d be i m put ed t o A m bas s ador , t he C om m i s s i oners ui ng on behal f of A m bas s ador , s houl d be barr ed fro m su ing Pw C fo r w ron g fu l con d u ct fo r w h ich A m b assa d o r be ars f a u lt. S e e L a f

f e rt y , 2 6 7 F .3 d a t 3 5 4

.W e al s o not e t hat t he D i s t r i ct C our t r ecogni zed thatt hi s w as an 13 i s s ue of i m put at i on and dec i ded i tas s uch. ( A pp. 468- 69) ( “The C ou rthas prop erl yrul ed that i m pu t at i on do es no tapp l yt o thi s case a s a m a tter o f la w .” ) . M o re o v e r, th e D istric t C o u rt n o ted in its op i nion den y i ng P w C ’s po st -j ud gm ent m oti o n fo r j ud gm ent as a m at t er of l aw t hat “Pw C has pr es erved [the i m put at i on] ar gum ent

. . . . ” (A p p . 2 9 0

. ) 22 A

. W ai ver T h e C o m m iss io n e r f

irst a rg u e s th a t P w C w a iv e d its rig h t to compl ai n about t he l ack of a j ur yi ns t ruct i on on t he in p a ri d e licto d ef en se b yn o t pro p o sing an ap p rop ri ate c h arg e. T h e r e co rd dem ons t r at es t hatPw C di d pr opos e a c har ge, w hi ch the D i s t r i ct C o u rt ref u sed to give , w h ich i n clud ed the fo ll o w ing lang u ag e: “In gener al , anyagent s orempl oy ees of an or gani zat i on m ay bi nd t he o r gani zat i on byt hei ract s and dec l ar at i ons m ade w hi l e ac t i ng w i t hi n t he s cope of

t hei rauthor i t ydel egat ed t o t hem byt he or gani zat i on o rw i t hi n t he s cope of t hei rdut i es as agent s or empl oy ees of t he or gani zat i on. ” ( A pp. 414)

. Pw C al s o r eques t ed a ques t i on on t he ver di ct s heet t o det erm i ne i f offi cer s w er e ac t i ng fort hei row n benef

i t , w hi ch the D ist ri ctC our tal s o r ej ect ed. Fi nal l y , Pw C obj ect ed t o t he abs ence of an “i ns t ruct i on on at t r i but i on of act s of agent s or empl oy ees of an or gani zat i on t o t he or gani zat i on. ” (A pp. 452. ) B as ed on the r ecor d, i ti s cl eart hat 13 P w C p re se rv e d th is iss u e f o r a p p e a l.

B . D istric t C o u rt’s R u lin gN o t to In str u c t o n In P a ri D e licto

P w C con t end s t hat i f C hait ’s con du ct i s i m pu t ed to A m bas s ador , t he C om m i s s i oner , as A m bas s ador ’ s r ece i ver , cannot r ecove rfr om P w C

. Pw C as s er t s t hatC hai t ’ s conducts houl d be i m put ed t o A m bas s adorand the i n par i del i ct o d e f e n se sh o u ld govern beca us e C hai tw as found l i abl e for of gros s negl i gence and b re a c h o f

f id u c iar yd u ty . P w C a lso a rg u e s th a t u n d e r th e “ so le act or ” doctr ine, w hi ch pr ovi des t hatact s of a c ont r ol l i ng s har ehol dero rdom i nat i ng offi cerar e aut om at i cal l yi m put ed, C hai t ’ s m i s conducts houl d have been i m put ed t o A m bas s ador

. See23 L a f f e rty , 2 6 7 F .3 d a t 3 5 8 (“ U n d e r th e law o f im p u tatio n , co u rts i m put e the fr aud of a n offi cert o a corpor at i on w hen the offi cer comm i t s t he fr aud ( 1) i n t he cour s e of hi s empl oym ent , and ( 2) for the b en ef

ito f th e c o rpo rati o n . ” (c it ati o n s o m itted))
W e a n a ly z e th e se c o n d re q u ire m e n t o f th e im p u tatio n tes t – t hatt he off

i cer ’ s fr aud i s com m it t ed fort he bene fi tof the corpor at i on – undert he “a dver s e intere s texce pt i on. ” I d. at359. U ndert he “a dver s e i nt er es t exce pt i on, ” fr audul entconductw i l l not be i m put ed i f t he offi cer ’ s i nt er es t s w er e adve r s e t o t he corpor at i on a n d n o t f o r th e b e n e f

it o f th e c o rp o ra tio n . Id . T h is e x c e p tio n is su b jec t to th e so le a c to r d o c trin e w h ich p ro v id e s th a t if a n a g e n t is t he s ol e r epr es ent at i ve of a pr i nci pal , t hen th atagent ’ s fr audul ent conduct w i l l be i m put ed t o t he pri nci pal r egar dl es s of w hethert he a g e n t’ s c o n d u c t w a s a d v e rs e to th e p ri n c ip a l’ s in te re s ts . Id

. N ew J er s eycour t s have a l s o hel d t hat “one w ho contr i but ed to th e m isc o n d u c t ca n n o t in v o k e im p u tatio n .” N C P L iti g . T ru st, 901 A

. 2d at 882. I n N C P, a l i t i gat i on t rus t act i ng as a bankrupt corp o rati o n ’s su cc esso r i n interest an d sh are h o lders’ rep res ent at i ve b ro u g h t an a c tio n a g a in st K P M G to re c o v e r f o r n e g lig e n t f

a ilu re to u n c o v e r f

ra u d b yc o rp o ra te o f

f ice rs. Id . at 8 7 3 . K M P G so u g h t to i nvoke the i n par i del i ct o d o ctri n e. T h e N ew Jerse yS u p rem e C o u rt hel d t hatt he in p a ri d e licto d o ctr i ne d o e s n o t b a r c o rp o ra te s har ehol der s fr om r ecove r i ng i n s ui tagai ns tt he audi t or . I d. at883. T he courtr ecogni zed a n “au d i t o rn e g l i g e n c e ” e x c e p t i o n , e x p l ai ni ng “thata claim for ne gl i gence m aybe br oughton behal f of a c o rp o ra tio n a g a in st th e c o rp o ra tio n ’ s a ll e g e d ly n e g li g e n t th ird -p a rty audi t or s fordamages pr oxi m at el ycaus ed by t hat negl i gence . ” Id. T he court expl ai ned t hat t he i m put at i on defe ns e i s pr oper l yappl i ed i n s i tuat i ons w her e a pr i nci pal ’ s agent defr auded a thi r d part yw ho t he pr i nci pal s ubs equent l y s eeks t o s ue. I d. T he N C P co u rt d ist i ngui s h ed it s fa cts b yex p lai n ing that the b an k rup t corp o rati o n ’s offi cer s di d notdi r ect l ydefr aud an i nnocentt hi r d par t y– t hey defr auded the corpor at i on and i t s cr edi t or s . I d. T hus , K M PG w as nota vi ct i m of t he fr aud and a l l ow i ng i tt o avoi d l i abi l i t yw oul d not s erve the purpos e of the i m put at i on doctr i ne – to pr ot ectt he in n o c e n t. I d

. P w C asse rt s tha t th e C o m m issi o n er, as A m b assa d o r’s24 r ece i ver , s t ands i n A m bas s ador ’ s s hoes and th u s is bar r ed fr om b ri n g ing claim s ag ains t Pw C b ec au se C h ait ’s ac ts as A m b assa d o r’s pr es i dentar e i m put ed t o A m bas s ador

. T o s uppor tt hi s pr opos i t i on, Pw C poi nt s t o t he D i s t r i ct C our t ’ s fi ndi ng t hatC hai tw as “gui l t yof g ro s s n e g lig e n c e a n d b re a c h o f f id u c ia ry d u ty.” ( A p p . 1 4 9 3 -9 4 .) P w C a ss e rts th a t th e “ a d v e rse in ter e st” e x c e p tio n d o e s n o t ap p ly b e c a u se C h a it w a s n o t ste a lin g f ro m th e c o m p a n y ; m oreove r sh o u ld it ap p ly , C h a it’s c o n d u c t w o u ld still b e im p u tab le u n d e r th e so le act ordoctr i ne. Pw C ar gues t hatt he audi t orexce pt i on r ecogni zed in N C P d o e s n o t alte r its p o sitio n th a t C h a it’s m isc o n d u c t is i m put ed t o A m bas s ador as a m at t er of l aw beca us e i tdoes notbar im p u ta tio n o f

c o n d u c t b ya c o n tr o llin g s h a re h o ld e r. Fi r s t , w e agr ee w i t h t he par t i es t hat under t he fi r s t pr ong of t he im pu t at i on t est , C hait ’s con du ctw as com m i t t ed in t he co urse o f h is empl oym entw i t h A m bas s ador

. T ur ni ng t o t he s econd r equi r ement of the t es t , fort he bene fi tof t he corpor at i on, w e l ook at the “adve r s e i nt er es t exce pt i on. ” A s s t at ed above, un d er the “adve rse interest ex ce p ti o n , ” C h ait ’s frau d u lent co n d u ct w il l no t be i m put ed t o A m bas s adori f hi s i nt er es t s w ere adver s e t o t he c o rp o ra tio n a n d n o t f

o r th e b e n e f

it o f th e c o rp o ra tio n . P w C a ss e rts i n i t s openi ng br i ef thatt he adve r s e i nt er es t except i on does not a p p ly b e c a u s e C h a it w a s n o t “ s te a lin g f ro m th e c o m p a n y .” (A p p ell an t B r. at 48

. ) In the alt ern ate, P w C arg u es th at C h ait ’s act i ons s houl d be i m put ed t o A m bas s ador under t he s ol e act or d o c tr in e . W e d o n o t ag re e w ith e ith e r a ss e rtio n a n d d e c lin e to im p u te C h a it’ s a c tio n s . I n S ch achtv. B r ow n, t he Seventh C i r cui taddr es s ed the i s s ue of w ho can br i ng cl ai m s of negl i gence agai ns t audi t or s . 711 F .2 d 1 3 4 3 (7 th C ir. 1 9 8 2 ), c e r t. d e n ied , 4 6 4 U .S . 1 0 0 2 , 1 0 4 S .C t. 509 ( 1983)

. I n Schacht , t he offi cer s and di r ect or s of an i ns ur ance corpor at i on al l egedl yarr anged a fr audul ents cheme t o i s s ue “extr aor di nar i l yhi gh- r i s k i ns ur ance ” pol i ci es w i t h outr et ai ni ng s uffi ci ent funds t o cover pos s i bl e cl ai m s . I d. at 1345. W h en the c o rp o ra tio n b e c a m e in so lv e n t, a liq u id a to r w a s a p p o in ted to m anage i t s aff

ai r s and t o init iat e anyact i ons bel ongi ng t o t he bankrupt cy es t at e. I d. at1346. T he l i qui dat oreventual l ys ued the audi t orfornegl i gent l yfai l i ng t o di s covert he fr au d

. I d. T he au d itor arg u ed that the liqu idato r, as th e c o rpo rati o n ’s25 s ucce s s or - i n- i nt er es t , “s t and[s ] i n t he s hoes ” of the corpor at i on and onl ycan advanc e t hos e cl ai m s t hat t he corpor at i on coul d advanc e d ire c tly . Id . T h e re f

o re , th e c o rp o ra te a g e n ts’ f ra u d w a s im p u tab le t o t h e l i q u i d a t o r i n t h e s a me way t h a t i t was i mpu t a b l e t o t he co rpo rati o n . Id. T h e C o u rth eld th at th e c o rpo rati o n ’s of fice r’s conductw as nota bene fi t to t he corpor at i on, and ther efor e the adver s e i nt er es texce pt i on to imput at i on appl i ed. I d. at1348. R el y i ng on Schacht , t he N ew J er s eySupr eme C our t has al s o hel d, i n N C P, t hati n flati n g a corpor at i on’ s r evenue s and ena bl i ng a corpor at i on t o exi s tbey ond i ns ol vencycoul d notbe co n si der ed a b e n e f it to th e c o rp o ra tio n . 9 0 1 A .2 d a t 8 8 8

. G i ven thatC hai t ’ s conductal l o wedAm b a s s adort o cont i nue pas tt he poi ntof i ns ol vency , hi s act i ons cannotbe dee m ed t o have b en ef itted th e c o rpo rati o n . A s in S c h ac h t and N C P , C h ait ’s fr audul entconductcannotbe i m put ed t o A m b as s adorundert he adver s e i nt er es texce pt i on. Pw C at t empt s t o di sti n gui s h N C P on t he b asi s that C hait , un l i ke t he d efen dan t s i n N C P , w as a contr ol l i ng s har ehol derand t he N C P cour t coul d noti m pl i cat e the

“ s o l e a c t o r ” d o c t r i n e . Ho we v e r , we a r e u n p e r s u a d e d

. Th e NCP cour tdi d notr evea l how m uch s t ock the w r ongdoer s ow ned and the cou rtdid not r el yon t heirst atus as con t rol l i ng shareholder s. Fur t herm or e, t he “s ol e act or ” except i on i s appl i ed t o cas es i n w hi ch t he age nt w ho comm i t t ed t he fr aud w as t he s ol e s har ehol derof the c o rp o ra tio n o r d o m in a te d th e c o rp o ra tio n . H e re , C h a it an d h is w if e , co ll ec ti v ely , o w n ed 6 5 % o f G rou p ’s st o ck

. T h u s, P w C ’s a rg u m e n t m u s t f

a il.
W e a lso d ee m ap p li ca b le th e “ au d it o r ne g li gence ” exc ept i on r ecogni zed byt he N ew J er s eySupr eme C our ti n N C P, w hi ch expl ai ned “thata cl ai m fornegl i gence m ay be br oughton behal f of a corpor at i on agai ns tt he corpor at i on’ s al l egedl ynegl i gentt hi r dp a r t y a u d i t o r s f

o rd a m a g e s p r o x i m a t e l y c a u s e d b y t h a tn e g l i g e n c e .” S im il ar to the fa ct pa tt ern in N C P , P w C w as n o t a victi m o f C h ait ’s fr aud and al l ow i ng i t t o avoi d l i abi l i t y by i nvoki n g the i n p ari del i ct o d o c trin e w o u ld n o t se rv e th e p u rp o se o f th e d o c trin e – to p ro te c t th e in n o c e n t.
Pw C fur t herar gues t hat t he D i s t r i ctC our terr ed i n deny i ng its m o tio n s f

o r su m m a ryju d g m e n t b e c a u se th e f a c ts m a ter ial to26 i m pu t at i on w ere noti n d i spute and if there w ere anydis pu t ed fa ct s, t he D i s t r i ctC our terr ed i n r efus i ng t o s ubm i tt he in p a r i d e licto defe ns e. T he D i s t r i ctC o u rt di d notpr ovi de anyr eas oni ng or anal y s i s on t he i s s ue of the i n par i del i ct o d e f e n s e , b u t m e re ly r ej ect ed Pw C ’ s ar gum entbys t at i ng t hatPw C ’ s i ns t ruct i on w as not nece s s ary . (A p p . 1 5 34. ) I ti s cl earfr om w i t nes s t es t i m onyt hat t her e w er e di s put ed fa ct s as t o C hai t ’ s m i s conduct

. B as ed on our r eadi ng of S ch achtand N C P, w hi ch contr ol , and fort he r eas ons s t at ed above , w e co ncl ude thatPw C w as barr ed fr om r ai s i ng t he i m put at i on defe ns e aga i ns tA m bas s adorbeca us e of i t s negl i gence and contr i but i on t o C hai t ’ s m i s conduct

. T hus , w e w i l l aff i r m t he D i s t r i ctC our t ’ s d en i al of Pw C ’ s m ot i ons fors um m aryj udgm ent bas ed on the i n par i del i ct o d o ctri n e an d ref u sal to cha rge the ju ry o n im p u ta tio n . V . M ot i on t o B i f urcat e t he T ri al
P w C c h a llen g e s th e D istric t C o u rt’s d e n ial o f its m o tio n to bifur cat e t he tr i al and t o tryt he C om m i ssi on er’ s c laim s agai nst P w C a n d C h a it se p a ra tely . F e d e ra l R u le o f C iv il P ro c e d u re R u le 42 (b) go verns a requestbya part yt o b i furcat e a tri al and provides: “[f ] or c o nveni ence , t o avoi d pr ej udi ce, ort o expedi t e and ec o n o m ize , th e c o u rtm ayo rde r a se p ara te tri al of o n e o r m o re s epar at e i s s ues [or ] cl ai m s . . . . ” Fed. R

. C i v. P. 42( b)

. W e r evi ew th e d e n ial o f a m o tio n to b if u rc a te a trial p u rsu a n t to F e d e ra l R u le o f C ivil P roc ed u re 4 2 (b) f o r ab u se o f d iscreti o n . B arr L ab o ratories, Inc

. v . A b b o ttL ab o ratories, 9 7 8 F

. 2 d 9 8 , 1 0 5 (3d C ir

. 1992) ; s ee a l s o I dzoj t i c v. Penns y l vani a R

. R

. C o. , 456 F. 2d 1228, 1230 ( 3d C i r . 1 9 7 2 ) ( “The di s t r i ctcour ti s gi ven br oad di s cr et i on in re a c h in g its d e c isio n w h e th e r to se p a ra te t h e iss u e s o f liab ili ty a n d d a m a g e s ” ).
P w C a rg u e s tha t b e c a u se th e D istric t C o u rt e n ter e d a d e f a u lt agai ns tC hai t ’ s es t at e s i x w eeks befor e t r i al for fai l ur e t o r es pond t o a courtor der , it w as im p r opert hathe r emai ned a de fenda ntat the tri al on P w C ’s l iabili ty

. A cc o rdin g to P w C , the D istri ct C o u rt ’s fai l ur e tr y t he cl ai m s agai ns t t he C om m i s s i oners epar at el yr es ul t ed i n an unfa i rt r i al , for ci ng Pw C t o defe nd C hai tbeca us e of theP w C a ss e rts th a t th e D istric t C o u rt’s f a ilu re to o r d e r a se p a ra te 14 t r i al as t o Pw C for ced Pw C t o “[d] efe nd t he abs ent C hai t due t o t he c laim o f jo in t a n d se v e ra l liab ili ty ” a n d c a u se d P w C to su f f e r “ g u ilt by as s oci at i on” w i t h C hai t

. ( A ppel l ant B r . at 55

. ) P w C fur t her as s er t s t hat t he C om m i s s i oner ’ s l i abi l i t y t heor i es agai ns t C hai tand Pw C w er e i nextr i cabl yl i n k ed

. T hati s , t he C om m i s s i oner cont ended thatC oopers w as negl i genti n fai l i ng t o di s coverand re p o rt C h a it’s m ism a n a g e m e n t o f A m b a ss a d o r. T h u s, a c c o rd in g to Pw C , w i t h C hai ti ncl uded as a def endant , t he C o m m is s i onerw as abl e t o focus on t he al l egat i ons of m i s m anage m entbyC hai tand P w C s u f f e re d t h e “ s p illo v e r” h a rm f ro m “ g u ilt b ya s s o c ia tio n .” (A p p ell an t B r. at 59 (qu o tat ion s o m itted).) 27 d o c trin e o f

jo in t an d s e v e ra l li a b ili ty

. P w C c o n ten d s th a t it s 14 l i abi l i t y , as t he non- defa ul t i ng defe ndant , s houl d h ave been det er m i ned i n a s epar ate tr i al

. Pw C al s o as s er t s t hatt he D i s t r i ct C o u rt ’s ch arg e re g ard ing the d ef au ltjud g m en t aga inst C h ait ’s e s ta te m a d e it im p o s s ib le f o r t h e ju ry to f

in d P w C n o t lia b le

. I n deny i ng Pw C ’ s m ot i ons fors epar at e tr i al s t he D i s t r i ct C o u rt ru led th a t: (1 ) th e e n tryo f a d e f a u lt rath e r th a n a d e f

a u lt j udgm ent , w hi ch the C our tdi d notent erunt i l t he cl os e of e vi dence , l eftcert ai n i s s ues t o t he j ur yfora fi nal j udgm ent ; ( 2) t he pr oper a p p o rtio n m e n t o f

f a u lt ag a in st a ll p a rties w a s a n a p p ro p ria te c o n sid e ra tio n f

o r th e ju ry ; an d (3 ) e v id e n c e re latin g to th e a u d it en v ir o n m en t and C h ait ’s co n d u ct w as re leva n t and p rop erlyb ef o re t he j ur y . I n deny i ng Pw C ’ s pos t

- j udgm entm ot i on for a new t r i al bas ed, i n par t , on t he deni al of i t s bi fur cat i on r eques t , t he D i s t r i ct C o u rtfo u n d that “[ m ]uc h o f th e e v iden ce [re g a rd in g C h ait ’s cu lpab il ity ] w as a d m issi b le t o estab li sh the p arti cu lars o f P w C ’s all eg ed n eg li g en ce . ” (A p p . 2 9 1 -92

. )
Pw C ’ s ar gum ent s t hati t w as pr ej udi ced byC hai t ’ s pr es ence att he tr i al and w as for ced t o defe nd hi s act i ons ar e unper s uas i ve. E l i m i nat i ng C hai tas a def endantw oul d have el im i nat ed l i t t l e of t he evi dence pr es ent ed att r i al

. A s Pw C ’ s couns el conce ded ator al ar g u m e n t, the ju ryw o u ld h av e h ea rd e v iden ce o f C h ait ’s w ro n g d o in g e v e n in a b if u rc a ted trial. P w C c h o se to d e f e n d C h a it notonl ybeca us e of joint and s ever al l i abi l i t y , butal s o t o defe nd28 Pw C ’ s concl usion t hatatt he t i m e of the audi tA m bas s adorw as pr oper l ym anage d. M o reove r , Pw C s oughtt o r ever s e cour s e and d ista n c e itse lf

f ro m C h iat o n lya f

ter th e D istric t C o u r t f

o u n d h im l i abl e. Fur t her , contr ary t o Pw C ’ s ar gum entt hatt he l i abi l i t yof C hai t , a def

au lt ed defenda nt , w as gi ven t o t he j ur yt o det erm i ne, the D istri ct C o u rtissue d a li m it ing instruction , inf o rm ing the ju ry t hatC h ait ’ s es t at e w as l i abl e t o t he C om m i s s i oneras a mat t erof l a w a n d g u i l t y o f

g r o s s n e g l i g e n c e a n d b r e a c h o f f i d u c i a r y d u t y. T h e D istric t C o u rt e m p h a siz e d th e ju ry ’s s o le r e sp o n sib ili tyw ith r e s p e c t t o C h a i t w a s t o a s s e s s h i s p r o p o r t i o n a t e f a u l t

. S p e c i f

i c a l l y, th e D istric t C o u rt in stru c ted th e ju ryth a t:
A lth o u g h M r. C h a it’s E sta te is a D e f e n d a n t in th is cas e, I have e nt er ed a de faul tj ud g m en t agai ns tt he es t at e. D efa ul tj udgm enti s a t echni cal te r m that sim p lym ea n s tha t I h av e d eterm ined that M r. C h ait ’s es t at e i s l i abl e t o t he V erm ont C om m i s s i oneron t he cl ai m s m ade a gai n s tM r . C hai ti n t hi s cas e. T her ef o r e , y o u a r e t o a c c e p tf o rp u rp o s e s o f

y o ur deli berat i on s that M r. C haiti s guil ty o f gross negl i gence and br eac h of fi duci arydut yi n hi s r ol e as di rec t orand off

i cerof A m bas s ador

. Y our res po nsi bil i t y a s tr i ers of f actw i l l be to ass ess damages agai ns t M r. C hai t ’ s es t at e i n acc or dance w ith th e e v id e n c e y o u h a v e h e a rd a n d , as I w ill in stru c t late r, to a p p o rtio n f a u lt as b e tw e e n M r. C h a it a n d o th e rs f

o r w h a t h a p p e n e d to A m b a s s a d o r. I m u st s tre ss , h o w e v e r— a n d I c a n n o t stre ss th is enough— t hat y o u ar e nott o as s um e the l i abi l i t yof [Pw C ]

. I r epea t tha t si m pl ybeca us e I have f ound M r . C hai t t o be l i abl e t o t he V erm ontC om m i s s i oner d o e s n o t au to m a tica llym e a n th a t [ P w C ] is s im ilarly l i abl e. You rj o b a s j u r o r s wi l l b e t o d e t e r mi ne w hether y ou bel i eve, on t he bas i s of the e v ide nce y ou have he ar d, t hat[Pw C ] w as negl i genti n audi t i ng t he y ear - end 1981 fi nanci al s t a t e me n t s of A m b a ss a d o r G ro u p , In c ., a n d w h e th e r th e ir29 negl i gence w as a pr oxi m at e ca us e of a nydamages w h ic h m a yh a v e b e e n in c u rr e d b yA m b a s s a d o r. (A p p . 1 4 9 3 -9 4 .)
G i ven the expl i ci tj ur y char ge, Pw C ’ s ar gum ent t hati tw as prej ud i ced by t he D i stri ct C ou rt ’s entry of defau l tj ud gm ent agai nst C hai t ’ s es t at e att he cl os e of evi dence i s unper s uas i ve. C ons i der i ng t hi s por t i on of the D i s t r i ctC our t ’ s char ge, w e bel i eve i tw as p o ss ib le f

o r th e ju ry to h a v e d e ter m in e d th a t P w C h a d n o liab ili ty and w as not negl i gent i n audi t i ng t he fi nanci al s even i n l i ghtof the C o u rt ’s d ef

au ltjud g m en t aga inst th e E stat e. F u rth erm o re, th e jury ver di cts heetques t i ons w er e di r ect ed s ol el yt o Pw C ’ s conductand o n lym a d e re f

e re n c e to C h a it i n th e c o n tex t o f d e ter m in in g h is p e rc e n ta g e o f

f a u lt, if a n y . Pw C ’ s r el i ance o n I n r e U r ani um A nt i t rus tL i t i gat i on, 617 F .2 d 1 2 4 8 (7 th C ir. 1 9 8 0 ) i s u n a v a ili n g . A lth o u g h th e S e v e n th C i r cui thel d t hata damages hear i ng s houl d notbe he ld unt i l t he l i abi l i t y of eac h defe ndant had been r es ol ved, i t r eason ed tha t hol di ng one damages hear i ng for a defa ul t i ng defe ndantpr i ort o t he r es oluti on of the l i abi l i t yof j oi ntand s ever al l yl i abl e nond e f a u lti n g d e f

e n d a n ts c o u ld re su lt i n in c o n sis ten c y a n d p o ss ib ly t w o di s t i nctdamages aw ar ds on a s i ngl e cl aim

. I d. at1262. T he C o u rt found thi s t o be a c oncern of “pos s i bl e i ncons i s t encyand jud ici al ec o n o m y , rathe r th a n ac tual p rejud ice.” Id. H ere , there w as n o att em p t b y the D istri ct C o u rt to inq u ir e into o r ha v e C h ait ’s d a ma g e s d e t e r mi n e d b e f o r e PwC’ s l i a b i l i t ywas d e t e r mi n ed. Fur t herm or e, t he D i s t r i ctC our ti n the i ns t antcas e not ed i t s “s t r ong des i r e t o t r yal l of [the C om m i s s i oner ’ s ] cl ai m s t ogether ” for ju d ic ia l e c o n o m y . (A p p . 1 7 3 .)
Si m i l ar l yunavai l i ng i s Pw C ’ s r el i ance on Fehl haberv. In d ian T ra ils, In c ., 4 2 5 F .2 d 7 1 5 , 7 1 7 (3 d C ir. 1 9 7 0 ), w h ich o n ly h e ld th a t itw a s w ith in th e d is c r e ti o n a rya u th o rityo f th e c o u rt to hol d a Ru l e 5 5 ( b ) ( 2 ) h e a r i n g t o d e t e r mi n e t h e a mou n td e f e n d a nt w a s e n tit led to b y r e a s o n o f th e th ird p a rtyd e f

e n d a n ts’ d e f

a u lt. T her e w as no i s s ue of j oi ntand s ever al l i abi li t yi n Fehl habernor di d t he courthol d t hat s uch a hear i ng w as r equi r ed w hen ther e w as a d e f a u ltin g d e f

e n d a n t.30 B ase d o n th e re co rd b ef o re u s an d the D istri ct C o u rt ’s m ul t i pl e rul i ngs on Pw C ’ s m ot i ons for s epar at e t r i al s , w e fi nd t hat t he D i s t r i ctC our tdi d notabus e i t s di s cr et i on byden y ing t he m o tio n s f

o r s e p a ra te tr ia ls

.

V I . D am ages P w C a rg u e s th a t th e $ 1 1 9 m ill io n d a m a g e s a w a rd is exce s s i ve bec ause i texce eds A m bas s ador ’ s t ot al i ns ol vencyand contr adi ct s t he C om m i s s i oner ’ s t heoryt hatA m bas s adorw as a lr e a d yin s o lv e n t a t th e e n d o f 1 9 8 1

. A

. W ai ver We f i r s ta d d r e s s t h e Co mm i s s i o n e r ’ s a r g u me n tt h a tP wC w ai ved i t s ar gum entaboutdamages byfai l i ng t o argue t hi s poi nt b e f o r e t h e Di s t r i c tCo u r t

. I n P wC ’ s mo t i o n f o ra n e w t r i a l , P wC asse rt ed that a n ew tr ial w as re q u ir ed b ec au se th e d a m a g e s w ere excessi ve an d irreconcil able w i t h the j ury ’s fi nd in gs. P w C al so cont ended t hat t he dam ages aw ar d exce eded A m bas s ador ’ s actual i n s o l v e n c yi n i t s p o s t t r i a l mo t i o n f o r s u mm a r y j u d g me n t

. As P wC as s er t s , t he C om m i s s i onerr es ponded t o t hes e ar gum ent s befor e the D istri ct C o u rt an d the D istri ct C o u rtac k n o w ledg ed P w C ’s ar gum entt hatt he damages aw ar ded w er e unr eas onabl yexce s s i ve. T h u s , b a s e d o n t h e r e c o r d c r e a t e d b e f o r e t h e Di s t r i c t Cou r t , P wC di d not w ai ve i t s ar gum ent t hat t he damages aw ar d w as exce s s i ve, a n d th e is s u e is p ro p e rl yb e f o re u s . B

. D am ages C al culat i on P w C a rg u e s tha t th e d a m a g e s a w a rd is e x c e ss iv e b e c a u se it exce eds A m bas s ador ’ s t otal i ns ol vency . I tfur t herm ai nt ai ns t hat the aw ard o f $ 1 1 9 m il li o n co n tr ad ict s the C o m m issi o n er’s the o ry t hatA m bas s adorw as al r eady i ns ol vent at t he end of 1981 a nd t hat s uch i ncons i s t ency ent i t l es Pw C t o a new t r i al on l i abi l i tyand damages

. I n ot herw or ds , Pw C cont ends t hatt he unpai d l i abi l i t i es al l egedl y caus ed by Pw C ’ s negl i gent audi t cannot pos s i bl yexce ed A m bas s ador ’ s t ot al unpai d l i abi l i t i es . T hus , Pw C ar gues t hatas t he C om m i s s i oner ’ s expertcal cul at ed the netl os s fr om cont inui ng oper at i ons aft erM ar ch 31, 1982 t o be $107 mi l l i on, b ase d on31 A m bassado r’ s t otal i nsolvency as o f D ecem ber 3 1, 20 04 (the lat est c a lcu latio n b e f

o re trial) o f

$ 1 2 5 .3 m ill io n les s $ 1 8 .3 m ill io n in l i t i gat i on expens es , t he $119. 9 m i l l i on i n damages aw ar ded byt he j ur yi s l ogi cal l yt oo hi gh. Fi nal l y , Pw C ar gues t hatanyamount above $125. 3 m i l l i on, i ncl udi ng i nt er es t , w i l l go to the E s t at e, b e c a u se it w o u ld e x c e e d w h a t A m b a ss a d o r o w e s it s c re d ito rs in liq u id a tio n , c re a tin g a w in d f a ll r e c o v e ry to th e E s ta te

. I n r es pons e, t he C om m i s s i onerexpl ai ns t hat$125. 3 m i l l i on wa s c a l c u l a t e d a s a n a l t e r n a t i v e t h e o r yo f d a ma g e s , wh i c h P wC at ta cked a tt r i al

. T he $125. 3 m i l l i on w as bas ed on the amount of c u rre n t as se ts th a t A m b a ss a d o r o w e d to c re d ito rs a s o f th a t p o in t in t i m e thati tcoul d notpayw i t h avai l abl e as s et s . A t tr ial , t he C om m i s s i onerul t i m at el yopt ed nott o offe r th atcal cul at i on and i ns t ead s ubm i t t ed the $119. 9 m i l l i on “netl os s fr om cont i nui ng oper at i ons aft erM ar ch 31, 1982” meas ur e of da m ages . ( A pp. 1886- 87. ) T he C om m i s s i oneral s o r es ponds t hatthere w i l l be no w i ndfal l t o t he Est at e gi ven thatdamages w er e ca lc ul at ed as of D e c e m b e r 3 1 , 2 0 0 4

. W e “r evi ew di s t r i ct cour t ’ s rul i ng on a new t r i al m ot i on for onl yabus e of di s cr et i on. ” H on ey w el l , I nc. v. A m . St andar ds T esti ng B ur eau, 851 F. 2d 652, 655 ( 3d C i r . 1988)

. A j ur y ’s damages aw ar d w i l l not be ups ets o l ong as t her e exi s t s s uffi ci ent e v id ence on t he r ecord, w hich i f accept ed by t he j ury , w o u ld su s ta in the aw ard

. S ee N ati o n al C o n tr o ls C o rp. v. N at’l S em icon d u ctor C o rp., 8 3 3 F

. 2 d 4 9 1 , 4 9 6 (3d

. C ir1 9 8 7 ). In deny i ng Pw C ’ s pos t

-

j udgm entm ot i on fors um m ary j udgm ent , t he D i s t r i ctC our tnot ed thatPw C w ent to l engths t o di s cr edi tt he C om m i s s i oner ’ s expertdamages cal cul at i ons of $125. 3 m i l l i on a c tu a l i n s o lv e n c ya n d p e rh a p s f o r th is re a so n th e ju ryd e c lin e d to acc eptt hi s cal cul at i on. T he D ist ri ctC our tfound thatt he C o m m iss io n e r h a d p re se n ted su f f icie n t ev id e n c e in s u p p o rt o f its damages t heoryt o per m i tt he j ur y ’ s fi ndi ng. R eview ing t he tes tim o n y o f th e C o m m iss io n e r’s d a m a g e s e x p e rt, i t is c lea r th a t if th e ju rya c c e p ted h is c a lcu latio n th e re w a s s u f f icie n t e v id e n c e to s u s t a i n a n a w a r d o f

$ 1 1 9

. 9 m i l l i o n a s d e t a i l e d b y h i s t e s t i m o n y. M o re o v e r, as th e D istric t C o u rt n o ted , “th e ju rysp e c if ic a lly request ed the i t em -by -i t em breakd ow n o f [t he C o m m issi on er’ s] cal cul at i o n o f d am ages . . . [and l ] i t t l e more t han an houraft er32 re c e iv in g th is in f

o rm a tio n , the ju ryre tu rn e d a v e rd ict f o r th e f u ll amount of damages

. ” (A pp. 254. ) Fur t her m or e, havi ng deci ded t hatC hai t ’ s conducti s noti m put ed t o A m bas s ador , Pw C ’ s r el i ance on NC P, i s u n p e r s u a s i v e a s t o t h e i s s u e o f d e t e r mi n i n g d amages and conc erns t hat t he E s t at e m ay r eap a w i ndfal l

. T hus , w e agr ee w ith the D istri ct C o u rt that the j u ry ac ce p ted th e C o m m issi o n er’s d a m a g e s c a lcu latio n s a n d th e D istric t C o u rt d id n o t a b u se its d is c re tio n in d e n y in g P w C ’s m o tio n f o r n e w tr ia l.
V II. P rejud gm en t I n teres t
W e now tu r n t o t h e Di s t r i c tCou r t ’ s c a l c u l a t i o n of pr ej udgm enti nt er es t

. W e r evi ew a di s t r i ctcour t ’ s det erm i nat i on t o r equi r e the paym ento f p rejudgm enti nt er es tforabus e of di s cr et i on. A m br om ovage v. U ni t ed M i ne W or ker s of A m er i ca, 72 6 F

. 2d 97 2, 98 2 (3d C i r. 19 84 ). T he d i stri ctcou rtm ayexerci se t hi s di s cr et i on upon “cons i der at i ons of fai r nes s ” and pr ej udgm ent in te re s t m a yb e d e n ie d “ w h e n its e x a c tio n w o u ld b e in e q u ita b le .” Id. (quoti ng B d. of C om m ’r s of Jackson C ou ntyv. U nit ed S t at es, 308 U

. S. 343, 352 ( 1939) ). U nderN ew J er s eys t at e l aw , t he purpos e of pr ej udgm enti nt er es ti s t o “compens at e t he pl ai nt i ff f or t he loss of i ncome t hatw oul d have be en ea r ned on the j udgm ent had i t been pai d ear l i er . ” R uff v. W ei nt r aub, 519 A

. 2d 1384, 1390 (N .J . 1 9 8 7 ).
P w C con t end s that t h e $6 3 m i l l i on prej ud gm ent i nter est a w a rd b yth e D istric t C o u rt w a s p u n it iv e r a th e r th a n m e re ly compensa t or yand vi ol at es N ew J er s ey ’ s pr ohi bi t i ons agai ns tt he r ecove r yof pr ej udgm enti nt er est on futur e ec onom i c l os s es and aw ar di n g co m p ound i nt er es t

. Pw C m ai nt ai ns t hatt he bul k of d a m a g e s a c c ru e d a f

ter th e C o m m iss io n e r b ro u g h t th is a c tio n in 19 85 , y ett he D i stri ctC ou rt ’ s a w a r d c a l c ul at es prej ud gm ent i nter est a s i f e a c h l o s s e x i s t e d o n t h e d a y t h e c a s e w a s f i l e d

. A c c o r d i n g l y, Pw C ar gues t hatt he C om m i s s i oner i s onl y ent i t l ed t o pr ej udgm ent i nt er es ton “pas tloss” m eas ur ed fr om t he s peci fi c dat e ea ch of A m b a s s a d o r’ s lia b iliti e s b e c a m e p a y a b le

. I n cal cul at i ng t he amount of pr ej udgm enti n ter es t , t he D i s t r i ctC our tacc ept ed the C om m i s s i oner ’ s pr opos al t o str i ke $ 54

. 5 m i l l i on from t he v erdi ctt o rem ov e al l futur e e c o n o m ic33 l os s es , eas i l yr es ol vi ng Pw C ’ s fi r s tar gum entt hatt he aw ar d w as puni t i ve and vi ol at ed N ew Jers ey ’ s pr ohi bi t i ons agai ns tt he r ecove r yof pr ej udgm enti nt er es ton futur e ec onom i c l os s es . T he C om m i s s i onerarr i ved att he numberof the amount t o s t r i ke fr om th e v e rd ict, $ 5 4 .5 m ill io n , b y a d d in g $ 3 6 .0 m ill io n f o r “ n e t u n p a id c laim s” a n d $ 2 0 .9 m ill io n f o r “ a ss u m e d c laim s p a y a b le to H or i zon, ” both of w hi ch r epr es entfutur e ec onom i c l os s es , and r educi ng i tt o t he pr es entval ue. A ft err educi ng the ver di ctof $ 1 1 9 .9 m ill io n b y $ 5 4 .5 m ill io n , the a m o u n t o f f u tu re e c o n o m ic lo ss e s, th e D istric t C o u r t u se d a b a se v e rd ict o f $ 6 5 .4 m ill io n to c a lc u la te p re

ju d g m e n t in te re s t.
T he D i s t r i ctC o u r tfound thatw hi l e al l t he cl ai m s had not b ee n fil ed w h en this acti o n co m m en ce d , the lo sses w ere nevert hel es s actuar i al and ant i ci pat ed att he t i m e the C om pl ai nt w as fi l ed. T he D i s t r i ctC our tcal cul at ed pr ej udgm enti nt er es ton th e f u ll am o u n t o f d a m a g e s fr o m 1 9 8 5 to th e d a te o f its ju d g m e n t, Sept ember 30, 2005. W e concl ude t hat t he D i s t r i ctC our tdi d not a b u s e its d is c re tio n in d o in g s o . N e w Je rse yR u les G o v e rn in g C iv il P ra c tice sta tes th a t:
E xceptw h ere p r ovi ded bys t atut e w i t h r es pectt o a pu bli c enti t yor em ploy ee, and excep t a s ot herw i se provided b yl aw , the cou rtshal l , i n tor tact i on s, i ncl udi ng pr oduct s l i abi l i t yact i ons , incl ude i n t he j udgm ents i m pl e i nt er es t , cal cul ated a s her eaf t er pr ovi ded, fr o m t he dat e of the i ns t i tut i on of the act i o n o r f

r o m a d a t e 6 mon t h s a f t e r t h e d at e t he caus e of a ct i on ar i s es , w hi chever i s l at er , pr ovi ded t hati n exce pt i o n al c ases t he courtm ays us pend the runni ng of s uch pr ej udgm ent i nt er est

. Pr ej udgm ent i nt er es ts hal l not , how ever , b e al l ow ed on any re c o v e ry f

o r f u tu re e c o n o m ic lo s s e s . N

. J

. C our tR

. 4: 42- 11( b)

. T he cl ai m s i ncurr ed byt he companyaft er t he fi l i ng of the ac t i on w er e notfutur e l os s es , d ef ined underN ew J er s eyl aw as t hos e thatacc rue af t erj udgm ent , butr atherdamages t hatbeca m e actual i zed a ft ert he fi l i ng of the compl ai nt

. See M cK eand v. G erhar d, 751 A

. 2d 158, 159 ( N

. J

. Super

. C t

. A pp. D i v.34 2000)

. Pw C does n o t cont es tt hatt he cl ai m s w er e ac tuar i al and a n tic ip a te d a t th e tim e th e a c tio n w a s f ile d

. T he langua ge of the R ul e pr ovi des t hati nt er es ts houl d be cal cul at ed fr om the d at e of the i ns t i tut i on of the ac t i on w i t hout r efe r ence t o w hen dur i ng t he l i t i gat i on a part i cul arcl ai m w as actual ized

. I ti s w el l s et t l ed thatt he purpos es foraw ar di ng p re ju d g m e n t in ter e st in to rt a c tio n s a re n o t o n lyto c o m p e n sa te pl ai nt i ffs fornothavi ng us e of j udgm ent m oney w hi l e thei ract i ons a re p e n d in g a n d to re q u ire d e f e n d a n ts to g iv e u p b e n e f its o f th e ir u se o f m o n e yd u rin g th a t ti m e , b u t als o to e n c o u ra g e d e f e n d a n ts to set t l e cases. S ee R uff

v. W e in tra u b, 51 9 A

. 2d 13 84 , 13 90 (N

. J. 1987)

. B as ed on thes e cons i der at i ons , w e fi nd t hat t he D i s t r i ct C our tapp r o p r i a t e l yc a l cul at ed pr ej udgm enti nt er es ton t he damages f o r t h e e n tir e p e ri o d s in c e th e f ilin g o f th e a c tio n . W e al s o concl ude t hat t he D i s t r i ctC our tdi d notvi ol at e the pr ohi bi t i on agai ns tcompound i nt er es t

. A ti s s ue i s a $26. 8 m i l l i on
“ h yp o th e tica l b o rro w in g c o st” e m b e d d e d in th e d a m a g e s s e t f o rth b yth e C o m m iss io n e r. O f th is $ 2 6 .8 m ill io n , $ 1 4 .2 m ill io n is hypot het i cal i nt er es t earned on t he pr emi um s for pol i ci es a fter M a rc h 3 1 , 1 9 8 2 . T h e d if f e re n c e b e tw e e n th e s e a m o u n ts is a $ 1 2 .6 m illio n “ n e t in te re s t e x p e n s e .” P w C a rg u e s t h a t t h e e n tir e $ 2 6 .8 m i l l i on “hypot het i cal bor r ow i ng cos t ” s houl d be deduc t ed fr om t he v e rd ic t p ri o r t o c a lc u la tin g th e p re ju d g m e n t in te re s t.
T he D i stric t C o urtded ucted t he $ 12

. 6 m i l l i on net i nter est expens e fr om t he base v erdi ctof $65. 4 m i l l i on, not i ng t hati tw as th e o n lyp a rt o f th e $ 2 6 .8 m ill io n item th a t ap p e a re d in th e v e rd ict. T h e D is tr ic t C o u rt th e n c a lc u la te d th e p re ju d g m e n t in te re s t a s $ 7 5 .6 m i l l i on and deduc t ed an a ddit ion al $12. 6 m i l l i on, arr i vi ng att he pr ej udgm ent aw ar d of $63 m i l l i on. T he D i s t r i ctC our tdeduct ed the se c o n d $ 1 2 .6 m ill io n b e c a u se o th e rw ise it w o u ld h a v e r e s u lted in an aw ar d of pr ej udgm enti nt ere st hi ghert han the C om m i s s i oner so u g h t. T h e C o u rt re c o g n ize d th a t th is s e c o n d d e d u c tio n , “w o u ld t r e a tt h e $ 1 2

. 6 m i l l i o n i t e m a s h a v i n g n e v e rb e e n f o u n d b y t h e j u r y” but n o n ethel es s deduct ed i ts o as t o notl ett he C om m i s s i oner re c o v e r t w ic e . (A p p . 2 6 2 .)
T he C om m i s s i oner’s vi ew i s t hatPw C i s compl ai ni ng of a35 ruli n g in it s fa v o r. T h e q u e s tio n b ef o re u s is w h ethe r th e C o u rt abus ed i t s di s cr et i on i n “nett i ng” t he t w o i nt er es t fi gur es cont ai ned i n t he avoi dabl e l os s damage cal cul at i on. W hi l e t he $26. 8 m i l l i on item re p re se n ts a hypo theti c a l b o rro w in g c o st, th e D istric t C o u rt d id notabus e i t s di s cr et i on by concl udi ng t hatA m bas s adorw oul d have earned $14. 2 m i l l i on i n i nt er es ton t he pr emi um s and thi s r equi r ed a n o f f s e ttin g o f

th e h yp o th e tic a l in te re s t e x p e n s e . V III. Jo int a n d S ev er a l L iab il it y F inally , w e turn to P w C ’s arg u m en t th at th e D istri ct C o u rt s h o u l d h a v e a p p l i e d V e r m o n tl a w o n j o i n t a n d s e v e r a l l i a b i l i t y, underw hi ch Pw C cannotbe l i abl e form or e than i t s 40% pr opor t i onat e s har e of th e judgment , beca us e A m bas s adorw as dom i ci l ed i n V er m ont

. T he D i s t r i ctC o u rt ’ s i nt erpr et at i on and app l i c a t i o n o f New J e r s e y ’ s c h o i c e o f l a w ru l e s i s a p u r el y l egal m at t er and t her efor e subj ect t o pl enary r evi ew byt hi s C our t

. Si m on v . U n it ed S tat es, 34 1 F

. 3 d 1 9 3 , 1 9 9 (3d C ir

. 2 0 0 3 ).
Itis w ell estab li sh ed that in a d iversityac ti o n , a d istri ct co u rt m us tappl yt he choi ce of l aw rul es of t he forum s t at e t o det erm i ne w hatl aw w i l l govern eac h of the i s s ues of a c ase . K laxon C o. v. St ent orE l ec. M fg. , 31 3 U

. S

. 4 8 7, 496 ( 1941)

. N ew J er s eyhas acc ept ed the “gove r nm ent al i nt er es t ” choi ce of l aw t es t

. W arr i ner v. St ant on, 475 F

. 3 d 497, 500 ( 3d C i r . 2007) ( ci t i ng V eaz eyv. D orem us, 51 0 A

. 2d 11 87 (N

. J. 19 86 ))

. U nd er this i nq uiryw e m ust det er m i ne “the s t at e w i t h t he gr eat es ti nt er es ti n g o v erni ng t he par t i cu lar issu e” and appl yt he l aw s of thats t at e. I d. at500 (q u o tatio n s o m itt e d ). “ T h e g o v e rn m e n tal in ter e st a n a ly sis is f a c ti nt ens i v e: ‘E ach c hoi ce- of- l aw cas e pr es ent s i t s ow n uni que combi nat i on of fa ct s — t he par t i es ’ r es i dence , t he pl ace and type of occurr ence and the spe ci fi c s etof governm ent al i nt er es t

- t hat i nfl uence t he r es ol ut i on of t he choi ce- of- l aw i s s ue pr es ent ed. ’ ” I d. (quoti n g E rnyv. E st at e of M erol a, 79 2 A

. 2d 12 08 , 12 21 (N

. J. 2002) )

. Fur t herm or e, t he N ew J er s eySupr eme C our thas hel d t hat cho i ce-of-l aw determ i nati on s are m ade o n an i ssue- by -i ssue basi s, w i t h eac h i s s ue r ece i vi ng s epar at e anal y s i s . See E r ny , 792 A

. 2d at 12 13 (ci t i ng G antes v. K ason C orp. , 67 9 A

. 2d 10 6, 10 8-09 (N

. J. 1 9 9 6 ))

.36 T he fi r s t pr ong of t he gover nm ent al i nt er es tt es tr equi r es us t o det er m i ne w hether t her e i s an actual confl i ct betw een t he l aw s of t he s t at es i nvol ved. E rny , 171 A

. 2d at1216. U nques t i onabl y , an actual confl i ctexi s t s betw een the r es pect i ve j oi ntand s ever al li ab il itylaw s o f N ew Je rs e y an d V erm o n t. A t th e ti m e o f P w C ’s negl i gence and i n 1985, w h en t he C om m i s s i onerfi l ed hi s act i on, N ew J er s eyl aw pr ovi ded for j oi nt and s ever al l i abi l i t yforal l j oi nt t or t fea s or s . N

. J

. St at

. A nn. § 2A : 15- 5. 3 ( Supp. 19 7 4 ). T he N ew J er s eys t atut e has s i nce be en amended tw i ce, i n 1987 and i n 1995, t o l i m i tt he appl i cabi l i t y of j oi ntand s ever al l i abi l i t y . T he curr ent sta tu te, a s a m e n d e d in 1 9 9 5 , o n ly p e rm its jo in t an d se v e ra l li a b ili ty t o defe ndant s 60% or m or e at faul t

. N

. J

. St at

. A nn. § 2A : 15- 5. 3( a) ( W es t2008)

. M eanw hi l e, V erm ontes t abl i s hed a s y s t em of c o m p a ra tiv e n e g lig e n c e a n d a b o lish e d jo in t a n d se v e r a l lia b ili ty among j oi ntt or t fea s or s i n 1970. V t

. St at

. A nn. , ti t. 12 § 1036 (1 9 6 9 ).
T h e se c o n d p ro n g o f

th e g o v e rn m e n tal in ter e st a n a ly sis r equi r es us t o det er m i ne the i nt er es tt hateac h s t at e has i n appl y i ng i t s joint and s ever al l i abi l i t yl aw t o the part i es i n t hi s l i t i gat i on. E rny , 79 2 A

. 2d at12 16 (ci t i ng F u v . F u, 73 3 A

. 2d 11 33 , 11 38 (N

. J. 1999) )

. Fi v e f

a c t o r s d r a wn f

r o m s e c t i o n 1 4 5 o f

t h e Re s t a t ement ( Second) of C onfl i ctof Law s gui de court s in appl y i ng t he governm ent al i nt er es tt es t in tortcas es . I d. T he fa ct or s ar e: “( 1) t he i nt er es t s of i nt er s t at e comi t y ; ( 2) t he i nt er es t s of the part i es ; ( 3) t he i nt er est s under l y i ng t he fi el d of t or tl aw ; ( 4) t he i nt er es t s of j udi cial a dm i ni s t r at i on; and ( 5) the compet i ng i nt er es t s of the s t at es . ” I d. T he N ew J er s eySupr eme C our thas hel d that “[t ] he m o s t im p o rt a n t o f

th o s e is th e c o m p e tin g in te re s ts o f th e s ta te s .” E r ny , 792 A

. 2d at1217. T he i ni t i al focus “ s houl d be on ‘ w hat [pol i ci es ] t he l egi s l atur e or cour t i nt ended t o pr ot ectbyhavi ng t hat l aw app l yt o w ho l l ydo m est i c con cerns, and th e n , w h et her t hese c o n c e rn s w i l l be fu rthered b yapp l y i ng t hat l aw t o the m ult i -s t ate s i tuat i on. ’ ” I d. ( quot i ng Fu, 733 A

. 2 d at1142 ( ci t at i ons om i t t ed) (bra ck ets i n o ri g inal)).
I n i t s opi ni on ent er i ng j udgm ent , t he D i s t r i ctC our thel d t hat P w C a n d C h a it’s e sta te w e re jo in t to rtf e a so rs a n d w e re b o th jo in tly an d sev era ll yli ab le fo r th e e n ti re am o u n t o f th e $ 1 1 9

. 9 m il li o n jury ver di ct

. T he D i s t r i ct C our t di d not under t ake a s epar at e choi ce ofIn gra n ti n g su m m ary jud g m en t, b ec au se th e D istri c t C o u rt 15 det er m i ned thatthere w as no confl i ctbetw een N ew J er s eyand N ew Y or k l aw r egar di ng an audi t or ’ s l i abi l i t yfornegl i gence or m al fea s ance , i tchos e t o appl yN ew J er s eyl aw . Pw C does not appea l t he appl i cat i on of N ew J ersey la w forpurpos e of the s ubs t ant i ve i s s ues , butr atheronl ycont es t s t he appl i cat i on of N ew J e rs e yla w a s to jo in t a n d s e v e ra l lia b ility. 37 l aw anal y s i s to det erm i ne w hetherN ew J er s eyorV erm ontl aw sh o u ld a p p lyto th e is s u e o f w h e th e r P w C is jo in tlya n d se v e ra lly l i a b l e wi t h Ch a i t ’ s e s t a t e f o rt h e f u l l a mo u n t o f d a ma g e s a tt h e t i me i tent er ed j udgm ent

. I ns t ead, t he D i s t r i ctC our tappl i ed N ew J er s ey l aw on j oi nt and s ever al l i abi l i t ys ol el ybas ed on i t s ear l i eropi ni on d e n y in g P w C ’s m o tio n f o r sum m ary

j ud g m e n t th a t N e w Je rse ysta te l aw w oul d govern t he s ubs t ant i ve i s s ues i n t hi s cas e. 15
A ft erent er i ng j udgm ent , and i n r es pons e t o Pw C ’ s m ot i on to am en d the ju d g m en t pu rsua n t t o R u le 59 (e), the D is tr ic t C o u rt corr ect ed i t s err or of appl y i ng N ew J er s ey l aw on j oi ntand s ever al l i abi l i t y s i m pl y beca us e i t appl i ed thats t at e’ s l aw t o t he s ubs t ant i ve i s s ues , and addr es s ed the choi ce of l aw i s s ue as i tper t ai ned t o t he q u esti o n o f jo int an d sev era l l iabili ty

. T o d eterm in e V erm o n t’ s i nt erest i n havi ng i t s compar at i ve negl i gence s t atut e appl i ed, t he D istric t C o u rt e x a m in e d th e p o licyu n d e rly in g th e V e rm o n t sta tu te and an aly zed V er m ont ’ s cont act s w i t h Pw C ’ s conductand the C om m i s s i oner ’ s l i t i gat i on. T he D i s t r i ct C our t t hen anal y zed N ew J er s ey ’ s i nt er es tbyl ooki ng t o the pol i cyunder l y i ng t he s t atut e that w a s in p lac e in 1 9 8 5 , th e y e a r th a t th e C o m m iss io n e r f il e d th is act i on. T he D i s t r i ctC our thel d t hatN ew J er s ey h ad t he s uper i or i nt ere s ti n havi ng i t s l aw det erm i ne the al l ocat i on of damages b e c a u se its p o licyf

a v o rin g f u ll co m p e n sa tio n o f

to rt v ictim s w o u ld be frus t r at ed by appl i cat i on of V erm ont ’ s compar at i ve negl i gence s t atut e, w hos e pol i cyfavor ed the equi t ab le a l l ocat i on of damages among V er m ontt or t fea s or s . T he C our tal s o concl uded that V erm o n t h ad no i nt er es ti n ens ur i ng t hatPw C and the Est at e pay on l yt heirpro rat a share of da m ages. Pw C cont ends t hatt he D i s t r i ctC our terr ed byl ooki ng att he p o licyu n d e rly in g N e w Je rse y ’s jo in t a n d se v e ra l li a b ili tysta tu te in38 eff ecti n 1985 r atherthan t he s t atut e curr ent l yi n eff ect

. I tar gues t h a tb e c a u s e Ne w J e r s e y ’ s c u rr e n ts t a tu t e wo u l d o n l yh o l d P wC liab le f o r its p ro p o r ti o n a te s h a re o f d a m a g e s, N e w Je rse yw o u ld h a v e n o in ter e st in a p p ly in g its su p e rse d e d jo in t an d se v e ra l li a b ili ty st atute. In addit i on , P w C argues t hat V erm on thas a great er i nter est i n t hi s cas e bec aus e of i t s s t at ed p o sit ion t hati ti s a domi ci l e of c h o ic e f o r i n s u ra n c e c o m p a n ie s . T he C om m i s s i onerm ai nt ai ns , how ever , t hateven though N ew J er s eyL egi s l atur e di d notm ake t he amendm ent s l i m i t i ng j oi nt a n d se v e ra l li a b ili tyre tro a c tiv e , P w C ’s a ssert i on , i f accep t ed , w o u ld have us do s o. T he C om m i s s i oneral s o ar gues t hat V erm onthas no in ter e st in h a v in g its law a p p lied , as its o n lyc o n tac t w ith th is l i t i gat i on i s t hatA m bas s adorand the C om m i s s i onerar e domi ci l ed th e re . T o det erm i ne w hether t he D i s t r i ct C our t s houl d have l ooked t o t he 1995 amendm entforN ew J er s ey ’ s curr entpol i cyon j oi ntand sev era l l iabili ty w e e x am ine th e N ew Jerse yS u p rem e C o u rt ’s opi ni on i n E r ny , 792 A

. 2d 1 2 0 8 , fo rgui dance

. I n E r ny , t he Supr eme C our thad t o det erm i ne w hethert o appl yt he N ew Y or k or N ew J er s eyj oi ntand s ever al l i abi l i t ys t atut e i n a cas e ar i s i ng fr om an aut om obi l e ac ci dent t hat t ook pl ace i n N ew J er s ey . 792 A

. 2d at 1210. T he ac ci denti nvol ved a N ew J er s eypl ai nt i ff and occurr ed in 1 9 9 2 , so th e a p p lica b le N e w Je rse yjo in t an d se v e ra l li a b ili ty s t atut e w as t he 1987 ver s i on. I d. at121 9

. In as s es s i ng N ew J er s ey ’ s governm ent al i nt er es ti n havi ng t he 1987 ve rsi o n of the sta tu te a p p lied , the C o u rt lo o k e d to th e 1 9 9 5 a m e n d m e n ts to u n d e r s t a n d t h e l e g i s l a tu re ’s d e s ir e t o l i m i tj o i n ta n d s e v e r a l l i a b i l i t y. Id . T h e C o u rt sta ted th a t “[ a ]m e n d m e n ts to N e w Je rse y ’s s tatu te i ndi cat e, how ever , t hat t he Legi s l atur e l i m i t ed the l i abi l i t yof j oi nt t or t fea s or s t o ad d ress concerns aboutbot h t he r i s i ng cos tof in su ra n c e a n d in c re a sin g lit ig a tio n .” Id . a t 1 2 1 9 . In m a k in g th is s t at ement , t he C our tnot ed thatt he i nt er es t and purpos e of the 1987 and 1995 s t atut es w er e cons i s t ent

. I d. T he C our tfur t herdecl ar ed th a t “th e p o licy u n d e rly in g N e w Je rse y ’s jo in t an d se v e ra l li a b ili ty l aw pr om ot es r edr es s t o p l ai nt i ffs butdecl i nes t o m ake a j oi nt t or t fea s orful l yr es pons i bl e fordamages bey ond hi s or heral l ocat ed s har e unl es s t hat t or t fea s or i s m or e t han si xt y per cent at faul t

. N ew Je rse y ’s p o licy th u s re f

lec ts a b a lan c in g o f

in ter e sts th a t f

a c to rs in39 i t s conce r n about i ncr eas ed l i abi l i t yi ns ur ance cos t s . ” I d. at1219- 2 0

. U n lik e E rn y , w h e re th e re w e re tw o v e rsio n s o f th e sta tu te b o th in c o rp o ra tin g a m e n d m e n ts lim iti n g jo in t an d se v e ra l li a b ili ty ( 1987 and 1995) , w e onl y cons i der t he l aw as i t w as i n 1985 and the c u rre n t v e rsi on of the st atute. W e do no t read E rny t o hold t hat a c o u rt m a ylo o k p a st th e g o v e rn m e n tal in ter e st re f lec ted in a law if t he l egi s l atur e has change d the law w i t houtm aki ng i tr etr oact i ve. W e conc l ude t hat t he N ew J er s eySupr eme C our t ’ s r eadi ng of the p o li cy u n d erly ing the c u rren t st atute m ere lyex p lai n s N ew Jerse y ’s des i r e t o r educe i ns ur ance cos t s pr os p ec ti v el y . G i ven thatt he amendm ent s w er e not m ade r etr oact i ve, w e ar e not i ncl i ned t o fi nd th a t th e N e w Je rse yleg isla tu re h a d a n in ter e st in re d u c in g liab ili ty fort or t s t hathad al r eadyoccurr ed, and had pr es um abl ybeen f a c to re d in to th e to rtf

e a so r’s liab ili tyin su ra n c e c o v e ra g e . If c o u rts onl yl ooked t o t he pol i cyof the curr ents t atute, w hi ch i s now i ncons i s t entw i t h t he l aw t hatm aybe appl i ed bas ed on w hen the to rtio u s c o n d u c t to o k p lac e , ap p lica tio n o f th e 1 9 8 5 sta tu te w o u ld be r ender ed nul l

. W e d o n o tbel i eve thi s w as N ew J er s ey l egis l ature i ntended effect of t he am end m ents

. Fi nall y , as t he Supr eme C our ts t at ed i n E r ny , t he R es t at ement ( Second) of C onfl i ct of L aw s r equi r es t hatw e l ook at t he cont act s of t he par t i es t o a st at e i n eval uat i ng t he governm ent al in ter e st. Id

. a t 1 2 1 7 . W e b e liev e th a t th e c o n tac ts o f th e p a rties in E r n ya r e d i s t i n g u i s h a b l e f r o m th o s e h e r e . I n E r n y , t h e t wo defe ndant s w er e N ew Y or k r es i dent s . H er e, none of t he pr es ent defe nd ants are V erm on tres i den t s. Id. at12 12

. V erm on thas l ess of an i nt er es ti n pr ot ect i ng a non-V erm ontci t i zen f r om j oi ntand s ever al l i abi l i t y . M or e s i gni fi cant l y , A m bas s ador ’ s pr i nci pal pl ace of busi nes s w as i n N ew J er s ey , t he ac t i onabl e t or tw as comm i t t ed in N e w Je rse y , A m b a ss a d o r’s in ju ry o c c u rre d in N e w Je rse y , C h a it w a s a re sid e n t o f N e w Je rse y , P w C a c tiv e lyc o n d u c ted b u sin e ss in N ew J er s eyand the r el at i ons hi p betw een the part i es w as cent er ed in N e w J e rs e y . W e fi nd Pw C ’ s r el i ance on I n r e Phar

- M or , I nc. Secur i t i es L i t i gat i on, 893 F. Supp. 484 ( W

. D

. Pa. 1995) t o be un p ersu asi ve. I n Phar

- M or , a Penns y l vani a cour tappl i ed N ew J er s ey ’ s choi ce of40 law ru les a n d f

o u n d th e m to f

a v o r th e a p p lica tio n o f

P e n n sy lv a n ia l aw overN ew J er s eyl aw . I d. at489. T he court loo k ed at t he pol i cy of an amendm ent i n N ew J er s ey pr i vi t y l aw li m i t i ng acc ount antl i abi l i t yt o t hi r d par t i es underN ew J erseyl aw , even t hough i tdi d not appl yas t he s ubs t ant i ve l aw t o t he cl ai m s as s er t ed. I d. at488- 89. T he court fo u n d t hatPenns y l vani a had a gr eat er i nt er es tbeca us e i t w as t he s t at e w her e the audi tr epor t s i n ques t i on w er e pr epar ed, s i gned and i s s ued, and w her e t he audi t ors w ere l i cens ed. I d. V erm onthas n o n e of thes e i nt er es t s i n t he i ns t ant cas e and the change i n N ew J er s ey ’ s j oi ntand s ever al l i abi l i t yl aw is n o t a re a s o n to a p p ly V e rm o n t la w . A s t he Ernycour ts t at ed, t he det erm i nat i on of w hat s t at e l aw appl i es m us tbe i nfor m ed by t he “the i ndi vi dual i zed a s s es s m entt hat contr ol s i n t he governm ent al

- i nt er es t s t es tt hatw e appl yt o eac h c h o ice -o f

-la w d e ter m in a tio n .” 7 9 2 A .2 d a t 1 2 2 1 . F o llo w in g th is m andat e, w e fi n d that the t ot al i t yof the fa ct s r equi r es appl i cat i on o f N ew Jerse y law joint an d sev era l l iabili tyan d the D istri ct C o u rt c o rr e c tly d id s o . I X. C oncl usi on For t he r eas ons s tat ed, w e w i l l aff i r m t he j udgm entof the D is tr ic t C o u rt

.