Coulter v. Grant Thornton, LLP
241 Ariz. 440
Ariz. Ct. App.2017Background
- In 2000 Appellants (Coulter, Tkach, Brown) retained Grant Thornton tax advisors (principally Blair Stover) to implement ESOP/S and similar tax structures intended to defer/avoid income tax.
- The IRS later issued Notices of Deficiency to Coulter and Tkach (2006–2007) assessing substantial tax deficiencies; Coulter and Tkach litigated in Tax Court and settled in 2011, paying back taxes and interest (no IRC §6662 penalties assessed). Brown settled separately in 2011 for Roth/S issues and paid additional taxes/excise.
- Appellants sued Grant Thornton in superior court (Nov. 2011) asserting breach of fiduciary duty, professional negligence, negligent misrepresentation, common law fraud, aiding and abetting, racketeering, fraudulent concealment, breach of contract (indemnity clause), and breach of implied covenant of good faith.
- Superior court dismissed many claims as time-barred and granted summary judgment for Grant Thornton on breach of contract and implied covenant claims; entered final judgment and awarded attorney’s fees. Appellants appealed.
- The appellate court reversed the limitations-based dismissals for most tort claims (fact question on accrual under the discovery rule), affirmed summary judgment on the contract and implied covenant claims, vacated the award of fees pending remand, and remanded for further fact-finding/trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When do accountant-malpractice/tort claims accrue for statute of limitations purposes? | Accrual should be determined by when plaintiff discovered or should have discovered injury (discovery rule); continued reliance on accountant can postpone accrual. | Accrual occurred upon IRS issuance of Notices of Deficiency (or otherwise at a bright-line date), so claims are time-barred. | Adopted a fact-based discovery-rule approach; accrual depends on when plaintiff knew or should have known of negligence and injury—reversed dismissals and remanded for factual determination. |
| Did Appellants’ fraudulent concealment claim accrue when they learned of the DOJ complaint against Stover (2008) or later? | Accrual occurred later; ongoing reassurances by Stover meant plaintiffs reasonably relied and could not be charged at complaint filing. | Plaintiffs were on notice when they received/ reviewed the DOJ complaint in 2008; limitations expired. | Fact issue for jury: receipt of complaint did not necessarily start limitations where plaintiffs reasonably continued to rely on defendant; reversal and remand. |
| Does Grant Thornton’s engagement-letter indemnity cover taxes/back taxes/interest (the amounts plaintiffs paid)? | Indemnity language (“any civil negligence or fraud penalty … shall reimburse … for the full amount of such penalty(s)”) is broad and covers plaintiffs’ tax liability. | The indemnity unambiguously covers only civil negligence or fraud penalties (distinct from taxes/interest); no penalties were assessed, so no breach. | Affirmed summary judgment for Grant Thornton: indemnity clause limited to penalties; plaintiffs paid taxes/interest but no penalties, so no contractual breach. |
| Can plaintiffs state a claim for breach of the implied covenant of good faith based on pre-contract conduct and related allegations? | Grant Thornton acted in bad faith (sold invalid schemes, “poor boy” implementation, disclosed client info), depriving plaintiffs of contract benefits. | Alleged misconduct occurred before contract performance; compliance with summons lawful; conduct does not show contractual bad faith. | Affirmed summary judgment: allegations relate to pre-contract conduct and lawful compliance; do not show denial of contractually expected benefits. |
Key Cases Cited
- CDT, Inc. v. Addison, 198 Ariz. 173 (App. 2000) (addressed accrual in accountant-malpractice context and effect of taxing authority’s formal determination)
- Anson v. Am. Motors Corp., 155 Ariz. 420 (App. 1987) (articulates discovery rule for accrual)
- Commercial Union Ins. Co. v. Lewis & Roca, 183 Ariz. 250 (App. 1995) (accrual may depend on when a court ruling makes clear legal error by counsel)
- Peat, Marwick, Mitchell & Co. v. Lane, 565 So. 2d 1323 (Fla. 1990) (criticized bright-line accrual at notice-of-deficiency where plaintiffs reasonably continued to rely on advisors)
- Clark v. Deloitte & Touche LLP, 34 P.3d 209 (Utah 2001) (discussed accrual timing where appeal of tax determination occurs)
- United States v. Stover, 650 F.3d 1099 (8th Cir. 2011) (underlying DOJ action enjoining promotion of the ESOP/S and related schemes)