JTF Aviation Holdings v. CliftonLarson (9/18/20)

This opinion disapproves of holding people to contracts they weren’t parties to.

Plaintiff Freer hired Defendant, an accounting firm, to audit his company’s books. The contract was between Defendant and the company. Defendant certified that the books conformed to GAAP. Another company bought Plaintiff’s business but then found that the books did not conform to GAAP and that the inaccuracies inflated the price it paid. Plaintiff settled the resulting lawsuit and personally sued Defendant for negligence and breach of fiduciary duty. The contract said that suit had to come within 24 months of Defendant’s audit report; this one came after. The parties cross-moved for summary judgment on the issue.

Plaintiff’s argument was that he himself was not bound by the limitation because he was not a party to the contract. The trial court ruled that he was close enough to his company to be bound, using the “closely-related party” doctrine, and granted Defendant’s motion. Plaintiff appealed; the Court of Appeals affirmed.

The Supreme Court granted review and reverses. The “closely-related party” doctrine is used in some federal courts in cases involving (at least in all the federal cases cited here) forum selection clauses. The court says that where a claim may be brought is a “more limited” issue than when. Applying the doctrine in this case “places too much emphasis on [Plaintiff’s] ownership of [the company] and minimizes the importance of the corporate form recognized by Arizona law.” In Arizona, “corporate status will not be lightly disregarded.” The doctrine amounts to an alter-ego or corporate-veil theory, both of which require more than proof of ownership. 

Vacated, reversed, remanded for proceedings consistent.

The opinion’s few footnotes are mostly unnecessary but the first also raises a style problem we’ve mentioned before. It announces that the parties and the courts below were wrong to say that the contract established a “limitation” period rather than a period of “repose” but that it will condescend to say “limitation” because they did. Now, these people didn’t say “limitation” because nobody at five large law firms and two levels of our judicial system knows the difference; they said it because that’s what the contract said: “Limitation Period.” But whether the provision is about one concept or the other doesn’t matter here; the court chooses not to mention the only way in which it might have made some slight difference. So why imply — and this is indeed an implication, intended or not, that some readers will draw — that all those who worked on the case were ignorant until this court enlightened them? The answer is that the footnote is, if not a mere exercise in pedantry, an attempt to avoid having someone, somewhere, some time in the future use the opinion to confuse the two concepts or to accuse this court of doing so. (Many unfortunate excrescences on judicial opinions are, like this one, attempts to ward off imagined arguments yet-unmade.)  But if the distinction had to be drawn, it would not have been hard to do so without gratuitous insult: “The contract creates a period of repose, styled a “Limitation Period,” as follows: [quoting it].”

(Opinion: JTF Aviation v. CliftonLarsonAllen)