Thomas v. Grant Thornton LLP

• Decision Date: 06 October 2015
• Docket Number: WD 78122
• Parties: Kenny S. Thomas, et al., Appellants, v. Grant Thornton LLP, Respondent.
• Court: Missouri Court of Appeals

478 S.W.3d 440

Kenny S. Thomas, et al., Appellants,

v.Grant Thornton LLP, Respondent.

WD 78122

Missouri Court of Appeals, Western District.

Opinion filed: October 6, 2015

Motion for Rehearing and/or Transfer to Supreme Court Denied November 24, 2015

Application for Transfer Denied January 26, 2016

P. John Brady, Kansas City, for Appellants.

Fred L. Sgroi, Kansas City, for Respondent.

Before Division Two: THOMAS H. NEWTON, Presiding Judge, VICTOR C. HOWARD, Judge and MARK D. PFEIFFER, Judge

VICTOR C. HOWARD, JUDGE

Kenny and Eileen Thomas and Kelly and Mandy Thomas (collectively "the Thomases") appeal the judgment of the trial court dismissing their claims for fraudulent and negligent misrepresentation, breach of fiduciary duty, and professional negligence against Grant Thornton LLP as time-barred by the Kansas two-year statute of limitations, K.S.A. §§ 60–513(a)(3) & (4)(2005). The Thomases contend that the trial court erred in dismissing their petition because their claims accrued in Missouri in February 2009 and, due to a series of tolling agreements executed by the parties, were not time-barred under Missouri's five-year statute of limitations for general torts and fraud, § 516.120, RSMo 2000, when they filed their petition in June 2014. The judgment is affirmed.

Factual and Procedural Background

The facts relevant to the question of whether the statute of limitations bars the Thomases' claims against Grant Thornton are uncontested. In their petition for damages, the Thomases alleged that Grant Thornton, a national accounting firm, promoted and sold to them through a former partner in its tax practice group, Allen Davison, several abusive tax shelter schemes resulting in significant financial damages including fees expended in purchasing the abusive schemes, penalties and interest assessed by state and federal tax authorities, loss of deductions, and professional fees incurred. In particular, the petition alleged that Kenny Thomas and his son, Kelly Thomas, own an automobile dealership in Kansas called Olathe Toyota. They and their wives, Eileen and Mandy Thomas, are all residents of Kansas. Mr. Davison, a CPA and attorney, sold the Thomases three tax arrangements: a multiple entity structure (parallel corporation arrangement), an ESOP–S corporation arrangement, and a Roth IRA–C arrangement. Several entities owned by Kenny and Kelly Thomas, individually or collectively, were created as part of the tax arrangements to be management companies purportedly providing services to Olathe Toyota. Olathe Toyota took substantial expenses deductions for purported fees paid to the various entities for management/consulting services for tax years 2002, 2003, and 2004 resulting in reduced or deferred tax liabilities in those years.

In August and September 2006, the Internal Revenue Service issued notices of deficiency to the Thomases, two of the Roth IRA–C entities, and one of the ESOP–S corporation entities for tax years 2002, 2003, and 2004. The notices of deficiency reflected the IRS's rejection of the tax strategies sold to them by Grant Thornton and assessed back taxes and penalties for those tax years. The Thomases and their affiliated entities contested the deficiencies in United States Tax Court. Mr. Davison, who resigned from Grant Thornton in 2001, continued to represent the Thomases in his capacity as attorney and tax advisor in the tax court proceedings and continued to reassure them that the tax arrangements were legitimate tax avoidance transactions. After several years of litigation, the Thomases and their affiliated entities reached a settlement of their tax court cases in February 2009 agreeing to pay substantial back taxes, interest, and penalties.

The Thomases filed their four-count petition against Grant Thornton on June 10, 2014, seeking damages for fraudulent and negligent misrepresentation, breach of fiduciary duty, and professional negligence. Grant Thornton filed a motion to dismiss asserting that the Thomases' claims were barred by the Kansas two-year statute of limitations through the application of Missouri's borrowing statute, section 516.190, RSMo 2000.

In their suggestions in opposition to the motion to dismiss, the Thomases argued that their action was timely filed within the Missouri five-year statute of limitations because the claims accrued in February 2009 in Missouri when the U.S. Tax Court decision imposed penalties and interest against the Thomases and because the parties had entered into a series of tolling agreements beginning in 2011. The first tolling agreement between the parties was effective on September 1, 2011, and ran through December 30, 2011. The second agreement, effective on March 2, 2012, ran through September 2, 2013. The third and final agreement was effective on September 16, 2013, and ran through May 30, 2014. All three agreements contained the following provision:

This Agreement effects a tolling and suspension of the statute of limitations only on claims for which the statute of limitations has not already expired as of the Effective Date of this Agreement. This Agreement has no effect on any claims that were barred as of the Effective Date, and does not operate to revive any such claims.

The trial court granted the motion to dismiss and entered judgment for Grant Thornton finding that the Thomases' claims originated in 2006 in Kansas and were barred by the Kansas two-year statute of limitations made applicable by the Missouri borrowing statute. This appeal by the Thomases followed.

Standard of Review

Generally, review of a trial court's motion to dismiss is limited to the sufficiency of the pleadings on their face. City of North Kansas City v. K.C. Beaton Holding Co., LLC, 417 S.W.3d 825, 830 (Mo.App.W.D.2014). Where, as here, both parties introduce evidence beyond the pleadings, a motion to dismiss is converted to a motion for summary judgment, and the parties are charged with knowledge that the motion was so converted. Id. ; Mitchell v. McEvoy, 237 S.W.3d 257, 259 (Mo.App.E.D.2007). Nonetheless, "[w]hen relevant facts are uncontested, the question of whether a statute of limitations bars an action can be decided by a court as a matter of law." Rolwing v. Nestle Holdings, Inc., 437 S.W.3d 180, 182 (Mo. banc 2014) (citing State ex rel. Marianist Province of U.S. v. Ross, 258 S.W.3d 809, 811 (Mo. banc 2008) ).

Discussion

"In ruling on statutes of limitations issues, the law of the forum state is applied." Alvarado v. H & R Block, Inc., 24 S.W.3d 236, 241 (Mo.App.W.D.2000). In Missouri, the statute of limitations for fraud, negligent misrepresentation, breach of fiduciary duty, and professional negligence is five years. § 516.120(4) & (5). However, when a cause of action "originates" in another state, the foreign state's statute of limitations become applicable through Missouri's borrowing statute, section 516.190. Ferrellgas, Inc. v. Edward A. Smith, P.C., 190 S.W.3d 615, 620 (Mo.App.W.D.2006) ; Alvarado, 24 S.W.3d at 241–42. Section 516.190 provides, "Whenever a cause of action has been fully barred by the laws of the state, territory or country in which it originated, said bar shall be a complete defense to any action thereon, brought in any of the courts of this state." Accordingly, if the foreign state's statute of limitations bars an action, Missouri's borrowing statute acts to bar the action in Missouri as well. Ferrellgas, 190 S.W.3d at 620 ; Alvarado, 24 S.W.3d at 242.

The term "originated" as used in Missouri's borrowing statute is synonymous with the term "accrued." Ferrellgas, 190 S.W.3d at 620 (citing Thompson v. Crawford, 833 S.W.2d 868, 871 (Mo. banc 1992) ); Alvarado, 24 S.W.3d at 242. Section 516.100 directs when a cause of action accrues: "for the purposes of sections 516.100 to 516.370, the cause of action shall not be deemed to accrue when the wrong is done or the technical breach of contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of ascertainment...." Damage is sustained and capable of ascertainment when it can be discovered or made known, not when the plaintiff actually discovers injury or wrongful conduct, and even if the extent of the damage remains unknown. Ferrellgas, 190 S.W.3d at 620 ; Day v. deVries & Assocs., P.C., 98 S.W.3d 92, 96 (Mo.App.W.D.2003) ; Alvarado, 24 S.W.3d at 242. "Whether damages are capable of ascertainment is an objective test, ordinarily decided as a matter of law." Ferrellgas, 190 S.W.3d at 620. The question is whether damages were capable of ascertainment by a reasonable person using reasonable diligence. Id.

Section 516.100 not only determines when a cause of action accrues but also where it accrues for the purpose of applying the borrowing statute. Ferrellgas, 190 S.W.3d at 620 ; Day, 98 S.W.3d at 95 ; Alvarado, 24 S.W.3d at 242. " ‘A cause of action accrues when and originates where damages are sustained and are capable of ascertainment.’ " Day, 98 S.W.3d at 95–96 (quoting Elmore v. Owens–Illinois, Inc., 673 S.W.2d 434, 436 (Mo. banc 1984) ).

While section 516.100 governs when negligence and breach of fiduciary duty causes of action originate or accrue, section 516.120(5) determines when a cause of action for fraud accrues. Schwartz v. Lawson, 797 S.W.2d 828, 832 (Mo.App.W.D.1990). "[A]n action for fraud accrues not when the damage occurs or can be ascertained, but when ‘facts constituting the fraud are discovered.’ " Cmty. Title Co. v. U.S. Title Guar. Co., Inc., 965 S.W.2d 245, 252 (Mo.App.E.D.1998) (quoting Schwartz, 797 S.W.2d at 832 ). Specifically, section 516.120(5) provides that for an action for relief on the ground of fraud, the cause of action is "deemed not to have accrued until the discovery by the aggrieved party, at any time within ten years, of the facts constituting the fraud." "A cause of action for fraud accrues at the time the defrauded party discovered or in the exercise of due diligence should have discovered the fraud." Larabee v. Eichler, 271 S.W.3d 542, 546...