CPA Takes Advantage of Procedural Quirk

The idiosyncratic nature of the Louisiana legal system is one that is noted, if not explored, in many law schools around the country.  Even as early as high school, many teachers will explain that Louisiana is unique insofar as its legal system is based primarily on Spanish and French civil law, rather than the British tradition used in the other 49 states.  The differences between Louisiana and the rest of the country do not end there, however, and a large accounting firm was recently successful in obtaining dismissal of an action based on a Louisiana-specific accounting malpractice statute.

The dispute arose when a retirement fund discovered that its $100 million investment was rendered worthless in a matter of a couple of years.  The fund alleged that its investment included an automatic right of redemption, a right that was triggered in 2009.  However, the CPA firm declined to complete its audit report for that year before convincing the retirement fund to waive its right to redemption.  The retirement fund brought suit against the accountants, alleging that they conspired with the investment firm to conceal the financial health of the investment until the redemption right was waived.  It is alleged that this waiver furthered the investment fraud, and served to prevent a run on other related investments that were also audited by the accounting firm.

The court dismissed the suit in its entirety, citing a Louisiana statute requiring any claimant bringing suit against a CPA to first submit it to a public accountant review panel.  This procedural requirement is similar to that for a Charge of Discrimination filed with the EEOC in that the determination of the panel is not final, but must nevertheless be rendered prior to any civil lawsuit being filed.  As the retirement fund failed to first bring the claim before the panel, the court dismissed the complaint in whole.

This victory highlights the importance of familiarity with local procedure in the professional liability context.  Although the particular circumstances of this case may not apply to everyone, many states have statutes specifically impacting professional malpractice claims. States will also almost always have boards governing each profession, which includes a complaint process for aggrieved clients.  Knowledge of any such complaints filed by a plaintiff, or lack thereof, can be a useful tool in assessing any professional liability claim, especially when a complaint is littered with alleged ethical or independence violations.