Accounting malpractice, a sister to attorney malpractice has many of the same principles and doctrines as does legal malpractice. Interestingly, accounting malpractice has more of an episodic rhythm of yearly tax filings. A specialized set of statute of limitations rules applies to the tax year filings. Here, however, the accounting firm was sued for its failure to supervise, detect and indeed actually do the accounting work on the regular books of a chemical company.
Lobel Chem. Corp. v Petitto 2016 NY Slip Op 30273(U) February 16, 2016 Supreme Court, New York County Docket Number: 653226/14 Judge: Kelly A. O’Neill Levy tells us that continuing representation is applicable in accounting malpractice.
“The first amended complaint (complaint) alleges that, in 1991, pursuant to an oral agreement, plaintiff, Lobel Chemical Corporation (Lobel or the Company) retained RSSMC to: 1) supervise Lobel’ s bookkeeper; 2) oversee the bookkeeping and accounting issues concerning its business and finances; and 3) prepare Lobel’s tax returns and represent the Company at tax audits. Petitto, a certified public accountant employed by RSSMC, provided accounting services for Lobel from the inception of the parties’ relationship (Anesh aff, exhibit A,~ 7).
In 2004, Lobel’s longtime bookkeeper retired and Petitto recommended that the Company
hire nonparty Meredith Conyers (Conyers), Lobel’s assistant bookkeeper, to fill the vacant
position. Petitto also recommended that the Company install specialized accounting software
(Peachtree) to assist Conyers in the preparation of reports for general accounting and tax
preparation purposes (id., ~~ 13-15).
According to plaintiff, it was Petitto’s responsibility to train Conyers in the use of
Peachtree and to review the income and expense statements, bank statements, and bank
reconciliations that Conyers provided (id.,~ 16). However, the complaint alleges that Petitto
allowed Conyers to create a non-Peachtree methodology for listing uncleared checks and
performing cash reconciliations, despite the fact that Peachtree had a built-in cash reconciliation
report (id., ~ 17).
Lobel contends that Petitto failed to address obvious discrepancies between Conyers’s
monthly reconciliations and monthly bank statements and he failed to detect that Conyers’s
monthly bank reconciliations did not balance (id., ~~ 18, 19). Because Conyers realized that
Petitto was not reviewing her monthly reports, in November and December 2005, she forged the
Company’s signature on three checks made payable to herself. After the checks cleared, they
were either omitted or deleted from Peachtree (id.,~ 21 ). These omissions were not detected
and, thereafter, between 2006 and 2013 Conyers forged checks, payable to herself, for more than
$500,000. ”
“The complaint alleges that, even though Petitto visited the Company’s offices on a monthly basis, he failed to question: 1) checks that were missing from the statements; 2) carry forward balances that did not match the ending balance from the prior month; 3) checks listed on the bank statement that did not appear in the Peachtree check register; and 4) he failed to reconcile the Peachtree balance with the bank balance (id., ,-i,-i 24, 26). In 2011, Steven Lobel, the Company president, began questioning discrepancies between his own estimates of the Company’s gross profits and documents that Petitto was reviewing to determine operating expenses. Petitto explained that the discrepancies could be easily explained by simple adjustments between payables and receivables for a few items (Steven Lobel aff, ,-i 14). However, in 2012, when the Company reported a large, unexpected loss, Steven Lobel asked his sister, Rhona Lobel, the Company’s vice president, to look into the finances. Rhona Lobel began to monitor the Company’s cash flow more closely and in January 2014, she discovered Conyers’s embezzlement (id., ,-i 16, 17). In May 2014, Conyers was indicted on two counts of grand larceny and 43 counts of forgery. She pied guilty in April 2015. ”
“The relevant statute of limitations is CPLR 214 (6), which provides that an action for non-medical professional malpractice must be commenced within three years of the date of accrual. “A claim accrues when the malpractice is committed, not when the client discovers it” (Williamson v PricewaterhouseCoopers LLP, 9 NY3d 1, 7-8 [2007]). However, the continuous representation doctrine tolls the statute of limitations in circumstances where the continuous representation is “in connection with the specific matter directly in dispute, and not merely the continuation of a general professional relationship” (Ackerman v Price Waterhouse, 252 AD2d 179, 205 [1st Dept 1998]). “The continuous representation … doctrine[] recognize[s] that a person seeking professional assistance has a right to repose confidence in the professional’s ability and good faith, and realistically cannot be expected to question and assess the techniques employed or the manner in which the services are rendered” (Williamson, 9 NY3d at 9 [internal citation and quotation marks omitted]). “[P]laintiffs [have] the burden of demonstrating that the continuous representation doctrine applie[ s ], or at least there [is] an issue of fact with respect thereto” (CLP Leasing Co., LP v Nessen, 12 AD3d 226, 227 [I5t Dept 2004]). Here, defendants contend that plaintiff used RSSMC’s services for annual tax preparation and auditing services, which constitute separate and discrete services for each year, and thus the application of the continuous representation doctrine is precluded (see Booth v Kriegel, 36 AD3d 312, 315 [1st Dept 2006] [where a professional advises a client in a series of discrete and severable transactions, the performance of services in each successive transaction does not toll the running of the statute of limitations]). According to defendants, all of Lobel’s claims that accrued prior to October 2011 are time-barred . However, in this case, Lobel has alleged evidentiary facts sufficient to establish that the accounting malpractice cause of action falls within the continuous representation exception to the statute of limitations. “