Island Consol. v Grassi & Co., Certified Public Accountants PC 2025 NY Slip Op 30094(U) January 7, 2025 Supreme Court, New York County Docket Number: Index No. 451469/2023 Judge: Margaret A. Chan came as somewhat of a surprise to read. Not only did a statute of limitations defense in an accounting malpractice suit fail, but “gross negligence” and a fraud claim was found not duplicative of a malpractice claim.
“In this professional malpractice action, plaintiffs Island Consolidated, Eastern Materials Corp., Island International Exterior Fabricators Del LLC, and Island Exterior Fabricators LLC (hereinafter collectively referred to as “Island” or “Plaintiffs”) allege professional malpractice and gross negligence against their accountant, defendant Grassi & Co., Certified Public Accountants PC for the sales tax advice it gave plaintiffs in 2015. In reliance on defendant’s 2015 sales tax advice, plaintiffs sustained monetary damages through tax penalties and interests on repayment costs to the New York State Department of Taxation and Finance, costs, and lost profits. Defendant moves to dismiss plaintiffs’ Amended Complaint for failure to: (1) comply with the condition precedent before bringing a suit against defendant; (2) timely bring their claims within the three-year statute of limitations; and (3) state a cause of action with sufficiency. Alternatively, defendant urges dismissal of damages on the grounds that they are not recoverable and is limited by the parties’ agreement. Plaintiffs oppose the motion. For the reasons stated below, defendant’s motion is denied.”
“Statute of Limitations Defendant argues that plaintiffs’ causes of action based on malpractice for its sales tax advice in 2015 are barred by the three-year statute of limitations for professional malpractice (id. at 9-11). And because such a claim accrues when the malpractice is initially committed, plaintiffs’ claims for professional malpractice expired in 2018 (id. at 10). Defendant adds that the continuous representation doctrine did not toll the statute of limitations here because the recurrence of any professional relationship between the parties was limited to incidental and general advising and not specific to the 2015 advice (id. at 11). In opposing defendant’s statute of limitations argument, plaintiffs contend that the parties had an understanding that more work is needed and that defendant had to engage in corrective measures or remedial measures (id. at 18). Citing Shumsky v Eisenstein (96 NY2d 164, 168 [2001]), plaintiffs assert that “[f]or accounting malpractice, the statute of limitations begins to run when the accounting representation is completed. The continuous representation doctrine tolled the statute of limitations for plaintiffs’ cause of action such that their complaint is timely” (id. at 18-19). Plaintiffs contend that defendant continued to provide their professional advice and guidance on the sales tax issues from 2015 through late 2021 and dealt with tax authorities to try to avoid the very sales taxes that defendant had claimed were not taxable (id.). Plaintiffs claim that defendants were engaged in continuous representant which tolls the statute of limitations for accounting malpractice (id. at 18 citing Lemle v Regen, Benz & MacKenzie, CPA, PC, 165 AD3d 414, 415 [1st Dept 2018]). Pursuant to CPLR 214[6], the statute of limitations for accounting malpractice is three years. New York courts have held that a professional malpractice claim accrues at the time “the malpractice is committed, not when the clients discover it” (Williamson ex rel. Lipper Convertibles, L.P. v PricewaterhouseCoopers LLP, 9 NY3d 1, 8 [2007]); see also Lemle 165 AD3d at 414 [finding professional malpractice accrued when the client filed tax returns, not when client discovered they were wrong]). However, the continuous representation doctrine will toll a statute of limitations on a professional malpractice action when there is a continuing professional relationship between parties that specifically pertains to the matter in which the alleged malpractice was committed in the first place (see Shumsky, 96 NY2d 164). The continuous representation doctrine does not apply in cases where the professional relationship merely continues with later services that are not related to the original services (see Ackerman v PricewaterhouseCoopers, 252 AD2d 179 [1st Dept 1998]; see also CLP Leasing Co., LP v Nessen, 12 AD3d 226 [1st Dept 2004]). However, the continuous representation doctrine has been found to toll a statute of limitations where defendant undertook to defend or explain earlier advice they had provided or where the defendant represented plaintiffs in audited investigations by the IRS (see Ackerman, 252 AD2d 179 [holding defendants’ repeated use of an improper accounting method, repeated failure to disclose risks associated with it, and representations that it was handling an IRS audit in relation was enough evidence to support the application of continuous representation]; see also Lemle, 165 AD3d 414 [holding continuous representation doctrine tolled statute of limitations where without any new engagement by plaintiff, defendants undertook to respond to audit letter and defend or explain the treatment given on an earlier 2012 return and service was related to the alleged malpractice in 2012]; cf. Apple Bank for Sau. v PricewaterhouseCoopers LLP, 70 AD3d 438, 438 [1st Dept 2010] [holding continuous representation doctrine did not toll statute of limitations even where defendant audited plaintiffs year-end financial statements, prepared its tax returns and provided ad hoc tax advice to plaintiff because the parties never had an express, mutual agreement to advise plaintiff after the original advice]). Here, plaintiffs have alleged sufficient facts establishing that the continuous representation doctrine tolled the statute of limitations for professional malpractice in this case. While the follow-up June 16, 2020, memorandum and follow-up 2021 emails do repeat, clarify, and elaborate on the advice first given, this alone is likely not sufficient to rise to what is needed to trigger the continuous representation doctrine (see Apple Bank for Sau., 70 AD3d at 438). However, plaintiffs here also allege and demonstrate that defendant continued to provide their professional advice and guidance regarding sales taxes by defending a tax appeal on the exact issues through late 2021 (see Lemle, 165 AD3d at 414). These allegations support a reasonable inference that the parties’ professional relationship was not just comprised of a recurrence of general duties. Accordingly, defendant’s motion to dismiss the amended complaint as barred by the statute of limitations is denied.”
