Hunter v. Knight, Vale and Gregory, 2158-II
| Decision Date | 13 October 1977 |
| Docket Number | No. 2158-II,2158-II |
| Citation | 571 P.2d 212,18 Wn.App. 640 |
| Parties | Orville W. HUNTER and Mildred J. Hunter, a marital community, Appellants, v. KNIGHT, VALE AND GREGORY, Respondents. |
| Court | Washington Court of Appeals |
Stephen P. Ryder, Dale L. Kingman, Thom, Mussehl, Navoni, Hoff, Pierson & Ryder, Seattle, for appellants.
Thomas S. Zilly, Lane, Powell, Moss & Miller, Seattle, for respondents.
The plaintiffs, Mr. and Mrs. Orville W. Hunter, appeal from a summary judgment dismissing one of the several defendants named in their complaint the accounting firm of Knight, Vale and Gregory. The trial court determined that as to this defendant, plaintiffs' claims of malpractice and breach of fiduciary duty were barred by the 3-year statute of limitations. We affirm the judgment.
The facts, as alleged in plaintiffs' complaint which was filed on March 19, 1975, may be summarized as follows:
Orville W. Hunter was the president and principal stockholder of W. H. Opie and Company until March 20, 1972. During the period of Mr. Hunter's ownership and control, Opie entered into contractual relationships with several banking institutions in furtherance of its business of mortgage financing and construction loan origination. These institutions and several of their key officers are also defendants in the basic lawsuit.
In 1968, Mr. Hunter agreed to a merger between Opie and defendant Equitable Mortgage Company. Plaintiffs allege that the merger agreement was based on numerous material misrepresentations concerning the financial condition of Equitable. The defendant officers of Equitable, in their new capacity as officers of Opie, are said to have engaged in improper dealings with defendant banks to the detriment of Opie, to-wit: "out-of-trust borrowing, double-borrowing, self-dealing with corporate property and corporate waste of the assets of both corporations."
Mr. Hunter claims he advised the banking institutions in 1969 that he believed there were discrepancies in Opie's bank lines of credit and requested the banks to examine their loan policies with respect to Opie's credit and mortgage financing. The defendant banks allegedly ignored Mr. Hunter's request until 1971 and 1972 when they made claims against him and Opie for shortages in bank lines of credit, deficiencies in out-of-trust funds, and double-borrowing on various residential loans. As a result, plaintiffs allege:
The bank consortium thereafter coerced and by fraudulent concealment of their own banking activities and by concealment of their failure to follow prudent banking practices, conspired along with (other named defendants) to divest Hunter of his stock interest in W. H. Opie and Company and coerced and compelled Hunter to divest W. H. Opie and Company of its mortgage servicing business and all other assets . . . (and) compelled and induced Hunter by economic duress to convey his stock interest in the Opie Company to (other named defendants).
With this background, we turn to plaintiffs' claim against the accounting firm of Knight, Vale and Gregory. During the period of alleged corporate waste and mismanagement, i. e., 1968 to 1972, Knight, Vale and Gregory conducted all of Opie's financial audits. Plaintiffs claim that had the defendant accounting firm exercised due care and employed generally accepted accounting principles, all damage to the corporation and to plaintiffs individually, including loss of Mr. Hunter's stockholdings, would have been avoided.
The trial court, however, never reached the merits of plaintiffs' claim because it granted Knight, Vale and Gregory's motion for summary judgment, concluding that plaintiffs' cause of action was barred by the running of the 3-year statute of limitations, RCW 4.16.080(2).
A statutory period of limitations commences to run when a cause of action "accrues." RCW 4.16.010. 1 A negligence action generally accrues when all the elements necessary to maintenance of a lawsuit are present. Thus the time of occurrence of the last of these elements is made the critical point of initial inquiry. Frequently, the statute of limitations does not begin to run against a negligence action until some damage has occurred. See Theurer v. Condon, 34 Wash.2d 448, 209 P.2d 311 (1949).
There are certain circumstances in which the commencement of the statutory period is delayed, despite the existence of a theoretical right to recovery, until the occurrence of some later event the absence of which makes suit impossible or improbable. Such is the case in the developing law of professional malpractice. In Peters v. Simmons, 87 Wash.2d 400, 552 P.2d 1053 (1976) and in Gazija v. Nicholas Jerns Co., 86 Wash.2d 215, 543 P.2d 338 (1975) the court applied the so-called "discovery rule" respectively to attorneys and insurance agents. In Peters at 404-05 the court stated:
The discovery rule, i. e., when a client discovers or in the exercise of reasonable diligence should have discovered an injury, has been extended in Washington and applied to a variety of actions for professional malpractice. The rule has been extended to physicians, and surveyors.
(Footnotes omitted.) Judicial policy dictates that the discovery rule be extended to accountants in order to protect clients who frequently do not have the means or ability to discover the perpetration upon them of professional malpractice. See Moonie v. Lynch, 256 Cal.App.2d 361, 64 Cal.Rptr. 55 (1967). We do extend the discovery rule to the profession of accounting.
Application of this rule to the case at bench would seem to dictate the plaintiffs' action against Knight, Vale and Gregory accrued on or before February 24, 1972 the date on which Mr. Hunter directed a letter to defendant accounting firm in which he complained of insufficiencies and inaccuracies alleged to have been made in the certified financial statements which the defendant firm had prepared. Clearly, Mr. Hunter knew of or, in the exercise of reasonable diligence, should have discovered injury to himself or to the corporation by February 24, 1972. Plaintiffs commenced their lawsuit on March 19, 1975, more than 3 years after discovery of the wrong. Thus, it would appear that plaintiffs' claim for damages against Knight, Vale and Gregory was properly dismissed.
Unfortunately the issue on appeal is not so simply resolved. Plaintiffs, for all practical purposes, admit that a cause of action for professional malpractice and breach of fiduciary duty did accrue on the day of Mr. Hunter's discovery...
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