Case Name: Laurence SOLOW, Jack Stolier and Allan Katz v. HEARD, McELROY & VESTAL, L.L.P. and Curtis A. Swanson
Court: Louisiana Court of Appeal
Jurisdiction: Louisiana
Decision Date: 2006-04-12
Citations: 937 So. 2d 875
Docket Number: No. 2005-CA-1028
Parties: Laurence SOLOW, Jack Stolier and Allan Katz v. HEARD, McELROY & VESTAL, L.L.P. and Curtis A. Swanson.
Judges: (Court composed of Chief Judge JOAN BERNARD ARMSTRONG, Judge PATRICIA RIVET MURRAY, Judge MAX N. TOBIAS Jr.)
Reporter: Southern Reporter, Second Series
Volume: 937
Pages: 875–881

Head Matter:
Laurence SOLOW, Jack Stolier and Allan Katz v. HEARD, McELROY & VESTAL, L.L.P. and Curtis A. Swanson.
No. 2005-CA-1028.
Court of Appeal of Louisiana, Fourth Circuit.
April 12, 2006.
Order Reversing in Part on Grant of Rehearing May 31, 2006.
Stephen H. Kupperman, Craig Isenberg, Barrasso Usdin Kupperman Freeman & Sarver, LLC, New Orleans, Counsel for Plaintiffs/Appellees.
James F. Shuey, Frilot, Partridge, Kohnke & Clements, L.C., New Orleans, Bernard S. Johnson, Cook, Yancey, King & Galloway, APLC, Shreveport, Counsel for Defendant/Appellant.
(Court composed of Chief Judge JOAN BERNARD ARMSTRONG, Judge PATRICIA RIVET MURRAY, Judge MAX N. TOBIAS Jr.)

Opinion:
PATRICIA RIVET MURRAY, Judge.
It Heard, McElroy, Vestal, L.L.P. ("HMV"), seeks review from the trial court's judgment denying its dilatory and declinatory exceptions of improper venue, improper cumulation, and prematurity. Because we find the trial court erred in overruling HMV's exception of prematurity, we grant HMV's writ application.
FACTS
HMV is a firm of certified public accountants headquartered in Shreveport, Louisiana. In 2002, HMV was retained by RTIN Holdings, Inc. ("RTIN") as its auditor. The case stems from the collapse of RTIN, which declared bankruptcy in March 2004. Over the years, Curtis Swanson held various positions in RTIN including chief financial officer, president, and chief executive officer. Mr. Swanson allegedly perpetrated an accounting scheme whereby RTIN significantly overstated its financial position. On March 26, 2003, RTIN submitted its 2002 annual report to the SEC. On the following day, RTIN submitted an amended 2001 annual report. With these filings, RTIN submitted audit reports that purported to be issued by HMV, when in fact HMV had not yet completed its Daudit. The reports expressed no concerns with RTIN's financial condition. RTIN's previous auditor had expressed concern as to RTIN's ability to continue as a going concern in light of significant operating losses reflected in its 2001 audit report.
On April 3, 2003, HMV allegedly issued correspondence to RTIN requesting that it amend its filings with the SEC to remove the audit reports. Although RTIN ig nored this request, HMV failed to inform the SEC of the situation until February 2004, ten months later. In February 2004, the SEC announced that it was considering an enforcement action against RTIN. In March 2004, RTIN declared bankruptcy.
In April 2003, Mr. Solow began negotiating with RTIN for the sale of Mr. Solow's companies, MedEx Systems, Inc. and Pegasus Pharmacy, Inc. Mr. Solow subsequently sold the businesses to RTIN in return for 1.25 million shares of stock, promissory notes, and future payments. Mr. Solow alleges that he relied on the amended 2001 and 2002 financial statements containing HMV's audit reports. Mr. Solow alleges that he never received payment on the notes and that his shares-are now worthless.
As part of the sale agreement, RTIN was obligated to issue shares of RTIN stock to two of Mr. Solow's creditors, Jack Stolier, and Allan Katz. Furthermore, RTIN guaranteed that Mr. Solow, Mr. Stolier and Mr. Katz would receive no less than $2 per share when they later sold their stock. Allegedly, Mr. Stolier received |s193,000 shares of RTIN stock and Mr. Katz received 169,000 shares and these shares are now worthless. It is further alleged that HMV was aware of the negotiations and agreements between Mr. Solow and RTIN and that Mr. Solow had relied on the two audit reports submitted by RTIN to the SEC in March 2003. It is still further alleged that HMV knew or was reckless in not knowing that RTIN financial statements were materially misstated and that HMV's audit reports had been improperly filed with SEC. If HMV had alerted Mr. Solow, Mr. Stolier, and Mr. Katz that RTIN's financial statements had been filed before HMV completed its audit, it is alleged that they would not have completed the sale.
In June 2004, Mr. Solow filed a copi-plaint against HMV with the Louisiana State Society of Certified Public Accountants ("Society") requesting that review panel proceedings be instituted under the provisions of LA. R.S. 37:71, et. seq. In December 2004, HMV filed a declaratory action in Caddo Parish against Mr. Solow representing that Mr. Solow has presented a claim for damages against it to the Society and seeking a judicial declaration that Mr. Solow could not establish a cause of action against it for negligence in auditing financial statements pursuant to La. R.S. 37:91(B)(2).
In February 2005, Mr. Solow, Mr. Stolier, and Mr. Katz filed this suit in Orleans Parish against both HMV and Mr. Swanson. In response, HMV filed dilatory and declinatory exceptions of improper venue, improper cumulation, and prematurity. The trial court overruled all the exceptions. As noted at the outset, we find thé trial court erred in failing to sustain the dilatory exception of ^prematurity.- Given our finding that this suit is premature as to HMV, we pretermit considering the other exceptions.
DISCUSSION
The basis for HMV's exception of prematurity is the requirement that suits against a firm of certified public accountants first be presented to a review panel. The panel requirement is set forth in La. R.S. 37:105, which provides in pertinent part as follows:
Except as provided in this Part, no action against a certified public accountant or firm or his insurer may be commenced in any court before the claimant's request for review has been presented to a public accountant review panel established pursuant to this Part and the panel has issued a written opinion.
La. R.S. 37:105(A). The plaintiffs contend that HMV effectively waived the review panel requirement by commencing the declaratory judgment action in Caddo Parish. We disagree.
Although La. R.S. 37:107 provides that the parties may waive the panel requirement, it mandates that both parties agree in writing to waive the panel. Particularly, it provides that "[b]y written agreement of both parties, the use of the public accountant review panel may be waived." La. R.S. 37:107. Procedurally, the proper mechanism to raise a violation of the panel requirement is by a dilatory exception of prematurity. See Saia v. Asher, 2001 1038 (La.App. 1 Cir. 7/10/02), 825 So.2d 1257. The jurisprudence has recognized that the parties may waive the panel by failing to assert a dilatory exception of prematurity timely as required by |sLa. C.C. P. art. 926(B), which states "[a]ll objections which may be raised through the dilatory exception are waived unless pleaded therein." Saia, 2001 1038 at p. 3, n. 3, 825 So.2d at 1259 (finding panel waived because the parties failed to raise this objection); see also Ascension School Employees Credit Union v. Provost, Salter, Harper & Alford, L.L.C., 2004-1227 (La.App. 1 Cir. 6/10/05), 916 So.2d 252.
Applying these principles to the instant case, we find the exception of prematurity should have been granted for two reasons. First, the statutory requirement for waiving the panel requirement—a written agreement signed by both parties—was not met. Second, the procedural requirement to raise a violation of the panel requirement—filing a timely exception of prematurity—was met in this case. For these reasons, we find the trial court erred in failing to sustain HMV's dilatory exception of prematurity. When, as in this case, an exception of prematurity is sustained, the court is required to dismiss the action. La. C.C.P. art. 933. Accordingly, we sustain HMV's dilatory exception of prematurity and dismiss the plaintiffs' claims against HMV.
WRIT GRANTED.
. This matter was initially filed as an appeal, but was subsequently converted to a writ.
. HMV suggests that RTIN purloined an unsigned draft audit report that HMV had not intended to be final.
. HMV contends that the sale of Mr. Solow's companies was completed in June of 2003 and that the sales agreement called for Mr. Solow's stock to be delivered to an escrow agent to be held until RTIN paid all the cash consideration required by the sales agreement. HMV suggests that the shares of Mr. Solow's companies . either remain in the hands of an escrow agent or have been returned to Mr. Solow. As a result, HMV questions what damage if any Mr. Solow has sustained other than disappointment in not having a lucrative business deal go through. 'HMV emphasizes that Mr. Solow's statement that "his shares are now worthless'' is a reference to his RTIN shares, not the shares in his two companies.
. The record reflects that a preliminary default has been taken in this suit as to Mr. Swanson.
. Contrary to HMV's suggestion, we find, as plaintiffs point out, that the provision in La. R.S. 37:108 allowing a party to seek judicial relief while the panel proceeding is pending is not applicable in this case. That provision, by its terms, allows an accounting firm against whom a panel proceeding is pending to seek a judicial determination as to whether a defense is available under La. R.S. 9:5604, which provides the applicable preemption period. Peremption is not at issue in this case.