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Adams Financial Partners, L.P. v. Patke Associates Ltd.

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

July 31, 2017

ADAMS FINANCIAL PARTNERS, L.P., a Washington limited partnership, and ADAMS FINANCIAL CONCEPTS, LLC, a Washington limited liability company, Plaintiffs,
PATKE ASSOCIATES LTD., an Illinois company, Defendant.



         This matter comes before the Court on the motion for summary judgment by Defendant Patke Associates, Ltd. (Dkt. No. 30). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES the motion for the reasons explained herein.

         I. BACKGROUND

         Plaintiff Adams Financial Partners, LP (AFP) is a hedge fund that, along with Plaintiff Adams Financial Concepts, LLC (AFC), was founded by investment advisor Michael Adams. (Dkt. No. 38 at 2.) AFC is the general partner that manages AFP. (Id.) By agreement and by law, AFP was required to have its financial statements audited and to produce those audits to its investors. (Id.)

         In December 2009, Plaintiffs hired Defendant Patke Associates, Ltd. to conduct an audit of AFP's 2009 financials. (Id. at 6; Dkt. No. 38-1 at 124, 132.) Plaintiffs sent the financial statements to Defendant in March 2010. (Dkt. No. 32 at 2.) In July 2011, although the 2009 audit had not yet been completed, Plaintiffs signed a second contract that extended Defendant's services for the 2010 audit. (See Dkt. No. 38 at 10-11.)

         The parties dispute the nature of each other's contribution to the audits during the ensuing four years. What is undisputed is that Defendant never produced an audit for 2009 or 2010. According to Defendant, this is because Plaintiffs failed to produce information about loans made to entities closely related to Adams and his son, which were not disclosed to investors and had questionable valuations in the financial statements. (Dkt. No. 30 at 3-4, 5-6.) Plaintiffs adamantly dispute this, maintaining that they produced all information requested and that the failure to produce the 2009 and 2010 audits was a result of Defendant's own mismanagement and negligence. (Dkt. No. 36 at 1-2, 18-19.)

         In late 2013-at which time the 2009 and 2010 audits were still not produced-the Washington Department of Financial Institutions (DFI) conducted a routine examination of AFC. (Dkt. No. 38 at 12.) Based at least in part on the lack of audits, DFI issued a deficiency letter to AFC and began investigating Plaintiffs. (Id. at 13.) DFI ultimately issued a draft order finding that AFC and Adams had violated the Washington Securities Act, a finding that Plaintiffs dispute. (Dkt. No. 31 at 3; Dkt. No. 36 at 2.)

         On January 7, 2014, Plaintiffs reached an agreement with the DFI that, if AFC was able to maintain its investment advisor license, Plaintiffs would voluntarily wind down the AFP hedge fund. (Dkt. No. 38 at 14.) The next day, Plaintiffs instructed Defendant to suspend work on the audits. (Id.) Defendant then disengaged as Plaintiffs' auditor. (Dkt. No. 38-1 at 177.)

         On March 17, 2016, Plaintiffs brought suit against Defendant, alleging breach of contract and breach of professional duties. (Dkt. No. 1 at 4.) Defendant now moves for summary judgment dismissal of both claims. (Dkt. No. 30 at 1.)


         A. Summary Judgment Standard

         The Court shall grant summary judgment if the moving party shows that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). In making such a determination, the Court must view the facts and justifiable inferences to be drawn therefrom in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, 477 U.S. 242, 255 (1986). Once a motion for summary judgment is properly made and supported, the opposing party must present specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Material facts are those that may affect the outcome of the case, and a dispute about a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party. Anderson, 477 U.S. at 248-49. Ultimately, summary judgment is appropriate against a party who “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

         B. Whether Plaintiffs Produced Documents

         Before addressing the legal issues posed by Defendant's motion, the Court considers the factual issue of whether Plaintiffs produced the necessary documents for Defendant to properly perform the audit. This issue is central to much of the legal analysis.

         Defendant states that it “repeatedly asked [Plaintiffs] for additional information regarding the [loans to the closely-held entities] in an effort to confirm the value assigned to them was appropriate.” (Dkt. No. 30 at 6.) According to Defendant, Plaintiffs “seldom provided the requested information, but often either failed to provide what was requested, provided the wrong documents, or provided documents and information that raised additional questions.” (Id.) To support these allegations, Defendant submits a declaration from one of its shareholders, Ronald Niemaszyk, stating this information essentially verbatim. (See Dkt. No. 32 at 1, 3.) The declaration also provides details of the parties' communications from December 2012 to November 2013, with copies of the correspondence attached.[1] (Id. at 3; Dkt. No. 32-1 at 13-68.) For example, from late 2012 to mid-2013, Defendant sought information from Plaintiffs about the loans in question. (Dkt. No. 32-1 at 14-56.) Defendant maintains that Plaintiffs' responses were incomplete and that the lack of information prevented it from completing the audit. (Dkt. No. 30 at 6-8.)

         According to Plaintiffs, this is a misrepresentation of the parties' communications and Plaintiffs' performance. (See Dkt. No. 36 at 21.) Plaintiffs maintain that Defendant omits important events in the intervening three years between the parties' initial agreement and these later communications. (Id.) As support, Plaintiffs submit copies of the parties' correspondence and the documents produced by Plaintiffs from November 2010 to November 2011. (Dkt. No. 38-1 at 142-60, 165-75.) Plaintiffs also submit a declaration from Adams stating that, during this time period, he provided all documents requested by Defendant, that he repeatedly asked for updates, and that the delay was in fact due to Defendant's own failure to diligently work on the audit. (Dkt. No. 38 at 7-11.) For example, on December 29, 2010, Adams emailed Kevin Hengtgen, Defendant's junior employee who was assigned to Plaintiffs' 2009 audit. (Id. at 165.) Feeling that he heard little from Defendant since hiring the firm, Adams asked, “Would you update me on the status of the audit?” (Id.; see also Dkt. No. 37-1 at 15, 17; Dkt. No. 36 at 9.) On January 4, 2011, James Lensing, one of Defendant's principal auditors, responded:

I apologize that we have not yet responded to you, Kevin is no longer with the firm, and I was going through his emails this evening and just noticed your message. I also noticed that you sent some additional information on December 7 and December 8 that I was not aware we had received, ...

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