Pride Centric Res. v. LaPorte

PRIDE CENTRIC RESOURCES, INC., FORMERLY KNOWN AS PRIDE MARKETING AND PROCUREMENT, INC. v. LAPORTE, A PROFESSIONAL ACCOUNTING CORPORATION, ET AL.

Civil Action No. 19-10163, 19-10696

United States District Court, E.D. Louisiana

August 24, 2021

SECTION D (1)

THIS RULING APPLIES TO ALL CASES

ORDER AND REASONS

WENDY B. VITTER, UNITED STATES DISTRICT JUDGE

Before the Court is Defendant LaPorte's Motion to Dismiss Trustee Claims Based on Standing, Lack of Privity, and In Pari Delicto.^[1] Plaintiff Ronald J. Hof has filed an Opposition, ^[2] and LaPorte has filed a Reply.^[3] After careful consideration of the parties' memoranda and the applicable law, the Court denies the Motion.

I. FACTUAL BACKGROUND

This is an accounting malpractice case. LaPorte, A Professional Accounting Corporation (“LaPorte”), is a Louisiana accounting firm. LaPorte was hired as an independent auditor for FoodServiceWarehouse.Com, LLC (“FSW”).^[4] LaPorte conducted independent audits of FSW for both 2013 and 2014.^[5] Ronald Hof, Trustee for FSW's bankruptcy estate, alleges that LaPorte failed to conduct these audits properly, resulting in significant damage and ultimately the bankruptcy of FSW.^[6] It is these allegations of professional negligence that underly the current dispute.

FSW filed for bankruptcy on May 20, 2016.^[7] Plaintiff Ronald J. Hof was appointed as trustee of the debtor on October 12, 2016.^[8] Hof filed a Final Report and Account on January 27, 2020.^[9] As of July 14, 2020, Hof had liquidated all assets except for the malpractice claims at issue in this litigation.^[10]

LaPorte now moves to dismiss Hof's claims.^[11] Defendant first argues that Hof lacks standing to bring a malpractice claim against LaPorte, because the trustee has issued a final report and liquidated all assets of FSW other than this claim. As a result, LaPorte contends that Hof is essentially pursuing the claim on behalf of Pride Centric Resources, Inc. (“Pride”) which has brought its own lawsuit, and such double recovery should not be allowed. In addition, LaPorte argues that the doctrine of in pari delicto bars recovery by Hof, because Hof has “directly admitted that FSW was acting in collusion with LaPorte to allegedly manipulate the financial statements of FSW.”^[12] LaPorte avers that these admissions demonstrate that FSW has “unclean hands” and therefore Hof should not be allowed to sue and benefit from the debtor's bad actions.

Plaintiff has filed an Opposition, ^[13] in which he argues that Judge Zainey has already determined that Plaintiff, as the bankruptcy trustee, has standing to bring this lawsuit.^[14] Moreover, he relies upon Stanley v. Trinchard^[15] to contend that the Fifth Circuit has endorsed a trustee bringing malpractice lawsuits under Louisiana law. As to LaPorte's in pari delicto argument, Hof argues that it is procedurally defective as the Complaint contains no allegations supporting such an argument. Hof further argues that no evidence exists to support an in pari delicto defense.

LaPorte has filed a Reply.^[16] It argues that Judge Zainey's decision is not applicable as LaPorte was not a party to that decision, and important information was withheld from Judge Zainey before he ruled on Hof's standing to bring the malpractice claims at issue. LaPorte argues that it may move to dismiss on in pari delicto grounds because Hof is judicially estopped from arguing that FSW did not engage in bad acts. LaPorte cites to an adversarial proceeding against Commercial Kitchens and a demand letter to Philadelphia Insurance Company as evidence of FSW's misdeeds on which LaPorte premises its in pari delicto argument.

II. LEGAL STANDARD

It is well-settled in this Circuit that motions to dismiss under Fed.R.Civ.P. 12(b)(6) are viewed with disfavor and are rarely granted.^[17] To overcome a defendant's motion to dismiss, a plaintiff must plead a plausible claim for relief.^[18] A claim is plausible if it is pleaded with factual content that allows the court to reasonably infer that the defendant is liable for the misconduct alleged.^[19] But, no matter the factual content, a claim is not plausible if it rests on a legal theory that is not cognizable.^[20]In ruling on a motion to dismiss, the Court accepts all well-pleaded facts as true and views those facts in the light most favorable to the plaintiff.^[21] However, the allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true.^[22] “[C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.”^[23] In deciding a Rule 12(b)(6) motion to dismiss, a court is generally prohibited from considering information outside the pleadings, but may consider documents outside of the complaint when they are: (1) attached to the motion; (2) referenced in the complaint; and (3) central to the plaintiff's claims.^[24] The Court can also take judicial notice of matters that are of public record, including pleadings that have been filed in a federal or state court.^[25]

III. ANALYSIS

A. Standing

The first issue before the Court is whether Hof has standing to bring a malpractice claim against LaPorte now that a final report has issued. LaPorte argues that the claim would solely benefit FSW's creditors, and that the only creditor with a cause of action against LaPorte-Pride-is already separately bringing a claim. The parties agree that the Court must look to Louisiana law.

Judge Zainey issued a previous ruling on this issue which the Court can take judicial notice of.^[26] Judge Zainey acknowledged:

Whether the bankruptcy estate or a creditor can pursue a state law claim against a third party-and concomitantly whether the automatic stay provided by § 362(a) applies to the claim-is a recurring issue in bankruptcy law. In re Buccaneer Res., LLC, 912 F.3d 291, 293 (5th Cir. 2019) (citing Seven Seas Petrol., 522 F.3d at 575). If a claim belongs to the estate, then the bankruptcy trustee has exclusive standing to assert it. Seven Seas Petrol., 522 F.3d at 584 (citing Educ. Grp. Health Trust, 25 F.3d at 1283). However, the trustee has no right to bring claims that belong solely to the estate's creditors. Id. (citing Caplin v. Marine Mid. Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972)).

Judge Zainey then found that the Louisiana statute at issue “unambiguously grants the party with contractual privity (in this case the debtor, FSW) a cause of action for its injuries under [La. R. S.] § 37:91(B)(1).”^[27] Stated differently, Judge Zainey explicitly found that Hof, as trustee for the debtor, FSW's, estate, had standing to assert the claims at issue. That opinion also rejected the concept that Hof could assert Pride's claims-or vice versa-simply because they arose from the same purportedly deficient accounting work. Indeed, Judge Zainey correctly noted that “The statute clearly envisions a cause of action owned by the party with contractual privity (§ 37:91(B)(1)) and a cause of action owned by parties without contractual privity who can satisfy the standing criteria of § 37:91(B)(2).”^[28]

LaPorte's attempts to resist Judge Zainey's reasoning are unpersuasive. First, LaPorte argues that it is improper to consider Judge Zainey's ruling since LaPorte was not a party to the proceeding and did not have an opportunity to participate in the proceeding or brief the issues. Because LaPorte was not a party at the time of the prior motion, Laporte asserts that this Court is not bound by Judge Zainey's decision. The Court recognizes LaPorte's argument that collateral estoppel does not apply in the present case due to LaPorte not being in privity with the parties in the proceeding before Judge Zainey.^[29] Nonetheless, the Court adopts Judge Zainey's finding that Hof, as Trustee serving in the place of the debtor, has standing based on La. R. S. § 37:91(B)(1) which “unambiguously grants the party with contractual privity (in this case the debtor, FSW) a cause of action for its injuries” under the statute.^[30]

LaPorte further argues that Judge Zainey's decision should not be followed since “Judge Zainey was not apprised of relevant information” because the briefing before Judge Zainey did not disclose “that Pride and FSW were essentially operating as a single entity, everything was commingled, including funding and money from the rebates.”^[31] As an initial matter, this statement is unsupported in the briefing for the instant Motion. LaPorte instead seems to ask the Court to marshal documents outside of the pleadings and filed in support of other Motions in considering this argument. At any rate, the argument fails on its own terms. The interrelatedness of Pride and FSW-an issue the Court notes is hotly disputed in this litigation-is relevant to the instant Motion only insomuch as it relates to ownership of the accounting malpractice claim, as discussed below.

LaPorte next argues that Judge Zainey's opinion actually supports its argument, as circumstances have changed since that opinion was issued. LaPorte argues that because the only creditors remaining are Pride members, the suit is, in effect, for the benefit of Pride, which was not in privity with LaPorte under La. R.S. 37:91. LaPorte asks the Court to “look beyond the technicalities of the law” and find that Hof is actually asserting its malpractice claim on Pride's behalf.^[32] LaPorte acknowledges that no formal discharge from bankruptcy protection has been ordered.^[33] Instead, LaPorte asserts that the Trustee's final report has “effectively achieved” a discharge and, thus, the only parties that would benefit from pursuit of these claims are the remaining creditors, namely Pride. As Hof correctly points out in...