Kamal v. Baker Tilly Virchow Krause, LLC

Background

K. Tausif Kamal and Samuel Edison were among approximately 800 noteholders who purchased or renewed Aspirity Holdings notes between July 1, 2015, and April 28, 2017. Aspirity could not repay the noteholder debt and entered bankruptcy in June 2017, causing the plaintiffs and other noteholders to lose money. Baker Tilly served as the outside auditor for Twin Cities Power and its successor, Aspirity, from at least 2015 until April 15, 2016.

The remaining claim against Baker Tilly was accountant negligence based on its filing of a 2015 10-K. The plaintiffs alleged that Baker Tilly was substantially involved in preparing Aspirity’s quarterly reports, knew about warning indicators concerning Aspirity’s financial condition, failed to include cautionary language about material weaknesses, and instead issued positive reports on which investors relied.

The parties agreed that expert testimony was required. The scheduling order required the plaintiffs to identify their experts and provide specified expert disclosures by August 11, 2023, and required the defendant to make its disclosures by October 28, 2023. All expert discovery was to be completed by March 8, 2024.

Motion and legal standard

Baker Tilly moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). The court applied the same standard used for a motion to dismiss for failure to state a claim: judgment is appropriate when no material factual issue remains and the moving party is entitled to judgment as a matter of law. The court generally accepts the nonmoving party’s pleaded facts as true and draws reasonable inferences in that party’s favor, while disregarding legal conclusions presented as factual allegations.

Minnesota affidavit requirement

Minnesota Statutes section 544.42 requires a plaintiff pursuing professional negligence or malpractice with expert testimony to provide two affidavits. An Expert Review Affidavit must be served with the summons and complaint. An Expert Disclosure Affidavit, signed by the plaintiff’s attorney, must identify each expected expert witness and summarize the relevant facts, opinions, and grounds for those opinions. Unless changed by agreement or extended by the court for good cause, the Expert Disclosure Affidavit must be served within 180 days after discovery begins.

The statute provides that failing to comply with the Expert Disclosure Affidavit requirement results, upon motion, in mandatory dismissal with prejudice when expert testimony is necessary to establish a basic case. The parties did not dispute that the plaintiffs never produced the affidavit.

Court’s analysis

The plaintiffs argued that the parties’ discovery plan and scheduling order changed the statutory 180-day deadline. The court rejected that argument. It concluded that the parties’ negotiations addressed their obligations under the Federal Rules of Civil Procedure, not the separate statutory affidavit requirement. The scheduling order set deadlines for identifying experts, providing complete expert reports, and completing expert depositions, but it did not set a new deadline for the attorney-signed affidavit required by section 544.42.

The plaintiffs also argued that Baker Tilly should have told them about the affidavit requirement and that its failure to do so excused their noncompliance. The court rejected that argument as well. It held that Baker Tilly had no obligation to explain state-law requirements to opposing counsel and that the plaintiffs were responsible for complying with section 544.42.

Finally, the plaintiffs argued that the court should weigh the prejudice to Baker Tilly before dismissing the claim. The court concluded that such a prejudice analysis was unnecessary because the cases cited by the plaintiffs involved an inadequate affidavit, while this case involved no Expert Disclosure Affidavit at all. Because expert testimony was required for the accountant-negligence claim, the court held that section 544.42 required mandatory dismissal with prejudice.

Disposition

The court granted Baker Tilly US, LLP’s Motion for Judgment on the Pleadings. It dismissed the plaintiffs’ Count 1 with prejudice and dismissed the Amended Complaint with prejudice. The court directed that judgment be entered accordingly.