Court Opinion

ID: 9707742
Source: CourtListenerOpinion
Date Created: 2023-08-26 02:20:20.106983+00
Date Added: 2024-06-11T18:22:37.139351
License: Public Domain

Justice RIVERA-SOTO,
dissenting.
In the inevitable casting about for redress that follows the discovery of inflated financial results that falsely improve a corpo*389ration’s performance and worth, any and all who are thought to have contributed to that harm become fair game. Along with the culpable corporate officers, the auditors who attest to the corporation’s financial statements usually are among the primary targets against whom such redress is sought, purportedly due to their negligent failure to discover and expose those culpable corporate officers. In that respect, this case is no different from those that now are seared into the collective consciousness.
This ease, however, differs in two fundamental respects from those eases. First, unlike the instances where auditor misdeeds were part and parcel of the wrongdoing committed, in this case KPMG relied—as it had the right to do—on the representations made to it by Mortell and Wraback, the persons selected by PCN as its gatekeepers for accounting information, yet who also were the corrupt wrongdoers and masterminds of the fraud here. Second, it was KPMG itself that ultimately discovered and exposed Mortell’s and Wraback’s wrongdoing. Despite those incontrovertible facts evident on the face of the complaint, the majority concludes that this case cannot be disposed of on motion and must return to the Law Division for additional proceedings because, in the majority’s view, “KPMG does not deserve the same protection as an innocent, uninvolved third party.” Ante, 187 N.J. at 385, 901 A.2d at 890 (2006). Because that view distorts the foundational concept undergirding the imputation defense in this State, thereby jettisoning established principles of agency liability; because it ignores the reasonable reliance of the auditors on the terms of the contract that defined this engagement; and because it ignores the import of a decision rendered by a federal court in a substantially identical case, I dissent.
I.
I am in substantial agreement with the majority’s recitation of the facts here.1 I add, however, the following.
*390In March 2002, after the action in State of Wis. Invest. Bd. v. KPMG, LLP* 2 was dismissed, and under the auspices of the reorganization plan approved by the United States Bankruptcy Court for the District of New Jersey, PCN and several of its affiliated entities entered into a litigation trust agreement that contributed to the Trust any claims PCN may have had against KPMG.3 Based on that agreement, the Trust filed the action presently before us, alleging four discrete causes of action against KPMG: negligence, negligent misrepresentation, breach of con*391tract, and breach of fiduciary duty. KPMG responded by a motion, pursuant to Rule 4:6-2(e), seeking dismissal of the Trust’s claims for failing to state a claim upon which relief can be granted. KPMG alleged that PCN could not recover against KPMG because KPMG reasonably relied on the actions of PCN’s own corporate officers and did not actively participate in Mortell’s and Wraback’s fraud scheme. Stated in terms that place the issue in proper focus, KPMG asserted that the imputation defense barred the causes of action asserted by the Trust.
The trial court granted KPMG’s motion and dismissed the Trust’s complaint with prejudice. After concluding that the Trust was the unquestioned “successor in interest” to PCN,4 the trial court reasoned that
if an officer or agent acting within the general scope of powers requires knowledge of a fact while committing a fraud upon a third person in a matter pertaining to the business of the corporation, although the fraud is perpetrated for his own benefit, the corporation will be imputable [with] such knowledge, as well as with knowledge of the fraud, especially where it ratifies the transaction.
Relying on both Hollingsworth v. Lederer, 125 N.J.Eq. 193, 4 A.2d 291 (Ch.1936), aff'd, 125 N.J.Eq. 211, 4 A.2d 291 (E. & A.1939), and In re Integrity Ins. Co., 240 N.J.Super. 480, 573 A.2d 928 (App.Div.1990), the trial court found that
there can be no doubt in the Court’s mind that the doctrine of imputation is indeed a viable doctrine in New Jersey. And that [it is] incumbent upon the parties to demonstrate that there has been a material participation by the third party, a material form of culpability to the extent that it would estop that third party from raising the defense of imputation.
The review of the record is satisfactory to lead this Court to conclude and to find no evidence of any material fault, accounting irregularity, participation of [KPMG] in the fraudulent conduct of these senior participants that would in any way be deemed sufficient to estop the rule of imputation____
There has not been demonstrated [to] the Court from the evidentiary material in [the] record that [KPMG’s] culpability was indeed allegedly material, significant, and contributory to the falsity and financial irregularities that were ultimately determined to be found subsequently by other parties.
*392In an unpublished per curiam decision, the Appellate Division reversed. The panel held that “[n]egligence, negligent misrepresentation, and breach of contract, as well as legal fraud, surely can be culpable conduct that ‘contributed to the misconduct of another’ ” and faulted the trial court for “read[ing] Integrity too narrowly when it essentially held that only legal fraud by the third party would constitute sufficiently culpable conduct to defeat the imputation defense.” Instead, the panel relied on a theory of equitable fraud, a theory of liability nowhere advanced by the Trust—indeed, because of the limited remedy available, one specifically eschewed by the Trust—to defeat KPMG’s imputation defense.
As thus supplemented, the facts properly frame the issue before us.
II.
I address first the majority’s new iteration of the imputation defense in this State. As the majority notes, it is unarguably a matter of state law “whether the knowledge of corporate officers acting against the corporation’s interest will be imputed to the corporation____” O’Melveny & Myers v. FDIC, 512 U.S. 79, 83-89,114 S.Ct. 2048, 2053-56,129 L.Ed.2d 67 (1994). Ante, 187 N.J. at 369, 901 A.2d at 881 (2006).5 The discrete question presented then is whether, and to what extent, New Jersey recognizes the imputation defense.
A.
Since at least 1916, New Jersey has recognized that
[a] private or a municipal corporation, as a legal entity, cannot itself have knowledge. If it can be said to have knowledge at all, that must be the imputed *393knowledge of some corporate agent____[T]he knowledge of the proper corporate agent must be regarded as, in legal effect, the knowledge of the corporation. [Allen v. City of Millville, 87 N.J.L. 356, 357, 95 A. 130 (Sup.Ct.1915), aff'd, 88 N.J.L. 693, 96 A. 1101 (E. & A.1916) (per curiam).]
Accord, Hercules Powder Co. v. Nieratko, 113 N.J.L. 195, 199, 173 A. 606 (Sup.Ct.1934) (“[A] corporate body, as a legal entity, cannot itself have knowledge. If it can be said to have knowledge at all, that must be the imputed knowledge of some corporate agent. Knowledge of the proper corporate agent must be regarded as, in legal effect, the knowledge of the corporation.”).
The common sense notion that the knowledge of a corporate officer acquired in the course and scope of his employment should be imputed to the corporation itself was later questioned in the context of fraudulent acts by the corporate officer that harmed third parties. In Hollingsworth v. Lederer, 125 N.J.Eq. 193, 4 A.2d 291 (E. & A.1939) (per curiam), the Court of Errors and Appeals rejected any such limitation when it explicitly affirmed the following holdings by the Vice-Chancellor:
It has been held that the corporation is affected with constructive knowledge, regardless of its actual knowledge, of all material facts of which its officer or agent receives notice or acquires knowledge while acting in the course of his employment and within the scope of his authority, and the corporation is charged with such knowledge even though the officer or agent does not in fact communicate his knowledge to the corporation.
This rule appears to apply to vice-presidents, agents or managing agents, or any other officer or agent who acquires such notice or knowledge concerning matters pertaining to his department or scope of authority.

If any officer or agent acting within the general scope of his powers acquires knowledge of a particular fact while committing a fraud, upon a third person in a matter pertaining to the business of the corporation, although the fraud is perpetrated for his own benefit, the corporation will be imputable with such knowledge, as well as with knowledge of the fraud, especially where it ratifies the transaction.

[Supra, 125 N.J.Eq. at 206, 4 A.2d 291 (citations and internal quotation marks omitted; emphasis supplied).]
The basis for this doctrine is firmly grounded in one of the core principles of our jurisprudence: “it is well settled that, as between two innocent parties, public policy requires that the principal must bear the loss occasioned by the act of his servant.” Stanley v. Chamberlin, 39 N.J.L. 565, 567 (Sup.Ct.1877).
*394B.
That said, the reach of the imputation defense is not without bounds: the party invoking the imputation defense cannot be complicit in the fraud perpetrated. In one of its earliest formulations, that limitation was described as “[i]n the law of agency the doctrine of constructive notice is intended to shield from loss an innocent party who deals with the agent in good faith----” Id. at 568 (emphasis supplied). More recently, the Appellate Division concluded that
it is clear that the doctrine of constructive notice to the principal is not available to one who contributed to the misconduct sought to be imputed. Therefore, even though an agent (the directors and officers) of a principal [the corporation] may be responsible for falsity, the third party’s [the auditors’] culpability, if established, would estop it from raising the defense of imputation. The rule of implied notice is invocable to protect the innocent, never to promote an injustice.
[In re Integrity Ins. Co., 240 N.J.Super. 480, 506, 573 A.2d 928 (App.Div.1990) (citations, internal quotation marks and internal parentheticals omitted).]
Citing Integrity, the Appellate Division here ruled that, because the Trust’s “complaint sets forth the facts necessary to support a claim of equitable fraud, as well as negligence and breach of contract on the part of KPMG, the PCN corporate officers’ knowledge and participation in the fraud are not imputed to the corporation to bar the action.” I disagree for several reasons.6
The rule of Integrity, as the trial court correctly noted, is broader than the narrow reading given to it by the Appellate Division here. Under Integrity, the wrongful acts of a corporate officer are imputed to the corporation he represents and, unless the third party actively participated in the corporate officer’s wrongful acts, any action sounding in negligence by the corporation against a third party that relied on the corporate officer is barred.7 The Appellate Division’s reliance on an equitable fraud *395claim as providing the necessary “active participation” by the third party in the culpable corporate officers’ wrongful acts must be rejected when, as here, fraud was not alleged by the Trust.8
Holding, as the Appellate Division did, that simple negligence and breach of contract claims are sufficient to strip from the third party the right to reasonably rely on representations made by duly appointed and constituted corporate officers in the course and scope of their employment—a reasonable reliance strongly engrained in our case law—eviscerates the doctrine of constructive notice. As the panel would have it, once a claim of equitable fraud is cobbled together, no third party will be entitled to the protection of the imputation defense when the wrongful corporate actor who was engaged in a fraud was the corporate representative with whom the third party interacted. That, simply, is not sensible.
Also, the rule of Integrity should not be rendered irrelevant at the motion to dismiss stage, as the majority would have it ripen only in respect of a motion for summary judgment filed after the completion of discovery. According to the majority, “the Trust’s suit is not barred because one who contributed to the misconduct cannot invoke imputation.” Ante, 187 N.J. at 372, 901 A.2d at 882 (2006). If the safe harbor provided by the imputation defense is denied those whose sole alleged offense was negligence, then, for all practical purposes, the imputation defense no longer exists. The majority’s approach renders illusory the imputation defense *396because it is available only to those who do not need it: those who are entirely without blame. In contrast, the imputation defense traditionally has provided an important bulwark against corporate abuse by requiring that corporations, like individuals, bear responsibility for their statements and actions.
The imputation defense, if it is to have reasoned and continued viability, should protect a third party who relies on the representations of a corporate officer and who does not actively participate in that corporate officer’s wrongdoing. When, as here, the issue arises in the context of a motion to dismiss for failure to state a claim upon which relief can be granted, resort should be had to plaintiffs allegations as set forth in the complaint. If, with the particularity required by Rule 4:5-8(a), the plaintiff alleges that the third party engaged in a fraud, then that third party should be deemed, for motion to dismiss purposes only, to have actively participated in the fraud and the case should continue. On the other hand, when, as here, the plaintiff only alleges negligence and never alleges that the third party actively participated in the fraud, and when a broad reading of the complaint cannot be so construed, then, for motion to dismiss purposes, the third party should be entitled to the bar to liability provided by the imputation defense.
That statement of the rule is consistent with our prior law, accords with the great weight of authority elsewhere,9 and is largely informed by strong public policy considerations:
*397[I]f the owners of the corrupt enterprise are allowed to shift the costs of its wrongdoing entirely to the auditor, their incentives to hire honest managers and monitor their behavior will be reduced. While it is true that in a publicly held corporation such as [plaintiff] most shareholders do not have a large enough stake to want to play an active role in hiring and supervising managers, the shareholders delegate this role to a board of directors, which in this case failed in its responsibility-
[Cenco Inc. v. Seidman & Seidman, 686 P.2d 449, 455-56 (7th Cir.1982).]
Basic principles of fairness and common sense demand that when, as here, one who already has knowledge of a fraud, either directly or by imputation, and later seeks relief from a third party because of reasonable reliance on the third party’s failure to expose the fraud, that claim must be rejected. It has long been the law in New Jersey that “[o]ne who engages in fraud ... may not urge that one’s victim should have been more circumspect or astute.” Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 626 n. 1, 432 A.2d 521 (1981) (holding that rescission of employment contract is proper when employee fraudulently misrepresented his activities during a specified period, hindering discovery of events that reflected poorly on employee). The corollary proposition is equally true. A deception is not ameliorated by another’s reasonable reliance, for one who deceives cannot reasonably rely on another’s non-culpable reliance on the deceit.
Those principles apply with equal force here. Because the fraud perpetrated by Mortell and Wraback clearly was knowledge imputed to PCN; because, by virtue of the litigation trust agreement, the Trust stands in the stead of PCN itself; and because there is nothing in a fair reading of the complaint that leads to a conclusion that KPMG actively participated in the fraud designed, engineered, and implemented by Mortell and Wraback, the imputation defense should be available to bar liability to the Trust.
*398c.
The majority takes the position that KPMG is not entitled to dismissal at this stage because the Trust is entitled to additional discovery. That position is based on the generally correct principle that the imputation defense recognized in Integrity does not extend to “one who contributed to the misconduct.” Supra, 240 N.J.Super. at 506, 573 A.2d 928. The question, however, is whether the complaint here can be read fairly to claim that KPMG “contributed to the misconduct” perpetrated by Mortell and Wraback, PCN’s senior-most corporate officers. In order to fairly understand the extent of KPMG’s obligations, which places in its rightful context any argument that KPMG “contributed” to Mortell’s and Wraback’s misconduct, one must address first what receives only a glancing reference in the majority’s analysis: the scope of an auditor’s engagement. Ante, 187 N.J. at 382-83, 901 A.2d at 888-89 (2006). Because that scope defines and determines the auditor’s liability in respect of that engagement, the primacy of this exercise cannot be questioned and its minimal treatment by the majority is puzzling.
In general, New Jersey regulations governing the provision of auditing services by a licensed certified public accountant require that the auditor
shall not permit [his/her] name to be associated with financial statements in such a manner as to imply that [he/she] is acting as an independent public accountant with respect to such financial statements unless [he/she] has complied with applicable generally accepted auditing standards (GAAS). Statements of Auditing Standards (SAS) issued by the American Institute of Certified Public Accountants, and other pronouncements having similar generally recognized authority, are considered to be interpretations of generally accepted auditing standards, and departures therefrom shall be justified by those who do not follow them.
[N.J.AC. 13:29-3.5.]
As those regulations acknowledge, an auditor’s responsibilities are more specifically codified in and defined by the Statements on Auditing Standards issued by the Auditing Standards Board, “the senior technical body of the AICPA [American Institute of Certified Public Accountants] designated to issue pronouncements on auditing matters applicable to the preparation and issuance of *399audit reports----” American Institute of Certified Public Accountants, Codification of Statements on Auditing Standards (including Statements on Standards for Attestation Engagements) Numbers 1 to 101 (as of January 1, 2005), at iii (SAS). On the whole, as N.J.AC. 13:29-3.5 explicitly recognizes, the performance of an audit is defined by generally accepted auditing standards:
An independent auditor plans, conducts, and reports the results of an audit in accordance with generally accepted auditing standards (GAAS). Auditing standards provide a measure of audit quality and the objectives to be achieved in an audit. Auditing procedures differ from auditing standards. Auditing procedures are acts that the auditor performs during the course of an audit to comply with auditing standards.
[SAS at AU § 150.01.]
Although variously defined, the scope of the auditor’s engagement—what the auditor is to do in an engagement as opposed to how it is to be done—is driven exclusively by the specific wishes of the client. As set forth in the AICPA’s Attestation Standards (AT), audit engagements are grouped into four distinct general categories. In ascending order of detail, these are: compilations of prospective financial statements; review reports; examination or audit reports; and reports on agreed-upon procedures engagements. Because the scope of the services PCN purchased from KPMG defines KPMG’s liability, an understanding of the differences among the available auditing services is crucial.
1. Compilations.
When performing a compilation of prospective financial statements, the auditor’s engagement is limited to assembling projected financial statements, determining whether “the prospective financial statements with their summaries of significant assumptions and accounting policies ... appear to be presented in conformity with AICPA presentation guidelines and are not obviously inappropriate,” and issuing a compilation report to that effect. SAS at AT § 301.12. Significantly, “[a] compilation is not intended to provide assurance on the prospective financial statements or the assumptions underlying such statement.” Id. at AT § 301.13. Instead, “[bjecause of the limited nature of the practi*400tioner’s procedures, a compilation does not provide assurance that the practitioner will become aware of significant matters that might be disclosed by more extensive procedures.” Ibid.
2. Review Reports.
Review reports are at a level once removed from compilations. The distinguishing characteristics of a review report are that:
the practitioner’s conclusion should state whether any information came to the practitioner’s attention on the basis of the work performed that indicates that (a) the subject matter is not based on (or in conformity with) the criteria [established as relevant in consultation with the client] or (b) the assertion is not presented (or fairly stated) in all material respects based on the criteria.
[Id. at AT § 101.88.]
The language an auditor is to use in the presentation of a review report has been standardized. Although the examples provided by the AICPA vary depending on their subject matter,10 the core language required for the issuance of a review report remains constant, expressly distinguishes between a review report and an examination report, and disavows any opinion on the subject matter. See id. at AT § 101.115. Because a review report expresses no opinion on the part of the auditor, a review report is “designed to provide a moderate level of assurance” and “the objective is to accumulate sufficient evidence to restrict attestation risk to a moderate level.” Id. at AT § 101.55. In order “[t]o accomplish this, the types of procedures performed generally are limited to inquiries and analytical procedures (rather than also including search and verification procedures).” Ibid.
3. Examinations or Audit Reports.
In contrast, an examination or audit report requires a more detailed level of performance from the auditor. As noted by the AICPA,
10 The AICPA distinguishes among review reports on a subject matter for general use, review reports on a subject matter that is the responsibility of a party other than the client, and review reports on an assertion. See id. at AT § 101.115, Examples 1, 2 and 3.
*401[i]n an attest engagement designed to provide a high level of assurance (referred to as an examination), the practitioner’s objective is to accumulate sufficient evidence to restrict attestation risk to a level that is, in the practitioner’s professional judgment, appropriately low for the high level of assurance that may be imparted by his or her report. In such an engagement, a practitioner should select from all available procedures-that is, procedures that assess inherent and control risk and restrict detection risk-any combination that can restrict attestation risk to such an appropriately low level.
[Id. at AT § 101.54.]
Unlike a review report, the language designated for use in an examination or audit includes the expression of the auditor’s opinion based on statistically significant sampling techniques and the specific language in which that opinion is expressed as provided by the SAS. See id. at AT § 101.114.11 The language of KPMG’s audit opinion here tracks the language explicitly set forth in the SAS.
4. Agreed-upon Procedures.
Finally, the highest and most defined level of an auditor’s services are agreed-upon procedures engagements, where
a practitioner is engaged by a client to issue a report of findings based on specific procedures performed on subject matter. The client engages the practitioner to assist specified parties in evaluating subject matter or an assertion as a result of a need or needs of the specified parties. Because the specified parties require that findings be independently derived, the services of a practitioner are obtained to perform procedures and report his or her findings. The specified parties and the practitioner agree upon the procedures to be performed by the practitioner that the specified parties believe are appropriate. Because the needs of the specified parties may vary widely, the nature, timing, and extent of the agreed-upon procedures may vary as well; consequently, the specified parties assumed responsibility for the sufficiency of the procedures since they best understand their own *402needs. In an [agreed-upon procedures] engagement ... the practitioner does not perform an examination or a review ... and does not provide an opinion or negative assurance. Instead, the practitioner’s report on agreed-upon procedures should be in the form of procedures and findings.
[Id at AT § 201.08.]
Unlike other audit functions, agreed-upon procedures engagements are tailored to identify and examine areas as defined by, and in as much detail as specifically requested by, the client. Due to the limitations of an engagement that requests that the auditor perform an examination or audit report of a corporation’s financial statements, requests that an auditor investigate whether financial statements are misstated due to fraud perforce fall squarely within the category of agreed-upon procedures. Because KPMG’s liability must be defined by the scope of the engagement it entered into with PCN, the threshold question that must be addressed is what level of auditing services KPMG was engaged by PCN to perform.
D.
Even the most cursory review of what PCN and KPMG agreed to in respect of KPMG’s provision of auditing services to PCN makes clear that KPMG was not retained to prepare compilations or generate a review report. It is equally clear that KPMG was not engaged to provide the highest level of auditing services: agreed-upon procedures. Indisputably, KPMG was retained to provide garden-variety examination or audit report services. That is the yardstick against which KPMG’s performance must be measured.
KPMG was engaged to perform an examination of PCN’s financial statements for 1994, 1995, 1996, and 1997, the period of time when Mortell and Wraback, supported by other PCN senior accounting and operations officers, were engaged in their fraudulent scheme to artificially inflate PCN’s revenues.12 It is signifi*403cant, and, in my view, ultimately dispositive, that KPMG was not retained to perform any agreed-upon procedures engagements concerning PCN’s revenues or whether the same had been properly stated by PCN’s management. KPMG’s obligation, therefore, was limited: it was to opine whether the financial statements prepared by those PCN placed in positions of authority—Mortell, Wraback and their confederates—fairly presented, in all material respects, the financial condition of PCN.
However, because PCN designated Mortell and Wraback as the exclusive conduits through which KPMG could secure information to carry out its examination or audit engagement, KPMG’s audit data came from a polluted source and produced similarly polluted results. Thus, the proper issue here is whether, in the context of an examination or audit of financial statements, a corporation injured by the wrongful acts of its own officers can recover from its auditors for failing to discover and expose the corporate officers’ wrongdoing that caused the falsity in the financial statements in the first place.
In this context, the governing principle of law is, to me, obvious: no one should profit from a fraud he himself perpetrated, either directly or through his designated agents. If that principle is applied to the issue as presented, the result is equally obvious: the Trust’s complaint against KPMG properly was dismissed by the trial court.
The respective duties of the corporation and its auditors are defined by the contractual relationship between a corporation and its auditors. That contractual relationship is defined in the engagement letter between the corporation and its auditors, as interpreted and supplemented by professional standards of the auditing profession. What the majority ultimately does is re-write the engagement between PCN and KPMG from an examination or audit report to an engagement for the agreed-upon procedures in respect of a revenues fraud audit. That is not what PCN requested or paid for, and it is also not what KPMG committed itself to do. In the end, the majority ignores the basis of the bargain *404between PCN and KPMG and, instead, imposes its own view of the services an auditor is retained to perform. Thus, in the majority’s view, it matters not whether PCN intentionally purchased a mid-level sedan from KPMG, as KPMG nevertheless was required to deliver a Rolls Royee simply because some of the passengers in the car later wanted to travel with greater comfort. These were sophisticated, experienced and knowledgeable parties: if what PCN wanted was a guarantee that its financial statements as prepared by its selected corporate agents were entirely without blemish, it should have bargained for, and paid for, appropriate agreed-upon procedures engagements instead of seeking to reform its examination or audit engagement agreement through litigation.
III.
I also dissent from the majority’s rejection of the thoughtful, reasoned and comprehensive opinion of the United States District Court for the District of New Jersey, which dismissed, for failure to state a claim upon which relief can be granted, an earlier almost identical complaint filed against KPMG in respect of the same claims raised in this case involving KPMG’s audit work for PCN. State of Wis. Inv. BA. v. KPMG, LLP, Civil Action No. 01-751 (DRD) (D.N.J. June 18, 2001). According to the majority, the claims in the matter before Judge Debevoise “were based on violations of Section 10(b) of the Securities and Exchange Act of 1934 and Section 11 of the Securities Act of 1933[, and t]his appeal, although grounded on similar facts, involves entirely different claims based on state law.” Ante, 187 N.J. at 384, 901 A.2d at 890 (2006). For that reason, the majority concludes that “reference to that decision does not answer the question before this Court.” Ante, 187 N.J. at 384, 901 A.2d at 890 (2006).
Although the federal court matter involved securities fraud claims, and the claims pending before this Court allege common law causes of action for negligence and deceit, that is, at most, a distinction without a difference. As the Supreme Court of the United States recently noted, private federal securities fraud *405actions “resemble[ ], but [are] not identical to, common-law tort actions for deceit and misrepresentation.” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341, 125 S.Ct. 1627, 1631, 161 L.Ed.2d 577, 584 (2005). Parallels predominate between this case and the one determined by the federal court; indeed, the complaints in the two cases are virtually identical.13
The federal court’s reasoning is compelling and presents lessons we ignore at our own peril. The court explained that
courts have consistently found incredible allegations of an auditor’s purported participation in a client’s fraud. See, e.g., Melder v. Morris, 27 F.3d 1097, 1102 (5th Cir.1994) (finding it “extremely unlikely” that auditor would risk professional reputation by conducting fraudulent auditing work); DiLeo v. Ernst & Young, 901 F.2d 624, 629 (7th Cir.1990) (finding it “irrational” that auditor would have risked reputation for honesty by participating in fraud for client); Reiger v. Price Waterhouse Coopers LLP, 117 F.Supp.2d 1003, 1007 (S.D.Cal.2000) (stating that independent accountants “will rarely, if ever, have any rational economic incentive to participate in its client’s fraud____ The accountant’s success depends on maintaining a reputation for honesty and integrity, requiring a plaintiff to overcome the irrational inference that the accountant would risk its professional reputation to participate in the fraud of a single client.”).
Additionally, courts have found the notion that defendants were motivated by the prospect of fees similarly unavailing. See Vogel v. Sens [Sands] Bros. & Co., 126 F.Supp.2d 730, 739 (S.D.N.Y.2001) (finding allegation that defendant sought greater fees insufficient to show motive); In re SmarTalk Teleservices, Inc. Sec. Litig., 124 F.Supp.2d 505, 518 (S.D.Ohio 2000) (finding allegation that defendant sought to maintain fees insufficient to infer scienter); Duncan v. Pencer, No. 94 Civ. 0321, 1996 WL 19043, at *9-10 (S.D.N.Y. Jan. 18,1996) (same).
The case presently before us has been litigated and dismissed in the federal court in and for this State; it should meet an equal fate here.
IV.
Other public policy considerations caution against the result the majority reaches. Save for a passing reference, ante, 187 N.J. at *406380, 901 A.2d at 887 (2006), the majority ignores the import of the Legislature’s limitation of liability on the actions of accountants for third-party claims. See N.J.S.A. 2A:53A-25b. The salutary basis for the legislative limitation of accountant liability is to cabin in claims against accountants and auditors. Yet, despite that limitation, the majority expands the liability of auditors to the point where they become guarantors of their audit results regardless of the level of the engagement entered into with the client.14 The majority’s result will advance the concerns echoed by amici that the providers of auditing services in New Jersey will become an ever-shrinking pool and that the cost of those services will increase exponentially as a function of increasing liability.
Those points were made clearly and succinctly by amici curiae the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants. Highlighting that “[a]n auditor’s role in the accurate presentation of a client’s financial statement is limited, and most importantly, secondary to that of the client[,]” they assert that we “should not allow companies that have engaged in fraud to recover damages from their auditors based purely on a showing of negligence because it results in a misallocation of responsibility between auditor and client for the preparation of financial statements.” They also pragmatically point out that “[i]n addition to causing a misallocation of liability, allowing a company’s management to shift the consequences of its own executive’s fraud to its accountants where the auditor is not alleged to have assisted in that fraud may diminish management’s incentive to exercise due care in its own *407responsibilities.” Third, they explain that jettisoning the imputation defense is not the sine qua non of insuring the continued quality of audit as “there already are numerous common-law, statutory, regulatory and professional standards requiring accountants to acquit themselves professionally and to perform audits competently and honestly.” And, finally, applying plain common sense, they foretell that the rule adopted by the majority “will further contribute to the unending litigation explosion” to which accountants have been subject in recent years, and that “[a]n increase in litigation will result in an increase in liability insurance protection for auditors, a cost that will be passed on to the clients in the form of more expensive auditing services.” That result will have an unintended consequence: “while large clients may find themselves paying increased audit fees reflecting higher prices for malpractice insurance, small clients may not only pay increased fees, but may have trouble finding auditors at all.”
Nothing in the majority’s opinion fairly addresses these self-evident points. That is because there simply is nothing that can be stated in rebuttal to those logical and understandable points. In these circumstances, the Legislature may wish to review the consequences of the majority’s decision and correct the imbalance it creates in the relationship between an auditor and his client.
V.
In the context of this suit, a suit brought by and on behalf of the shareholders of a bankrupt entity not as a shareholders’ derivative action but as one clothed as a trust, we must address the scope of the unprecedented remedy afforded by the majority. In similar circumstances, this Court recently denied relief to shareholders who also attempted a feint around the salutary and long-standing restrictions against shareholder actions. E. Dickerson & Son, Inc. v. Ernst & Young, LLP, 179 N.J. 500, 846 A.2d 1237 (2004). Specifically, this Court peremptorily held that “this is [not] a stockholders’ derivative action for the benefit of the accountants’ ‘client,’ Twin County. See In re PSE & G Shareholder Litig., 173 *408N.J. 258, 801 A.2d 295 (2002). This is an action for the benefits of the plaintiff corporations and their shareholders.” Id. at 506, 846 A.2d 1237. Thus, by allowing shareholders to proceed against the corporation’s auditors merely by using the ruse of a trust, the majority does needless violence to our jurisprudence that both respects the separate viability of corporate entities and limits a shareholder’s power to act on the corporation’s behalf.
Moreover, the remedy fashioned by the majority is fraught with practical impossibilities. Without the benefit of any authority, the majority concludes that, because “we should not punish the many for the faults of the few[,]” ante, 187 N.J. at 377, 901 A.2d at 885 (2006), “imputation may be asserted against those shareholders who engaged in the fraud[, ...] those who, by way of their role in the company, should have been aware of the fraud[, and those] shareholders [who], by virtue of their ownership of a large portion of stock, have the ability to conduct oversight of the firm’s operations.” Ante, 187 N.J. at 378, 901 A.2d at 886 (2006).
One is entirely at a loss to understand how the majority’s construct can be applied. For example, if a corporation has 1,000 shareholders, must the trial court hold 1,000 separate mini-trials to determine whether each specific shareholder is barred from recovery because he either “engaged in the fraud[, ...] should have been aware of the fraud[, or who], by virtue of their ownership of a large portion of stock, ha[d] the ability to conduct oversight of the firm’s operations[?]” What if the corporation has not 1,000 shareholders, but 5,000,000? Assuming, as one must, that plaintiffs in this new construct still have the burden of proving their entitlement to recovery, must each plaintiff appear and prove himself free of taint? Will the majority ultimately conclude that, contrary to basic tenets of our jurisprudence, the burden should fall on the party asserting the imputation bar to prove it? If so, how can they, given that the proofs of complicity will lie solely with the plaintiffs and are readily susceptible to spoliation? In the end, the parsing-out required by the majority’s *409notion of who can recover under what circumstances is patently impracticable.
Finally, it must be recognized that the majority effects a fundamental transformation of the imputation defense. As a result of the majority’s construct, the imputation defense ceases to be a defense to liability and becomes, instead, an item in mitigation of damages. Thus, instead of providing a bulwark against claims by vicarious wrongdoers, the now-transformed imputation defense is relegated to the piecemeal diminution of the damages alleged. Having put an untimely end to the imputation defense, the least the majority can do is to give it a proper burial instead of sentencing it to some jurisprudential limbo.
VL
In the end, the principles we should be embracing are simple. First, we should reaffirm the core principle that an actor is liable for his actions. Second, we should ratify once more our agency principles and hold that a principal is vicariously liable for the acts of his chosen agent. Third, we should give breath to the bedrock concept that no one should profit from their wrongdoing. Finally, we should return to one of the fundamental principles underpinning our jurisprudence that bars the culpable from recovery.
The majority wishes to penalize KPMG because it did not uncover soon enough an elaborate ruse intentionally planned and deliberately executed by PCN’s highest level executives, the very persons to whom PCN gave the gatekeeper responsibility for the information KPMG needed to ferret out their fraud. PCN’s common shareholders—the defined beneficiaries of the Trust15— bear the same responsibility for corporate misdeeds as the corpo*410ration in whose shoes they stand. For those reasons, I see no basis to depart from long-standing precedent and, thus, would affirm yet again that “as between two innocent parties, public policy requires that the principal must bear the loss occasioned by the act of his servant.” Stanley v. Chamberlin, 39 N.J.L. 565, 567 (Sup.Ct.1877). In the circumstances presented here, that principle requires that KPMG be allowed the protection of the imputation defense at the motion to dismiss stage and, because additional discovery will never cure the fundamental ills that afflict plaintiffs complaint, KPMG should not have to abide the summary judgment stage.
Therefore, I respectfully dissent.
For Affirmance as Modified/Remand—Chief Justice PORITZ, and Justices LONG, ZAZZALI, ALBIN and WALLACE—5.
Dissenting—Justices LaVECCHIA and RIVERA-SOTO—2.

 This matter comes to us on defendant’s Rule 4:6-2(e) motion to dismiss the complaint for failure to state a claim upon which relief can be granted. *390Therefore, we "examin[e] the legal sufficiency of the facts alleged on the face of the complaint [and we] search[] the complaint in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of claim, [where] plaintiffs are entitled to every reasonable inference of fact." Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 746, 563 A.2d 31 (1989) (citations and internal quotation marks omitted). In so doing, our "examination ... should be one that is at once painstaking and undertaken with a generous and hospitable approach." Ibid. However, my lack of quarrel with the majority's factual recitations should not be read as an endorsement of the majority's commentary on the facts as a whole.

 That action and its import to this case are more particularly addressed below. See infra, 187 N.J. at 371-72, 901 A.2d at 881-82 (2006).

 Specifically, the March 2002 litigation trust agreement provides that PCN and its affiliated corporate entities "absolutely and irrevocably grant, assign, transfer, convey, and deliver to the [Trust] and its successors, ... all right, title and interest of [PCN and its corporate affiliates] in and to any and all Litigation Claims, the Other Assets and the Cash deposited herewith, and the proceeds therefrom[.]” The agreement defines "Litigation Claims" as all claims "Mgainst KPMG LLP and all other appropriate parties for accounting malpractice, breach of contract and any and all other appropriate causes of action arising out of KPMG's audits of [PCN’s] financial statements." The agreement further defines "Other Assets" as "[a]ny and all tax refunds, reserves, etc. of [PCN] remaining after [PCN's] liquidation and dissolution." Finally, the agreement quantifies "the Cash deposited herewith, and the proceeds therefrom” as $750,000.
As an assignee, the Trust stands in PCN’s stead and, hence, has no rights greater than those of its assignor PCN. Borough of Brooklawn v. Brooklawn Hous. Corp., 129 N.J.L. 77, 79, 28 A.2d 199 (E. & A. 1942) ("[I]t is fundamental that the assignee can have no greater rights than the assignor and can recover no more than the assignor could have recovered____") (citing Boyd v. Brown, 115 N.J.L. 611, 181 A. 142 (E. & A. 1935)).

 That conclusion is not challenged by the Trust and, regardless, is well founded in the instrument that created the Trust.

 For that reason, the majority’s extensive discussion of federal cases concerning the imputation defense is instructive but not dispositive. See ante, 187 N.J. at 373-76, 901 A.2d at 882-85 (2006).

 Although it affirms the result obtained—a reversal of the trial court's dismissal of the Trust's complaint and a remand for further proceedings—even the majority resoundingly disavows the Appellate Division's reasoning. Ante, 187 N.J. at 371, 901 A.2d at 881-82 (2006).

 Even the majority concedes that the wrongful acts here were not those of KPMG but those of PON’s senior corporate officers—its agents—who "defrauded the corporation and its creditors[.]” Ante, 187 N.J. at 372, 901 A.2d at 882.

 Although the Appellate Division discerned an equitable fraud claim from the allegations of the complaint, that exercise never was ratified by the Trust for an obvious reason: a claim in equitable fraud only allows for equitable relief, and not money damages. Foont-Freedenfeld Corp. v. Electro-Protective Corp., 126 N.J.Super. 254, 257, 314 A.2d 69 (App.Div.1973), aff'd, 64 N.J. 197, 314 A.2d 68 (1974) (per curiam) ("[I]n an action in which plaintiff relies upon equitable fraud, the only relief that may be sought is equitable relief, such as rescission or reformation of an agreement, and not monetary damages only."). The complaint here—which is 45 pages long and contains 107 charging paragraphs— seeks only "compensatory damages as a result of the wrongs complained of herein” and "costs and expenses in this litigation, including reasonable attorneys’ fees and experts’ fees and other costs and disbursements; ..." Nowhere does the Trust seek any equitable relief.

 See, e.g., Brown v. Deloitte & Touche LLP, No. 98 Civ. 6054, 1999 WL 269901, at *2 (S.D.N.Y. May 4, 1999) (stating that "whatever damages [the accountant's] alleged negligence may have caused the debtors, the damages are the result of a financial transaction debtor management implemented itself.”); Miller v. Ernst & Young, 938 S.W.2d 313, 316 (Mo.App.1997) (holding that "fraudulent conduct [of the manager of the corporation’s most financially important division] is attributable to [the corporation] and precludes plaintiffs, who stand in the shoes of [the corporation], from recovering from [the accountants] for the alleged negligence of [the accountants].”); Seidman & Seidman v. Gee, 625 So.2d 1, 3 (Fla.Dist.Ct.App. 1992) ("Where it is shown, without dispute, that a corporate officer's fraud intended to and did benefit the corporation, to the detriment of *397outsiders, the fraud is imputed to the corporation and is an absolute defense to the corporation’s action against its accounting firm for negligent failure to discover the fraud.").

 The AICPA provides seven examples of examination or audit reports: a standard examination report on subject matter for general use; a standard examination report on an assertion for general use; an examination report for general use; an examination report on a subject matter; an examination report with a qualified opinion because conditions exist that, individually or in combination, result in one or more material misstatements or deviations from the criteria; an examination report that contains a disclaimer of opinion because of a scope restriction; and an examination report on subject matter that is the responsibility of a party other than the client. See id. at AT § 101.114, Examples 1 to 7.

 Although KPMG’s audit responsibilities spanned PCN's 1994 through 1997 fiscal years, the complaints raised by the Trust deal exclusively with 1995 and 1996.

 Tellingly, the only substantive difference between the two complaints lies in the fact that one was filed in federal court, charging federal claims, while the other was filed in state court and pled state common law claims. The facts as pled here in respect of the negligence claims are no different from, and add nothing to, those pled in the federal complaint.

 Only cold comfort can be derived from the majority’s conclusion that KPMG can simply proceed with discovery and that, once discovery is complete, "KPMG may move for summary judgment if the evidence demonstrates that no rational factfinder could conclude that the audits were negligently conducted.” Ante, 187 N.J. at 385, 901 A.2d at 890 (2006) (internal quotation marks and citation omitted). That conclusion dismisses the great costs that attend the defense of actions such as this one and merely sanctions what is referred to as nothing more than legal extortion: seeking a settlement simply because the costs of defense are prohibitive.

 The trust agreement provides that the beneficiaries of the Trust are “all holders of Allowed Class 7B Equity Interests.” Under PCN’s bankruptcy plan of reorganization, those who represent the “Class 7B Equity Interests" are those who held PCN's common stock; the holders of PCN's preferred stock were designated in the reorganization plan as "Class 5 Preferred Stock Interests."