Long Island CPA firm gets caught in crossfire of feuding LLC partners.
This is rare: A CPA has been sued in spin-off litigation involving charges of improperly taking sides in an underlying dissolution case. It could have a bearing on disputes and breakups among owners and partners for many a company.
Three years after going to work for a company, Needleman & Schacter CPAs of New Hyde Park, N.Y., got sued by one of the company’s partners after a falling out, via Peter Mahler, attorney at Farrell Fritz.
Here’s what happened: Anda Management and Wilmington Paper Corp. formed an LLC called Worldwide Fibers to market paper products overseas. Worldwide retained the accounting firm without a written agreement. Three years later, Worldwide’s principals had a falling out, prompting Wilmington to file a proceeding for judicial dissolution of Worldwide.  Wilmington accused Anda’s principals of impermissibly withdrawing funds from Worldwide for personal reasons and then falsely booking them as legitimate business expenses. The proceeding ultimately settled when Anda acquired Wilmington’s interest in Worldwide. But then Anda sued Needleman & Schacter.
The plaintiffs alleged:Needleman & Schacter consulted with and assisted Wilmington’s trial counsel by reviewing a proposed complaint, participating in conference calls with Wilmington’s counsel, and submitting affidavits supportive of Worldwide’s claims in which the accountant allegedly made false and contradictory statements concerning accounting advice previously given by the accountant to the plaintiffs prior to the dissolution. The plaintiffs also alleged that the CPA firm was aware that the expenses challenged by Wilmington were proper, and that the accountant had affirmatively counseled the plaintiffs to take some of the disbursements challenged by Wilmington. The plaintiffs further alleged that one of the accountant’s employees gave the Social Security numbers of Anda’s principals to Wilmington’s counsel in order to perform credit searches on them.
The moral of the story: First, one cannot overstate the importance of a written engagement letter at the outset, delimiting the professional-client relationship and scope of services. Second, in my experience the great majority of dissolution cases involve accounting issues which carry the potential for involving the company accountant as an important witness.  The accountant almost always better serves his or her own interests by maintaining strict neutrality during the course of the litigation between company owners.
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