This article originally ran in Law360 on February 9, 2017.
A negligence suit brought by the trustee of a defunct anti-terrorism tech company against accounting firm Mountjoy Chilton Medley LLP and law firm Thompson Coburn LLP should include the company’s former CEO and others as defendants, Mountjoy told a Pennsylvania federal judge on Wednesday.
The accounting firm followed up on its late January request to add the proposed defendants to the trustee’s suit, which looks to hold the firms liable for not discovering Valley Forge Composite Technologies Inc. was selling weapon parts to China. Mountjoy argued that Valley Forge’s former CEO Louis Brothers, among others, should join the firms as third-party defendants for any potential apportionment of the trustee's claimed damages.
Mountjoy noted that there is currently a related case pending against the proposed defendants in a Kentucky federal court, which is based on the same allegations the trustee has asserted in the instant action.
“The defendants herein should not be deprived of just apportionment because the plaintiff decided to pursue his adversary proceedings in piecemeal fashion,” Mountjoy said.
Also on Wednesday, Mountjoy submitted a certificate of concurrence, noting that counsel for Chapter 7 trustee John P. Neblett and counsel for Thompson Coburn have said they concur with the motion.
Ahmed A. Massoud, a Massoud & Pashkoff LLP attorney representing Neblett, told Law360 on Thursday that “we have no objection to that request because after all, all of the defendants are involved in the same fight of wrongdoing that forms the basis for both cases.”
In addition to Brothers, the proposed third-party defendants include Aeroflex Inc., Aeroflex Colorado Springs Inc., Xilinix Inc., Quality Components Inc. and Avnet Inc.
The case goes back to July 2015, when Neblett filed the adversary proceeding against Mountjoy, Thompson Coburn and Pennsylvania-based Clairmont Paciello & Co. PC, another accounting firm, claiming that as financial consultants, auditors and legal advisers of Valley Forge and Brothers, they should have discovered the company was selling “rad chips” to clients in restricted countries, like China.
The product is essentially a microchip hardened through radiation that is needed to operate satellites and ballistic missiles, as well as to protect other types of hardware from nuclear and solar radiation.
Neblett says that if the professionals had carried out more thorough probes of Valley Forge’s revenue streams and business transactions, its 2013 government shutdown and subsequent bankruptcy could have been avoided.
Instead, they drew up reports for investors and the U.S. Securities and Exchange Commission holding that Valley Forge’s revenue came exclusively from sales of “momentum wheels and various mechanical devices for special projects,” the suit says.
In June, U.S. District Judge Matthew W. Brann rejected Thompson Coburn’s attempt to escape the claims by arguing its advice had no connection to Valley Forge’s illegal sales, finding such an apparently extensive fraud going undetected “particularly difficult to fathom.”
Neblett has said the chip-selling scheme was operated by and personally benefited Brothers, who was charged in August 2014 with 31 criminal counts, including conspiracy and money laundering. He pled guilty to seven counts of the indictment in July 2015, around the time the trustee filed the instant action.
The complaint also alleges that Thompson Coburn partner Michael Hawthorne did not follow the advice of Valley Forge's general counsel, Keith McClellan, who advised there was credible evidence Brothers was misrepresenting the commercial viability of cargo-baggage screening technology the company had developed.
Judge Brann in October rejected a request from Mountjoy to transfer the trustee’s case to Kentucky, the company’s principal place of business and where the alleged events at issue in the suit took place.
Though Neblett had said he was willing to move the case, he opposed transferring certain defendants and retaining others in Pennsylvania. And while Thompson Coburn and Hawthorne neither joined in nor opposed the motion, Clairmont opposed the suggested transfer.
In his ruling, Judge Brann said that Mountjoy had failed to establish that the convenience of all the defendants would be furthered by transferring the matter to Kentucky. The judge highlighted the burden that Clairmont, a much smaller firm than Mountjoy, would face were the case to be transferred in full, and said Mountjoy failed to identify specific witnesses or pieces of evidence that would be unavailable or unable to be produced in Pennsylvania.
Counsel for Clairmont declined to comment and counsel for the other parties did not respond Thursday to a request for comment.
The trustee is represented by Ahmed A. Massoud and Lisa Pashkoff of Massoud & Pashkoff LLP.
Clairmont Paciello & Co. is represented by Willhelm Dingler of Marshall Dennehey Warner Coleman & Goggin PC.
Mountjoy Chilton Medley is represented by Jonathan K. Hollin and Mary J. Pedersen of Powell Trachtman Logan Carrle Bowman & Lombardo PC, and Robert M. Brooks of Boehl Stopher & Graves LLP.
The case is Neblett v. Clairmont Paciello & Co. PC et al., case number 4:15-cv-01622, in the U.S. District Court for the Middle District of Pennsylvania.
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