Ackerman v. Price Waterhouse

• Decision Date: 04 November 1993
• Parties: Carolyn ACKERMAN, et al., Plaintiffs-Respondents, v. PRICE WATERHOUSE, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 721

604 N.Y.S.2d 721

198 A.D.2d 1

Carolyn ACKERMAN, et al., Plaintiffs-Respondents, v. PRICE WATERHOUSE, Defendant-Appellant. [And One Other Action and a Third-Party Action.]

Supreme Court of New York, Appellate Division,

First Department.

Nov. 4, 1993.

Prior report: 156 Misc.2d 865, 591 N.Y.S.2d 936.

Leave to appeal granted, 608 N.Y.S.2d 69.

Order, Supreme Court, New York County (Ira Gammerman, J.), entered April 1, 1993, based upon the memorandum decisions of Diane Lebedeff, J., dated March 28, 1991 and November 10, 1992, respectively, affirmed for the reasons stated by Gammerman, J., with costs.

All concur except WALLACH, J. who dissents in a memorandum as follows:

WALLACH, Justice (dissenting).

The purpose of the Statute of Limitations is to protect a defendant from stale claims (Duffy v. Horton Mem. Hosp., 66 N.Y.2d 473, 476-477, 497 N.Y.S.2d 890, 488 N.E.2d 820), and perhaps equally important, to establish with certainty and predictability the point at which a claim accrues (Hernandez v. New York City Health & Hosps. Corp., 78 N.Y.2d 687, 694, 578 N.Y.S.2d 510, 585 N.E.2d 822). In New York, we have historically treated professional malpractice, other than medical, as subject to a three-year Statute of Limitations (CPLR 214[6]. Normally, the Statute begins to run upon termination of the professional services with relation to the transaction in question, the rationale being that a client is infrequently in a position to know the intricacies of his professional practitioner's representation at least until conclusion of the professional relationship (Siegel v. Kranis, 29 A.D.2d 477, 480, 288 N.Y.S.2d 831). In actions involving alleged reliance upon financial documents prepared by an accountant, the Statute begins to run when the accountant's work is received by the plaintiff (Meinhard-Commercial Corp. v. Sydney, 109 A.D.2d 678, 487 N.Y.S.2d 7).

Price Waterhouse was the accountant for the CPG limited partnerships, of which plaintiffs were limited partners. Technically, plaintiffs were not clients of Price Waterhouse, so their claims for professional malpractice are more properly for simple negligence (Fleet Factors Corp. v. Werblin, 114 A.D.2d 996, 495 N.Y.S.2d 434).

Each year, beginning in 1981, Price Waterhouse distributed a K-1 partnership form to plaintiffs for assistance in preparing their individual income tax returns. Plaintiffs were apprised, as early as 1983, that the IRS viewed with disfavor a practice utilized by Price Waterhouse for deducting interest based upon the "Rule of 78". Price Waterhouse advised plaintiffs that it believed the Revenue Ruling in question (# 83-84), disapproving of that methodology, was inapplicable to them, based upon the opinion of tax counsel; nevertheless, plaintiffs were specifically warned that should the IRS succeed in applying Revenue Ruling 83-84 to this partnership deduction, plaintiffs could expect substantial tax penalty consequences. When the IRS began sending 30- and 60-day notices of deficiency to plaintiffs in 1984, Price Waterhouse again relied on the opinion of the partnerships' special tax counsel in advising that the partnerships' viewpoint would likely prevail on appeal.

By 1986, plaintiffs had exhausted their administrative appeals of the 30- and 60-day notices, and were now aware, on advice of their own tax counsel as well as Price Waterhouse, that continued utilization of the Rule of 78 in calculating interest deductions would probably subject them to litigation. The IRS then began issuing statutory notices of deficiency, known as 90-day letters. During the pendency of those proceedings, an unrelated Tax Court ruling upheld the retroactive application of Revenue Ruling 83-84 ...