Opinion ID: 2631887
Heading Depth: 2
Heading Rank: 3

Heading: clarks' malpractice claim

Text: ¶ 22 The Clarks' malpractice action was brought pursuant to section 78-12-25(3) of the Utah Code, which provides that [a]n action may be brought within four years:. . . . (3) for relief not otherwise provided by law. The general rule regarding statutes of limitation is that the limitation period does not begin to run until the happening of the last event necessary to complete the cause of action. Berenda v. Langford, 914 P.2d 45, 50 (Utah 1996) (internal quotation and citation omitted) (emphasis added). Therefore, a plaintiff must wait until some harm manifests itself. . . . [u]ntil a plaintiff suffers actual harm or damages . . . . Seale v. Gowans, 923 P.2d 1361, 1364 (Utah 1996) (emphasis added). This rule promotes judicial economy by commencing the limitation period at the time [the action] becomes remediable in the courts . . . . Stokes v. Van Wagoner, 1999 UT 94, ¶ 7, 987 P.2d 602. ¶ 23 Deloitte contends the Clarks sustained actual harm or injury when they received the ninety-day letter, because this was the result of final review by the IRS and it thereby created a presumption of liability. We disagree. Under the circumstances of this case, where an appeal from the IRS decision was taken there [was] no loss or injury unless a third party, the [Tax Court], decide[d] to assess a tax deficiency. Snipes, 316 S.E.2d at 661; see also, Bronstein v. Kalcheim & Kalcheim, Ltd., 90 Ill.App.3d 957, 46 Ill.Dec. 374, 414 N.E.2d 96, 98 (1980) (dismissing the plaintiff's claim as premature because [t]he issuance of the notice of deficiency does not establish the plaintiff has suffered a loss. . . . because plaintiff's tax liability has not yet been determined in the Tax Court, it is clear that plaintiff has not yet suffered any actual loss.); Berberich v. Payne & Jones, 3 F.Supp.2d 1199, 1203-04 (1998) (dismissing the claim as premature and explaining that [i]f plaintiffs are successful on their claim with the IRS, they apparently will not have a malpractice claim against defendant . . . .). Accordingly, there was no actual injury until the appeal with the Tax Court was resolved. ¶ 24 To prevent the filing of premature claims, this court generally requires litigants to exhaust applicable administrative remedies. State Tax Comm'n v. Iverson, 782 P.2d 519, 524 (Utah 1989). Otherwise, without actual injury, a litigant would have to file a malpractice action before knowing the ultimate result of an appeal on the merits. In addition, if litigants filed claims without pursuing available appeals of right, the principle of mitigation of damages would be undermined. This principle is underscored by the facts in this case. By pursuing their administrative appeal with the Tax Court, the Clarks obtained a reduction of their tax liability from the original $262,298 assessment by the IRS to the $129,433 judgment entered by the Tax Court. ¶ 25 Contrary to Deloitte's assertion, awaiting the result of a pending appeal will not often lead to stale claims. Even when an appeal of right is available, the statute of limitation will begin to run unless the litigant actually pursues that appeal. See, e.g., Turley v. Wooldridge, 230 Cal. App.3d 586, 593, 281 Cal.Rptr. 441 (1991). This prevents a client from causing the limitation period to be indefinitely delayed by deferring pursuit of available remedies. In addition, the limitation period will also begin to run when no appeal of right is available, see, e.g., Troche v. Daley, 217 Cal.App.3d 403, 410-412, 266 Cal.Rptr. 34 (1990), or when the case is settled because the settlement represents the litigant's agreement to forgo further remedies . . . . Laird v. Blacker, 2 Cal.4th 606, 7 Cal.Rptr.2d 550, 828 P.2d 691, 705 (1992) (Mosk, J., dissenting). Finally, awaiting the outcome of the appeal process before triggering the limitation period will prevent professionals from defeating malpractice claims by continuing to represent or advise the client through the appeals process until after the statutory period has expired. [17] ¶ 26 Deloitte points out that there are dangers associated with delaying the accrual of a cause of action, such as fading memories and loss of evidence. However, unlike other forms of professional malpractice, an accountant's negligence is almost always, and certainly in this case, memorialized in documents. In this case, there are documents from the two appeals within the IRS, hearing transcripts, a decision from the Tax Court, and court pleadings, all of which provide an adequate record of the actions that form the substance of the Clarks' malpractice action. ¶ 27 It would be unfair and impractical to require a client to pay the tax assessment and contemporaneously file a malpractice action, while at the same time pursuing a refund claim in the district court or Tax Court. If a taxpayer's cause of action accrued prior to the entry of the final judgment on appeal, the taxpayer would be forced to take the position before the Tax Court that the professional's advice was correct, while arguing in the malpractice action that the advice was wrong. That circumstance would not only contravene equity principles and good policy, but also create the risk of inconsistent verdicts and raise problems regarding judicial admissions and estoppel. See Condas v. Condas, 618 P.2d 491, 495-96 (Utah 1980) (It is well settled that a party who has taken a position in prior litigation and has obtained relief on the basis of it cannot maintain the opposite position in another action.). ¶ 28 The crux of the plaintiffs' argument is that they trusted Calder's advice. Without a doubt, [a] person needs special training to know whether his or her 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. Chisholm, 526 P.2d at 1302. ¶ 29 Applying these considerations, we return to the allegations in the complaint. According to the Clarks, when they received the initial notice of the examiner's findings, they contacted Calder, who assured them the tax advice and returns were correct. In addition, Calder advised the Clarks to appeal the assessment with the IRS District Office pursuant to the thirty-day letter. Once that appeal was denied, the Clarks again contacted Calder. He continued to assure the Clarks of the accuracy of the professional advice and continued to advise the Clarks to appeal the assessment of liability. The Clarks relied on these representations and appealed the assessment with the IRS Appeals Office. When this appeal was denied, again, relying on Calder's superior knowledge and advice, the Clarks pursued their appeal of right to the United States Tax Court as per the ninety-day letter. In June 1994, the Tax Court issued its opinion reducing the amount of the IRS's original assessment. Accordingly, the court entered its final judgment on September 16, 1994. ¶ 30 After reviewing the allegations in the complaint, and in light of the above-mentioned considerations, we conclude that the hardship imposed on the Clarks by a dismissal of their cause of action outweighs any harm to Deloitte. Given that the Clarks claimed to have acted on a good-faith belief in Calder's representations, pursuant to the fiduciary relationship between an accountant and a client, they were justified in following defendants' advice to pursue an appeal and their case should be tried on the merits. [18] See Glus, 359 U.S. at 235, 79 S.Ct. 760. By pursuing all their administrative appeals, the Clarks preserved the essential evidence in this case. Thus, the general policy regarding stale claims is not applicable. In addition, the Clarks mitigated their damages by obtaining a reduction of the original $262,298 assessment by the IRS to the $129,443 final judgment entered by the Tax Court in September 1994. ¶ 31 Finally, we note that this action is in essence a claim for indemnification. Had the IRS sued the Clarks to collect the tax liability assessed in the thirty-day letter, the Clarks would have been able to commence a third-party action against Deloitte under rule 14 of the Utah Rules of Civil Procedure. See Utah R. Civ. P. 14(a). Under those circumstances, Deloitte would not have been entitled to a statute of limitation defense because only after the Tax Court's final decision would the cause of action for indemnification accrue. See, e.g., Wandrey v. McCarthy, 804 F.Supp. 1384, 1386-87 (D. Kansas 1992). Also, if the Clarks had received erroneous advice from a tax attorney, as opposed to an accountant, their claim for malpractice would not have accrued until the Tax Court's final decision. See Pizel v. Zuspann, 247 Kan. 54, 795 P.2d 42, 56 (1990); Amfac Distribution Corp. v. Miller, 138 Ariz. 152, 673 P.2d 792, 793 (1983).