Leonhart v. Atkinson

• Decision Date: 04 April 1972
• Docket Number: No. 278,278
• Citation: 265 Md. 219,289 A.2d 1
• Parties: William H. LEONHART et al. v. Granville F. ATKINSON.
• Court: Maryland Court of Appeals

Page 219

265 Md. 219

289 A.2d 1

William H. LEONHART et al. v. Granville F. ATKINSON.

No. 278.

Court of Appeals of Maryland.

April 4, 1972.

Harry Adelberg, Baltimore, for appellants.

L. Keith Simmer, Jr., Baltimore (Benjamin C. Howard and Miles & Stockbridge, Baltimore, on the brief), for appellee.

Argued before HAMMOND, C. J., and FINAN, SINGLEY, SMITH and DIGGES, JJ.

DIGGES, Judge.

This case is before us on appeal from a decision of the Superior Court of Baltimore City where Judge Sodaro granted a motion for summary judgment after concluding that this cause of action for professional malpractice was barred by the statute of limitations. Maryland Code (1957, 1972 Repl.Vol.), Art. 57, § 1. Consequently our primary task is to determine whether any factual issues exist. In doing so, we must resolve all inferences against the moving party as we examine the pleadings, admissions, and affidavits here. Maryland Rule 610; Sherman v. Am. Bankers Life Assur., 264 Md. 239, 285 A.2d 652 (1972). From these we observe that on April 1, 1971, Mr. and Mrs. William Leonhart, and their corporation, Leonhart & Company, Inc., instituted suit for professional malpractice against Granville Atkinson, appellee. Leonhart & Company, a re-insurance brokerage firm, was incorporated under the laws of Maryland in 1953. From the birth of the corporation until 1969 Atkinson, an independent certified public accountant, had the responsibility of auditing the corporation's books and records as well as preparing its annual federal and state tax returns. Until 1960, the federal tax liability was computed using the cash accounting method with the exception of one account, American Fire and Casualty Co., which was calculated on an accrual basis. However, in 1960 and 1961 appellee recommended that the corporation figure all its accounts utilizing the cash accounting method. This advice was followed, but unfortunately, it did not adhere to the regulations of the Internal Revenue Service which required obtaining prior consent before such a change could be made. Int.Rev Code of 1954, § 446(e) (26 U.S.C.A., § 446(e)); Int.Rev.Reg. § 1.446-1(e)(2)(i) (1954).

On June 11, 1963, the taxpayers received notification from the I.R.S. advising them that their change in computation from the accrual to the cash method was unauthorized and in order to comply with the requirements of the law, additional tax must be paid. The notice stated:

'The taxpayer did not file an application on Form 3115 with the Commissioner of Internal Revenue, Washington 25, D. C., within 90 days after the beginning of the taxable year in which it desired to make the change. This agent proposes that the taxpayers may not compute his taxable income under a method of accounting different from that previously used by him unless such consent is secured from the Commissioner of Internal Revenue.'

It is unclear what activities took place in the next two years, but the appellants concede that on April 27, 1965, ¹ they were advised by the I.R.S. that because of their improper accounting calculations a substantial tax deficiency had been assessed against them. ² Appellants challenged this assessment in the United States Tax Court and after an adverse decision there on May 27, 1968, they prosecuted an equally unsuccessful appeal in the United States Court of Appeals. Leonhart v. C. I. R., 414 F.2d 749 (4th Cir., decided Aug. 25, 1969).

During the entire time this tax issue was being litigated, Atkinson remained as the appellants' accountant, continued to prepare their tax returns and repeatedly gave assurances that the I.R.S. position was incorrect. When negotiations with the agency failed, it was appellee who advised that the tax court be petitoned for relief and he recommended legal counsel, other than the corporation's regular attorney, to handle the case. After all efforts to get the assessment overturned failed, the Leonharts and their corporation brought this suit against appellee to recover damages for the alleged professional malpractice of their accountant. ³ Atkinson, in addition to pleading the general issue, filed a special plea claiming the action was barred by limitations. He included a motion for summary judgment supported by affidavit which had attached to it the I.R.S. statement of proposed adjustments. In opposition to this special plea, appellants, by way of replication, stated that the appellee by his conduct waived the limitations statute and was estopped from relying on it. They also filed an answer supported by affidavit in opposition to the summary judgment motion. This affidavit does not dispute that the June 11, 1963 notice, disallowing the accounting change, and the April 27, 1965 deficiency assessment were both received. Instead, the Leonharts oppose the summary judgment motion by alleging that Atkinson continually reassured them that the I.R.S. position was incorrect since the accounting change that was made did not necessitate the agency's prior consent. They further allege that appellee's statements were deliberately misleading and made for the express purpose of lulling them into a false sense of security so as to delay the start of litigation against Atkinson until limitations had run. During oral argument in the trial court on the motion for summary judgment, the appellants' attorney conceded that there was no fraud or concealment in the accountant's actions. With this concession Judge Sodaro concluded that the case of Feldman v. Granger, 255 Md. 288, 257 A.2d 421 (1969) was dispositive of all questions raised and granted summary judgment. This appeal ensued but to no avail, as we agree with the decision of the trial judge.

Article 57, § 1 of the Code (1957, 1972 Repl.Vol.) provides in pertinent part that 'All actions of account, actions of assumpsit, or on the case, . . . shall be commenced, sued or issued within three years from the time the cause of action accrued . . ..' In a case in which limitations is an issue it is necessary to ascertain the date from which the cause of action accrues. The general rule, undoubtedly, is that limitations against a right or cause of action begins to run from the date of the alleged wrong and not from the time that wrong is discovered. Killen v. Geo. Wash. Cemetery, 231 Md. 337, 190 A.2d 247 (1963). But as Judge Finan speaking for the Court in Mattingly v. Hopkins, 254 Md. 88, 92-93, 253 A.2d 904, 907 (1969) said:

'Like most general rules of law, those pertaining to 'limitations' become less than profound when an attempt is made to apply them to specific cases. Much has been written as to when 'limitations' should start to run. Some courts have held the cause of action accrues when the defendant commits his wrong, others when the plaintiff discovers the wrong, and still others have held that it does not accrue until the maturation of harm. Sometimes the happening of the wrong, the knowledge of it and the maturation of the harm are simultaneous. When this occurs the recognition of the accrual of the cause of action is simple, when these elements happen sequentially it can become complex. Furthermore, there are nuances of difference in the accrual of the cause of action in cases arising out of actions ex contractu, as distinguished from actions ex delicto and a further hybridization of actions arising out of professional malpractice and otherwise.'

The harshness of the general rule was readily observable in malpractice suits as it frequently left a victim of professional malpractice without a remedy because the initial wrong was not always discoverable until after limitations had run, even though due diligence was exercised. This has led to the creation of exceptions, one of which Maryland has adopted-the 'discovery rule.' As long ago as 1917, in Hahn v. Claybrook, 130 Md. 179, 100 A. 83 (1917), this Court established the concept that in medical malpractice cases the cause of action accrues when the wrong is discovered or when with due diligence it should have been discovered. In the more than fifty years since that decision, the 'discovery rule' has been consistently extended so that now it is clearly applicable to all cases involving professional malpractice. Steelworkers Holding Co. v. Menefee, 255 Md. 440, 258 A.2d 177 (1969) (architect); Feldman v. Granger, supra (accountant); Mumford v. Staton, Whaley & Price, 254 Md. 697, 255 A.2d 359 (1969) (attorney); Mattingly v. Hopkins, 254 Md. 88, 253 A.2d 904 (1969) (civil engineer); Waldman v. Rohrbaugh, 241 Md. 137, 215 A.2d 825 (1966) (physician); see also Comment, Limitations in Professional Malpractice Actions, 28 Md.L.Rev. 47 (1968). However, acceptance of that rule is as far as this Court has been willing to go and we have rejected the 'maturation of harm' doctrine. Feldman v. Granger, supra, 255 Md. at 294, 257 A.2d 421; Mattingly v. Hopkins, supra, 254 Md. at 96, 253 A.2d 904.

This leaves us then with the problem of determining the day that the appellants discovered or should have discovered they had a cause of action. If that date is within three years of the filing of this case, the appellants should have been allowed to proceed to trial; if not, the trial judge was correct in granting the motion for summary judgment. No one here maintains that limitations began to run when the accountant erroneously advised the Leonharts concerning their tax liability for the years 1960 and 1961. But Atkinson does contend that the period of limitations began as early as June 11, 1963, when the appellants first received notice, as part of a proposed tax adjustment, that their accounting change was disallowed and no later than April 27, 1965, the day the tax deficiency was assessed by the I.R.S. On the other hand, appellants argue that the limitations period did not commence until May 27, 1968, when the tax court affirmed the assessment and therefore the suit was filed almost two months before it would be barred by the statute. As we view this dispute in light of ...