Opinion
05 Civ. 8360 (NRB).
November 29, 2006
MEMORANDUM AND ORDER
Plaintiffs Stephen Chin and Michelle Chin Bradbury, both residents of Florida, bring this action against individual defendant Shelly Goch ("Goch") and two New York accounting firms: Rogoff Company ("Rogoff") and Weissbarth, Altman, Michaelson Slayet ("WAMS"). Plaintiffs are suing defendants for declaratory judgment based on alleged accounting malpractice arising from tax advice provided in connection with the sale of an internet company and for damages for the taxes and penalties that plaintiffs now expect to pay due to their failure to report sufficient income from that sale to the tax authorities. After two conferences and an exchange of correspondence, the Court granted the parties leave to take limited discovery to explore the applicability of the statute of limitations of New York and/or Florida to the present action. Having completed this discovery, defendant WAMS now moves for a dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that plaintiffs' claims against WAMS are time-barred. The motion is granted and plaintiffs' claims are dismissed with prejudice.
BACKGROUND
The following facts are taken from plaintiffs' complaint and are accepted as true for the purposes of this motion.
Plaintiff Stephen Chin ("Chin") is the founder of BidPay, an online auction payment facilitator. Chin and plaintiff Michelle Chin Bradbury ("Bradbury") are residents of Florida and lived in Florida at all times relevant to this action. In January of 2001, Chin, Bradbury, and all of the other shareholders of BidPay (the "BidPay shareholders") agreed to sell their BidPay stock to First Data, an electronic financial transaction company (the "BidPay sale").
As part of the BidPay sale, First Data initially agreed to reimburse the BidPay shareholders for any additional taxes that they would have to pay as a result of that sale. First Data made this promise by letter dated January 16, 2001 (the "January 16 promise"). In July of 2001, however, First Data expressed concern to Chin about its duty to reimburse plaintiffs because that duty could affect certain important financial decisions related to the BidPay sale. As a result, Chin asked Goch, an accountant then working at WAMS, to research the plaintiffs' potential tax liability for the BidPay sale (the "BidPay tax issue") in order to determine whether plaintiffs should release First Data from the January 16 promise.
Goch began researching the BidPay tax issue during July of 2001 and continued to work on the matter when she left WAMS to work for Rogoff on September 1, 2001. After Goch joined Rogoff, but still during September of 2001, she advised Chin that the BidPay shareholders would have no additional tax liability from the BidPay sale. This led Chin and the other BidPay shareholders to waive their right to tax reimbursement from First Data on October 17, 2001. Later, in the fall of 2002 and while still working at Rogoff, Goch prepared plaintiffs' tax returns for the 2001 year. Based on Goch's advice, plaintiffs did not report additional taxable income from the BidPay sale in those returns, which they filed with the tax authorities on October 15, 2002.
That Goch left WAMS on September 1, 2001, does not appear within the four corners of the complaint. However, the parties have agreed in conferences with the Court that this is the case and plaintiffs acknowledge that Goch left WAMS for Rogoff on that date in their Memorandum of Law in Opposition to WAMS' Motion to Dismiss, dated September 18, 2006 ("Plaintiffs' Opp. Mem") at 2.
The exact date of plaintiffs' filing is not stated in the complaint, but the parties agree, and plaintiffs note in their briefs, that Chin filed his return on October 15, 2006.
Unfortunately for plaintiffs, the New York State Tax Department (the "NYSTD") disagreed with Goch's assessment of the BidPay tax issue. In August of 2005, the NYSTD informed Chin that his 2001 tax return had a deficiency of $1,511,925 arising from his sale of BidPay stock, and informed Bradbury that she had a tax deficiency of $271,326 from the same sale. Plaintiffs then sued defendants for accounting malpractice, on September 28, 2005, alleging that Goch's advice caused these tax deficiencies as well as plaintiffs' inability to obtain reimbursement from First Data for their payment of the deficiencies. WAMS now moves the Court to dismiss it as a defendant in this case, arguing that all of plaintiffs' claims against WAMS are time-barred.
DISCUSSION
A. Legal StandardIn deciding a Rule 12(b)(6) motion to dismiss, the Court must accept as true all material facts alleged in the complaint and must draw all reasonable inferences in the non-movant's favor.Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999). Having accepted the plaintiffs' allegations as true, dismissal is appropriate under Rule 12(b)(6) if the facts clearly demonstrate that plaintiff's claims are time-barred. See e.g. Cantor Fitzgerald Inc. v. Lutnick, 313 F.3d 704, 709 (2d Cir. 2002);Ferber v. Citicorp Mortgage, Inc., 94 Civ. 3038 (AGS), 1996 WL 46874, at *2 (S.D.N.Y. Feb. 6, 1996). In deciding a motion to dismiss, a court may consider "any written instrument attached to [the complaint] as an exhibit or any statements or documents incorporated in it by reference . . . and documents that the plaintiffs either possessed or knew about and upon which they relied in bringing the suit." Rothman v. Gregor, 220 F.3d 81, 88-89 (2d Cir. 2000) (citations omitted).
B. Analysis
1. Applicable Statute of Limitations
To determine whether a plaintiff's claims are time-barred, the Court must first identify the applicable statute of limitations. In this case, the limitations period provided for under Florida law and/or New York law may apply as plaintiffs were Florida residents at all relevant times and because defendants are New York residents who performed the challenged accounting work in New York.
Where, as here, a district court's subject matter jurisdiction is based on diversity of citizenship, the court must apply the choice of law rules of the forum state. See Klaxton Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97; Cantor Fitzgerald, 313 F.3d at 710. Under New York's borrowing statute, a claim brought by a non-resident plaintiff must be timely filed under both New York law and under the law of the state where the alleged injury occurred. That statute provides:
An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.
N.Y. C.P.L.R. § 202. Since plaintiffs are Florida residents who sustained their injuries in Florida, and since plaintiffs filed this lawsuit in New York, plaintiffs' claims must be timely-filed under both Florida and New York law.
In New York, causes of action alleging accounting malpractice are subject to a three-year statute of limitations. Ackerman v. Price Waterhouse, 84 N.Y.2d 535, 620 N.Y.S.2d 318 (1994). The statute begins to run in such cases upon the plaintiff's receipt of the accountant's work product because that is when the client reasonably relies on the accountant's professional skill and advice. See id. at 541; Kearney v. Firley, Moran, Freer Eassa, P.C., 234 A.D.2d 967, 651 N.Y.S.2d 781 (4th Dep't 1996). Thus, in order to avoid dismissal under New York law, plaintiffs must allege that they received faulty accounting advice from WAMS within three years of filing this lawsuit; i.e. they must allege accounting malpractice that occurred on or after September 28, 2002.
See infra note 5.
2. Claims against WAMS
Plaintiffs plead only two instances of accounting malpractice in their complaint. First, plaintiffs plead that Goch advised them, in September of 2001, that the BidPay shareholders would not face any additional tax liability from their sale of BidPay stock and that this advice caused plaintiffs to waive their right to tax reimbursement from First Data on October 17, 2001. Second, plaintiffs plead that Goch prepared erroneous tax returns for plaintiffs in the fall of 2002 and that this led plaintiffs to incur a deficiency with the NYSTD when they filed those returns on October 15, 2002.
As should be evident from the foregoing facts, neither of these allegations states a timely claim against WAMS. The first allegation, though it asserts that plaintiffs received faulty accounting advice from Goch, does not plead that either WAMS or Goch committed accounting malpractice within three years of the filing of this lawsuit. On the contrary, no part of plaintiffs' complaint alleges that WAMS had anything to do with plaintiffs after Goch left WAMS on September 1, 2001. Moreover, since the first allegation relates to plaintiffs' October 17, 2001 waiver of their right to tax reimbursement from First Data, any malpractice alleged to have caused that waiver could not have occurred after October 17, 2001 and, thus, could not possibly have occurred after September 28, 2002.
The second allegation also fails to state a timely claim against WAMS, though it does plead that plaintiffs were injured by accounting malpractice after September 28, 2002. The second allegation states that plaintiffs received faulty accounting advice during the fall of 2002 when Goch prepared the erroneous 2001 tax returns, and that plaintiffs filed those tax returns in October of 2002. However, it does not link WAMS to Goch or to the plaintiffs' tax returns during that period of time. As noted, plaintiffs do not allege that WAMS provided them with any tax advice or work product after September 1, 2001. Rather, plaintiffs concede that Goch prepared the 2001 tax returns while working at Rogoff and nearly one year after she stopped working WAMS. Thus, plaintiffs have failed to state a timely claim for accounting malpractice against WAMS and all of plaintiffs' claims against WAMS are dismissed.
Having found that plaintiffs have not filed a timely claim under New York law, we need not discuss the statute of limitations under Florida law.