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James v. Paton

United States District Court, W.D. Washington, Seattle

January 25, 2017

NANCY L. JAMES, Chapter 7 Trustee Plaintiff,
JAMES C. PATON, et al., Defendants.


          Robert S. Lasnik, United States District Judge

         This matter comes before the Court on “Defendant Clark Number's Motion for Summary Judgment of Dismissal With Prejudice of All Plaintiff's Claims.” Dkt. # 242. Plaintiff, the bankruptcy trustee, alleges that Clark Nuber was negligent or grossly negligent in the provision of accounting services to the debtor and made critical misrepresentations on which the debtor relied in communicating with the Internal Revenue Service (“IRS”). Plaintiff alleges that Clark Nuber's breach of the duty of care and/or the misrepresentations caused the debtor damages in the amount of at least $20, 828, 192.11. The Court has already dismissed the trustee's claim for damages in an amount that corresponds to the donations the debtor received using false representations in telephone and direct mail solicitations. Dkt. # 311. Clark Nuber seeks judgment on all remaining claims.

         A. Standard of Review

         Summary judgment is appropriate when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine dispute as to any material fact that would preclude the entry of judgment as a matter of law. The party seeking summary dismissal of the case “bears the initial responsibility of informing the district court of the basis for its motion” (Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)) and “citing to particular parts of materials in the record” that show the absence of a genuine dispute of material fact (Fed. R. Civ. P. 56(c)). Once the moving party has satisfied its burden, it is entitled to summary judgment if the non-moving party fails to designate “specific facts showing that there is a genuine issue for trial.” Celotex Corp., 477 U.S. at 324. The Court will “view the evidence in the light most favorable to the nonmoving party . . . and draw all reasonable inferences in that party's favor.” Krechman v. County of Riverside, 723 F.3d 1104, 1109 (9th Cir. 2013). Although the Court must reserve for the jury genuine issues regarding credibility, the weight of the evidence, and legitimate inferences, the “mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient” to avoid judgment. City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1049 (9th Cir. 2014); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Summary judgment should be granted where the nonmoving party fails to offer evidence from which a reasonable jury could return a verdict in its favor. Freecycle Sunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).

         Having reviewed the memoranda, declarations, and exhibits submitted by the parties, the Court finds as follows:

         B. Negligence and Gross Negligence

         Clark Nuber seeks dismissal of the trustee's negligence and gross negligence claims on the ground that she has not provided admissible expert testimony regarding the standard of care in the professional accounting community. The Court will assume, for purposes of this motion, that expert testimony is necessary because there are no accreditation requirements, professional standards, statutes, or case law establishing the relevant standard of care and that the facts observable to a lay person and describable without professional training do not, in and of themselves, give rise to an inference of negligence. See Douglas v. Freeman, 117 Wn.2d 242, 248-49 (1991); Ripley v. Lanzer, 152 Wn.App. 296, 306-07 (2009). Clark Nuber acknowledges, as it must, that plaintiff has obtained and offered the reports of Fox & Company Certified Public Accounts LLC, a Washington accounting firm that specializes in tax return and audit work for non-profit entities, Washington public port districts, homeowners' associations, and small- and medium-sized businesses. Fox & Company has provided opinions regarding a professional accounting firm's duties of investigation, disclosure, and communication, Clark Nuber's breach of those duties, and the improper use of joint costs allocation in violation of the relevant standard of care. Dkt. # 282 at 12-13 (summary of opinions). Clark Nuber argues, however, that these opinions should be excluded because Fox & Company (and/or its principal, George Fox) is “not only unqualified to render an expert opinion on the standard of care for tax reporting on and financial statement audits of a not-for-profit . . . organization such as BCPF, but he also repeatedly fails to cite a specific and applicable professional standard in support of plaintiff's negligence, gross negligence or negligent misrepresentation claims.” Dkt. # 242 at 6-7.

         Clark Nuber is essentially seeking to exclude an expert witness without discussing Fed. R. Ev. 702 or applying the analysis set forth in Daubert v. Merrell Down Pharm., Inc., 509 U.S. 579 (1993), and Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137 (1999). To be admissible, expert testimony must involve scientific, technical, or other specialized knowledge and must be both reliable and helpful. Clark Nuber does not address Fox & Company's skill or knowledge except through a footnote citation to a declaration and an exhibit, [1] nor does it challenge the helpfulness of a professional accountant's opinions in this matter. Rather, Clark Nuber points to the opposing opinions of its experts to argue that plaintiff's evidence is unreliable and faults Fox & Company for failing to support its opinions with references to applicable professional standards.[2] The reports do, however, cite to the relevant tax forms, IRS circulars, statutes, Financial Accounting Standards Board publications, professional codes of conduct, and Generally Accepted Auditing Standards. Clark Nuber makes no attempt to show that Fox & Company's opinions are not based on principles, techniques, or theories that are generally accepted in the accounting profession or that they constitute nothing more than subjective belief or unsupported speculation. Daubert, 509 U.S. at 590. The fact that there is conflicting expert testimony, standing alone, does not make plaintiff's evidence unreliable or inadmissible.

         C. Collateral Estoppel

         Clark Nuber argues that plaintiff is barred from asserting any claim for damages arising from the loss of BCPF's tax exempt status under the doctrine of collateral estoppel. A party asserting collateral estoppel as a bar must prove four elements: “(1) the issue decided in the prior adjudication is identical to the one presented in the current action, (2) the prior adjudication must have resulted in a final judgment on the merits, (3) the party against whom collateral estoppel is asserted was a party or in privity with a party to the prior adjudication, and (4) precluding relitigation of the issue will not work an injustice on the party against whom collateral estoppel is to be applied.” Clark v. Baines, 150 Wn.2d 905, 913 (2004). Clark Nuber argues that when the trustee sought and obtained permission from the bankruptcy court to abandon BCPF's appeal of the revocation of its tax-exempt status, she made an implicit representation to the court that the tax-exempt status was worthless and cannot now claim damages associated with its loss. This same argument was rejected in the context of Clark Nuber's judicial estoppel and law of the case defenses. Dkt. # 315 at 4. It has no more merit when couched in terms of collateral estoppel and certainly does not justify imposition of judgment as a matter of law.

         D. Causation

         As noted above, the Court has already dismissed the trustee's claim for damages in the amount of the donations the debtor received using false representations in telephone and direct mail solicitations. The Court found that plaintiff failed to adequately allege that Clark Nuber's breaches of duty were the “but for” cause of the debtor's promise to use 88-90% of donations to pay for mammograms or of the other directors' failure to correct that misrepresentation. Dkt. # 311. Clark Nuber seeks dismissal of the remaining claims in their entirety because (1) the trustee's acts were an intervening and superseding cause of the damages BCPF seeks to recover and (2) the trustee cannot show reliance.

         1. Superseding Cause

         To be liable for negligence or gross negligence, Clark Nuber's actions must be the proximate cause of the damages claimed by the trustee. “Washington recognizes two elements to proximate cause: cause in fact and legal causation.” Lowman v. Wilbur, 178 Wn.2d 165, 169 (2013) (internal quotation marks and alterations omitted). Cause in fact refers to the physical connection between an act and an injury - would the injury have occurred “but for” the act? Wuthrich v. King County, 185 Wn.2d 19, 28 (2016). Legal causation requires courts to consider “logic, common sense, justice, policy, and precedent” when determining how far the consequences of a wrongful act should go. Hartley v. State, 103 Wn.2d 768, 779 (1985). Duty and legal causation are interrelated concepts. The Washington Supreme Court has noted that “the policy considerations that support imposition of a duty will often compel the recognition of legal causation, so long as cause in-fact is established under the relevant facts.” Lowman, 178 Wn.2d at ...

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