Court of Appeals’ Recent Decision In Head v. Gould Killian CPA Grp., P.A. Expands an Accountant’s Liability Exposure in Malpractice Actions
On December 20, 2016, the Court of Appeals addressed an important question in professional negligence cases—what act constitutes the “last act” to trigger the Statute of Repose (N.C. Gen. Stat. Ann. § 1-15) in professional negligence actions. In general terms, a statute of repose bars a lawsuit from being filed after a certain time since the defendant acted. Most importantly, the period contained in a statute of repose begins when a specific event occurs, regardless of whether a cause of action has accrued or whether any injury resulted.
The Head v. Gould Killian CPA Group, P.A. case dealt with an allegation that an accountant committed malpractice in failing to timely file certain tax returns. The plaintiff hired an accounting firm for the 2005 tax year, and rehired the firm in 2006, 2007, 2008, and 2009. In November 2013, the plaintiff filed her lawsuit alleging, among other things, that the accounting firm and the supervising accountant committed malpractice by failing to timely file her tax returns from 2006 through 2009. The trial court determined that the plaintiff’s claim with respect to her 2006 and 2007 tax returns was barred by the statute of repose because the lawsuit was more than four years after the “last act” occurred giving rise to the plaintiff’s cause of action. The trial court found that the last act occurred on December 12, 2008 when the defendants allegedly delivered to the plaintiff her completed 2006 and 2007 tax returns.
The Court of Appeals reversed the trial court’s decision because it determined that there was a factual dispute whether the plaintiff received the tax returns on December 12, 2008, and whether the defendants delivered the completed tax returns on December 12, 2008. This factual dispute was based on the plaintiff’s deposition testimony in which she denied receiving completed tax returns from 2006 and 2007.
The most important takeaway from this decision is the uncertainty it introduces from an accountant’s perspective when evaluating when the transaction has been completed to trigger the running of the statute of repose. While there was uncontroverted expert testimony stating that an accountant-client engagement terminates upon delivery of a prepared return to a client, the implication from the Court of Appeals’ decision is that the engagement is ongoing such that, in the Head case, the defendants had a continuing obligation to cure any defect that arose from the untimely filing of the plaintiff’s tax returns. The Court of Appeals’ decision, if not reversed by the Supreme Court, potentially expands an accountant’s exposure for malpractice because it is no longer clear what “act” constitutes the “last act” for purposes of triggering the four-year statute of repose.
If you are a licensed professional in North Carolina, and you have either been sued or fear the possibility of being sued, please contact an attorney at Lincoln Derr to discuss your case. The attorneys at Lincoln Derr have more than 60 years of combined experience defending licensed professionals in lawsuits all over North Carolina.