Klosure v. Johnson Grant & Co.

• Decision Date: 05 August 1988
• Docket Number: No. 85-1013,85-1013
• Citation: 427 N.W.2d 44,229 Neb. 369
• Parties: Kelly KLOSURE v. JOHNSON GRANT & CO.
• Court: Nebraska Supreme Court

Page 44

427 N.W.2d 44

229 Neb. 369

Kelly KLOSURE v. JOHNSON GRANT & CO.

No. 85-1013.

Supreme Court of Nebraska.

Aug. 5, 1988.

Syllabus by the Court

1. Limitations of Actions. One who wrongfully conceals a material fact necessary to the accrual of a cause of action against him, and such concealment causes the opposite party to delay the filing of suit, cannot avail himself of the statute of limitations as a defense.

2. Estoppel: Proof: Pleadings. The burden of proof rests on the party who pleads an estoppel to establish the facts upon which the estoppel is based.

3. Judgments. On a motion for judgment notwithstanding the verdict, the moving party is deemed to have admitted as true all the material and relevant evidence admitted which is favorable to the party against whom the motion is directed, and, further, the party against whom the motion is directed is entitled to the benefit of all proper inferences which can be deduced therefrom.

4. Verdicts: Appeal and Error. A jury verdict will not be disturbed unless it is clearly wrong.

Thomas B. Thomsen, of Sidner, Svoboda, Schilke, Wiseman, Thomsen, Holtorf & Boggy, Fremont, for appellant.

Philip M. Aitken and Tyler J. Sutton, of Woods, Aitken, Smith, Greer, Overcash & Spangler, Lincoln, for appellee.

HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, and GRANT, JJ.

GRANT, Justice.

Plaintiff, Kelly Klosure, Inc., a Nebraska corporation, filed a petition seeking damages from defendant, Johnson Grant & Co., an accounting partnership, for alleged malpractice in connection with accounting services rendered by defendant to Kelly Klosure. The petition was filed on July 15, 1982, and generally sought damages arising out of the formation of, and the performance of accounting services with regard to, a domestic international sales corporation, commonly referred to as a DISC. Plaintiff, aided and advised by defendant, had formed a Nebraska corporation, Kelly Klosure DISC, Inc., for the sole purpose of obtaining exemption from income taxes relating to the sale of products in commerce outside the United States.

In its second amended petition, filed October 22, 1984, plaintiff alleged that as a result of defendant's malpractice, plaintiff was unable to obtain the favorable tax benefits of a DISC because Kelly Klosure DISC, Inc., did not qualify under the Internal Revenue Code. The second amended petition sought damages for the tax years of Kelly Klosure DISC, Inc., ending April 30 of 1978, 1979, 1980, 1981, and 1982. The petition further alleged that plaintiff "first acquired knowledge of the aforementioned negligence of the defendant ... on or about May 13, 1982," and that the plaintiff had not discovered and could not have reasonably discovered the negligence any sooner.

In its answer, defendant admitted that it had done accounting work for plaintiff for some time prior to 1977 up through March of 1981; generally denied any negligence; and raised certain affirmative defenses, including the allegation that plaintiff's cause of action, if any, was "barred by the applicable statute of limitations of the Statutes of Nebraska."

The case was tried to a jury between September 9 and 20, 1985. By agreement of the parties, the case was first submitted to the jury on special interrogatories. In the instructions submitted to the jury on the special interrogatories, the court divided plaintiff's claims against defendant into two: claim 1 for the tax year 1977-78; and claim 2 for the tax years 1978-79, 1979-80, and 1980-81. In answering these interrogatories, the jury found that plaintiff had proved its case and defendant had not proved its affirmative defenses in connection with plaintiff's claims 1 and 2.

The jury also found that defendant was estopped from asserting the defense of the statute of limitations because defendant had wrongfully concealed facts which, if known, would have caused plaintiff to file its action at a date before it did. The jury also determined that the plaintiff would reasonably have discovered the appropriate facts enabling it to discover defendant's alleged malpractice in October 1981.

No instructions and no special interrogatories as to liability or damages were submitted for the tax year 1981-82. Appellant does not claim any error in that action of the court, and issues concerning that tax year are not before this court.

After the return of the special interrogatories, the issue of damages was submitted to the jury by "Special Interrogatories-Damages." In these damages interrogatories, the jury was asked to assess damages for two periods, tax year 1977-78 and tax year 1978-79. No submission was made as to tax year 1980-81, and no claim of error is made in that connection. In its brief herein, and its reply brief, plaintiff prays only for the reinstatement of the jury verdict rendered. A new trial is not sought. The issues before this court are involved only with the tax year 1977-78, for which the jury determined the damages were $60,928, and 1978-79, for which period the jury determined the damages to be $9,004. The jury also determined additional damages for legal and accounting expenses in the amount of $6,499, resulting in a total verdict of $76,431.

After the verdict was returned, defendant filed a motion for judgment notwithstanding the verdict. The court sustained the motion and entered judgment for defendant. Plaintiff timely appealed, and in this court assigns two errors: (1) "[T]he Trial Court erred in granting appellee's Motion for Judgment Notwithstanding the Verdict"; and (2) "The Trial Court erred in its application of the Statute of Limitations to the facts in the case at bar." We affirm.

The record shows the following. Plaintiff is a manufacturing firm located in Fremont, Nebraska. Defendant is an accounting firm which provided accounting services for plaintiff such as preparing tax returns, compiling financial reports, and giving tax advice. In the early months of 1977, plaintiff considered forming a DISC. In general, a DISC is a domestic corporation whose profit from exports may be partially sheltered from imposition of income tax. These profits may be sheltered until the stockholders decide to withdraw the profits. In the instant case, for the purpose of saving income taxes due to the special tax treatment of a DISC, plaintiff formed a wholly-owned subsidiary corporation entitled "Kelly Klosure DISC, Inc." (hereinafter Kelly DISC). Kelly DISC was a paper corporation with the same officers as Kelly Klosure, Inc. Separate books and records were kept for Kelly DISC by employees of Kelly Klosure, Inc. Kelly DISC's first tax year ended April 30, 1978.

In order to qualify for the benefits for a tax year, Kelly DISC needed to satisfy five requirements with respect to that tax year. One of these requirements was the "qualified export assets test," which required that at the close of the tax year, the adjusted basis of Kelly DISC's qualified export assets must be at least 95 percent of the adjusted basis of Kelly DISC's total assets. Qualified export assets include such items as inventory facilities, accounts receivable, bank deposits, and loans to the parent corporation called "producer loans." In order for a loan from Kelly DISC to the parent corporation to qualify as a producer loan, and thus be a qualified export asset, the loan must meet four tests. One of these tests is that the obligation must be evidenced by a note with a stated maturity date not more than 5 years from the date of the loan. I.R.C. § 993(d)(1)(B) (1976). Kelly DISC failed to meet this test because the notes used to evidence the producer loans did not have a stated maturity date.

Bruce Hocking, an employee and partner of defendant partnership, met with plaintiff's board of directors in the early months of 1977 to discuss the desirability and details for setting up a DISC. Shortly thereafter, Ronald Kellogg, president of plaintiff, informed defendant that plaintiff would proceed with setting up a Kelly DISC. Hocking prepared the necessary documents and forwarded them to Kellogg for signing and filing.

When the parent Kelly Klosure, Inc., desired to borrow funds from Kelly DISC, through producer loans, at various times during the 1977-78 tax year, Kelly Klosure personnel prepared the producer loan note forms. The notes were made payable "on demand" rather than due and payable within 5 years. There is a dispute in the record, but the jury apparently determined that Hocking did not advise plaintiff that the notes on producer loans must have a stated maturity date and must be made payable within 5 years.

In the summer of 1979, an Internal Revenue Service (IRS) agent began an audit of Kelly DISC's 1977-78 income tax return. The agent found that the producer loan notes had no stated maturity date, and therefore did not qualify as "qualified export assets." Without the producer loan notes qualifying as export assets, Kelly DISC failed to meet the 95-percent test (i.e., qualified export assets were less than 95 percent of total assets). The agent contended that this disqualified Kelly DISC for special tax treatments, and Kelly DISC's earnings, otherwise tax-deferred, became taxable to Kelly Klosure, Inc. Hocking failed in his challenge of the IRS' position on the producer loan issue.

In January of 1981, plaintiff employed a new accounting firm, Touche Ross & Co., and on August 20, 1981, plaintiff terminated defendant's services as accountants.

Plaintiff's two general assignments of error do not pinpoint, to any degree, the particular errors alleged to have been committed by the trial court. The first is a "generalized and vague" assertion that does "not advise this court of the issues submitted for decision. Such advice is a necessary function of valid assignments of error." Coyle v. Janssen, 212 Neb. 785, 786, 326 N.W.2d 44, 45 (1982). The first general assignment of error will be considered only with respect to the decision of the court,...