Barrack v. Pailet, Meunier & LeBlanc, L. L.P.
| Decision Date | 23 January 2014 |
| Docket Number | CIVIL ACTION NO. 12-2716 |
| Parties | DR. ROBERT L. BARRACK ET AL. v. PAILET, MEUNIER & LEBLANC, L.L.P. ET AL. |
| Court | U.S. District Court — Eastern District of Louisiana |
The court previously deferred the motion of the plaintiffs-in-exception, Pailet, Meunier & Leblanc, LLP, and Kenneth C. Pailet (the "Pailet Parties"), for Sanctions for Failure to Comply With Order of the Court Dated August 28, 2013 and Motion to Compel Production of Documents from the defendants-in-exception, Dr. and Mrs. Robert L. Barrack ("the Barracks"), Cathey Ann Grossman and Jonathan A. Barrack as Trustees of the Barrack Children's Irrevocable Trust ("the Children's Trust"), the Toby N. Barrack 2011 Irrevocable Trust and the Adam J. Barrack 2011 Irrevocable Trust (collectively the "Barrack Parties"). Record Doc. No. 25. The purpose of the deferral was to permit additional briefing and require the Barrack Parties to submit to me for in camera review the materials they are withholding from production based on the attorney-client and accountant-client privileges. Record Doc. Nos. 64, 71.
The Pailet Parties filed a supplemental memorandum in support of their motion, Record Doc. No. 78, supported by excerpts from the deposition testimony of Dr. Barrackand Mark Carlie, C.P.A., and documentary exhibits, including the Barrack Parties' original and supplemental privilege logs. The entire transcript of Dr. Barrack's deposition is in the court's record as an exhibit to the Barrack Parties' memorandum in opposition to the Pailet Parties' motion for partial summary judgment. Record Doc. No. 50-2. I have reviewed that entire transcript.
The Barrack Parties filed a response memorandum, Record Doc. No. 81, which includes an excerpt from the deposition of Rita Schwager, C.P.A. They also submitted to me for in camera review a compact disk containing all of the withheld documents, which I have reviewed in its entirety. The Pailet Parties received leave to file a reply memorandum. Record Doc. Nos. 83, 84, 85.
Having reviewed the pleadings, the submissions and arguments of the parties and the applicable law, IT IS ORDERED that the motion is DENIED, for the following reasons.
Ken Pailet, a certified public accountant, and the Pailet, Meunier & Leblanc firm performed accounting and tax preparation services for the Barrack Parties for many years until the relationship was terminated in November 2010. Ken Pailet was also trustee of the Children's Trust from 1994 until mid-2011. In January 2011, the Barrack Partieshired an accounting firm located in St. Louis, Missouri, where the Barracks had relocated and lived for about five years, to prepare their 2010 tax returns.
On July 3, 2012, the Barrack Parties opened an Accountant Review Panel in Louisiana, which is apparently a prerequisite to a lawsuit for accounting malpractice under Louisiana state law. Their request for review alleges that, "'[i]n 2011, an audit was conducted, which discovered numerous errors, omissions, contractual breaches, negligence and breaches of fiduciary duties by'" the Pailet Parties in performing accounting, tax and related services for the Barrack Parties until 2010. Pailet Parties' supplemental memorandum, Record Doc. No. 78 at p. 4 (quoting Accountant Review Panel request). The request for review asserts that the Pailet Parties' errors required the Barrack Parties to amend their tax returns for 2004 through 2009 to correct those prior erroneous filings, which caused them to incur professional fees, additional taxes, interest and penalties. Id.
The instant federal action consists solely of the Pailet Parties' peremptory exception1 of peremption under Louisiana law to the Barrack Parties' request for an Accountant Review Panel. The Barrack Parties removed the exception from Louisianastate court to this court based on diversity jurisdiction. Record Doc. No. 1. The Pailet Parties argue in their exception that the Barrack Parties' claims for accounting malpractice are perempted under the applicable statute because the Barrack Parties failed to open the Accountant Review Panel "within one year from the date when the alleged act, omission, or neglect is discovered or should have been discovered." La. Rev. Stat. § 9:5604(A). If the Barrack Parties knew or should have known of the Pailet Parties' alleged errors more than one year before the Barrack Parties requested the review panel, or before July 3, 2011, their accounting malpractice claims are perempted. Id.
The Pailet Parties' motion to compel and for sanctions seeks discovery of materials that the Barrack Parties have withheld from production based on the attorney-client and/or accountant-client privileges. La. Code Evid. arts. 506, 515. The evidence submitted in connection with the motion and Dr. Barrack's complete deposition testimony establish the following facts relevant to the motion.
In January 2011, the Barrack Parties hired the Stone Carlie accounting firm to prepare their 2010 tax returns. During the months before the April 15, 2011 tax return deadline, accountants Mark Carlie and Rita Schwager of Stone Carlie communicated with and gathered from Ken Pailet and his partner at Pailet, Meunier & Leblanc, Benny Hausknecht, information and documents related to accounting services and tax returns that the Pailet Parties had previously prepared for the Barrack Parties. Transmittal ofsuch information and documents from the Pailet Parties to Stone Carlie continued into the summer of 2011. Record Doc. No. 81-1, Barrack Parties' Exh. 1, deposition of Rita Schwager at p. 65.
By February 23, 2011, Schwager and Carlie had seen the Barrack Parties' 2008 and 2009 tax returns and knew that some royalty payments from Smith and Nephew to the OrthoPartners partnership had been treated as capital gains on the returns of the Barracks individually, OrthoPartners and the Children's Trust. OrthoPartners was a partnership whose partners were Dr. and Mrs. Barrack and the Children's Trust. OrthoPartners received royalty payments from Smith & Nephew, PLC with respect to a medical device that Dr. Barrack had developed. Smith & Nephew "is a global medical technology business." http://www.smith-nephew.com (visited on Jan. 8, 2014). In 2009, the Barracks created OrthoPartners, LLC, in which Dr. and Mrs. Barrack were the sole members, to receive revenues that had previously been received by the OrthoPartners partnership.
In the course of gathering information to prepare the Barrack Parties' 2010 tax returns, Carlie and Schwager were trying to understand the tax treatment from previous years. By February 23, 2011, they had not reached any conclusion about the propriety of the prior tax treatment. Record Doc. No. 78-4, Pailet Parties' Exh. B, deposition of Mark Carlie at pp. 49-53, and Record Doc. No. 78-6, deposition exhibit 15.
Around March 7, 2011, the Barrack Parties hired Armstrong Teasdale, a St. Louis law firm, to work with the Stone Carlie accountants and provide them with legal advice in three areas: (1) the income that had been received by OrthoPartners, LLC and the future of that entity, (2) a study of the expenses and deductions reported by OrthoPartners and (3) the tax nature of the royalties reported by OrthoPartners. Pailet Parties' Exh. B, Carlie deposition at pp. 63-64. The Pailet Parties argue in the instant motion that the second and third areas are at issue in the Barrack Parties' allegations of malpractice and their request for an Accountant Review Panel.
Stone Carlie's and Armstrong Teasdale's consideration of the third category of advice continued as of April 4, 2011. Pailet Parties' Exh. B, Carlie deposition at p. 75.
After the April 15, 2011 income tax return filing deadline passed, Carlie and Schwager "were beginning to identify a number of issues with prior filed returns" for the Barrack Parties, so they communicated with the Pailet Parties to obtain from them any prior returns that Stone Carlie still did not have. On May 2, 2011, Schwager requested specific, additional tax returns from the Pailet Parties. Id. at pp. 84-85 and Record Doc. Nos. 78-7 and 78-8, Carlie deposition exhibits 19 and 20, respectively.
The Barrack Parties had not made any decision regarding whether to file amended tax returns by May 2011. That decision was made later in 2011, after independent accountants and attorneys for the Barrack Parties had collected, reviewed and evaluatedlarge amounts of data. Record Doc. No. 50-2, deposition of Dr. Robert L. Barrack, at pp. 113-14.
After Stone Carlie had been hired, the Barrack Parties retained another law firm, Waller Lansden Dortch & Davis, of Nashville, Tennessee, which had represented them a few years earlier in connection with a breach of contract matter, to provide additional legal advice. In April 2011, tax attorney Michael Yopp of Waller Lansden, Carlie and Kell Riess, an attorney in Louisiana who had previously worked with the Barracks, were advising the Barrack Parties regarding the disposition of a settlement with Smith & Nephew. Id. at pp. 105-07.
Yopp retained Robert Whisenant, C.P.A., who began an in-depth analysis of the Barrack Parties' prior tax returns. Whisenant completed his analysis, Yopp reviewed it and the Barracks were made aware of the results in August or September 2011. After receiving Whisenant's results, the Barrack Parties conferred with their attorneys and accountants to decide what to do about the information. The Barrack Parties decided in the second half of 2011 to file amended tax returns because of errors and omissions in the tax returns that Whisenant's analysis had identified. Stone Carlie prepared the amended returns. Id. at pp. 113-16, 117-21, 129-30, 140-41, 143.
The documents that I have reviewed in camera are substantially consistent with the overall description of events provided in Dr. Barrack's deposition testimony.
The Pailet Parties argue in their supplemental memorandum...
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