Barrack et al v Pailet, Meunier & LeBlanc, LLP et al

Filing 95

ORDER AND REASONS ON MOTION. The court previously deferred the motion of the plaintiffs-in-exception, Pailet, Meunier & Leblanc, LLP, and Kenneth C. Pailet, for Sanctions for Failure to Comply With Order of the Court Dated August 28, 2013 and Motion to Compel Production of Documents from the defendants-in-exception, Dr. and Mrs. Robert L. Barrack, Cathey Ann Grossman and Jonathan A. Barrack as Trustees of the Barrack Children's Irrevocable Trust, the Toby N. Barrack 2011 Irrevocable Trust a nd the Adam J. Barrack 2011 Irrevocable Trust. Record Doc. No. 25. Having reviewed the pleadings, the submissions and arguments of the parties and the applicable law, IT IS ORDERED that the motion is DENIED, for the reasons set forth herein. Signed by Magistrate Judge Joseph C. Wilkinson, Jr on 1/23/14. (tbl)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
DR. ROBERT L. BARRACK ET AL.

CIVIL ACTION

VERSUS

NO. 12-2716

PAILET, MEUNIER & LEBLANC,
L.L.P. ET AL.

SECTION “B” (2)

ORDER AND REASONS ON MOTION
The court previously deferred the motion of the plaintiffs-in-exception, Pailet,
Meunier & Leblanc, LLP, and Kenneth C. Pailet (the “Pailet Parties”), for Sanctions for
Failure to Comply With Order of the Court Dated August 28, 2013 and Motion to
Compel Production of Documents from the defendants-in-exception, Dr. and Mrs. Robert
L. Barrack (“the Barracks”), Cathey Ann Grossman and Jonathan A. Barrack as Trustees
of the Barrack Children’s Irrevocable Trust (“the Children’s Trust”), the Toby N. Barrack
2011 Irrevocable Trust and the Adam J. Barrack 2011 Irrevocable Trust (collectively the
“Barrack Parties”). Record Doc. No. 25. The purpose of the deferral was to permit
additional briefing and require the Barrack Parties to submit to me for in camera review
the materials they are withholding from production based on the attorney-client and
accountant-client privileges. Record Doc. Nos. 64, 71.
The Pailet Parties filed a supplemental memorandum in support of their motion,
Record Doc. No. 78, supported by excerpts from the deposition testimony of Dr. Barrack

and Mark Carlie, C.P.A., and documentary exhibits, including the Barrack Parties’
original and supplemental privilege logs.

The entire transcript of Dr. Barrack’s

deposition is in the court’s record as an exhibit to the Barrack Parties’ memorandum in
opposition to the Pailet Parties’ motion for partial summary judgment. Record Doc.
No. 50-2. I have reviewed that entire transcript.
The Barrack Parties filed a response memorandum, Record Doc. No. 81, which
includes an excerpt from the deposition of Rita Schwager, C.P.A. They also submitted
to me for in camera review a compact disk containing all of the withheld documents,
which I have reviewed in its entirety. The Pailet Parties received leave to file a reply
memorandum. Record Doc. Nos. 83, 84, 85.
Having reviewed the pleadings, the submissions and arguments of the parties and
the applicable law, IT IS ORDERED that the motion is DENIED, for the following
reasons.
I.

FACTUAL AND PROCEDURAL BACKGROUND
Ken Pailet, a certified public accountant, and the Pailet, Meunier & Leblanc firm

performed accounting and tax preparation services for the Barrack Parties for many years
until the relationship was terminated in November 2010. Ken Pailet was also trustee of
the Children’s Trust from 1994 until mid-2011. In January 2011, the Barrack Parties

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hired an accounting firm located in St. Louis, Missouri, where the Barracks had relocated
and lived for about five years, to prepare their 2010 tax returns.
On July 3, 2012, the Barrack Parties opened an Accountant Review Panel in
Louisiana, which is apparently a prerequisite to a lawsuit for accounting malpractice
under Louisiana state law. Their request for review alleges that, “‘[i]n 2011, an audit was
conducted, which discovered numerous errors, omissions, contractual breaches,
negligence and breaches of fiduciary duties by’” the Pailet Parties in performing
accounting, tax and related services for the Barrack Parties until 2010. Pailet Parties’
supplemental memorandum, Record Doc. No. 78 at p. 4 (quoting Accountant Review
Panel request). The request for review asserts that the Pailet Parties’ errors required the
Barrack Parties to amend their tax returns for 2004 through 2009 to correct those prior
erroneous filings, which caused them to incur professional fees, additional taxes, interest
and penalties. Id.
The instant federal action consists solely of the Pailet Parties’ peremptory
exception1 of peremption under Louisiana law to the Barrack Parties’ request for an
Accountant Review Panel. The Barrack Parties removed the exception from Louisiana
1

“An exception is a means of defense, other than a denial or avoidance of the demand, used by
the defendant, whether in the principal or an incidental action, to retard, dismiss, or defeat the demand
brought against him.” La. Code Civ. Proc. art. 921. “The function of the peremptory exception is to
have the plaintiff’s action declared legally nonexistent, or barred by effect of law, and hence this
exception tends to dismiss or defeat the action.” Id. art. 923. “The objections which may be raised
through the peremptory exception include but are not limited to the following: (1) Prescription.
(2) Peremption. . . .” Id. art. 927(A).

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state court to this court based on diversity jurisdiction. Record Doc. No. 1. The Pailet
Parties argue in their exception that the Barrack Parties’ claims for accounting
malpractice are perempted under the applicable statute because the Barrack Parties failed
to open the Accountant Review Panel “within one year from the date when the alleged
act, omission, or neglect is discovered or should have been discovered.” La. Rev. Stat.
§ 9:5604(A). If the Barrack Parties knew or should have known of the Pailet Parties’
alleged errors more than one year before the Barrack Parties requested the review panel,
or before July 3, 2011, their accounting malpractice claims are perempted. Id.
The Pailet Parties’ motion to compel and for sanctions seeks discovery of
materials that the Barrack Parties have withheld from production based on the attorneyclient and/or accountant-client privileges. La. Code Evid. arts. 506, 515. The evidence
submitted in connection with the motion and Dr. Barrack’s complete deposition
testimony establish the following facts relevant to the motion.
In January 2011, the Barrack Parties hired the Stone Carlie accounting firm to
prepare their 2010 tax returns. During the months before the April 15, 2011 tax return
deadline, accountants Mark Carlie and Rita Schwager of Stone Carlie communicated
with and gathered from Ken Pailet and his partner at Pailet, Meunier & Leblanc, Benny
Hausknecht, information and documents related to accounting services and tax returns
that the Pailet Parties had previously prepared for the Barrack Parties. Transmittal of

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such information and documents from the Pailet Parties to Stone Carlie continued into
the summer of 2011. Record Doc. No. 81-1, Barrack Parties’ Exh. 1, deposition of Rita
Schwager at p. 65.
By February 23, 2011, Schwager and Carlie had seen the Barrack Parties’ 2008
and 2009 tax returns and knew that some royalty payments from Smith and Nephew to
the OrthoPartners partnership had been treated as capital gains on the returns of the
Barracks individually, OrthoPartners and the Children’s Trust. OrthoPartners was a
partnership whose partners were Dr. and Mrs. Barrack and the Children’s Trust.
OrthoPartners received royalty payments from Smith & Nephew, PLC with respect to a
medical device that Dr. Barrack had developed. Smith & Nephew “is a global medical
technology business.” http://www.smith-nephew.com (visited on Jan. 8, 2014). In 2009,
the Barracks created OrthoPartners, LLC, in which Dr. and Mrs. Barrack were the sole
members, to receive revenues that had previously been received by the OrthoPartners
partnership.
In the course of gathering information to prepare the Barrack Parties’ 2010 tax
returns, Carlie and Schwager were trying to understand the tax treatment from previous
years. By February 23, 2011, they had not reached any conclusion about the propriety
of the prior tax treatment. Record Doc. No. 78-4, Pailet Parties’ Exh. B, deposition of
Mark Carlie at pp. 49-53, and Record Doc. No. 78-6, deposition exhibit 15.

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Around March 7, 2011, the Barrack Parties hired Armstrong Teasdale, a St. Louis
law firm, to work with the Stone Carlie accountants and provide them with legal advice
in three areas: (1) the income that had been received by OrthoPartners, LLC and the
future of that entity, (2) a study of the expenses and deductions reported by OrthoPartners
and (3) the tax nature of the royalties reported by OrthoPartners. Pailet Parties’ Exh. B,
Carlie deposition at pp. 63-64. The Pailet Parties argue in the instant motion that the
second and third areas are at issue in the Barrack Parties’ allegations of malpractice and
their request for an Accountant Review Panel.
Stone Carlie’s and Armstrong Teasdale’s consideration of the third category of
advice continued as of April 4, 2011. Pailet Parties’ Exh. B, Carlie deposition at p. 75.
After the April 15, 2011 income tax return filing deadline passed, Carlie and
Schwager “were beginning to identify a number of issues with prior filed returns” for the
Barrack Parties, so they communicated with the Pailet Parties to obtain from them any
prior returns that Stone Carlie still did not have. On May 2, 2011, Schwager requested
specific, additional tax returns from the Pailet Parties. Id. at pp. 84-85 and Record Doc.
Nos. 78-7 and 78-8, Carlie deposition exhibits 19 and 20, respectively.
The Barrack Parties had not made any decision regarding whether to file amended
tax returns by May 2011. That decision was made later in 2011, after independent
accountants and attorneys for the Barrack Parties had collected, reviewed and evaluated

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large amounts of data. Record Doc. No. 50-2, deposition of Dr. Robert L. Barrack, at pp.
113-14.
After Stone Carlie had been hired, the Barrack Parties retained another law firm,
Waller Lansden Dortch & Davis, of Nashville, Tennessee, which had represented them
a few years earlier in connection with a breach of contract matter, to provide additional
legal advice. In April 2011, tax attorney Michael Yopp of Waller Lansden, Carlie and
Kell Riess, an attorney in Louisiana who had previously worked with the Barracks, were
advising the Barrack Parties regarding the disposition of a settlement with Smith &
Nephew. Id. at pp. 105-07.
Yopp retained Robert Whisenant, C.P.A., who began an in-depth analysis of the
Barrack Parties’ prior tax returns. Whisenant completed his analysis, Yopp reviewed it
and the Barracks were made aware of the results in August or September 2011. After
receiving Whisenant’s results, the Barrack Parties conferred with their attorneys and
accountants to decide what to do about the information. The Barrack Parties decided in
the second half of 2011 to file amended tax returns because of errors and omissions in
the tax returns that Whisenant’s analysis had identified. Stone Carlie prepared the
amended returns. Id. at pp. 113-16, 117-21, 129-30, 140-41, 143.
The documents that I have reviewed in camera are substantially consistent with
the overall description of events provided in Dr. Barrack’s deposition testimony.

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II.

ANALYSIS
The Pailet Parties argue in their supplemental memorandum that the Barrack

Parties have waived their attorney-client and accountant-client privileges as to the
withheld materials, which have been identified by the Barrack Parties on an original and
a supplemental privilege log, and that the materials are therefore discoverable because
the Barrack Parties have placed their confidential communications at issue, so that the
doctrine of at-issue waiver applies. The Pailet Parties also argued in their original
memorandum that the privileges were waived by the Barrack Parties’ previous partial
disclosure of some privileged documents and their failure to provide discovery responses
and a privilege log by September 11, 2013, as previously ordered by the court.
A.

At-Issue Waiver

Resolution of whether at-issue waiver has occurred in this matter depends on two
evidentiary burdens. The first burden of proof relates to the Pailet Parties’ exception of
peremption. The second evidentiary burden relates to whether the Barrack Parties have
placed their privileged communications at issue and therefore waived their privileges as
to those communications.
As to the first burden, the Pailet Parties argue that the Barrack Parties will bear the
burden at trial of the exception to prove that their accounting malpractice claim is not
perempted by showing that they did not discover facts sufficient to put them on notice

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of their claims more than one year before they opened the Accountant Review Panel.
The Pailet Parties acknowledge that they bear the second evidentiary burden to show that
at-issue waiver occurred. They contend that the Barrack Parties have put their privileged
communications at issue because, in order for the Barrack Parties to bear their burden of
proof at trial of the exception, the Barrack Parties will be required to introduce privileged
communications to show when they learned of the alleged accounting errors. In such
circumstances, the Pailet Parties assert that the Barrack Parties have waived their
attorney-client and accountant-client privileges and that the Pailet Parties are entitled to
discovery of the materials as to which the privileges have been waived.
“Peremption is a period of time fixed by law for the existence of a right. The right
is extinguished upon the expiration of the peremptive period. When the peremptive
period has run, the cause of action itself is extinguished unless timely exercised.” Rando
v. Anco Insulations, Inc., 16 So. 3d 1065, 1082 (La. 2009) (citing La. Civ. Code art.
3458) (additional citation omitted).
“Peremption has been likened to prescription; namely, it is prescription that is not
subject to interruption or suspension. As such, the . . . rules governing the burden of
proof as to prescription apply to peremption.” Id.
Prescription commences when a plaintiff obtains actual or
constructive knowledge of facts indicating to a reasonable person that he
or she is the victim of a tort. An injured party has constructive notice of his
condition when he possesses information sufficient to incite curiosity,
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excite attention, or put a reasonable person on guard to call for inquiry.
Such notice is tantamount to knowledge or notice of everything to which
a reasonable inquiry may lead.
Mims ex rel. Succession of Mims v. Lifecare Hosp., LLC, 1 So. 3d 660, 663 (La. App.
2d Cir. 2008) (citing Campo v. Correa, 828 So. 2d 502, 510 (La. 2002); Boyd v. B.B.C.
Brown Boveri, Inc., 656 So. 2d 683 (La. App. 2d Cir. 1995)); accord Amos v. Crouch,
71 So. 3d 1053, 1056 (La. App. 2d Cir. 2011) (citing Campo, 828 So. 2d at 510; Davis
v. Johnson, 36 So.3d 439 (La. App. 2d Cir. 2010); Mims, 1 So. 3d at 663).
“Constructive knowledge sufficient to commence the running of prescription
requires more than a mere apprehension that something might be wrong. Prescription
does not run against one who is ignorant of the facts upon which his cause of action is
based, as long as such ignorance is not willful, negligent, or unreasonable.” L.S.
Huckabay, M.D. Mem. Hosp., Inc. v. KPMG Peat Marwick, LLP, 843 So. 2d 1186,
1191-92 (La. App. 2d Cir. 2003) (citing Cordova v. Hartford Accident & Indem. Co., 387
So. 2d 574 (La. 1980); Young v. Clement, 367 So. 2d 828 (La. 1979); Creighton v.
Bryant, 793 So. 2d 275 (La. App. 2d Cir. 2001)).
The Pailet Parties acknowledge that they ordinarily bear the burden of proof on
their exception of peremption. This evidentiary burden requires them to show that the
Barrack Parties knew or should have known before July 3, 2011, facts indicating to a
reasonable person that the Pailet Parties had committed malpractice. However, the Pailet

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Parties argue that the burden of proof shifts to the Barrack Parties in the circumstances
of this case.
“Ordinarily, the exceptor bears the burden of proof at the trial of the peremptory
exception. . . . If prescription is evident on the face of the pleadings, the burden shifts
to the plaintiff to show the action has not prescribed.” Rando, 16 So. 3d at 1082
(citations omitted) (emphasis added); accord Green v. Guidry, No. 11-2466, 2012 WL
5507286, at *9 (E.D. La. Nov. 24, 2012) (citing Rando, 16 So. 3d at 1082); Davis v.
Karl, No. 10-875, 2010 WL 3312587, at *6 (E.D. La. Aug. 19, 2010) (citing Rando, 16
So. 3d at 1083); Wilhike v. Polk, 999 So. 2d 83, 85 (La. App. 4th Cir. 2008) (citing Lima
v. Schmidt, 595 So. 2d 624 (La. 1992); Grant v. Tulane Univ., 853 So. 2d 651, 653 (La.
App. 4th Cir. 2003)).
The Pailet Parties argue that peremption is evident on the face of the Barrack
Parties’ request for an Accountant Review Panel, which is the “pleading” that underlies
the exception of peremption. The Pailet Parties point out that the request for an
Accountant Review Panel asserts only that the alleged accounting errors were discovered
“in 2011,” without specifying a date of discovery and particularly failing to specify that
the discovery occurred after the peremptive date of July 3, 2011. If the burden of proof
on the exception shifts to the Barrack Parties, they must prove at trial that they did not
have actual or constructive knowledge of the errors before July 3, 2011, which, the Pailet

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Parties contend, would necessarily require the Barrack Parties to prove that they actually
discovered the problems after that date.
The evidentiary burden to prove at-issue waiver of privilege becomes relevant at
this point in the Pailet Parties’ argument. At-issue waiver occurs under Louisiana law
when a party places privileged communications “at issue,” which means more than
simply that the client’s communications with his lawyer or accountant have been referred
to in litigation or that they may be relevant to the subject matter of the litigation.
“Placing at issue” means that the waiving party “‘pleads a claim or defense in such a way
that he will be forced inevitably to draw upon a privileged communication at trial in
order to prevail. Consequently, he places at issue and waives his privilege as to
communications on the same subject under his control.’” Dixie Mill Supply Co. v.
Continental Cas. Co., 168 F.R.D. 554, 555-56 (E.D. La. 1996) (quoting Smith v.
Kavanaugh, Pierson & Talley, 513 So. 2d 1138, 1145 (La. 1987)) (emphasis added);
accord Trestman v. Axis Surplus Ins. Co., No. 06-11400, 2008 WL 1930540, at *3-4
(E.D. La. Apr. 29, 2008) (citing Dixie Mill, 168 F.R.D. at 556; Smith, 513 So. 2d at
1145; Merhige v. Gubbles, 657 So. 2d 1098, 1101 (La. App. 4th Cir. 2005); Stumpf v.
Stumpf, 613 So. 2d 683, 685 (La. App. 5th Cir. 1993)); Williams Land Co., LLC v.
BellSouth Telecomms., Inc., No. 02-1628, 2005 WL 940564, at *2 (E.D. La. Apr. 14,
2005).

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This kind of waiver occurs only when the party allegedly waiving the privilege has
“‘committed himself to a course of action that will require the disclosure of a privileged
communication.’” Stumpf, 613 So. 2d at 685 (quoting Smith, 513 So. 2d at 1146)
(emphasis added). A finding of waiver must be based on an affirmative act by the
privilege holder that creates some further detriment to the truth-seeking process in
addition to that already taken into account in the creation of the privilege itself. Smith,
513 So. 2d at 1143 (citations omitted); accord McNeely v. Bd. of River Port Pilot
Comm’rs, 534 So. 2d 1255, 1255-56 (La. 1988); State v. A.D.L., 92 So. 3d 989, 992 (La.
App. 3d Cir. 2012).
The parties agree that the burden to establish at-issue waiver of a privilege is upon
the party who asserts waiver. United States v. Newell, 315 F.3d 510, 525 (5th Cir. 2002);
In re Santa Fe Int’l Corp., 272 F.3d 705, 710 (5th Cir. 2001); Hodges, Grant & Kaufman
v. United States, 768 F.2d 719, 721 (5th Cir. 1985); Ingraham v. Planet Beach
Franchising Corp., No. 07-3555, 2009 WL 1076717, at *1 (E.D. La. Apr. 17, 2009); Kiln
Underwriting Ltd. v. Jesuit High Sch., No. 06-04350, 2008 WL 108787, at *4-5 (E.D.
La. Jan. 9, 2008); see Ascension Sch. Employees Credit Union v. Provost, Salter, Harper
& Alford L.L.C., 916 So. 2d 252, 260 (La. App. 1st Cir. 2005) (trial court erred in
granting defendant accounting firm’s exception of peremption when defendant provided

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“no proof” that plaintiff knew or should have known of any wrongdoing more than one
year before plaintiff requested accountant review panel).
The Pailet Parties argue that, once the burden has shifted to the Barrack Parties
under the peremption analysis to prove that they did not know of the alleged malpractice
before July 3, 2011, the Barrack Parties must draw upon their privileged communications
with attorneys and accountants to carry that burden. Therefore, the Pailet Parties contend
that the Barrack Parties themselves have placed at issue the date of their discovery of the
alleged malpractice and that the Barrack Parties will inevitably be forced to reveal
privileged communications to prove when they knew of the alleged errors. The Pailet
Parties have attached to their motion excerpts from the depositions of Carlie and Dr.
Barrack, which the Pailet Parties contend carry their burden to show that the Barrack
Parties placed at issue and waived their privileges as to all communications relevant to
the subject of the date of their knowledge.
As to the Pailet Parties’ argument regarding the burden of proof on the peremption
exception, I find that prescription is not evident on the face of the Barrack Parties’
request for an Accountant Review Panel and that the burden therefore does not shift to
the Barrack Parties to prove that they did not know of the alleged malpractice before
July 3, 2011. The request for an Accountant Review Panel states that the errors were
discovered “in 2011.” On its face, this does not indicate that the discovery occurred

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before the peremptive date of July 3, 2011. Although the statement leaves open a
possibility that the discovery occurred before July 3, 2011, it is equally possible that the
discovery occurred after that date. Because the burden of proof does not shift to the
Barrack Parties in these circumstances, the Pailet Parties retain the burden of proof at
trial of their exception.
Generally, in the judicial decisions that my research has located where the burden
of proof on an exception of prescription shifted to the plaintiff, the relevant dates were
specifically alleged in the petition. See, e.g., Green, 2012 WL 5507286, at *9 (Plaintiffs
sued their insurance agent in 2011, alleging that he had failed to procure for them the
cheapest available insurance policies on two residences that they had acquired in 1991
and 2006. Because peremption of claims against insurance agents normally begins when
the insured buys the policy, the claims were perempted on the face of the complaint and
plaintiffs bore the burden to show that they were not perempted.); Rando, 16 So. 3d at
1083 (Defendant contractor asserted the statutory defense of 10-year peremption to
plaintiff’s personal injury lawsuit arising out of his exposure to asbestos while working
for defendant on an immovable more than 10 years before suit was filed. Because the
lawsuit was perempted on its face, the burden shifted to plaintiff to show why a statutory
exception to the 10-year peremption applied to preserve his claim.); Smart v. Vazquez,
119 So. 3d 901, 904-05 (La. App. 4th Cir. 2013), writ denied, 125 So. 3d 452 (La. 2013)

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(Former client filed a legal malpractice action against attorneys who had allowed his
medical malpractice claim to prescribe when they failed to pay a filing fee to the Patients
Compensation Fund by the deadline. Because the petition was filed more than three
years after that deadline, plaintiff’s claim was perempted on the face of the pleadings and
the burden shifted to him to show that it was not perempted.); Hammond ex rel. Estate
of Tillman v. St. Francis Med. Ctr., Inc., 38 So. 3d 1270, 1275 (La. App. 2d Cir. 2010)
(Medical malpractice plaintiff bore burden of showing that action had not prescribed
when petition alleged specific dates of medical treatment, which were more than one year
before petition was filed, but failed to allege that she had discovered the alleged errors
less than one year before the filing date.). The Barrack Parties therefore do not bear the
burden of proof to show when they discovered the alleged errors.
In addition, I find that the Pailet Parties have not carried their evidentiary burden
to show that the Barrack Parties waived their privileges by placing their knowledge of
the discovery date at issue. On the contrary, the Pailet Parties have placed the date at
issue by raising the exception of peremption. The Barrack Parties’ mere denial of the
Pailet Parties’ affirmative defense does not mean that the Barrack Parties have committed
themselves to a course of action that will require them to disclose privileged
communications. “‘To waive the attorney-client privilege by voluntarily injecting an
issue in the case, a defendant must do more than merely deny a plaintiff’s allegations.’”

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Ward v. Freeman, 854 F.2d 780, 789 (5th Cir. 1988) (quoting Lorenz v. Valley Forge Ins.
Co., 815 F.2d 1095, 1098 (7th Cir. 1987)); see id. (Defendant “was not the first party to
inject reliance on advice of counsel into the trial. The plaintiffs first argued that the
advice given by [defendant’s] attorneys to the defendants . . . went straight to the crucial
issue of whether the allegedly fraudulent decisions were made with scienter. [Defendant]
had no choice but to negate the proof [of its privileged communications, whose
disclosure to plaintiffs had been erroneously compelled by the trial court] by showing it
acted in good faith and without any knowledge of an evil plot to defraud shareholders.”
“[W]e do not see how [defendant] can be said to have waived its privilege when it was
plaintiffs who exploited the attorney-client communications in order to attempt to prove
their claims.” “[W]e find that [defendant’s] use of [its privileged] communications to
rebut the plaintiffs’ fraud allegations similarly grew out of an issue injected into the trial
by the plaintiffs.”).
It is the Pailet Parties’ burden to prove that the Barrack Parties knew or should
have known of the alleged malpractice before July 3, 2011. The evidence that the Pailet
Parties have submitted is insufficient to show that the Barrack Parties have placed at
issue the date of their knowledge of the alleged errors. The evidence consists of e-mails
and deposition excerpts indicating that, after the Barrack Parties hired Stone Carlie to
prepare their tax returns, Carlie and Schwager raised questions about some of the prior

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tax treatment and that the Barrack Parties prudently hired attorneys in March and April
2011 to evaluate these questions and advise Stone Carlie and the Barrack Parties about
tax issues.
The Pailet Parties allege conclusorily that Stone Carlie and the Barrack Parties’
attorneys concluded as early as March 2011 and no later than July 3, 2011, that the Pailet
Parties had made significant errors in preparing the Barrack Parties’ previous tax returns.
However, the deposition testimony of Carlie, Schwager and Dr. Barrack and the other
exhibits that the Pailet Parties have submitted do not support these allegations.
The evidence shows that, during the early part of Stone Carlie’s engagement,
Schwager asked questions about past tax treatment for the purpose of understanding that
treatment, so that Stone Carlie could prepare the 2010 tax returns consistently with past
returns. After the 2010 returns were finished in mid-April 2011, the evidence indicates
that the accountants and tax lawyers undertook a review of the past tax returns and other
documents that the Pailet Parties had provided. As Dr. Barrack testified, various
questions about the Barrack Parties’ legal and tax situations arose during these reviews,
and the Barracks authorized their advisors to investigate and evaluate further in an effort
to reach conclusions and make recommendations about a future course of action.
Nothing in the evidence submitted contradicts Dr. Barrack’s testimony, which is not
inconsistent with the documents reviewed in camera, that no detailed analysis was

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undertaken and no conclusions were reached about any accounting errors until after
Whisenant was hired and finished his in-depth forensic accounting analysis in August
2011. His results were first reported to the Barracks Parties at that time and they then
sought additional professional advice about how to proceed with regard to those results.
The Barrack Parties acted prudently in conducting a full evaluation of these complex and
highly technical issues before reaching conclusions concerning the serious allegations
they ultimately leveled. The Pailet Parties have failed to carry their evidentiary burden
to show that the Barrack Parties have placed at issue and will inevitably be forced to
draw upon privileged communications to prove the date when they discovered enough
facts to put them on notice of their claims.
The facts in this case are similar to those in L.S. Huckabay, M.D. Memorial
Hospital, Inc., 843 So. 2d at 1186. The court held in that case that the plaintiff hospital’s
claims against its accounting firm had not been perempted by constructive knowledge
while the hospital’s consultant investigated the possibility that defendant had made errors
in preparing the hospital’s cost reports for 1992 and 1993. McKay, the consultant,
eventually found that errors in the reports had deprived plaintiff of the maximum possible
Medicaid reimbursements. Hospital administrators first met with McKay in April 1994,
when he told them that he “suspected . . . that the calculation of the . . . reimbursement
might be an issue, but he did not know for sure until he had access to the relevant

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documents and could calculate the numbers.” Id. at 1192 (emphasis added). The
hospital hired McKay to review the cost reports in May 1994. He received defendant’s
working papers in July 1994. When he finished his analysis in November 1994, he
notified hospital administrators of his findings and conclusion that plaintiff was eligible
to obtain additional Medicaid reimbursements, which it eventually received.
The hospital sued its former accounting firm in June 1995 to recover its costs of
discovering the accounting errors and obtaining the reimbursements. Defendant filed an
exception of prescription, arguing that plaintiff had sufficient facts no later than May
1994 when it hired McKay that put it on notice of its claims and that the claims were
perempted because the lawsuit was not filed within one year of that date. The court
rejected the argument, finding that prescription began to run in November 1994 when
McKay first revealed his analysis to hospital administrators. “Prior to that time, there
remained uncertainty in the minds of the Hospital’s decision-makers as to whether
McKay would recover additional reimbursement.

At the time McKay made his

presentation to [in May 1994], it was not a foregone conclusion that his review would
yield money for the Hospital.” Id. at 1193 (emphasis added). The evidence showed that
the hospital’s administrators did not have high expectations when they hired McKay that
his review would lead to additional reimbursements. “It was not unreasonable for the
Hospital to await the results of McKay’s review before bringing suit” when none of its

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administrators had either expertise regarding the Medicaid rules or enough accounting
experience to analyze the cost reports. Id. at 1193-94. “The Hospital did not realize it
was owed additional [Medicaid] money until McKay finished his analysis of the cost
reports prepared by [defendant]. . . . [P]rescription did not commence when McKay
made his presentation to the Hospital or when” he signed the contract with plaintiff. Id.
at 1195 (emphasis added). “[T]he Hospital would not have known that [defendant] had
not garnered the maximum reimbursement until McKay could establish it.” Id.; see also
id. at 1194-95 (citing Harvey v. Dixie Graphics, Inc., 593 So. 2d 351, 354-55 (La. 1992))
(In Harvey, plaintiff bought a company called HPI from Dixie, then quickly resold HPI
to a third party with a warranty. Harvey alleged that the defendant accounting firm had
understated HPI’s income tax liability in the tax returns it prepared during Dixie’s
ownership of HPI, upon which Harvey relied in making the purchase and resale. The
Second Circuit explained that the Louisiana Supreme Court “in Harvey did not rule that
prescription commenced when Harvey learned from his vendee [after the resale] that the
IRS was auditing HPI and was proposing adjustments that would result in greater tax
liability for Harvey,” but prescription began to run four months later “when an IRS agent
told Harvey’s own accountant and attorney that the tax returns had been prepared
incorrectly. At that time, Harvey knew of the [defendant’s] negligence . . . .”) (emphasis
added).

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Under these principles, the Pailet Parties have failed to produce evidence sufficient
to show that the Barrack Parties intend to prove the date of their discovery of the alleged
malpractice through disclosure of the withheld, privileged materials.
One purpose of my in camera review of the withheld documents was to assure that
the materials are not so inconsistent with Dr. Barrack’s testimony and the other evidence
that the Barrack Parties are abusing the claimed privileges in some way or that some
exception, such as the crime-fraud exception, might apply to pierce the privileges. See
Smith, 513 So. 2d at 1145 (quoting United States v. St. Pierre, 132 F.2d 837, 840 (2d Cir.
1942)) (“‘the privilege is to suppress the truth, but that does not mean that it is a privilege
to garble it; . . . it should not furnish one side with what may be false evidence and
deprive the other of the means of detecting the imposition.’”). I find nothing in the
withheld materials to support any such exception.
It is clear from the evidence that the Barrack Parties were confronted with a highly
complex accounting, tax and legal situation. They did not draw hasty conclusions based
on insufficient facts about any accounting errors by the Pailet Parties. Instead, they
prudently undertook an in-depth professional investigation of the questions that arose,
which amassed the necessary information and culminated finally in findings that would
put a reasonable person on notice that he had a claim for accountant malpractice. This
process of discovering facts, evaluating complex issues and seeking professional

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opinions based on sufficient analysis is exactly the process that the attorney-client and
accountant-client privileges are designed to foster by protecting confidential
communications from compelled disclosure.
B.

No Waiver Based on Previous Partial Disclosure of Privileged Documents
or Failure to Comply with a Court Order

In their original memorandum, the Pailet Parties also argued that the Barrack
Parties have waived their privileges by a previous partial disclosure of some privileged
documents and by failing to provide discovery responses and a privilege log by
September 11, 2013, which the Pailet Parties allege was previously ordered by the court.
Record Doc. No. 16. Both of these arguments lack merit.
First, to the extent that counsel for the Barrack Parties inadvertently produced
privileged documents to the Pailet Parties, counsel appropriately used the procedures of
Fed. R. Civ. P. 26(b)(5)(B) to retrieve those documents and preserve their privileged
nature. Second, I find that the Barrack Parties did not violate any court order and should
not be subject to some sort of sanction resulting in any loss of privilege. They were not
ordered to produce a supplemental privilege log by September 11, 2013, and they did not
produce responsive documents after the September 11, 2013 court-ordered deadline in
any significant fashion that caused prejudice to the Pailet Parties.

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In sum, I find no basis on the current record to conclude that the Barrack Parties
have waived their attorney-client and/or accountant-client privileges. Accordingly, the
motion to compel and for sanctions is DENIED.

23rd
New Orleans, Louisiana, this _________ day of January, 2014.

JOSEPH C. WILKINSON, JR.
UNITED STATES MAGISTRATE JUDGE

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