Solow v. Heard, McElroy & Vestal, LLP

Citations: 937 So. 2d 875; 2006 WL 1382070Docket: 2005-CA-1028

Court: Louisiana Court of Appeal; May 31, 2006; Louisiana; State Appellate Court

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Heard, McElroy, Vestal, L.L.P. (HMV), a certified public accounting firm, sought review of a trial court's judgment that denied its exceptions of improper venue, improper cumulation, and prematurity. The Court of Appeal of Louisiana found that the trial court erred in overruling HMV's exception of prematurity, leading to the granting of HMV's writ application.

The case arises from the bankruptcy of RTIN Holdings, Inc. (RTIN) in March 2004, following an alleged accounting scheme by Curtis Swanson, who held multiple executive positions at RTIN. This scheme involved submitting inflated financial reports to the SEC in March 2003, which improperly included audit reports from HMV that had not been completed. HMV requested RTIN to amend its filings to remove these reports in April 2003 but failed to inform the SEC of the situation until February 2004, ten months later.

Plaintiff Laurence Solow negotiated the sale of his companies to RTIN, relying on the allegedly false financial statements from HMV. He received no payment on promissory notes associated with the sale, and the shares he received became worthless. Additionally, two creditors, Jack Stolier and Allan Katz, received RTIN shares under the sale agreement, which also turned out to be worthless. It is alleged that HMV was aware of the sale negotiations and that its reports misrepresented RTIN’s financial condition. Had HMV informed the plaintiffs about the incomplete audit, they would not have proceeded with the sale.

In June 2004, Mr. Solow lodged a complaint against HMV with the Louisiana State Society of Certified Public Accountants, requesting a review panel under LA. R.S. 37:71, et seq. In December 2004, HMV initiated a declaratory action in Caddo Parish, arguing that Mr. Solow could not establish a negligence claim concerning auditing financial statements as per La. R.S. 37:91(B)(2). Subsequently, in February 2005, Mr. Solow, Mr. Stolier, and Mr. Katz filed a lawsuit in Orleans Parish against HMV and Mr. Swanson. HMV responded with exceptions of improper venue, cumulation, and prematurity, all of which the trial court overruled. The appellate court determined that the trial court erred by not sustaining HMV's dilatory exception of prematurity, as Louisiana law requires claims against certified public accountants to first be presented to a review panel (La. R.S. 37:105). The court rejected the plaintiffs' argument that HMV waived this requirement by filing a declaratory action, emphasizing that waiver requires a written agreement from both parties (La. R.S. 37:107). The court found that the necessary written agreement was not present and that HMV timely raised the panel requirement through the dilatory exception. Consequently, the court sustained HMV's exception of prematurity and dismissed the claims against HMV. On rehearing, the plaintiffs questioned whether the panel's failure to issue an opinion within twelve months allowed them to seek judicial relief, prompting the court to request evidence of specific steps taken by the plaintiffs.

The Louisiana Accountancy Act mandates automatic dismissal of a panel proceeding if no opinion is rendered within twelve months from the notice of the attorney chairman's appointment, unless a court extension is obtained. In this case, the notice was given in September 2004, and no extension was sought, leading to the panel's automatic dissolution before the plaintiffs commenced their suit in February 2005. Consequently, the trial court correctly overruled the defendants' exception of prematurity.

The trial court's subsequent decision on the exceptions of improper venue, improper cumulation, and lis pendens is now under examination. The petition identifies the domiciles of the parties involved, noting that venue is claimed to be proper in Orleans Parish based on Louisiana law. Plaintiffs argue that venue is appropriate because the wrongful conduct occurred and damages were sustained there, specifically for Mr. Stolier's claims against Curtis Swanson and HMV. They assert that Mr. Stolier received his stock in Orleans Parish, the site of his damages.

HMV contends that each plaintiff must independently establish venue in Orleans Parish for their claims to be cumulated, referencing Louisiana law that requires proper venue for each action. While plaintiffs concede they cannot establish venue for Mr. Solow and Mr. Katz in Orleans Parish, they argue for judicial efficiency in allowing the cumulated claims to proceed there based on Mr. Stolier's claims. They invoke the doctrine of ancillary venue, which permits the trial of related claims in one venue for efficiency, even if one claim lacks proper venue. This doctrine was previously recognized by the Louisiana Supreme Court to avoid inconsistent verdicts when no single venue is appropriate for all defendants.

In Albarado v. Union P. RR. Co., the court addressed the issue of venue and improper cumulation of claims. The plaintiffs' claims were determined to share a common venue in Caddo Parish under Louisiana Code of Civil Procedure (La. C.C.P.) art. 42, making their reliance on the doctrine of ancillary venue inappropriate. The court referenced previous cases that similarly declined to exercise ancillary venue due to the possibility of consolidating claims in a single parish. The trial court erroneously overruled an exception of improper cumulation, as claims by Mr. Katz and Mr. Solow were improperly joined with Mr. Stolier's claims. However, the court upheld that Mr. Stolier could litigate in Orleans Parish, where he is domiciled, particularly against Mr. Swanson and HMV, based on the Long Arm Statute and La. C.C.P. art. 73. The petition sufficiently alleged joint or solidary obligations due to claims of misrepresentations by both HMV and Mr. Swanson. The court found no error in the trial court's denial of HMV's exception of improper venue concerning Mr. Stolier’s claims. The court declined to address the dismissal of Mr. Solow's claims based on a prior declaratory action, given the improper cumulation. It granted the plaintiffs' rehearing application, reversed the ruling on improper cumulation, and ordered the transfer of Mr. Katz's and Mr. Solow's claims to Caddo Parish. The court affirmed the trial court's ruling regarding venue for Mr. Stolier.