Bosse v. Quam

• Decision Date: 08 December 1994
• Docket Number: No. 18747,18747
• Citation: 537 N.W.2d 8
• Court: South Dakota Supreme Court
• Parties: Martin J. BOSSE and Virgene T. Bosse, D/B/A Bosse Oil Company and Bosse Oil, Inc., Plaintiffs and Appellants, v. Judith A. QUAM and Dwight W. Berglin, Individually, and Quam & Berglin, Certified Public Accountants, Defendants and Appellees. . Considered on Briefs

Page 8

537 N.W.2d 8

Martin J. BOSSE and Virgene T. Bosse, D/B/A Bosse Oil

Company and Bosse Oil, Inc., Plaintiffs and Appellants, v. Judith A. QUAM and Dwight W. Berglin, Individually, and Quam

& Berglin, Certified Public Accountants,

Defendants and Appellees.

No. 18747.

Supreme Court of South Dakota.

Considered on Briefs Dec. 8, 1994.

Decided Aug. 23, 1995.

John A. Gors of DeVany Law Office, Vermillion, for plaintiffs and appellants.

Lee A. Magnuson of Lynn, Jackson, Shultz & Lebrun Sioux Falls, for defendants and appellees.

AMUNDSON, Justice.

Bosse Oil Company (Bosse) appeals the trial court's decision to grant partial summary judgment to Quam & Berglin, C.P.A. We reverse and remand for trial.

FACTS

Judith Quam and Dwight Berglin are certified public accountants (Accountants) who operate offices in Elk Point and Alcester, South Dakota. Martin (Martin) and Virgene Bosse are sole owners of a retail automobile service station in Jefferson, South Dakota, which sells bulk fuel in conjunction with the business. Bosse Oil Company, Inc. (Bosse) is the couple's incorporated business.

Accountants provided professional service to Bosse for approximately seven years prior to this controversy. Accountants filed federal and state tax returns, prepared financial statements, and assisted Bosse in presenting loan applications.

In 1988, the federal tax laws changed to require Bosse to assess tax on fuel sold for agricultural use. The returns and payment were due quarterly. Although the law was amended later that year, Bosse was subject to its mandate for three quarters in 1988.

Martin learned of this new tax, which was to commence in the second quarter of 1988, from a trade publication. Martin collected the taxes from farmers starting April 1, 1988, and placed the money in Bosse's general accounts. Martin calculated the tax due based on his own records and collected the tax accordingly. Thereafter, he submitted his records to Accountants to prepare the relevant tax forms. ¹

It is undisputed that Accountants negligently prepared three federal excise tax returns on the 1988 agricultural fuel sales. Although Martin collected the taxes on agricultural use for each of these three quarters, Accountants did not include them in Bosse's quarterly returns. As a result, Bosse grossly underpaid the amount of federal tax due. In June 1991, Bosse received notice of an audit from the IRS. Accountants aided Bosse until the audit was completed on November 6, 1991, by gathering necessary documents, reviewing figures, and representing Bosse during the audit hearing. Bosse was assessed back taxes, penalties and interest. Bosse paid the taxes and interest; Accountants paid the penalty.

In early 1992, Bosse terminated its professional relationship with Accountants, but did not file suit until December 18th of that year.

Accountants filed a motion for judgment on the pleadings, which was converted into a motion for partial summary judgment. The trial court granted partial summary judgment and held that any causes of action arising from the second and third-quarter returns were barred under SDCL 15-2-14.4. Although the trial court recognized the "continuing relationship doctrine" as an exception to SDCL 15-2-14.4, it ruled Bosse's relationship with Accountants did not fall within this exception. The court held that Bosse's only claim was for the fourth-quarter return. Bosse appeals.

ISSUES

I. WHETHER SOUTH DAKOTA RECOGNIZES THE CONTINUING REPRESENTATION DOCTRINE AS AN EXCEPTION TO THE STATUTE OF LIMITATIONS FOR ACCOUNTANTS' MALPRACTICE UNDER SDCL 15-2-14.4?

II. WHETHER BOSSE'S RELATIONSHIP WITH ACCOUNTANTS FALLS WITHIN THE CONTINUING REPRESENTATION DOCTRINE TO TOLL THE STATUTE OF LIMITATIONS FOR CAUSES OF ACTION ON THE SECOND AND THIRD QUARTER RETURNS.

STANDARD OF REVIEW

The standard of review on a motion for partial summary judgment is well settled. Partial summary judgment is appropriate when, viewing the evidence in the light most favorable to the nonmoving party, the moving party clearly shows that there is no genuine issue of material fact. North Star Mut. Ins. Co. v. Kneen, 484 N.W.2d 908, 910 (S.D.1992). "Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper." Miessner v. All Dakota Ins. Associates, 515 N.W.2d 198, 200 (S.D.1994); SDCL 15-6-56(c).

Our review of the trial court's grant of partial summary judgment to Accountants on the basis that no "continuous representation" existed between the parties also involves the interpretation of SDCL 15-2-14.4. Schoenrock v. Tappe, 419 N.W.2d 197, 201 (S.D.1988) (citations omitted). Statute of limitations' questions are normally left for the jury. Id. However, the construction of a statute and its application to particular facts present a question of law, reviewed de novo. Id.; Johnson v. Rapid City Softball Ass'n, 514 N.W.2d 693, 695 (S.D.1994).

DECISION

I. Continuous Representation Doctrine Applied to Accountant Negligence.

Bosse argues the continuing representation doctrine is an exception to the statute of limitations for Accountants' malpractice under SDCL 15-2-14.4. Although we have recognized this doctrine in conjunction with medical and legal malpractice, it is a question of first impression in the area of accountant negligence.

South Dakota's accountant liability statute, SDCL 15-2-14.4, provides:

Any action against a licensed public accountant, his agent or employee, for malpractice, error mistake, or omission, whether based on contract or tort, may be commenced only within four years after the alleged malpractice, error, mistake or omission has occurred.

The time limitation to bring a claim under this statute begins on the "occurrence" of the accountant's negligent act.

In the area of medical malpractice, however, this court has carved an exception to the statute of limitations. This exception prevents the statute of limitation's clock from ticking when the alleged harm is the result of a continuing tort. See Wells v. Billars, 391 N.W.2d 668 (S.D.1986); Alberts v. Giebink, 299 N.W.2d 454 (S.D.1980). In Wells, the court tolled the statute of limitations for torts arising out of a physician's "continuing treatment" until the doctor-patient relationship ended. Id. at 673. The rationale behind this doctrine was to prevent the refusal to seek or administer health care due to pending litigation when treatment may be desperately needed. Id., 391 N.W.2d at 672.

The "continuing treatment doctrine" was extended to legal malpractice in Schoenrock, 419 N.W.2d at 200. Creating an exception to the usual three-year statute of limitation for attorney malpractice actions, Schoenrock followed the Wells decision, holding that "continuous representation" halts the commencement of the limitations period until the attorney-client relationship ends. Id. (citing R. Mallen and B. Levitt, Legal Malpractice § 391 (1981)). The court limited the doctrine's use to only those cases where there is a "clear indicia of an ongoing, continuous, developing and dependent relationship between the client and the attorney[.]" Id. (citing Muller v. Struman, 79 A.D.2d 482, 485, 437 N.Y.S.2d 205, 208 (1981); Citibank NA v. Suthers, 68 A.D.2d 790, 418 N.Y.S.2d 679 (1979); Grago v. Robertson, 49 A.D.2d 645, 370 N.Y.S.2d 255 (1975)).

As this court explained in Schoenrock, what is protected is "not merely continuity of a general professional relationship." Id., 419 N.W.2d at 201 (citations omitted). Instead, it is the cause of action which results from the underlying condition caused by the professional's ongoing negligent behavior. Id. Once the act of malpractice occurs, the doctrine only applies to acts of malpractice arising from the "performance of the same or related services." Id. Given these parameters, the Schoenrock court refused to extend the doctrine to the plaintiff because "there simply was no continuity in the parties' relationship." Id. The court held the plaintiff's action barred.

The next case to address the issue, Kurylas, Inc. v. Bradsky, 452 N.W.2d 111 (S.D.1990), reemphasized the need for an ongoing relationship to trigger the exception. The facts of the case revealed that, soon after attorney Bradsky failed to file a financing statement, he withdrew and arranged for alternative counsel for Kurylas' business affairs. The Kurylas court held that such minor contacts between the attorney and client did not establish a continuing relationship after the negligent act occurred. According to the court, Kurylas did not carry his burden of proof to toll the statute.

Since accountants are held to the same standard of professional care as doctors and lawyers, we conclude that the "continuous relationship" exception applies to the statute of limitations for accountant liability under SDCL 15-2-14.4. See Lien v. McGladrey & Pullen, 509 N.W.2d 421, 423 (S.D.1993).

II. Bosse's Relationship With Accountants Within Doctrine.

As this court held in Kurylas, the burden to establish the continuous representation doctrine falls on the party requesting its benefit.

[I]n summary judgment proceedings where the defendant asserts the statute of limitations as a bar to the action, and presumptively establishes the defense by showing the case was instituted beyond the statutory period, the burden then shifts to the plaintiff to establish the existence of material facts in avoidance of the statute of limitations, e.g., fraudulent concealment of the cause of action.

452 N.W.2d at 117 (citations omitted). "This applies to the continuous representation doctrine as well." Id. Bosse therefore has the burden to prove an existence of material facts to invoke the exception to SDCL 15-2-14.4. We believe the facts of this case fall within this exception.

"Continuity" means "quality or state of continuing without essential change:...