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The Statute of Limitations in Professional Malpractice

scalesBoth Accountants and Wealth Advisers are “professionals” for the purpose of the various statutes of limitations.

This means that firms’ decisions concerning document retention and the purchase of an extended reporting period can be heavily influence by a firm’s State of domicile (or the States where a firm practices).  The longest statute of limitation is generally six years.  However, according to Ralph Picard, risk management consultant to CPAGold™,  “a seven-year retention period ensures that files will be on hand to cover the average statutory limitation period of three or four years (MA is three), plus a buffer to cover the “discovery” period–most states (like MA) don’t “start the clock” until the claimant knows or reasonably should know of the basis for a claim against the firm.”

The calculation of the statute of limitations is often much more complex than just adding three years to the date the malpractice occurred. For example, in many cases, the CPA or Advisers continues to represent the client long after the malpractice occurs. In some cases, the CPA or Advisers conceals the malpractice from the client. Often, the client will not learn of the malpractice until long after three years has elapsed. The law provides for additional time in some of these circumstances.

For example, under the doctrine of “continuous representation,” if the CPA or Adviser continues to represent the client after the initial act of malpractice, the statute of limitations doesn’t begin to run until the CPA or Adviser stops representing the client.

In some states, the doctrine of “continuous representation” can be even more influential. For example, in New York the case of ason, in New York State the doctrine of.  Reville v Melvin Ginsberg & Assoc.  2017 NY Slip Op 30821(U)  April 20, 2017  Supreme Court, New York County  Docket Number: 152167/2015  Judge: Joan M. Kenney gives some explanation on how to calculate the statute of limitations and apply continuous representation.

“In this action sounding in professional negligence, breach of contract, breach of fiduciary duty, and aiding and abetting fraud, plaintiff Daly Reville (Reville) seeks damages for purported unlawful conduct by her accounting firm, Melvin Ginsberg & Associates (the firm; or MGA).  Defendant moves for summary judgment, pursuant to CPLR 3212, to dismiss the complaint on the basis that it is barred by the statute of limitations, lacks merit and is subject to the judicial policy against double recovery. ”

“CPLR 214 (6) imposes a three-year time limitation period in all professional malpractice actions, except those involving medical malpractice. In an accounting malpractice action, the limitations period is measured from the date the client receives the accountant’s advice and/or work product (Ackerman v Price Waterhouse, 84 NY2d 535, 541-543 [1994]). The statute may be tolled in accounting malpractice cases pursuant to the continuous representation doctrine (Zaref v Berk & Michaels, 192 AD2d 346 [1st Dept 1993]; Hall & Co. v Steiner & Mondore, 147 AD2d 225 [3d Dept 1989]). Facts supporting the application of the continuous representation doctrine must be proffered in connection with the “specific matter directly under dispute” and must assert more than merely “the continuation of a general professional relationship” (Zaref, 192 AD2d at 347-348). A negligence-based claim, absent fraud, accrues when the malpractice is committed, even though the injured party may be ignorant of the wrong or injury (Ackerman, 84 NY2d at 541). Plaintiffs action was not commenced until March 4, 2015, well past the three year limitations period. Consequently, plaintiff’s malpractice claim is untimely unless the continuous representation doctrine serves to toll the three-year limitations period. ”

“Plaintiffs reliance on the Alpert case is misplaced. In Alpert, plaintiffs, Joan and Paul Alpert, commenced an action against defendant, a certified public accountant, for negligence and breach of fiduciary duty. Plaintiffs claimed defendant played a role in plaintiffs’ decisions to invest in eight tax shelters, and in plaintiffs’ responses to tax deficiency notices received from the Internal Revenue Service (IRS). Defendant denied recommending any investments, denied preparing tax returns that included the alleged tax benefits, and denied advising against settling their dispute with the IRS. Defendant asserted that he had been purely plaintiffs’ accountant, not their financial advisor. The Alpert court found that there was a triable issue on a material question of fact where Paul Alpert’s deposition revealed that, although he had retained tax counsel, he would regularly send defendant the mail from the IRS first, and only relay copies to his tax lawyer if defendant so advised. The court concluded, “[t]here is at least some evidence that he continued to advise the Al perts on the tax shelter problems.” (Id. at * 5).

In direct applicability to this concept, the Court of Appeals, stressed that a “mutual
understanding” between the parties regarding further representation and the “nature and scope of the parties’ retainer agreement (engagement) play a key role in determining whether continuous representation was contemplated by the parties.” (Williamson PricewaterhouseCoopers LLP, 9 NY3d 1, 10 [2007], quoting Shumsky v Eisenstein, 96 NY2d 164, 170 [2001] [internal quotation marks omitted]).

Here, a plaintiff’s allegations did not establish a course of representation as to the particular problems relating to this transaction that gave rise to the malpractice claim. Furthermore, there is no written agreement between the parties. The invoices submitted by defendant appear to contemplate separate and discrete accounting services for each fiscal year, and once the defendant had performed the services for a particular year, no further work was undertaken (Vergari reply affirmation, exhibit GG). No corrective or remedial services were offered. As a result, there was no mutual understanding between the parties that MGA would provide Reville with any further representation in connection with this alleged unlawful transaction (see also, Apple Bank for Sav. v PricewaterhouseCoopers, LLP, 23 Misc 3d 1126 [A], 2009 NY Slip Op 50948 [U] [Sup Ct, NY County 2009], revd 70 AD3d 438 [l51 Dept 2010]). “

For example, under the doctrine of “continuous representation,” if the attorney continues to represent the client in the same matter after the initial act of legal malpractice, the statute of limitations doesn’t begin to run until the attorney stops representing the client in that matter. We have successfully invoked this doctrine in a number of cases on behalf of our clients.

The question of whether the statute of limitations has expired is a complicated one. In many cases, it may seem like it is too late to bring a claim against an attorney but there may well be time left to file a case. It is very important to consult an attorney experienced in legal malpractice litigation in order to determine whether or not the statute of limitations has expired.

The chart (go here) is a summary of the Statutes of Limitation applicable in each State.  As insurance professionals, Jorgensen & Company are not attorneys and each State may have local laws or rules which impact a plaintiff’s ability to sue, so you should consult with local counsel for a determination of the exact legal applicable in your state.  However, the chart should give you an overview.

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Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President and Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or rjorgensen@jorgensenandcompany.com.