Skip to content Court of Appeals Affirms Texas Team’s Final Summary Judgment for Accounting Firm


Search Gordon & Rees Results

May 2015

Court of Appeals Affirms Texas Team’s Final Summary Judgment for Accounting Firm

As reported in February 2014, Gordon & Rees senior counsel Mark W. Thayer and partner Barry G. Flynn of Houston, Texas secured a Final Summary Judgment for their client, a mid size local accounting firm, in the face of allegations that the client negligently performed audits over a 5 year period.  The Texas Fourteenth Court of Appeals affirmed the Final Summary Judgment in its entirety on May 19, 2015.

The Plaintiff/Appellant was a corporate shareholder that paid for an audit of the parent company for calendar years 2004 through 2008, with an incomplete audit for 2009, and was seeking recovery of all accounting fees as well as actual damages allegedly sustained upon discovering that the president of the parent company had embezzled millions of dollars from the company through fraudulent invoicing.  The opportunity for summary judgment arose when Gordon & Rees counsel discovered that Appellant had allowed its charter to be forfeited for 3 years and 48 days before filing suit.  Under the controlling statutory provisions, the Appellant had to file its pre-forfeiture “existing claims” within three years from the date of forfeiture. After three years the claims are “extinguished.”  The lawsuit was filed on February 14, 2013, with Appellant alleging the embezzlement was not discovered until late February 2011.  Appellant’s charter was forfeited from February 8, 2008 through March 28, 2011.

The Texas Business Corporation Act (Act), which was in effect through December 31, 2009, and the Texas Business Organization Code (Code), which became fully effective for all Texas entities on January 1, 2010, require all “existing claims” to be filed no later than 3 years after forfeiture, or they are forever extinguished. 

The operative facts covered the transition from the Act to the Code, and the time frame within which the “existing claims” arose included the pre and post forfeiture time period.  The Appellant admitted in written discovery that it discovered the alleged negligence a month before the charter was reinstated in March 2011.  By so doing, there was no question that the alleged post forfeiture claims occurred when the Appellant was without a charter.

Appellant argued the “discovery rule,” as well as application of certain statutory provisions that result in reinstatement “as if the termination had not occurred,” but the Code provision relied upon by Appellant excluded forfeitures under the Texas Tax Code, which is what occurred in this instance by Appellant’s failure to file the required annual franchise tax report.

The Court of Appeals affirmed the trial court’s Final Summary Judgment noting that there was no reason to deviate from its own precedence set by a 2005 decision relied upon by Gordon & Rees at the trial court level and on appeal.  Appellant’s cited the briefing in the 2005 decision in an effort to show that certain arguments were waived that would have resulted in a different outcome if properly made.  The Court of Appeals disagreed and followed the 2005 precedence without any deviation. 

As a result of obtaining Final Summary Judgment before depositions were taken or an expert was retained to defend the client, Gordon & Rees was able to put an end to the lawsuit before considerable client time or expense were incurred.                 

Barry G. Flynn