United States District Court, W.D. Washington, Seattle
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.
ORDER DENYING SUMMARY JUDGMENT
C. COUGHENOUR UNITED STATES DISTRICT JUDGE.
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
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.)
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.)
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.)
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.)
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.)
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.)
Summary Judgment Standard
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).
Whether Plaintiffs Produced Documents
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
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. (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.)
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,
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, ...