Gerzog v Goldfarb 2022 NY Slip Op 04120 [206 AD3d 554] June 28, 2022 Appellate Division, First Department discusses the fiduciary duties an accountant may have to its client.

“Plaintiff was an attorney at the law firm of nominal defendant Goldfarb & Gerzog. He claims that he and defendant Goldfarb were partners at the firm and that he was entitled to a one-third share of the firm’s profits. Defendant Migden was the firm’s accountant.

Issues of fact exist as to plaintiff’s partnership status and entitlement to a share of the firm’s profits (see generally M.I.F. Sec. Co. v Stamm & Co., 94 AD2d 211, 214 [1st Dept 1983], affd in part 60 NY2d 936 [1983]). Evidence in the record—including plaintiff’s testimony, the firm’s filing of partnership tax returns and K-1s, and its representations to others—supports plaintiff’s claim that the firm was a partnership and that he was entitled to a percentage of the firm profits (see Rosen v Efros, 258 AD2d 333, 333 [1st Dept 1999]; see also 26 CFR 301.7701-2 [a]; Peterson v Neville, 58 AD3d 489, 489 [1st Dept 2009]). Although the K-1s and representations are not dispositive, they are still relevant (see Rakosi v Sidney Rubell Co., LLC, 155 AD3d 564, 565 [1st Dept 2017]). The fact that the K-1s refer to plaintiff as a “limited partner” is not determinative of whether he had an equity stake, especially given that they also refer to Goldfarb as a limited partner.”

“As to Migden, plaintiff also raises an issue of fact as to the applicability of the exception to the general rule that accountants do not owe clients fiduciary duties. That exception applies “where the allegations include knowledge and concealment of illegal acts and diversions of funds and failure to withdraw in the face of a conflict of interest” (Nate B. & Frances Spingold Found. v Wallin, Simon, Black & Co., 184 AD2d 464, 465-466 [1st Dept 1992]). Plaintiff has submitted evidence from which the factfinder could conclude that Migden [*2]falsely classified Goldfarb’s personal expenses as case preparation expenses on income tax returns, with knowledge that deducting these expenses would reduce the profits available to be paid to plaintiff and that classifying them in this way would conceal the wrongdoing. The fact that plaintiff had access to his K-1s and the firm’s tax returns is immaterial because his claim is that the true nature of Goldfarb’s personal expenses was not obvious on the face of those documents. Plaintiff also submitted evidence indicating that Migden was responsible for categorizing expenses as deductions and did not simply rely on Goldfarb’s assessment. The parties also offered conflicting expert opinions regarding whether an accountant’s duties run to all partners or only to the partner in charge of tax matters. However, whether Migden owed a duty to plaintiff personally is irrelevant to the accounting malpractice claim, which was asserted derivatively on behalf of the firm.

Partial dismissal of the accounting malpractice claim on statute of limitations grounds (see CPLR 214 [6]) is precluded by issues of fact as to whether Migden is equitably estopped from asserting the defense because his alleged concealment of the misconduct induced plaintiff to refrain from filing a timely action (see Simcuski v Saeli, 44 NY2d 442, 448-449 [1978]; Langston v MFM Contr. Corp., 172 AD3d 583, 584 [1st Dept 2019]), whether the statute of limitations was tolled because Migden was in a fiduciary relationship with the firm (see Robinson v Day, 103 AD3d 584, 586 [1st Dept 2013]), and whether it was tolled under the continuous representation doctrine (see Booth v Kriegel, 36 AD3d 312, 314 [1st Dept 2006]). Although repetition of the same mistake on successive tax returns does not constitute continuous representation, the doctrine may apply where there is repeated intentional disregard of professional standards with respect to the same type of expense (see id. at 315; Ackerman v Price Waterhouse, 252 AD2d 179, 205 [1st Dept 1998]).”