# U n it ed S t at es C o u r t o f A p p eals

Fo r t h e Sev en t h C ircu it
C h icag o , Illin o is 60604

A r gu ed M ay 5, 2011

D ecid ed J

u ly 18, 2011

Befo re

H o n . D an iel A . M an io n , C irc u it J u d ge

H o n . D ian e P . W o o d

, C irc u it J u d ge

H o n . A n n C lair e W illiam s, C irc u it J u d ge

N o . 10- 3863

W alt er L . M o r gan ,

Plain t if f

- A ppellan t
,

v

.

A n n J . F en n im o r e an d F en n im o r e an d

A sso ciat es, P .C

.,

D ef

en d an t s

- A ppellees

. A p p eal f r o m t h e U n it ed S t at es D ist r ict
C o u r t fo r t h e S o u t h er n D ist r ict o f

I n d ian a, I n d ian ap o lis D ivisio n

.

N o . 09 C V 00399

Sarah Ev an s Barker

, J

u d ge

.

O R D E R

W alt er M o r gan h ad t h e go o d fo r t u n e o f w in n in g t h e O h io lo t t er y ; u n fo r t u n at ely

, fo r

t h e n ext t w en t y y ear s h is acc o u n t an t failed t o file an O h io t ax r et u r n o n t h e an n u al d ist r ib u t io n fr o m h is w in n in gs. M o r gan lear n ed o f t h is fac t y ea r s lat er w h en t h e st at e sen t h im a b ill fo r alm o st t w o m illio n d o llar s. N o t su r p r isin gly

, h e su ed h is acc o u n t an t fo r m alp r act ice. T h e d ist r ict co u r t fo u n d t h at M o r gan ’ s claim s w er e b ar r ed b y t h e st at u t e o f lim it at io n s an d gr an t ed

su m m ar y ju d gm en t fo r t h e ac co u n t an t . M o r gan ap p eals, a n d w e af fir m

. N ON PRE CE

D E N T IA L D ISPOS IT ION

T o b e c i t e d o n l y i n a c c o r d a n c e w i t h

F e d

. R

. A p p

. P

. 3 2

. 1No. 10-3863 Pag e 2

I

.

I n 1986, W alt er M o r gan w o n t w en t y

- five m illio n d o llar s in t h e O h io lo t t er y

. A t t h e

t im e, a lu m p su m p ay m en t w as n o t availab le, so M o r gan ’ s w in n in gs w er e sp r ead o u t o ver

t w en t y y ear s, w it h M o r gan r ece ivin g a lit t le o ver 1

. 2 m illio n d o llar s a y ear

. S h o r t ly aft er

w in n in g t h e lo t t er y , M o r gan ’ s w ife ask ed t h at t h e w in n in gs b e p u t in b o t h t h eir n am es. H e

o b liged

. A n d a y ear o r so lat er , sh e d ivo r ced h im

, cu t t in g h is an n u al p ay m en t d o w n t o a lit t le

o ver $600,000. A m o n g o t h er t h in gs, h e in vest ed so m e o f t h at am o u n t in a l o cal fu r n it u r e b u sin ess t h at h e r an w it h a co u sin

.

A t t h e t im e t h at M o r gan w o n t h e lo t t er y , h e l i v ed an d w o r k ed in I n d ian a an d h ad a lo cal acc o u n t an t

. E v en w it h h is n ew fo r t u n e, h e r em ain ed in I n d ian a an d k ep t t h e sam e

acc o u n t an t fo r t axes an d o t h er m at t er s. T h e o r igin al acc o u n t in g fir m t h at M o r gan u sed w as lat er p u r ch ased b y A n n F en n im o r e, a C P A

. A n d in 1990, sh e t o o k o ver M o r gan ’ s acc o u n t

,

w h ich in clu d ed h is w in n i n g s an d t h e fu r n it u r e b u sin ess. I n at least o n e in st an ce F en n im o r e

p r o ved ast u t e: sh e d isco ver ed t h at M o r gan ’ s co u sin w as st ealin g fr o m t h e co m p an y an d sh e let M o r gan k n o w ab o u t it

.

Bu t w h ile F en n im o r e p er fo r m ed w ell fer r et in g o u t t h e co u sin ’ s fr au d

, h er p er fo r m an ce

o n t ax r et u r n s left m u ch t o b e d esir ed

. S in ce M o r gan ’ s w in n in gs w er e p aid an n u ally

, eac h y ear

t h e O h io lo t t er y sen t h im a su b st an t ial ch eck aft er fir st w it h h o ld in g t axes fo r t h e I R S an d
O h io

. O h i o also sen t M o r gan a W –2G fo r m t h at d o cu m en t ed t h e lo t t er y w in n in gs fo r t ax

p u r p o ses. A n d eac h y ear M o r gan gave F en n im o r e t h e W – 2G fo r m

. Yet

, in sp it e o f t h e fac t t h at
F en n im o r e r ece ived a W –2G ever y y ear an d O h io w it h h eld t axes o n M o r gan ’ s w in n in gs, F en n im o r e failed t o p r ep ar e an d file O h io t axes fo r M o r gan

. A t h er d ep o sit io n , sh e co u ld n o t

o ffe r an y exp lan at io n fo r t h is. F o r w h at it ’ s w o r t h

, t h o u gh

, M o r gan ’ s in it ial acc o u n t an t d id n ’ t file O h io t axes o n h is lo t t er y w in n in gs eit h er

. W h at ever t h e r easo n , fo r alm o st t w en t y y ear s

n eit h er F en n im o r e n o r t h e st at e o f O h io cau gh t o n t o t h e er r o r

. 1

I n 2003, M o r gan ’ s life ch an ged

. H e d ivo r ced h is seco n d w ife, m o ved fr o m I n d ian a t o W ash in gt o n st at e, an d t r an sfer r ed h is r em ain in g lo t t er y w in n in gs t o an i n vest m en t fir m

. I n exch an ge fo r t h e r igh t s t o h is r em ain in g w in n in gs, h e r ece ived an an n u it y an d w as n o lo n ger

r esp o n sib le fo r p ay in g t axes o n t h e lo t t er y in co m e. F r o m t h en o n , t h e in vest m en t fir m w as

r esp o n sib le f

o r p a y in g O h io t a

x e s o n t h e lo t t er y w in n in gs. A lt h o u gh h e m o ved t o W ash in gt o n , M o r gan co n t in u ed t o u se F en n im o r e (in I n d ian a) fo r h is an n u al t ax r et u r n —in co m e t h at at t h is

p o in t d id n o t in clu d e lo t t er y w in n in gs.

A n d w e d o n ’ t k n o w w h et h er M o r gan ’ s ex- w ife p aid O h io in co m e t axes o n h er 1

sh ar e o f t h e w in n in gs.No. 10-3863 Pag e 3

D u r in g t h e su m m er o f 2008 M o r gan r ece ived a let t er fr o m t h e st at e o f O h io n o t ify in g h i m t h at h e h ad o ver p aid h is t axes t h e p r evio u s y ear b y t h r ee t h o u san d d o llar s an d ask in g

w h et h er h e w an t ed a ch eck fo r t h at am o u n t o r t o h ave it cr ed it ed t o h is t axes t h e fo llo w in g

y ear

. M o r gan o p t ed fo r t h e ch eck

. Bu t ap p ar en t ly w h at ap p ear ed t o b e a favo r ab le au d it cau sed

t h e st at e t o fu r t h er scr u t in iz e h is a cco u n t

. S o in st ead o f r ece ivin g a ch eck

, M o r gan r ece ived a

n o t ice t h at t h e t h r ee t h o u san d d o llar s h ad b een cr ed it ed t o h is o u t st an d in g t ax b ill o f alm o st

t w o m illio n d o llar s. T h e n o t ice also ask ed fo r p r o m p t p ay m en t o f t h e r em ain in g su m

. M o r gan
act u ally o w ed less t h an a h alf- m illio n d o llar s in b ack t axes; t h e b u lk o f t h e t o t al co n sist ed o f
in t er est an d p en alt ies.

A ft er r ead in g t h e n o t ice, M o r gan im m ed iat ely called F en n im o r e t o d et er m in e w h at h ad
h ap p en ed

. F en n im o r e p r o m ised t o h an d le t h e m at t er an d M o r gan gr an t ed h er p o w er o f

at t o r n ey t o d eal d ir ect ly w it h t h e st at e o f O h io

. A ft er m an y u n exp lain ed d elay s o n F en n im o r e’ s p ar t an d w it h a lo o m in g d ead lin e fo r ch allen gin g t h e t ax assessm en t

, M o r gan h ir ed an at t o r n ey , w h o w as ab le t o n ego t iat e t h e t ax b ill d o w n t o $250,000. M o r gan p aid t h e

t ab , an d in 2009 su ed F en n im o r e in I n d ian a fo r m alp r act ice.

Befo r e t h e d ist r ict co u r t

, F en n im o r e d en ied an y liab ilit y ; in ad d it io n , sh e ar gu ed t h at

u n d er I n d ian a law M o r gan ’ s claim s w er e b ar r ed b y it s st at u t e o f lim it at io n s. M o r gan , fo r h is

p ar t

, ar gu ed t h at O h io law an d it s st at u t e o f lim it at io n s sh o u ld ap p ly

. T h e d ist in ct io n is cr it ical

t o M o r gan ’ s claim

. I n O h io

, t h e st at u t e o f lim it at io n s fo r acc o u n t in g m alp r act ice claim s is fo u r

y ear s fr o m t h e t im e t h e p ar t y lear n s o f t h e m alp r act ice, w h ile in I n d ian a it is t h r ee y ear s fr o m

t h e d at e t h e acc o u n t in g s er v ice is p r o vid ed

. I n d

. C o d e § 25–2.1–15–2; O h io

. R ev. C o d e § 2305.09. F en n im o r e’ s last alleged ly n egligen t act w as in A p r il 2004 w h en sh e failed t o p r ep ar e

an d file M o r gan ’ s 2003 O h io st at e t axes w it h t h e r est o f t h e t axes sh e p r ep ar ed fo r h im t h at

y ear

. Yet it w asn ’ t u n t il o ver fo u r y ear s lat er , in J u ly 2 0 0 8

, t h at M o r gan lear n ed o f h er

n egligen ce, an d h e d id n ’ t file a law su it u n t il A p r il 2009. S o , u n d er O h io law M o r gan ’ s claim s

co u ld go fo r w ar d

, b u t u n d er I n d ian a law h is claim s w er e b ar r ed u n less t h e st at u t e o f
lim it at io n s w as t o lled b y so m e eq u it ab le d o ct r in e. I n a ver y t h o r o u gh o r d er , t h e d ist r ict co u r t fo u n d t h at u n d er I n d ian a’ s ch o ice- o f- l aw r u les, I n d ian a law ap p lied t o M o r gan ’ s claim s an d

t h at h is claim s w er e t im e- b ar r ed an d n o t o t h er w ise eq u it ab ly t o lled —n am ely b y t h e

co n t in u o u s- r ep r esen t at io n d o ct r in e.

I I

.

O n ap p eal, M o r gan ch allen ges t h e d ist r ict co u r t ’ s fin d in g b o t h t h at I n d ian a law ap p lies

t o h is claim s an d t h at h is claim s ar e n o t t o lled b y t h e co n t in u o u s- r ep r esen t at io n d o ct r in e. W e 2

A t o r al ar gu m en t , M o r gan also ar gu ed t h at t h e st at u t e o f lim it at io n s h ad n o t r u n 2

b eca u se h e w as also claim in g acc o u n t in g m alp r act ice d u r in g t h e y ear s 2006–2008. T h atNo. 10-3863 Pag e 4

r eview t h e gr an t in g o f su m m ar y ju d gm en t d e n o vo

. C arlis le v

. D eere & C o. , 576 F .3d 649, 653 (7t h C ir . 2009).

W h en a fed er al co u r t h ear s a d iver sit y case it ap p l i es t h e fo r u m st at e’ s ch o ice- o f- law

r u les. C arlis le

, 576 F .3d at 653. H er e, t h e fo r u m st at e is I n d ian a, w h ich em p lo y s a m o d ified lex
lo ci d elict i an al y sis. I n re B rid ges t on e/ F ires t on e, I n c

. , 288 F .3d 1012, 1016 (7t h C ir

. 2002).

U n d er it

, t h e su b st an t ive l aw o f t h e p lace o f t h e w r o n g w ill u su ally go ver n , “ u n less t h e st at e

w h er e t h e t o r t o ccu r r ed is a n in sign ifican t co n t act .” Sim on v

. U n it ed St at es , 805 N .E .2d 798,

804 (I n d

. 2004). T h en I n d ian a lo o k s t o t h e st at e w it h t h e m o st sign ifican t co n t act s. I d

. at 805.

W h ile t h er e is r o o m fo r d eb at e ab o u t w h et h er I n d ian a co u r t s w o u ld co n sid er I n d ian a

o r O h io t h e p lace o f t h e w r o n g, t h e an sw er t o t h at q u est io n is n o t t h e d ecid in g fac t o r in t h is

case

. R at h er , t h is is o ver w h elm in gly an I n d ian a case : F en n im o r e’ s o ffice is in I n d ian a, d u r in g

m u ch o f t h e r eleva

n t t im e p er io d M o r gan lived in I n d i an a, M o r gan an d F en n im o r e’ s

r elat io n sh ip w as cen t er ed in I n d i an a, an d F en n im o r e’ s failu r e t o p r o p er ly p r ep ar e an d file

M o r gan ’ s t axes o ccu r r ed in I n d ian a. T h u s, I n d ian a h as t h e m o st sign ifican t co n t act s w it h t h is

case . A n d u n d er I n d ian a’ s ch o ice- o f- law r u les, w e ap p ly I n d ian a law

.

U n d er I n d ian a law

, M o r gan h ad t o fi l e h i s claim s t h e ear lier o f (1) o n e y ear fr o m t h e d at e t h e alleged act o r o m issio n is d isco ver ed o r sh o u ld h ave b een d isco ver ed

, o r (2) t h r ee y ear s aft er t h e ser vice f

o r w h ich t h e su it is b r o u gh t w as p er fo r m ed

. I n d

. C o d e § 25–2.1–15–2. T h e

“ t h r ee- y ear lim it at io n p er io d co n t ain s n o d isco ver y r u le.” C row e, C h iz ek

, & C o., v

. O il T ec h

., I n c

. , 7 7 1 N

. E

. 2 d 1203, 1207 (I n d

. C t

. A p p

. 2002). F en n im o r e’ s last n egligen t act w as

co m p let ed in A p r il 2004 w h en sh e failed t o p r ep ar e an d file M o r gan ’ s 2003 O h io t ax r et u r n

w it h t h e o t h er t ax r et u r n s sh e p r ep ar ed fo r h im t h at y ear —p r esu m ab ly h is fed er al an d I n d ian a

t axes. Bu t M o r gan d id n o t file h is law su it u n t il A p r il 2009—five y ear s lat er

. S o , h is claim s ar e b ar r ed u n less t h e st at u t e o f lim it at io n s is so m eh o w t o lled

.

M o r gan ar gu es t h at t h e st at u t e o f lim it at io n s sh o u ld b e t o lled u n d er t h e co n t in u o u sr ep r esen t at io n d o ct r in e. B i o m et

, I n c

. v

. B arn es & T h orn h u rg , 791 N .E .2d 760, 765–68 (I n d

. C t . A p p . 2003). U n d er it , t h e st at u t e o f l im it at io n s is t o lled w h en t h er e is a n egligen t act an d

an o n go in g p r o fessio n al ser vi ce at t ach ed t o t h e sp ecif ic n egligen t act t h at is in d isp u t e—t h e

m er e co n t in u at io n o f a gen er al, p r o fessio n al r elat io n sh ip is n o t en o u gh

. B am b i’ s R oof in g, I n c

.

v

. M oriart

y , 859 N .E .2d 347, 357 (I n d

. C t

. A p p

. 2 0 0 6 ). T o d et er m in e w h et h er t h e d o ct r in e

ap p lies, I n d ian a co u r t s fo cu s o n “ t h e m at t er w h ich fo r m ed t h e b asis o f t h e alleged p r o fessio n al

m alp r act ice.” I d

. at 356. T h ey t h en lo o k t o see if t h er e w as an o n go in g, p r o fessio n al

r elat io n sh ip t ied t o t h at p r ecise m at t er

. I d

. F o r exam p le, if an acc o u n t an t m ak es a m ist ak e

ar gu m en t w as n o t clea

r ly p r esen t ed t o t h e d ist r ict co u r t n o r w as it r aised in h is b r iefs, an d it
is t h u s w aived

. See A w e v . A s h c rof t , 324 F .3d 509, 512–13 (7t h C ir . 2003).No. 10-3863 Pag e 5

set t in g u p a clien t ’ s t ax sh elt er t h at t h e I R S lat er d eem s in valid an d t h e acc o u n t an t t h en

at t em p t s t o d efe n d t h e clien t b efo r e t h e I R S co n cer n in g t h at alleged er r o r , t h e st at u t e o f
lim it at io n s is t o lled d u r in g t h e co u r se o f t h e r ep r esen t at io n t ied t o t h e fau lt y t ax sh elt er

. E .g. , A c k erm an v

. Pric

e W at erh ou s

e , 252 A .D

. 2d 179 (N .Y. 1998). T h e d o ct r in e d o es n o t

, h o w ever , t o ll t h e st at u t e o f lim it at io n s w h en t h er e is an alleged act o f m alp r act ice, an d su b seq u en t ly t h er e

r em ain s s o m e g e n e r a l, o n g o in g p r o f e s s io n al r elat io n sh ip b et w een t h e clien t an d t h e acc o u n t an t

. B a m b i ’ s R o o f in g, I n c

. , 859 N .E .2d at 358. S o , if aft er t h e t ax sh elt er is d eem ed in valid t h e

acc o u n t an t s st ill p r ep ar e so m e t ax fo r m s o r p er fo r m a gen er al au d it ever y y ear , t h at w o u ld n ’ t
b e a e n o u gh t o h o ld t h at t h e d o ct r in e ap p lies. I d

.

M o r gan ar gu es t h at t h e d o ct r in e sh o u ld ap p ly fo r t w o r easo n s. F ir st

, h e ar gu es t h at t h e d o ct r in e ap p lies b eca

u se F en n i m o r e co n t in u ed t o d o h is t axes u n t il 2008. S eco n d

, h e ar gu es

t h at t h e d o ct r in e ap p lies b eca u se w h en h e called F en n im o r e ab o u t t h e O h io t ax b ill in t h e

su m m er o f 2008 sh e lo o k ed in t o t h e m at t er , b u t d id n o t r eally d o an y t h in g t o fix h er r ep eat ed

er r o r s. H e claim s t h at h er ser vices at t h at t im e co n st it u t e a co n t in u o u s r ep r esen t at io n t h at w as d ir ect ly t ied t o t h e m alp r act ice—n am ely

, h er failu r e t o file O h io t axes. C o n cer n in g M o r gan ’ s fir st ar gu m en t

, t h e fac t t h at F en n im o r e co n t in u ed t o d o h is t axes u n t il 2008 sim p ly m ean s t h at

t h ey h ad a gen er al, o n go in g p r o fessio n al r elat io n sh ip

. E ach y ear h e h ad in co m e— u n r elat ed

t o t h e lo t t er y —an d eac h y ear sh e p r ep ar ed h is t axes fo r h im

. T h ese ser v i ce s w er e n o t t ied in

an y w ay t o h er failu r e t o file O h io t axes o ver t h e y ea r s b efo r e 2004, an d t h e d o ct r in e is

“ n ece ssar ily lim it ed t o t h e acc o u n t an t ’ s r ep r esen t at io n in t h e s am e, s pec if ic m at t er ” as t h e alleged m alp r act ice. B am b i’ s R oof in g , 859 N .E .2d at 358 (em p h asis ad d ed )). T h u s , t h e t ax

r et u r n s sh e p r ep ar ed an d filed fo r h im aft er 2004 d o n o t t o ll t h e st at u t e o f lim it at io n s.

M o r gan ’ s seco n d ar gu m en t is t h at h is c all t o F en n im o r e in t h e su m m er o f 2008 ab o u t
h is O h io t ax b ill fo r t h e y ear s 1986–2003 co n st it u t ed a co n t in u o u s r ep r esen t at io n

. H e’ s co r r ect

t h at t h is p h o n e call an d F en n im o r e’ s “ eff o r t s” t o clea

r u p t h e p r o b lem w er e t ied t o t h e sp ecif ic

act o f m alp r act ice: h er failu r e t o p r ep ar e an d file t h e O h io t ax r et u r n s. T h e p r o b lem is t h at b y
t h e t i m e M o r gan lear n ed o f F en n im o r e’ s n egligen ce an d co n t act ed h er , t h e st at u t e o f
lim it at io n s h ad exp ir ed

. A n d a si n gle act o f r ep r es en t at io n o n a r elat ed issu e fo u r y ear s aft er F en n i m o r e failed t o p r o p er ly p r ep ar e an d file M o r gan ’ s t axes, an d at least o n e y ear aft er t h e
st at u t e o f lim it at io n s h ad alr ea d y exp ir ed

, is in su fficie n t t o fin d t h at t h e co n t in u o u s

r ep r esen t at io n d o ct r in e ap p lies. See M au ric e W

. Pom

f rey & A s s oc iat es
, L t d

. v

. H ac

k oc k &

E s t aB rook

, L L P

, 50 A .D .3d 1531 (N .Y. A p p

. D iv. 2008) (“ [P lain t i ff ] d i d n o t seek o r o b t ain
d efe n d an t ’ s ser vices in co n n ect io n w it h t h e em p lo y m en t agr eem en t u n t il M ar ch 2000, m o r e

t h an t h r ee y ear s aft er t h e st at u t e o f lim it at io n s

. . . ex p i r ed [an d t h er efo r e t h e co n t in u o u s

r ep r esen t at io n d o ct r in e d id n o t ap p ly .]” ); c f I n re Pat ern it

y of S.J .J

. , 877 N .E .2d 826, 829 (I n d

. C t

. A p p

. 2007) (h o ld in g “ a n ew st at u t e o f lim it at io n s can n o t r evive a claim w h ich w as fo r ego n e

u n d er t h e p r io r st at u t e o f lim it at io n s b efo r e p assage o f t h e n ew o n e” (q u o t at io n o m it t ed ));

H u gh es A ir c

r a f t C o. v

. ex rel. Sc

h u m er , 520 U .S

. 939, 950 (1997) (n o t in g t h at “ ext en d in g aNo. 10-3863 Pag e 6

st at u t e o f lim it at io n s aft er t h e p r e- exist in g p er io d o f lim it at io n s h as exp i r ed im p er m issib ly

r ev i v es a m o r ib u n d cau se o f act io n ” ). I n d eed

, M o r gan is n o t r eally ask in g u s t o ap p ly t h e

co n t in u o u s r ep r esen t at io n d o ct r in e; h e is ask in g u s t o r e- w r it e it

, so m et h in g w e ar e n o t
in clin ed t o d o —“ F ed er al co u r t s ar e lo at h e t o fid d le ar o u n d w it h st at e law .” I n s olia v

. Ph ilip

M orris I n c

. , 216 F .3d 596, 607 (7t h C ir . 2000).

I I I

.

I n su m , t h e d ist r ict co u r t co r r ect ly d et er m in ed t h at u n d er I n d ian a’ s ch o ice- o f- law r u les

I n d ian a law go ver n s M o r gan ’ s claim s. I n ad d it io n , t h e d ist r ict co u r t co r r ect ly d et er m in ed t h at
M o r gan ’ s claim s w er e b ar r ed b y t h e I n d ian a st at u t e o f lim it at io n s. A cco r d in gly

, t h e ju d gm en t

o f t h e d ist r ict co u r t is affir m ed

.