Harvey v. Dixie Graphics, Inc.

• Decision Date: 17 January 1992
• Docket Number: No. 91-C-1382,91-C-1382
• Court: Louisiana Supreme Court
• Parties: Theo H. HARVEY, Jr. v. DIXIE GRAPHICS, INC. and Touche Ross & Co.

Page 351

593 So.2d 351

Theo H. HARVEY, Jr. v. DIXIE GRAPHICS, INC. and Touche Ross & Co.

No. 91-C-1382.

Supreme Court of Louisiana.

Jan. 17, 1992.

Robert Emmet Tarcza, New Orleans, for applicant.

H. Paul Simon and Charles C. Coffee, Simon, Peragine, Smith & Redfearn, New Orleans, for respondent.

DENNIS, Justice.

The issue is whether plaintiff's delictual action for damages resulting from an accountant's professional malpractice is prescribed. We must decide if the lower courts correctly held that the plaintiff suffered damage sufficient to commence the running of prescription over one year before filing suit, and that prescription was not suspended during the period that plaintiff defended himself against a third party's attack brought on by the alleged malpractice.

The trial court, on recommendation of its commissioner, held that the claim against the defendant accounting firm Touche Ross & Co. was prescribed, reasoning that plaintiff Theo Harvey had knowledge of his malpractice cause of action over one year in advance of filing suit. The court of appeal affirmed, finding that over one year before filing suit, Harvey became aware of actual and appreciable harm which he knew was brought on by the alleged malpractice of Touche Ross. It also concluded that the doctrine of contra non valentum did not apply to suspend the running of prescription during the time that Harvey defended Touche Ross' work product in proceedings by the IRS. Harvey v. Dixie Graphics, Inc., 580 So.2d 518 (La.App. 4th Cir.1991). We granted certiorari, 586 So.2d 545, in order to consider whether appreciable damage had occurred as of the time specified by the court of appeal. After reviewing the record and arguments of the parties, we conclude that the court of appeal's determinations were correct and should be affirmed.

FACTS

Plaintiff Theo H. Harvey, Jr. sued the accounting firm of Touche Ross & Company for alleged negligence in preparing income tax returns for Harvey Press International (HPI). Harvey formerly owned HPI, and by agreement in June 1981 sold it to Dixie Graphics, Inc. Harvey then repurchased HPI in November 1982, and three days later sold it to Rebsamen Companies, Inc. While Dixie owned HPI, Dixie hired Touche Ross to prepare HPI's income tax return and other financial statements. According to the allegations of Harvey's petition, Touche Ross and Dixie negligently understated HPI's tax liability. Relying on the statements in the tax returns and other statements prepared by Touche Ross and approved by Dixie, Harvey reacquired HPI and sold it to Rebsamen with warranty. In July 1984, Rebsamen informed Harvey that the IRS was auditing HPI and was proposing adjustments which would result in greater tax liability. In November 1984 Harvey's own accountant and attorney met with the IRS agent at IRS regional offices in Nashville. The agent told them that the tax returns were prepared incorrectly. In October 1985 the IRS issued a "thirty day letter" proposing a deficiency of $157,438.00. According to the letter, the taxpayer must formally protest within 30 days to avoid a formal assessment. In December 1986, after negotiating with the IRS, Harvey, as Rebsamen's indemnitor under Harvey's sale agreement with Rebsamen, paid the IRS $91,542.00 in tax and $85,682 in interest, and paid legal and accounting fees of over $31,000.

Harvey filed this suit against Touche Ross and Dixie Graphics on June 15, 1987 alleging that the defendants are indebted in solido for the amounts Harvey paid in tax, interest and fees. Touche Ross filed a peremptory exception of prescription, which, after hearing, the trial court sustained. The court reasoned that the one-year prescriptive period of La.Civ.Code art. 3492 began to run in July 1984 when Harvey learned of the IRS audit and its proposal for adjustments. The Fourth Circuit Court of Appeal affirmed. It reasoned that the prescriptive period began in November 1984, because on that date Harvey was aware that the tax return prepared by Touche Ross was not approved by the IRS, was subject to serious dispute and that damage, at least to the extent of accountant and attorney fees, was inevitable. Harvey v. Dixie Graphics, Inc., 580 So.2d at 520. The court of appeal also concluded that contra non valentum did not suspend the running of prescription merely because the plaintiff would have been forced to take a position in a malpractice suit inconsistent with his position in the proceedings against him by the IRS. Id., at 521.

LAW

No contract ever existed between the plaintiff Harvey and the defendant accounting firm Touche Ross. Plaintiff's suit is for damages arising from the negligent act of the defendant. We will not answer the interesting question, not before us, as to whether the scope of a professional accountant's duty encompasses the risk of harm to a person not in privity with the accountant but who nevertheless relies on the accountant's work product and consequently suffers damages. See, e.g. Penalber v. Blount, 550 So.2d 577 (La.1989) and authorities cited therein; Devore v. Hobart Mfg. Co., 367 So.2d 836 (La.1979); Restatement (Second) of Torts Sec. 552. If such an action does exist, which we assume only for purposes of determining the question whether the claim is prescribed, the action is subject to the rules of prescription of tort actions.

At the time this suit arose, a delictual action for negligence in professional malpractice prescribed in one year, in the absence of more specific legislation. La.Civ.Code art. 3492; Braud v. New England Ins. Co., 576 So.2d 466 (La.1991); Rayne State Bank and Trust Company v. National Union Fire Insurance Co., 483 So.2d 987 (La.1986); Sciacca v. Polizzi, 403 So.2d 728 (La.1981); Phelps v. Donaldson, 243 La. 1118, 150 So.2d 35 (1963); Cherokee Restaurant, Inc. v. Pierson, 428 So.2d 995 (La.App. 1st Cir.1983), writ den. 431 So.2d 773; Carey v. Pannell, Kerr, Foster, 559 So.2d 867 (La.App. 4th Cir.1990). (Subsequently in 1990, a specific revised statute was added governing the liberative prescription of actions for professional accounting liability. See La. R.S. 9:5604 (1990). We decline to comment on whether this statute would apply to the action which we assume plaintiff has against the accountant with whom he is not in privity. We merely conclude that because the facts arose before the effective date of this statute, the statute can not apply. Lott v. Haley, 370 So.2d 521 (La.1979).)

Prescription of a delictual action begins to run from the date that injury or damage is sustained. La.Civ.Code art. 3492. This statute is rooted in the recognition that a prescriptive period is a time limitation on the exercise of a right of action, and a right of action in tort comes into being only when the plaintiff's right to be free of illegal damage has been violated. Baudry-Lacantinerie & Tissier, Prescription, 5 Civil Law Transl. Sec. 384 at p. 204 (1972). When damages are not immediate, the action in damages thus is formed and begins to prescribe only when the tortious act actually produces damage and not on the day the act was committed. Id.

The damage suffered must at least be actual and appreciable in quality--that is, determinable and not merely speculative. Braud v. New England Ins. Co., 576 So.2d 466 (La.1991). But there is no requirement that the quantum of damages be certain or that they be fully incurred, or incurred in some particular quantum, before the plaintiff has a right of action. Braud, supra; Rayne State Bank v. National Union Fire Insurance Co., 483 So.2d 987 (La.1986). Thus in cases in which a plaintiff has suffered some but not all of his damages, prescription runs from the date on which he first suffered actual and appreciable damage, Rayne, supra; Braud, supra; Baudry Lacantinerie & Tissier, supra, even though he may thereafter come to a more precise realization of the damages he has already incurred or incur further damage as a result of the completed tortious act. Rayne, supra.

In order to mitigate occasional harshness of the operation of the prescription statute our courts have implemented the jurisprudential principle of contra non valentum. This principle is based on the equitable notion that no one is required to exercise a right when it is impossible for him or her to do so. Rajnowski v. St. Patrick's Hospital, 564 So.2d 671 (La.1990); Plaquemines Parish Commission Council v. Delta Development Co., Inc., 502 So.2d 1034, 1054-1060 (La.1987). In the case in which a plaintiff is not aware of the damage suffered, see R.J. Reynolds Tobacco v. Hudson, 314 F.2d 776 (5th Cir.1963), or is not aware that the damage suffered is the fault of the defendant, see Jordan v. Employee Transfer Co., 509 So.2d 420 (La.1987), contra non valentum has operated to suspend the running of prescription until such time as the plaintiff knew or reasonably should have known that his or her damages were the fault of the defendant's negligent act. Stone, Tort Doctrine, 12 Louisiana Civil Law Treatise Sec. 120 (1977) at 167. The other general instances in which contra non valentum is recognized to apply are legal impossibility, existence of a condition coupled with a contract or the proceedings that prevent plaintiff from acting, and presence of an obstacle set up by the defendant. Rajnowski, supra; Plaquemines Parish Commission Council, supra.

To summarize the jurisprudential precepts explicated above, for prescription to begin to run under Article 3492, it must be shown that the plaintiff knew or reasonably should have known that he or she has suffered harm due to a tortious act of the defendant, unless one of the contra non valentum exceptions applies to delay further the commencement or to suspend the running of prescription.

Applying these precepts to the facts of this case, we affirm the lower courts' ultimate conclusions that the claim has prescribed. The court of appeal was not manifestly erroneous in concluding that prescription had begun to run...