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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE STEVEN E. KLIG, Plaintiff, v. DELOITTE LLP, DELOITTE TAX LLP and DELOITTE & TOUCHE LLP, each a Delaware Limited Liability Partnership, Defendants. ) ) ) ) ) C.A. No. 4993-VCL ) ) ) ) ) )

OPINION Date Submitted: September 20, 2011 Date Decided: November 21, 2011 Richard R. Wier, Jr., Michele D. Allen, WIER & ALLEN, P.A., Wilmington, Delaware; Attorneys for Plaintiff. Paul J. Lockwood, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Attorney for Defendants.

LASTER, Vice Chancellor.

Plaintiff Steven Klig was terminated as a partner of Deloitte LLP and Deloitte Tax LLP after he pled guilty to a criminal charge relating to allegedly stalking and harassing an ex-lover. After learning of his arrest, Deloitte management placed Klig on an unpaid leave of absence. When Klig later asked to return to work, Deloitte management decided to resume paying Klig his approximately $1.4 million in annual compensation, but otherwise would not allow him to come into the office or to resume his practice. In this action, Klig contends that management lacked the authority to act as they did, resulting in Klig's wrongful disassociation from the Deloitte partnerships and breaches of the Deloitte partnership agreements. To remedy these wrongs, Klig seeks a multi-million dollar damages award. The parties have cross-moved for summary judgment. I grant the defendants' motion and enter judgment against Klig. I. FACTUAL BACKGROUND

The copious factual record consists of the operative partnership agreements, minutes, extensive email records, deposition transcripts, affidavits, and a detailed criminal complaint that the United States Attorneys' Office filed against Klig in the United States District Court for the Southern District of New York (the "Indictment"). Although the parties joust over various minor issues of fact, the material facts are undisputed. A. Deloitte's Structure And Klig's Place In It Between 2003 and 2005, the international accounting giant known colloquially as Deloitte sought to limit its legal risk and potential liability by compartmentalizing its businesses across a complex structure of separate entities. As described by Deloitte's 1

website, "`Deloitte' is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management and tax services to selected clients." About Deloitte, http://www.deloitte.com/us/about (last visited October 27, 2011). The ultimate parent entity is non-party Deloitte Touche Tohmatsu Limited ("DTTL"), a private company organized under the laws of the United Kingdom. DTTL does not itself provide services to clients. Rather, DTTL's member firms provide services in various countries or

geographic areas, with each firm "subject to the laws and professional regulations of the particular country or countries in which it operates." Id. Defendant Deloitte LLP, a Delaware limited liability partnership, is the member firm responsible for the United States. I therefore will refer to it as "Deloitte US." Like DTTL, Deloitte US does not itself provide services to clients. Instead, Deloitte US owns interests in operating subsidiaries also structured as Delaware limited liability partnerships. These include defendants Deloitte Tax and Deloitte & Touche LLP and non-parties Deloitte Consulting LLP and Deloitte Financial Advisory Services LLP. According to Deloitte's website, Deloitte [US] helps coordinate the activities of these subsidiaries. Deloitte [US] and these subsidiaries are separate and distinct legal entities. Each of these subsidiaries is organized under Delaware law, is separately capitalized, has its own Chairman and CEO and Board of Directors, and provides a distinct array of services. When you contract for the provision of services with one of the subsidiaries of Deloitte [US], only that subsidiary is responsible for the provision of those services and is the only

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entity with potential liability for any claims that may arise in connection with such services. Id. An individual who might be referred to informally as a "Deloitte partner" is actually a partner in one of the Deloitte operating entities, through which the individual provides services. Under Deloitte's governance structure, each partner in a US operating entity is also a partner in Deloitte US. Plaintiff Klig became a Deloitte partner in June 1998. He practiced in Deloitte's oddly named Washington National Tax Group. Further complicating the geographical references, Klig worked out of Deloitte's New York office. Klig specialized in the partnership tax aspects of large, multi-national transactions and private equity mergers and acquisitions. At the time he became a partner, Deloitte provided its services through a single partnership in which Klig was a member. As a result of Deloitte's restructuring, Klig became a partner in both Deloitte US and Deloitte Tax. Klig contends that he also must have been a partner in Deloitte & Touche, because he received Schedule K-1s from that entity. The defendants respond that Klig was never a partner in Deloitte & Touche.

Other than naming Deloitte & Touche as an additional defendant, Klig has not focused on that partnership, and he does not make any claims or advance any arguments based on his status as a partner in it or the terms of its partnership agreement. I therefore deem him to have (i) abandoned any claims against Deloitte & Touche and (ii) conceded implicitly that the resolution of his claims against Deloitte US and Deloitte Tax controls any claims he might have had against Deloitte & Touche. I will not discuss that entity further.

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B.

The Internal Governance Of Deloitte US And Deloitte Tax Deloitte US and Deloitte Tax are each governed by a partnership agreement,

styled as a "Memorandum of Agreement" or "MOA."

Taking advantage of the

contractual flexibility offered by the Delaware Revised Uniform Partnership Act, see 6 Del. C.

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