This article originally ran in Law360 on October 5, 2016.
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 over parts sold to China will remain in Pennsylvania, as a federal judge ruled Wednesday that a requested move to Kentucky would be inappropriate.
U.S. District Judge Matthew W. Brann’s order comes in response to a motion filed by Mountjoy in August, seeking to transfer the trustee’s case — which looks to hold the firms liable for not discovering Valley Forge Composite Technologies Inc. was selling weapon parts to China — to Kentucky, the company’s principal place of business and where the alleged events at issue in the suit took place.
Though Chapter 7 trustee John P. 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 attorney Michael Hawthorne neither joined in nor opposed the motion, Pennsylvania-based Clairmont Paciello & Co. PC, another accounting firm named as a defendant in the suit, opposed the suggested transfer.
In his ruling, Judge Brann said that Mountjoy has 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.
“Having considered all of the relevant variables, the motion to transfer venue will be denied,” Judge Brann said. “It is evident that the variety of factors that bear upon this determination do not clearly weigh in the direction of any one particular forum. In my view, this suggests that the plaintiff’s initial choice of forum should endure.”
In addition to also pointing out that Mountjoy’s motion was filed late, Judge Brann said it seemed appropriate to keep all of the claims in one jurisdiction so as not to risk “incongruous determinations among similarly situated litigants.”
Neblett’s attorney, Ahmed Massoud of Massoud & Pashkoff LLP, told Law360 on Wednesday that he was happy with the decision because it prevents Mountjoy from trying to dismiss the claims for a second time.
“Once they lost the initial motion to dismiss, they tried to get another bite at the apple in a different courtroom,” he said.
An attorney for Clairmont declined to comment Wednesday, while attorneys for the other defendants did not immediately respond to requests for comment.
The case goes back to July of last year, when Neblett filed the adversary proceeding against Mountjoy, Thompson Coburn and Clairmont, claiming that as financial consultants, auditors and legal advisers of Valley Forge and its former CEO Louis 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 a cargo-baggage screening technology the company had developed.
The trustee is represented by Ahmed A. Massoud and Lisa Pashkoff of Massoud & Pashkoff LLP.
The Thompson Coburn defendants are represented by Nicholas M. Centrella of Conrad O'Brien PC.
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 cases are Neblett v. Clairmont Paciello & Co. PC et al., case numbers 4:15-cv-01622, 4:15-cv-01731 and 4:15-cv-01826, in the U.S. District Court for the Middle District of Pennsylvania.
--Additional reporting by Kali Hays and Natalie Olivo. Editing by Aaron Pelc.
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