Jgm Transportation Inc v. Lewis & Knopf Cpas Pc ( 2015 )

STATE OF MICHIGAN
COURT OF APPEALS
JGM TRANSPORTATION, INC., d/b/a JGM UNPUBLISHED
MACHINERY MOVERS AND ERECTORS, and February 24, 2015
CARL JENNINGS,
Plaintiffs-Appellants,
v No. 318032
Genesee Circuit Court
LEWIS & KNOPF CPAS, P.C., and KIM LC No. 12-097822-NM
LINDSAY,
Defendants-Appellees.
Before: SERVITTO, P.J., and STEPHENS and M. J. KELLY, JJ.
PER CURIAM.
In this accounting malpractice action, plaintiffs, JGM Transportation, Inc., and Carl
Jennings, appeal by right the trial court’s order granting the motion for summary disposition by
defendants, Lewis & Knopf, CPAs, P.C. and Kim Lindsay.1 The trial court determined that the
claims by JGM Transportation and Jennings were time-barred and dismissed their complaint
under MCR 2.116(C)(7). Because we conclude there were no errors warranting relief, we affirm.
I. BASIC FACTS
In October 2008, Lewis & Knopf agreed to provide accounting services to JGM
Transportation and Jennings. Lewis & Knopf sent a retention letter to JGM Transportation and
Jennings that delineated the scope of the services to be provided; the letter provided, in pertinent
part, that JGM Transportation “has asked our firm to perform ‘other accounting services’ for the
year ended December 2008.” The retention letter included provisions regarding the potential for
audits of the returns that Lewis & Knopf prepared: “[i]f an examination occurs, we will represent
the corporation if you so desire . . . .” Finally, the retention letter addressed the preparation of
future tax returns: “The terms of this letter will continue to apply to the preparation of the above
returns with respect to subsequent years, unless amended or terminated in writing . . . .”
1
For ease of reference, we shall refer to defendants collectively as Lewis & Knopf.
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On September 15, 2009, Lindsay completed and e-filed individual and corporate 2008 tax
returns for Jennings and JGM Transportation. In October 2009, Lewis & Knopf billed JGM
Transportation and Jennings for the services. The invoice specifically stated: “This Concludes
our Engagement for the Preparation of Your 20092 Financial Statements and Tax Returns.” On
October 22, 2009, Lewis & Knopf billed Jennings and his wife for the preparation of their
individual 2008 tax returns. This invoice similarly included a statement that “[t]his Concludes
our Engagement for the Preparation of Your 2008 Tax Returns.”
Sometime in 2010, JGM Transportation replaced Lewis & Knopf and began using
Richard Pagac for accounting services. Pagac prepared 2009 tax returns for JGM Transportation
and Jennings. While reviewing records, Pagac discovered errors in the 2008 tax returns. Pagac
advised Jennings that he would likely be audited and the IRS did, in fact, audit JGM
Transportation and Jennings.
Although Jennings testified at his deposition that the IRS contacted him in 2010, he
averred that he did not receive notice of the audit until early 2011. On April 27, 2011, Lewis &
Knopf received correspondence from the IRS requesting information. Jennings also contacted
Lindsay to inform him of the impending audit. During this conversation, Lindsay allegedly
admitted that a mistake was made in the 2008 tax returns. Jennings testified that, by the time he
received notice of the audit from the IRS, he had already replaced Lewis & Knopf with Pagac as
his accountant. The IRS concluded the audit on May 23, 2011.
On March 15, 2012, JGM Transportation and Jennings sued Lewis & Knopf and Lindsay
for professional negligence and breach of contract.3 They alleged, among other things, that
Lewis & Knopf negligently included deductions in the 2008 tax returns for aircraft depreciation.
As a result, JGM Transportation and Jennings maintained that they incurred damages, which
included the payment of taxes, penalties, and interest, the payment of costs associated with the
audit proceedings, and emotional distress.
In January 2013, Lewis & Knopf moved for summary disposition on the ground that the
claims of accounting malpractice were barred by the applicable statute of limitations.
Specifically, it argued that the malpractice claim accrued on September 15, 2009, the last date on
which it rendered professional services to JGM Transportation. Lewis & Knopf maintained that
JGM Transportation had until September 15, 2011, to sue and, because JGM Transportation did
not sue until March 15, 2012, the malpractice claims were time-barred.
In their response, JGM Transportation and Jennings argued that, under the terms of the
retention letter, Lewis & Knopf provided generalized accounting tax services that continued into
the future and included any audits. It contended that, when Jennings contacted Lindsay in April
2
In addition to the preparation of the 2008 tax returns, Lewis & Knopf billed JGM
Transportation for additional services, including the preparation of corporate quarterly tax
estimates for 2009.
3
The trial court’s dismissal of the breach of contract claim is not at issue on appeal.
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2011 to discuss the audit and admitted that a mistake had been made, Lindsay in effect
“continued to provide general accounting tax services” to JGM Transportation. JGM
Transportation maintain on that basis that their claims were timely.
The court determined that the services provided by Lewis & Knopf were discrete
services. Accordingly, any claim for malpractice accrued on the date the service concluded,
which in this case was the day Lindsay filed the 2008 tax returns, September 15, 2009. Because
JGM Transportation and Jennings did not sue for malpractice until more than two years after that
date, the court concluded that the malpractice claims were untimely and dismissed them in an
order entered in July 2013.
JGM Transportation and Jennings now appeal in this Court.
II. SUMMARY DISPOSITION
A. STANDARDS OF REVIEW
This Court reviews de novo a trial court’s decision on a motion for summary disposition.
Kincaid v Cardwell, 300 Mich. App. 513, 522; 834 NW2d 122 (2013). The court reviewing a
motion under MCR 2.116(C)(7) examines the pleadings and supporting evidence in the light
most favorable to the nonmoving party to determine whether the undisputed facts show that the
moving party has immunity. Id. If there is no factual dispute, whether the plaintiff’s claim is
time-barred is a matter of law for the court. Id. at 523.
B. ANALYSIS
Claims of professional malpractice, including accounting malpractice, must be brought
within two years of the date that the claim first accrued. MCL 600.5805(1) and (6); see Local
1064, RWDSU AFL-CIO v Ernst & Young, 449 Mich. 322, 333; 535 NW2d 187 (1995).
Generally, for purposes of determining the accrual of claims of professional malpractice, courts
apply the last treatment rule. Kincaid, 300 Mich. App. at 524-525 (explaining that the Legislature
codified the common-law last treatment rule with the enactment of MCL 600.5838). Under the
last treatment rule, a claim of professional malpractice first accrues “at the time that person
discontinues serving the plaintiff in a professional or pseudoprofessional capacity as to the
matters out of which the claim for malpractice arose, regardless of the time the plaintiff discovers
or otherwise has knowledge of the claim.” MCL 600.5838(1). Nevertheless, a professional
malpractice action may be commenced “within 6 months after the plaintiff discovers or should
have discovered the existence of the claim . . . .” MCL 600.5838(2).
In Levy v Martin, 463 Mich. 478; 620 NW2d 292 (2001), our Supreme Court addressed
the application of the last treatment rule to accounting malpractice claims. In Levy, the
defendants prepared annual tax returns for the plaintiff from 1974 to 1996. Id. at 480-481. In
August 1997, the plaintiff sued his accountants for the negligent preparation of his 1991 and
1992 tax returns. Id. at 481. The Supreme Court determined that the plaintiff’s claims were not
time-barred; it reasoned that the continued and yearly preparation of tax returns constituted the
matters out of which the claim for malpractice arose and stated that “it is clear here that
plaintiffs, rather than receiving professional advice for a specific problem, were receiving
generalized tax preparation services from defendants.” Id. at 489. The Court noted, however,
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that the result might have been different if the defendants had presented evidence that the annual
tax preparations constituted “discrete transactions”:
We note that the result may have been different if defendants had come forward
with documentary evidence that each annual income tax preparation was a
discrete transaction that was in no way interrelated with other transactions.
Accordingly, this opinion does not mean, for example, that if an accountant
prepared income tax returns for a party annually over a period of decades, the
statute of limitations for alleged negligence in preparing the first of these tax
returns would not run until the overall professional relationship ended. [Id. at 490
n 19.]
Lewis & Knopf argue that JGM Transportation and Jennings retained it to provide a
discrete transaction and that it ceased providing services related to the preparation of the 2008
tax returns on September 15, 2009. By contrast, JGM Transportation and Jennings argue that
they retained Lewis & Knopf to provide generalized accounting services, which Lewis & Knopf
continued to provide until early 2011 when, after being contacted by Jennings, Lindsay reviewed
the tax filings and admitted that there were errors in the 2008 tax return. Applying Levy to the
facts in this case, we conclude that the trial court correctly determined that the undisputed
evidence showed that Lewis & Knopf structured the tax preparation services as discrete
transactions that ended with its written notice that the engagement had been concluded. As such,
JGM Transportation and Jennings had to sue within two years of the completion of the tax
preparation service at issue.
Unlike the situation in Levy, Lewis & Knopf presented evidence that it did not perform
ongoing and generalized accounting services to JGM Transportation and Jennings. Lewis &
Knopf’s retention letter specifically provided that “the Company has asked our firm to perform
‘other accounting services’ for the year ended December 2008.” It then filed the 2008 tax
returns on September 15, 2009. In the October 2009 invoice related to the services rendered,
Lewis & Knopf stated: “This concludes our engagement for the preparation of your 2009
financial statements and tax returns.” Thereafter, JGM Transportation replaced Lewis & Knopf
with Pagac and it was Pagac who prepared the 2009 tax returns and assisted JGM Transportation
with the audit related to the 2008 return. Thus, the undisputed evidence showed that the tax
preparation services at issue were discrete services that ended at the very latest on October 6,
2009, which was the point at which Lewis & Knopf stated that it was no longer serving JGM
Transportation and Jennings in a professional capacity with respect to the matters out of which
the claims for malpractice arose. Further, at the very latest, JGM Transportation and Jennings
knew, or should have known, of a potential cause of action by May 23, 2011, when the IRS
concluded its audit. Because JGM Transportation and Jennings did not sue within two-years of
the accrual date or within six months of the date that they knew or should have known of their
claims, their claims were not timely. MCL 600.5838(2); MCL 600.5805(1) and (6).
Contrary to the assertions by JGM Transportation and Jennings on appeal, the evidence
presented on the motion does not support an inference that there was an ongoing engagement for
general accounting services that continued until April 2011. JGM Transportation and Jennings
argue that the language of the retention letter evidenced the parties’ intent that Lewis & Knopf
would provide general accounting services indefinitely until the relationship was terminated in
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writing, or at the very least, through IRS audit proceedings. However, the plain language of the
agreement does not support such a broad interpretation and, in any event, no accounting services
were actually provided after September 15, 2009, related to the preparation of the 2008 tax
return. The retention letter addressed the possibility of an audit, however, the letter clarified that
Lewis & Knopf could represent JGM Transportation in an audit “if” JGM Transportation so
desired. It is undisputed that Jennings did not engage Lewis & Knopf to represent him or his
company during the audit.
Further, we do not agree that Lindsay’s limited contact with Jennings in April 2011
constituted the continued provision of professional services. Jennings averred that, when he
contacted Lindsay about the audit in early 2011, this action was consistent with the “ ‘general
accounting tax services’ he was providing to me and my company.” He further stated that after
this phone call he “decided to go with another CPA, Richard Pagac, Jr., to handle the audit.”
However, Jennings’ affidavit is inconsistent with his deposition in which he acknowledged that,
by the time he contacted Lindsay about the IRS audit, he had already replaced Lewis & Knopf
with Pagac as his accountant. A party may not create a factual dispute by submitting an affidavit
that contradicts his deposition testimony. Casey v Auto-Owners Ins Co, 273 Mich. App. 388, 396;
729 NW2d 277 (2006). In any event, Lindsay’s contact with Jennings in April 2011 constituted
administrative or ministerial tasks insufficient to extend an accrual date. See Seyburn, Kahn,
Ginn, Bess, Deitch & Serlin, PC v Bakshi, 483 Mich. 345, 360-361; 771 NW2d 411 (2009).
Consequently, the relevant accrual date was, at the latest, October 2009, which was more than
two years before JGM Transportation and Jennings filed their malpractice claims.
C. CONCLUSION
The trial court did not err when it dismissed the malpractice claims by JGM
Transportation and Jennings as untimely.
Affirmed.
/s/ Deborah A. Servitto
/s/ Cynthia Diane Stephens
/s/ Michael J. Kelly
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