By Charmaine Little | Jul 11, 2018

The 5th U.S. Circuit Court of Appeals recently affirmed a lower court's decision to dismiss a malpractice suit against accounting firm Grant Thornton LLP brought by the Firefighters’ Retirement System, Municipal Employees’ Retirement System of Louisiana and the New Orleans Firefighters’ Pension and Relief Fund.

The appeals court's July 3 opinion backed the decision by the U.S. District Court for the Middle District of Louisiana to dismiss the accounting malpractice claims by the firefighter groups because the complaint had been filed prematurely.

Grant Thornton and the plaintiffs both filed appeals after the district court dismissed the plaintiffs’ case.

There were two main issues in the firefighter groups’ appeal and Grant Thornton’s cross appeal: whether the firefighter organizations' accusations were premature because they weren’t filed with an accountant review panel and if the claims were timely under the preemptive period. The district court decided the claims were premature, and the appeals court agreed.

Regarding whether the plaintiffs’ lawsuit was premature, the appeals court determined it was. It first looked at the Louisiana Accountancy Act that says all lawsuits against accounting firms have to be evaluated by a public accountant review panel. It adds that no claims can continue without this being done first. While the plaintiffs agree they didn’t follow this guideline, they said Grant Thornton waived this right when it responded to the lawsuit (with claims that it was outside of Louisiana jurisdiction) and didn’t bring up the issue previously. Grant Thornton, on the other hand, said a waiver doesn’t apply because one has to be written by all parties that agree to it. The appeals court agreed and said Grant Thornton didn’t waive its right to have a panel review the lawsuit.

When it comes to the issue of whether the plaintiffs’ lawsuit is outside of the preemptive timeline of three years, the appeals court determined it was. While the plaintiffs said this issue shouldn’t even be raised in appeals because it wasn’t brought up in district court, the appeals court brought up ideas under the preemptive factor: contra non valentum and fraud. For the contra non valentum, the appeals court said the Louisiana Supreme Court already determined it’s not a factor in preemption cases, so it isn’t relevant. 

As for fraud, while the plaintiffs said Grant Thornton didn’t monitor or inform authorities about certain financial issues and relationships, the plaintiffs didn’t prove Grant Thornton withheld the information intentionally, the court said. As for the actual preemptive period, the plaintiffs said they didn’t know about the misconduct they alleged in 2013. Even if that were so, they didn’t file the lawsuit with an accountant review panel until March 23, 2017, which is beyond the three-year limit. 

Considering this, the appeals court backed the district court’s dismissal of the plaintiffs’ claims because they were premature, and also dismissed the malpractice claims with prejudice because they were submitted after the preemptive time period.

The plaintiffs had sued Grant Thornton for malpractice after they invested $100 million in the FIA Leveraged Fund. One of the terms of the fund was that Grant Thornton would be its auditor and give timely updates. Grant Thornton stopped the audits after an investigation conducted by the SEC. It admitted to making mistakes in 2007 and 2008 reports before it filed for bankruptcy in 2012. The plaintiffs later filed a lawsuit in 2014.

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