1 CA-CV 18-0530 - JTF, et al. v. CLIFTONLARSONALLEN - 07/02/2019

JTF Aviation hired the accounting firm of CliftonLarsonAllen (CLA) for certain services.  The engagement letter contracting for services stated that Minnesota law would apply and that the parties agreed that any legal proceeding was required to be commenced within 24 months of CLA’s final audit report.

CLA delivered an audit report for 2013 on February 3, 2014.  In June 2014, Vistria executed an asset purchase agreement with JTF to purchase certain assets and assume certain liabilities for payment to JTF of $80 million.  JTF warranted its financial statements in connectin with the transaction.  In September 2014, Vistria sued JTF allege  ng, among other things, that it was fraudulently induced to contract for the purchase based upon non-conforming financial statements, including the representation that its earnings before interest, taxes, depreciation, and amortization (EBITDA) was $40,800,000, when its EBITDA really was $11,000,000.

In April 2017, JTF and its sole shareholder (Freer) sued CLA in Maricopa County Superior Court alleging that CLA’s negligence and breach of fiduciary duty resulted in the claims against JTF by Vistria.  Vistria defended on the basis that the claim was barred by the statute of limitations and the contractual time period limitation.  The superior court granted CLA’s motion.  JTF appealed to the Arizona Court of Appeals.

Although not personally obligated on the contract between JTF and CLA, its shareholder was nevertheless held bound by its contractual limitations. He had personally been involved in negotiating and executing the engagement letter between JTF and CLA.  “We hold, however, that under appropriate circumstances, non-signatory transaction participants may benefit from and be bound by contract terms when the non-signatories are ‘closely related’ to a signatory or the dispute.”  ¶17.

We hold that Freer’s allegations are closely related to the contractual relationship between JTF and CLA. Moreover, enforcement of the limitation provision was foreseeable to Freer because of his close relationship to JTF and his involvement in the conduct of the contract. Accordingly, Freer is bound by the terms of the December Engagement Letter.

¶21.  The superior court was affirmed.  (There were other unidentified issues on appeal that were addressed in an unpublished memorandum decision.)