Moss v. Duncan, D075101

Citation248 Cal.Rptr.3d 689,36 Cal.App.5th 569
Decision Date20 June 2019
Docket NumberD075101
CourtCalifornia Court of Appeals
Parties Glenn L. MOSS et al., Plaintiffs and Appellants, v. Dale DUNCAN et al., Defendants and Respondents.

Law Office of Michael Geller and Michael S. Geller, Riverside, for Plaintiffs and Appellants.

Garrett & Tully, Stephen J. Tully, Westlake Village, and Brian W. Ludeke, Encino, for Defendants and Respondents.

BENKE, Acting P. J.Plaintiffs and appellants Glenn L. Moss, Jeri C. Moss, and Moss Bros. Auto Group, Inc. (collectively, Moss)1 filed a complaint against defendants and respondents Dale Duncan, CPA, and Rogers, Clem & Company, an accountancy organization (collectively, Duncan), alleging professional negligence and unfair business practices. The trial court ruled that these claims were barred by the statute of limitations, resulting in a judgment in favor of defendants. The Moss plaintiffs appeal. We agree with Moss that the statute of limitations did not begin to run until Moss settled the tax deficiency claim with the Franchise Tax Board (FTB), and the complaint was therefore timely.

BACKGROUND

Moss hired Duncan to perform accounting and tax services, including preparation of its business tax returns. Glenn owned several car dealerships and negotiated the purchase of four new dealerships in 2005 through 2006. Duncan and other professionals advised Glenn during these negotiations. Glenn needed a loan to complete the purchases. To accomplish his goal, he created a new corporation, Moss Auto, as the borrower. Glenn was the sole shareholder of Moss Auto and of the four new dealerships. A bank extended a multi-million dollar loan to Moss Auto and the money was distributed to the four dealerships. On Duncan's advice, Moss Auto accounted for a loan of the entire multi-million dollar proceeds to Glenn, its sole shareholder. The dealerships made payments to Moss Auto for loan repayments but these payments were accounted for as management fees instead of loan repayments. Moss's accountants kept records in accordance with Duncan's advice on the loan to Glenn and the management fees from the dealerships to Moss Auto. Duncan prepared tax returns for Moss in 2006 that were consistent with his advice and Moss's records.

The FTB notified Moss in May 2010 that it was auditing Moss's 2006 tax returns regarding the loan to Glenn. Duncan responded to the FTB's concerns about the loan, but the FTB notified Moss on August 5, 2010, that it rejected Duncan's position and considered the transaction to be a taxable distribution from Moss Auto to Glenn. Glenn therefore owed more than $ 1 million in taxes to the FTB. After the August 5 letter, Moss hired other professionals to contest the tax issue.

The FTB issued a Notice of Proposed Assessment on April 13, 2011, stating a proposed assessment on Glenn of $ 1.2 million in taxes for the distribution from Moss Auto to Glenn. After more than three years of dispute and negotiation with the FTB, Moss decided to settle rather than continuing to contest the deficiency. Moss reached a compromise settlement with the FTB on May 19, 2015, and Glenn paid his tax liability to the FTB. Moss spent about $ 50,000 on other professionals to resolve this issue.

Moss filed a complaint against Duncan on August 28, 2015, alleging professional negligence, false advertising, and unfair business practices. Duncan moved for summary judgment or summary adjudication. The trial court found that the claims for professional negligence and unfair business practices were barred by the statute of limitations. The trial court concluded that Moss's claims were based on erroneous tax advice given in 2006 about how to structure the deal. The court ruled the two-year statute of limitation commenced upon discovery of the accounting error in 2010 or, at the latest, when the FTB issued its proposed tax assessment in 2011. The limitations period therefore expired before this case was filed in 2015. The trial court granted summary adjudication for Duncan on his causes of action for professional negligence and unfair business practice.

Moss dismissed its claim for false advertising without prejudice. Judgment was entered on September 29, 2017, and Moss filed a timely notice of appeal.

DISCUSSION

Moss contends that the trial court erred in determining that the statute of limitations for accounting negligence commenced in or before April 2011. Moss contends, and we agree, that the statute began to run when Moss settled the tax deficiency with the FTB on May 19, 2015, which was the date when actual injury was determined, pursuant to International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606, 621–622, 38 Cal.Rptr.2d 150, 888 P.2d 1279 ( Feddersen ). The settlement was within two years before the complaint was filed on August 28, 2015.

Standard of Review

Commencement of the statute of limitations is usually a factual question, but can be resolved as a matter of law when, as here, the material facts are not disputed. ( Choi v. Sagemark Consulting (2017) 18 Cal.App.5th 308, 323–324, 226 Cal.Rptr.3d 267 ( Choi ); Sahadi v. Scheaffer (2007) 155 Cal.App.4th 704, 714, 66 Cal.Rptr.3d 517 ( Sahadi ).) We review the ruling on summary judgment independently, as a matter of law, because of the lack of factual dispute. ( Jackpot Harvesting Co., Inc. v. Superior Court (2018) 26 Cal.App.5th 125, 142, 237 Cal.Rptr.3d 1.)

Duncan asserts additional claims and contends that we can affirm the ruling on any ground. ( Carnes v. Superior Court (2005) 126 Cal.App.4th 688, 694, 23 Cal.Rptr.3d 915 ; California School of Culinary Arts v. Lujan (2003) 112 Cal.App.4th 16, 22, 4 Cal.Rptr.3d 785.) We decline to address these issues because the trial court did not consider these issues and did not determine whether the facts were disputed. (See Code Civ. Proc. § 437c, subd. (m)(2) [additional briefing must be permitted to rule on grounds which trial court did not reach].)

The parties agree that the statute of limitations for a claim of an accountant's negligence is two years under Code of Civil Procedure 339, subdivision (1). ( Feddersen , supra , 9 Cal.4th at p. 608, 38 Cal.Rptr.2d 150, 888 P.2d 1279 ; Choi , supra , 18 Cal.App.5th at p. 315, 226 Cal.Rptr.3d 267.) They also agree that the two-year statute of limitations applies to the unfair business practice claim. The limitations period for an unfair business claim is generally four years ( Bus. & Prof. Code, § 17208 ), but "under California's ‘primary right’ theory of code pleading, we determine the causes of action alleged in the complaint ‘based on the injury to the plaintiff, not on the legal theory or theories advanced to characterize it.’ [Citations.] ‘Thus, if a plaintiff states several purported causes of action which allege an invasion of the same primary right he has actually stated only one cause of action ....’ " ( Choi , at p. 335, 226 Cal.Rptr.3d 267 ; Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492, 503, 86 Cal.Rptr.2d 536 ( Curtis ).) The two-year limitations period applies to both causes of action for professional negligence and for unfair business practices because both are based on the alleged professional negligence of Duncan. ( Choi , at pp. 335–336, 226 Cal.Rptr.3d 267 ; Curtis , at p. 503, 86 Cal.Rptr.2d 536.) Thus, Moss's claims are barred if the statute of limitations commenced more than two years before the complaint was filed.

Professional Negligence by Accountants

The statute of limitations in professional negligence cases starts to run when all the elements are complete. The last element to be determined may be the actual injury caused by the negligence. ( Feddersen , supra , 9 Cal.4th at p. 608, 38 Cal.Rptr.2d 150, 888 P.2d 1279.) The California Supreme Court in Feddersen resolved the " ‘narrow,’ but recurring, issue as to when actual injury , caused by an accountant's negligent filing of tax returns, occurs so as to commence the running of the two-year statute of limitations period." ( Ibid. ) The court held that actual injury occurred when the tax deficiency was fixed by a final notice of deficiency assessment by the taxing agency, or by acquiescence in the deficiency by the taxpayer. ( Id. at p. 622, 38 Cal.Rptr.2d 150, 888 P.2d 1279 ; see p. 613 [agreement to pay deficiency equivalent to final determination by agency].) The agency first notifies the taxpayer of a potential tax deficiency. This initial notice provides "proposed findings that are subject to negotiation prior to any determination of tax deficiency." ( Id. at p. 612, 38 Cal.Rptr.2d 150, 888 P.2d 1279.) The Feddersen court stated, "The deficiency assessment serves as a finalization of the audit process and the commencement of actual injury because it is the trigger that allows the IRS to collect amounts due and the point at which the accountant's alleged negligence has caused harm to the taxpayer." ( Id. at p. 617, 38 Cal.Rptr.2d 150, 888 P.2d 1279.) The court explained, "The use of the date of deficiency assessment to mark the date of actual injury in accountant malpractice cases provides the parties with a bright line that ... provides certainty in terms of the statute's application.... [U]niformity in application serves a more important function when interpreting statutes of limitation than does the identification of the precise point at which some harm might be said to have occurred, even if negative collateral consequences might arise from the tentative assessment of additional tax liability." ( Id. at pp. 621–622, 38 Cal.Rptr.2d 150, 888 P.2d 1279.)

Feddersen involved federal taxes but its rule applies as well to state taxes assessed by the FTB. "[O]ur courts view federal decisions construing comparable laws as persuasive authority in interpreting state income tax statutes." ( Sahadi , supra , 155 Cal.App.4th at p. 733, 66 Cal.Rptr.3d 517.) The California tax law largely incorporates the Internal Revenue Code. ( Ibid. ) The FTB, like the IRS, has a " "pay now, litigate...

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    ...can support only one reasonable conclusion, it may be decided on summary judgment as a matter of law. Moss v. Duncan , 36 Cal. App. 5th 569, 574, 248 Cal.Rptr.3d 689 (Cal. Ct. App. 2019) ; Stella v. Asset Management Consultants, Inc. , 8 Cal. App. 5th 181, 193, 213 Cal.Rptr.3d 850 (Cal. Ct.......
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    ...the statute of limitations applicable to her causes of action alleging negligence is two years (§ 339, subd. (1); accord, Moss v. Duncan (2019) 36 Cal.App.5th 569, 574).10 As the trial court found, the limitations period applicable to Marcus's cause of action for breach of fiduciary duty is......

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