62 Mass. App. Ct. 230 | Mass. App. Ct. | 2004
At issue is when the statute of limitations commenced on a malpractice claim against a certified public accountant. The statute begins to run at the point when the plaintiff discovers that he has suffered harm due to the actions of the defendant. See Lyons v. Nutt, 436 Mass. 244, 247 (2002). The specific date that “the necessary coalescence of discovery and appreciable harm occur[s],” id. at 251, quoting from Cantu v. St. Paul Cos., 401 Mass. 53, 57 (1987), is a factual question, which, in this case, should have been submitted to the jury. As it was not, we reverse.
Background. In 1993, Brian Murphy, an employee of the defendant, prepared the Kennedys’ 1992 income tax return. In
The trial commenced on January 13, 2003. A jury was impaneled and both sides presented opening statements.
The law. The applicable time period for a claim of malpractice by a certified public accountant is three years. G. L. c. 260, § 4. A claim based in negligence accrues at the time a plaintiff is harmed by a defendant’s negligence. See Cannon v. Sears, Roebuck & Co., 374 Mass. 739, 741-742 (1978). Massachusetts is a “discovery” State; as such, the statute of limitations begins to run when a plaintiff “knows or reasonably should know that he or she has sustained appreciable harm as a result of the [defendant’s] conduct.”
“In most instances, the question when a plaintiff knew or should have known of [his] cause of action is one of fact that will be decided by the trier of fact[;] . . . [t]he appropriate standard to be applied when assessing knowledge or notice is that of a ‘reasonable person in the plaintiff’s position.’ ” Taygeta
In addition to the element of discovery, the plaintiff must have suffered appreciable harm before the statute begins to run. See Frank Cooke, Inc. v. Hurwitz, 10 Mass. App. Ct. at 109. At its root meaning, appreciable harm is “injury, loss or detriment” that is “capable of being measured or perceived.” See Black’s Law Dictionary 97, 722 (7th ed. 1999).
The point at which appreciable harm occurs will vary with the facts of the case. For example, in some cases, the incurring of additional expense in hiring an expert to address the damage done by a negligent defendant has been recognized as appreciable harm. See, e.g., Cantu v. St. Paul Cos., 401 Mass. at 57-58 (“necessary coalescence of discovery and appreciable harm occurred” when plaintiff retained attorney and incurred legal fees; “[plaintiff] had been harmed by having to pay legal fees to [attorney]. Accord Levin v. Berley, 728 F.2d 551, 554 [1st Cir. 1984] [retention of another attorney is harm in the form of additional legal fees]; Whitcomb v. Pension Dev. Co., 808 F.2d 167, 170-171 [1st Cir. 1986] [same as to retention of accountants]”); Pelletier v. Chouinard, 27 Mass. App. Ct. 92, 95 (1989). See also Massachusetts Elec. Co. v. Fletcher, Tilton & Whipple, P.C., 394 Mass. 265, 268 (1985) (plaintiffs in legal malpractice action sustained appreciable harm when legal action against them in underlying suit commenced; “[w]hatever the ultimate result of [the underlying] case would be, it was then clear that the [malpractice plaintiffs] would incur substantial legal expenses . . .”). Contrast Eck v. Kellem, 51 Mass. App. Ct. 850, 855 (2001) (statute of limitations in legal malpractice action did not start to run until judgment entered in underlying case, as “until that time it could not be said that [plaintiff] suffered any cognizable harm”).
In contrast to our fact-based approach, a number of States have adopted a bright-line rule as to when the statute of limitations begins to run in cases concerning malpractice in the preparation of tax returns. “Most courts, and particularly those that apply the discovery rule in determining when a cause of action accrues, have adopted the date of formal tax assessment as the accrual date in cases similar to this.” CDT, Inc. v. Addison,
Conversely, in Florida, the courts have established a rule whereby the statute of limitations does not start to run until the Tax Court ultimately decides the issue.
“If we were to accept [the argument that the statute begins to run upon the deficiency determination], the [taxpayers] would have had to have filed their accounting malpractice action during the same time that they were challenging the IRS’s deficiency notice in their tax court appeal. Such a course would have placed them in the wholly untenable position of having to take directly contrary positions in these two actions. In the tax court, the [taxpayers] would be asserting that the deduction [the accountant] advised them to take was proper, while they would simultaneously argue in a circuit court malpractice action that the deduction was unlawful and that [the accountant’s] advice was malpractice. To require a party to assert these two legally inconsistent positions in order to maintain a cause of action for professional malpractice is illogical and unjustified.”
Peat, Marwick, Mitchell & Co. v. Lane, 565 So. 2d 1323, 1326
Discussion. While reference to legal and medical malpractice cases is instructive, there is one fundamental difference in dealing with malpractice on the part of an accountant; namely, “there is no loss or injury unless a third party, the I.R.S., decides to assess a tax deficiency.” Snipes v. Jackson, 69 N.C. App. 64, 71 (1984). Thus, while an accountant may have clearly committed a negligent act in preparing a tax return, often there is no injury, cause of action, or statute of limitations issue, until the IRS scrutinizes the taxpayer’s return.
While it may be appealing to establish a firm event (whether it be the issuance of the notice of deficiency, the hiring of another accountant or attorney, or the final decision of the Tax Court) to trigger the start of the running of the statute, there are just too many different possible fact scenarios in the complicated, cumbersome, maze-like world of taxes and accountants, to establish a bright-line, one-size-fits-all mie. For example, in one case it might be readily apparent from an audit letter that malpractice had been committed and that the IRS would be imposing penalties. In a similar vein, knowledge of negligence and consequent harm might become evident after the audit was completed. At the other end of the spectrum, there might exist a close case where a taxpayer justifiably believed that no money was owed, a belief dashed only upon an adverse decision of the Tax Court.
In each scenario, a different date would be appropriate for triggering the statute of limitations. We believe, thus, the wiser course, consistent with our past practice, is to present the matter to the fact finder for a determination as to when Kennedy’s cause of action accrued.
On the basis of the foregoing, we conclude that the judge erred in ruling that the statute began to run a few days after September 4, 1995, when Kennedy learned that his 1992 tax return would be audited. The issue is when Kennedy suffered appreciable harm so as to trigger the commencement of the statute of limitations, a question for the jury to determine.
Accordingly, the judgment is reversed and the matter is remanded to the Superior Court for further proceedings consistent with this opinion.
So ordered.
On September 4, 1995, Murphy sent Kennedy a letter informing him that his 1992 and 1993 tax returns would be audited on October 4, 1995. Murphy had also prepared the 1993 return. Claims related to that return were dismissed against the defendant because it was prepared by Murphy after he had left the defendant’s employ.
We refer to the Kennedys in the singular, as the alleged errors in the tax return concerned William Kennedy’s business-related income and expenses, and, on the record before us, it appears that only he was involved in the various communications with the defendant concerning the return.
Kennedy’s view, prior to his seeking other expert counsel, was that his 1992 return was “very accurate” and that the agent for the IRS was either “lieying [sic] or made a big mistake.”
The notice indicated the IRS had determined that Kennedy owed $181,879 in additional taxes and penalties for 1992, and that, if he wanted to contest the determination in court before making any payment, he had ninety days from the date of the letter to file a petition with the United States Tax Court for a redetermination of the deficiency.
In Kennedy’s opening statement, the jury were told that Kennedy’s new expert was able to reduce the assessment amount to a fraction of the original liability.
Kennedy claims error in that the judge did this sua sponte. At the close of the opening statements, the judge asked Goffstein’s counsel, “[D]o you want
The judge observed that Kennedy was “under an obligation to know or by an easy amount of investigation should have known that the 1992 tax return prepared by Goffstein and Associates was a problem. So as early as a few days after September 4, 1995, when he received [the letter from Murphy indicating that 1992 would still be audited] he was clearly on notice . . . that there was a problem with the 1992 tax return. He waited past that three years. As a matter of law, there is a statute of limitation problem.”
An accountant, like an attorney or a doctor, “is an expert, and much of his work is done out of the client’s view. The client is not an expert; he cannot be expected to recognize professional negligence if he sees it, and he should not be expected to watch over the professional or to retain a second professional to do so.” Hendrickson v. Sears, 365 Mass. 83, 90 (1974).
Accord Thomas v. Cleary, 768 P.2d 1090 (Alaska 1989); Curtis v. Kellogg & Andelson, 73 Cal. App. 4th 492, 499-502 (1999); Streib v. Veigel, 109 Idaho 174 (1985); Leonhart v. Atkinson, 265 Md. 219 (1972); Chisholm v. Scott, 86 N.M. 707 (Ct. App. 1974); Ackerman v. Price Waterhouse, 156 Misc. 2d 865, 870-877 (N.Y. Sup. Ct. 1992); Snipes v. Jackson, 69 N.C. App. 64, 68-71 (1984); Gray v. Estate of Barry, 101 Ohio App. 3d 764 (1995); Atkins v. Crosland, 417 S.W.2d 150 (Tex. 1967); Mills v. Garlow, 768 P.2d 554 (Wyo. 1989).
We recognize exceptions to this observation. For instance, overpayment of taxes, unnoticed by the IRS, may entail malpractice.
We note that, under any of the bright-line “rules” discussed above, Kennedy’s suit would be deemed timely. The suit was filed on July 5, 2000, within three years of the IRS notice of deficiency dated November 4, 1997,
Given our decision, we need not reach Kennedy’s second claim on appeal. See note 7, supra. See generally Hubert v. Melrose-Wakefield Hosp. Assn., 40 Mass. App. Ct. 172, 176 (1996); Island Transp. Co. v. Cavanaugh, 54 Mass. App. Ct. 650, 654 (2002).