Boykin v. Cobin
| Decision Date | 31 May 1994 |
| Docket Number | No. B056812,B056812 |
| Citation | 25 Cal.App.4th 435,30 Cal.Rptr.2d 428 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Previously published at 25 Cal.App.4th 435, 30 Cal.App.4th 1038 25 Cal.App.4th 435, 30 Cal.App.4th 1038 Edward BOYKIN, et al., Plaintiffs and Appellants, v. Michael N. COBIN, etc., et al., Defendants and Respondents. |
Garrett & Tully and Stephen J. Tully, Pasadena, Weisman, Butler & Watson and Mark L. Weisman, Beverly Hills, for defendants and respondents.
Plaintiffs Margaret and Edward Boykin and Boykin Construction Company, Inc., appeal from a summary judgment in favor of accountant Michael Cobin, his professional corporation, and Ro Cobin. The Boykins brought actions for professional negligence and negligent infliction of emotional distress based upon the Cobins' alleged failure to exercise reasonable care and skill in the preparation of the Boykins' 1984, 1985, and 1986 federal income tax returns. The trial court granted summary judgment on the ground that the action was not timely filed.
The Boykins' assertion on appeal is that their causes of action did not accrue until the Internal Revenue Service issued its notice of deficiency assessing penalties for negligence and fraud. The issue is when the Boykins sustained "actual injury." We find that the record on appeal does not show the Boykins sustained such before the issuance of the deficiency notice, seven months before they filed the malpractice action. As to Mr. and Mrs. Boykin, we reverse the summary judgment and remand for further proceedings. As to Boykin Construction Company, Inc., we dismiss the appeal. 1
About April of 1985 the Boykins retained the Cobins as their accountants to prepare personal and corporate income tax returns.
In the spring of 1987, the Internal Revenue Service (IRS) commenced an audit of the Boykins' 1984, 1985, and 1986 personal returns and their 1986 corporate tax return. The Boykins' depositions indicate that, after the audit was commenced, the Cobins informed the Boykins they had made "mistakes" on their returns but that they need not "worry." As preparers of the tax returns, the Cobins represented the Boykins' interests before the IRS. Shortly thereafter, in December of 1987, the Boykins hired Norman Green, an attorney, to join the Cobins in the IRS proceedings.
The IRS audit was conducted over a period of more than two years. Two or three months after the audit was commenced, the Boykins were instructed by the Cobins to submit $200,000 to the IRS, which they did. The final audit report, also referred to as the notice of deficiency, was issued June 14, 1989, and indicated an amount due of over $3.8 million for underpayment of taxes, penalties for negligence and fraud, and interest. The Boykins fired the Cobins in September of 1989 and filed their complaint January 17, 1990.
The parties agree that the Boykins' claim for professional negligence is governed by a two-year statute of limitations (Code Civ.Proc., § 339, subd. 1), and their emotional distress claim by a one-year statute (Code Civ.Proc., § 340).
The Cobins argue that actual injury occurred when the Boykins hired Green to represent them at the audit and when they paid $200,000 to the IRS, both events occurring more than two years before the complaint was filed. The Boykins claim they suffered no such injury before issuance of the deficiency notice, only a few months before the filing of their complaint.
In Moonie v. Lynch (1967) 256 Cal.App.2d 361, 64 Cal.Rptr. 55, the first district adopted the discovery rule for accountant malpractice cases. As applied in professional negligence cases, the discovery rule has two elements: (1) the client discovers or should discover the facts essential to the malpractice claim, and (2) the client suffers appreciable The Cobins rely heavily on McKeown v. First Interstate Bank (1987) 194 Cal.App.3d 1225, 240 Cal.Rptr. 127, a tort action against a bank based on its alleged misrepresentation that plaintiffs would incur no tax liability for loan payments made by plaintiffs' automobile dealership corporation. The court held the plaintiffs in McKeown suffered appreciable injury at least as early as the date on which they paid attorney fees to challenge previously issued IRS deficiency determinations. (Id. at p. 1229, 240 Cal.Rptr. 127.) While the McKeowns had incurred accountants' fees prior to the notices of deficiency, the court did not address the possibility of an earlier accrual date because the statute had already run even as to the last event, the payment of attorney fees. McKeown does not resolve our situation, where attorney's fees were incurred prior to the deficiency notice.
and actual harm from the malpractice. (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 98 Cal.Rptr. 837, 491 P.2d 421.) The question before us is whether the hiring of attorney Green during the IRS audit or the payment of $200,000 to the IRS constitutes actual harm, caused by the Cobins, so as to trigger the running of the statute of limitations for accountant malpractice
The Cobins similarly point to Schrader v. Scott (1992) 8 Cal.App.4th 1679, 11 Cal.Rptr.2d 433, where the trial court sustained a defense summary judgment motion in an accountant malpractice case. The defendant accountants contended that the cause of action accrued no later than the notice of deficiency; the plaintiffs argued the statute was tolled while they pursued administrative appellate remedies. The appellate court, applying Laird v. Blacker (1992) 2 Cal.4th 606, 7 Cal.Rptr.2d 550, 828 P.2d 691, to the accountant malpractice claim in Schrader, did not discuss whether appreciable harm was sustained prior to the notice of deficiency as a result of the costs incurred in hiring other professionals. Thus, Schrader is of no assistance here.
Before the Supreme Court's decision in Laird, the test for actual harm was when it was "irremediable." Laird, however, held that the limitations period for legal malpractice commenced when a client suffers an adverse judgment or order of dismissal in the underlying action on which the malpractice action is based. (Laird v. Blacker, supra, 2 Cal.4th at p. 609, 7 Cal.Rptr.2d 550, 828 P.2d 691.) While this bright line rule cleared up much confusion over whether the statute was tolled pending appeal, and has been applied to accountant malpractice cases to deny tolling where a party seeks either administrative review or challenges an unfavorable ruling in tax court, (Schrader v. Scott, supra, 8 Cal.App.4th 1679, 11 Cal.Rptr.2d 433), Laird did not address facts similar to the instant case.
Regardless of the profession involved, the concept of causation remains the same. ...
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