LaMure v. Peters

• Decision Date: 29 August 1996
• Docket Number: No. 17166,17166
• Citation: 1996 NMCA 99,122 N.M. 367,924 P.2d 1379
• Parties: David LaMURE and Margaret LaMure, Plaintiffs-Appellants, v. Alvis L. PETERS and Deason, Peters, Stockton & Company, a Professional Corporation, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

Page 1379

924 P.2d 1379

122 N.M. 367

David LaMURE and Margaret LaMure, Plaintiffs-Appellants, v. Alvis L. PETERS and Deason, Peters, Stockton & Company, a

Professional Corporation, Defendants-Appellees.

No. 17166.

Court of Appeals of New Mexico.

Aug. 29, 1996.

Certiorari Denied Oct. 10, 1996.

[122 N.M. 368] Zenon F. Myszkowski, Albuquerque, for Plaintiffs-Appellants.

Jonathan B. Sutin, Juliana M. Fong, Sutin, Thayer & Browne, Albuquerque, for Defendants-Appellees.

OPINION

PICKARD, Judge.

¶1 This appeal requires us to determine when a cause of action for accountant malpractice accrues, i.e., when taxpayers know or should know of the malpractice of their professional accountants. We must also consider whether various exceptions to the general statute-of-limitations rules, specifically the "altered reasonable person standard," the "continuous harm doctrine," or the "continuous representation doctrine," should be applied in accountant malpractice cases in New Mexico generally or in this case in particular.

¶2 Plaintiffs, Margaret and David LaMure (the LaMures), appeal the district court's entry of summary judgment, disposing of their claim of professional accountant malpractice against Alvis Peters (Peters) and the accounting firm of Deason, Peters, Stockton & Company (collectively, Deason), on statute-of-limitations grounds. We hold that summary judgment was appropriate and affirm.

FACTS

¶3 The complaint was filed on June 21, 1995. Thus, the action had to have accrued on or after June 21, 1991, or summary judgment was properly granted. See NMSA 1978, §§ 37-1-1 and -4 (Repl.Pamp.1990).

¶4 For at least 15 years prior to 1990, the LaMures retained Peters and Deason to prepare their individual and business income tax returns. The LaMures were involved in a partnership with two other couples called Town and Country Sports Enterprises. In 1982, the partnership incorporated and thereafter operated as asubchapter S corporation (the Corporation). The gains and losses of the Corporation were reflected on the individual tax returns of the partner-shareholders.

¶5 On August 17, 1987, the IRS informed Mr. LaMure that he owed approximately $46,500.00 on his individual tax return. Between October 1987 and February 1988, Deason and Peters disputed the claim in correspondence with the IRS. Following a conference with the IRS, Peters advised the LaMures that he had not been able to settle the matter. He told them that he had consulted with Kendall Schlenker, an Albuquerque tax attorney. Peters advised the LaMures that both he and Schlenker felt the matter could be settled without going to tax court.

¶6 On July 7, 1988, the LaMures received a notice of deficiency from the IRS for the 1983 tax year. The LaMures consulted Peters, who advised them that the IRS notice was incorrect and that a tax court redetermination would resolve the matter in their favor. Based on Peters' representations, the LaMures sued the IRS in tax court instead of consenting to the deficiency assessment.

¶7 In July 1988, the LaMures and the other partner-shareholders of the Corporation hired Schlenker to handle their legal representation in tax court. The LaMures contend that Peters did not tell them that he and Schlenker were close, personal friends who shared a brother-like loyalty to one another. Neither Peters nor Schlenker informed the LaMures that Peters' son was an associate in the same law firm in which Schlenker was a partner.

¶8 Peters continued to work with Schlenker and the LaMures to resolve the tax matter. In February 1989, Peters told the LaMures that he had filed amended tax returns, changing the Corporation's status back to a partnership for the tax years of 1983 through 1987. The LaMures were informed that this action effectively cut off the IRS's claims against them.

¶9 The amended returns did not remedy the situation. The LaMures received deficiency notices on March 1, 1990, for tax year 1986, and on March 11, 1991, for tax year 1987. The LaMures' response petitions were consolidated for trial in tax court with petitions filed by the other partner-shareholders in the Corporation.

¶10 In 1990, the LaMures stopped using Peters' and Deason's income tax preparation services for present and future returns. However, Peters and Deason continued to provide other services to the LaMures and the Corporation during the tax audit and trial. From October 1990 through September 1993, Deason submitted bills to the Corporation totalling approximately $15,230 for services rendered in connection with the tax dispute.

¶11 The tax court rendered an opinion in favor of the IRS and against the LaMures and the other Corporation partner-shareholders on November 22, 1993. The LaMures first expressly raised the issue of possible malpractice by Peters and Deason in a letter to Deason dated December 27, 1993. The LaMures filed the malpractice complaint on June 21, 1995. The LaMures alleged that Peters' and Deason's malpractice cost them over $350,000 in taxes, interest, legal fees, and accounting fees during the pendency of the tax court challenge.

¶12 Deason and Peters filed a motion to dismiss on the ground that the LaMures' action was barred by the four-year statute of limitations. See §§ 37-1-1 and -4. Deason and Peters submitted that the LaMures' cause of action for professional negligence accrued before June 21, 1991. The district court granted the motion, and the LaMures appealed.

DISCUSSION

Standard of Review

¶13 The standard of review for summary judgment is well settled in New Mexico. Summary judgment should be granted if there is no genuine issue of material fact in dispute and the moving party is entitled to judgment as a matter of law. Koenig v. Perez, 104 N.M. 664, 665, 726 P.2d 341, 342 (1986). If the legal effect of undisputed facts is all that remains to be decided, summary judgment is proper. Gardner-Zemke Co. v. State, 109 N.M. 729, 732, 790 P.2d 1010, 1013 (1990). We consider the evidence in the light most favorable to the nonmoving party. Gillin v. Carrows Restaurants, Inc., 118 N.M. 120, 122, 879 P.2d 121, 123 (Ct.App.1994).

Date of Actual Injury and Discovery Rule

¶14 Chisholm v. Scott, 86 N.M. 707, 526 P.2d 1300 (Ct.App.1974), recognized the special problem faced by a client of a professional accountant with regard to discovery or awareness of the accountant's malpractice. The Chisholm Court noted:

A person needs special training to know whether his tax return has been erroneously prepared.... In the relationship of accountant and client, the trust and confidence that the client places in the professional person places him in a vulnerable position should that trust and confidence be misplaced. It is the policy of the law to encourage that trust and confidence; likewise it is the duty of the law to protect the client from the negligent acts of the professional person.

Id. at 709, 526 P.2d at 1302; see also Streib v. Veigel, 109 Idaho 174, 706 P.2d 63, 67 (1985) (recognizing that discovery of a negligently prepared income tax return is "most difficult"). Under this Court's analysis in Chisholm, the injury to the client by a professional accountant's malpractice occurs when the client receives notice of a deficiency from the tax commissioner, and not before--when the negligent act may have occurred. Chisholm, 86 N.M. at 709, 526 P.2d at 1302. The liability imposed by the IRS becomes the injury which forms the plaintiff's cause of action. Id.

¶15 The rule articulated by Chisholm is consistent with that in other jurisdictions. See International Engine Parts, Inc. v. Feddersen & Co., 9 Cal.4th 606, 38 Cal.Rptr.2d 150, 888 P.2d 1279, 1287 (1995) (en banc); Streib, 706 P.2d at 67; Leonhart v. Atkinson, 265 Md. 219, 289 A.2d 1, 5, (1972); Feldman v. Granger, 255 Md. 288, 257 A.2d 421, 425 (1969); Sladky v. Lomax, 43 Ohio App.3d 4, 538 N.E.2d 1089, 1091 (1988); Atkins v. Crosland, 417 S.W.2d 150, 153 (Tex.1967); see also Michael J. Weber, Annotation, Application of Statute of Limitations to Actions for Breach of Duty in Performing Services of Public Accountant, 7 A.L.R. 5th 852, 914-20 (1992). Nevertheless, the LaMures urge us to adopt the "discovery rule" established in other professional malpractice cases, as though the discovery rule was not the underlying basis of the Chisholm holding, despite its bright-line selection of the deficiency notice as the time that people should know that they are injured by accountant malpractice. See Sharts v. Natelson, 118 N.M. 721, 726, 885 P.2d 642, 647 (1994) (attorney malpractice); Roberts v. Southwest Community Health Servs., 114 N.M. 248, 255-56, 837 P.2d 442, 449-50 (1992) (medical malpractice; expressly relying on Chisholm rationale); Martinez-Sandoval v. Kirsch, 118 N.M. 616, 620, 884 P.2d 507, 511 (Ct.App.) (clergy malpractice), cert. denied, 118 N.M. 731, 885 P.2d 1325 (1994), and cert. denied, 515 U.S. 1124, 115 S.Ct. 2282, 132 L.Ed.2d 285 (1995).

¶16 In Sharts, our Supreme Court reaffirmed its earlier judgment in Jaramillo v. Hood, 93 N.M. 433, 434, 601 P.2d 66, 67 (1979), describing a two-pronged test for determining when the statute of limitations for attorney malpractice begins to run. The two prongs are as follows. First, the client must sustain an "actual injury." Sharts, 118 N.M. at 724, 885 P.2d at 645. Second, the client must know, or be able to discover through reasonable diligence, the facts essential to the cause of action. Id. The injury may be the loss of a legal right, remedy, or interest, or the imposition of a liability. Id. at 724 n. 1, 725, 885 P.2d at 645 n. 1, 646. It may take the form of consequential or incidental damages, such as attorney fees or costs incurred as a result of the alleged malpractice. Id. at 725, 885 P.2d at 646.

¶17 The Supreme Court stressed that the degree or nature of the injury is unimportant to the determination of when the client discovered the damage. Id. The fact that the client may not, at the point of injury, be able to...