Opinion
NO. 2022 CA 0288.
09-16-2022
Delvin R. CHAPMAN and Karen H. Chapman v. Sandra T. HAYNES and Haynes Accounting & Tax Service, LLC.
HESTER, J.
Defendants appeal the trial court's grant of summary judgment in favor of plaintiffs, finding defendants breached their duty to prepare plaintiffs' tax returns in accordance with the law and ordering defendants to pay damages as a result of the breach. For the reasons that follow, we reverse the judgment of the trial court and remand the matter to the trial court.
FACTS AND PROCEDURAL HISTORY
For eleven years, Delvin R. Chapman and Karen H. Chapman ("plaintiffs") retained Sandra T. Haynes of Haynes Accounting & Tax Service, LLC ("defendants") for accounting and tax services, which included the preparation and filing of plaintiffs' 2014, 2015, and 2016 tax returns. After an audit was conducted by the Internal Revenue Service ("IRS") in September of 2018, plaintiffs received notification that they had reported information incorrectly to the IRS, resulting in additional payments due, together with penalties and interest. Specifically, plaintiffs alleged they were notified for the 2014 tax period, they owed $5,894.00 in additional taxes and $868.82 in interest; for the 2015 tax period, they owed $13,443.00 in additional taxes and $1,518.76 in interest; and for the 2016 tax period, they owed $10,820.00 in additional taxes and $751.16 in interest. Plaintiffs were required to retain legal services at a cost of $8,490.00 to resolve their tax liability.
Plaintiff attached portions of an IRS Form 4549 (Income Tax Examination Changes) for the periods ending 12/31/2014 and 12/31/2015 to the petition showing the balance due in tax payment and the penalties and interest assessed, but no such form was included for the period ending 12/31/2016.
It is not clear from the record how the tax liability was "resolved."
On October 16, 2018, plaintiffs filed a petition for damages, alleging that defendants were negligent "in providing services under the standard of care for that of like professionals." Plaintiffs further alleged that but-for defendants' negligence, they would not have incurred the additional taxes, interest, and penalties owed to the IRS and would also not have incurred legal fees to resolve their tax liability. Plaintiffs sought as damages the total amount of additional taxes paid or found owing for the 2014, 2015, and 2016 tax periods ($30,157.00), interest paid or found owing for the same tax periods ($3,138.74), and attorney's fees incurred in resolving their tax liability ($8,490.00). Defendants answered the petition on October 28, 2018.
Ultimately, plaintiffs filed a motion for summary judgment, contending that there were no issues of material fact and they were entitled to judgment as a matter of law. In support, plaintiffs included the affidavit of Karen H. Chapman and the affidavit of Lisa T. Scrantz. Defendants opposed the motion, and the trial court heard the parties' arguments on February 1, 2021. After taking the matter under advisement, the trial court issued written reasons and signed a judgment on November 30, 2021, granting plaintiffs' motion and awarding damages to plaintiffs in the amount of $41,170.22, plus legal interest and costs. This appeal followed.
According to the trial court's reasons for judgment, plaintiffs received letters from the IRS on September 20, 2018 and October 31, 2018, demanding they pay the total sum of $41,170.22, which amount was calculated from the following: Fiscal Year 2014 $5,984.00 additional taxes and $878.82 in interest; Fiscal Year 2015 $17,321.00 additional taxes, $775.60 in penalties and $2,490.85 in interest; [and] Fiscal Year 2016 $12,448.00 additional taxes, $227.92 in penalties and $1,044.03 in interest.
However, neither the September 20, 2018 letter nor October 31, 2018 letter are in the record and were not included as exhibits to motion for summary judgment.
LAW AND ANALYSIS
A motion for summary judgment is a procedural device used when there is no genuine issue of material fact for all or part of the relief prayed for by a litigant. Beer Industry League of Louisiana v. City of New Orleans, 2018-0280 (La. 6/27/18), 251 So.3d 380, 385-86. After an opportunity for adequate discovery, a motion for summary judgment shall be granted if the motion, memorandum, and supporting documents show that there is no genuine issue as to material fact and that the mover is entitled to judgment as a matter of law. La. Code Civ. P. art. 966(A)(3).
The burden of proof rests with the mover. La. Code Civ. P. art. 966(D)(1). When the mover will bear the burden of proof at trial, the mover has the burden of making a prima facie showing that no genuine issue of material fact remains. Only when the mover makes this showing does the burden shift to the opposing party to present evidence demonstrating a material factual issue remains. Gulf South Psychiatry, L.L.C. v. Greenbrier Hospital, L.L.C., 2020-0957 (La. App. 1st Cir. 4/16/21), 323 So.3d 880, 883 (citing Action Oilfield Services, Inc. v. Energy Management Co., 2018-1146 (La. App. 1st Cir. 4/17/19), 276 So.3d 538, 541-542). Moreover, if the party moving for summary judgment will bear the burden of persuasion on the subject issue at trial, that party must support his motion with credible evidence that would entitle him to a directed verdict if not controverted at trial. Hines v. Garrett, 2004-0806 (La. 6/25/04), 876 So.2d 764, 766 (per curiam). Appellate courts review summary judgments de novo, using the same standards applicable to the trial court's determination of the issues, and ask the same questions the trial court does in determining whether summary judgment is appropriate. Cabana Partners, LLC v. Citizens Bank & Trust Co., 2018-0133 (La. App. 1st Cir. 12/21/18), 269 So.3d 986, 990. See also La. Code Civ. P. art. 966(A)(3). In ruling on a motion for summary judgment, the trial court's role is not to evaluate the weight of the evidence or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact. Janney v. Pearce, 2009-2103 (La. App. 1st Cir. 5/7/10), 40 So.3d 285, 289, writ denied, 2010-1356 (La. 9/24/10), 45 So.3d 1078. Because it is the applicable substantive law that determines materiality, whether a particular fact in dispute is material can be seen only in light of the substantive law applicable to the case. Georgia-Pacific Consumer Operations, LLC v. City of Baton Rouge, 2017-1553, 2017-1554 (La. App. 1st Cir. 7/18/18), 255 So.3d 16, 22, writ denied, 2018-1397 (La. 12/3/18), 257 So.3d 194.
Generally, a motion for directed verdict is appropriately granted in a jury trial when, after considering all evidentiary inferences in the light most favorable to the movant's opponent, it is clear that the facts and inferences are so overwhelmingly in favor of the moving party that reasonable men could not arrive at a contrary verdict. State, Department of Transportation & Development v. Restructure Partners, L.L.C., 2007-1745 (La. App. 1st Cir. 3/26/08), 985 So.2d 212, 223, writ denied , 2008-1269 (La. 9/19/08), 992 So.2d 937. The propriety of a directed verdict must be evaluated in light of the substantive law underpinning the plaintiff's claims. Smith v. Funderburk, 2021-0134 (La. App. 1st Cir. 12/22/21), 340 So.3d 59, 62, writ denied , 2022-00173 (La. 3/22/22), 334 So.3d 756.
In this matter, plaintiffs sought, through summary judgment, to establish entitlement to all relief requested in their petition, i.e., negligence and damages. Therefore, plaintiffs bore the initial burden as movers and would bear the ultimate burden of proof at trial. See State Board of Ethics v. Ourso, 2006-1467 (La. App. 1st Cir. 6/8/07), 964 So.2d 1059, 1066, writ denied, 2007-1387 (La. 10/5/07), 964 So.2d 941 ("In ordinary civil actions, the plaintiff, in general, has the burden of proof and must prove the facts in issue by a preponderance of the evidence."). Our de novo review of the evidence presented by plaintiffs demonstrates that plaintiffs failed to carry their burden and did not show they were entitled to judgment as a matter of law against defendants.
The duty-risk analysis is the standard negligence analysis employed in determining whether to impose liability under La. Civ. Code art. 2315. Mathieu v. Imperial Toy Corporation, 94-0952 (La. 11/30/94), 646 So.2d 318, 321-22. Accordingly, plaintiffs were required to prove each of the five elements of the duty-risk analysis: (1) the defendant had a duty to conform his conduct to a specific standard (the duty element); (2) the defendant's conduct failed to conform to the appropriate standard (the breach element); (3) the defendant's substandard conduct was a cause in fact of the plaintiff's injuries (the cause-in-fact element); (4) the defendant's substandard conduct was a legal cause of the plaintiff's injuries (the scope of liability or scope of protection element); and (5) the actual damages (the damages element). A negative answer to any of the inquiries of the duty-risk analysis results in a determination of no liability. Lemann v. Essen Lane Daiquiris, Inc., 2005-1095 (La. 3/10/06), 923 So.2d 627, 632-33.
In an effort to address the breach element, plaintiffs submitted the affidavit of Ms. Scrantz, an "Enrolled Agent, licensed to practice before the [IRS]." This affidavit indicated that Ms. Scrantz viewed tax returns, financial statements, profit and loss statements, and balance sheets for Kizzie Properties, LLC and Industrial Outfitters, LLC, both of which are Louisiana partnerships, for the 2014, 2015, and 2016 tax periods. Ms. Scrantz stated that defendants improperly classified balance sheet items as deductions instead of liabilities, grossly misreported liabilities as expenses, and improperly overstated expenses that should have been amortized over a period of fifteen years. Ms. Scrantz concluded that "due to numerous errors made by defendant[s]," the IRS officer was required "to revise Form 4605 on both companies four to five times."
The record does not reflect whether defendant, Sandra Haynes, is an "enrolled agent."
We note that the memorandum in support of plaintiffs' motion for summary judgment states that, "Karen Chapman[] had a small business LLC for income generated from rental property[,] namely, Kizzie Properties, LLC" and that Mrs. Chapman "took out a line-of-credit under a different small business LLC." The name of the second limited liability company was not identified but ostensibly is Industrial Outfitters, LLC.
The record does not contain any "Form 4605."
The affidavit of Ms. Scrantz speaks to defendants' inaccurate reporting to the IRS of two companies, Kizzie Properties, LLC and Industrial Outfitters, LLC, neither of which are part of this suit. While Ms. Scrantz's affidavit explained that the two companies' partnership returns and the partners' personal tax returns were affected by defendants' errors because the income or loss of a partnership is passed through to its partners via a Schedule K-1, the partners of these companies were not identified in Ms. Scrantz's affidavit.
The affidavit of Ms. Scrantz may establish a breach, but the duty element remains at issue. The determination of whether a duty exists as a result of the relationship between the parties must be made on a case by case basis. Haynes Interests, LLC v. Garney Companies, Inc., 2019-0723, 2019-0724 (La. App. 1st Cir. 2/26/21), 322 So.3d 292, 303. writ denied, 2021-00451 (La. 5/25/21), 316 So.3d 447. Here, neither the affidavit of Ms. Scrantz nor Mrs. Chapman identify the partners of the companies, and there is no evidence of the relationship between plaintiffs, defendants, and the two businesses.
We note that Kizzie Properties, LLC is identified in the memorandum in support of plaintiffs' motion for summary judgment; however, a memorandum, while a proper document to advance a party's arguments in support of summary judgment, is not evidence. See La. Code Civ. P. art. 966, comments—2015, comment(c) ( citing Meaux v. Galtier, 2007-2474 (La. 1/25/08), 972 So.2d 1137).
In support of plaintiffs' claim for damages, the affidavit of Mrs. Chapman stated that she received a letter from the IRS indicating that "we had not reported correctly and required us to provide additional tax payments, interest, and penalties owed to the IRS and/or State tax authorities as a consequence of [defendants'] negligence in preparing our taxes." Mrs. Chapman's affidavit further stated as follows:
the letter indicated that for the 2014 tax period we owed $5,894.00 in additional taxes and interest in the amount of $868.82; for the 2015 tax period [we] owed $17,321.00 in additional taxes, penalties in the amount of $775.60, and interest in the amount of $2,490.85; and for the 2016 tax period [we] owed $12,448.00 in additional taxes, penalties in the amount of $227.92, and interest in the amount of $1,044.08[.]
However, no documents were attached to Mrs. Chapman's affidavit. Louisiana Code of Civil Procedure art. 967(A) provides, in part, that sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith. See Successions of Millet v. Economy Brick Sales, Inc., 2021-0355, 2021-0356 (La. App. 1st Cir. 12/22/21), 340 So.3d 252, 258. Without addressing the viability of plaintiffs' claim to have defendants pay as damages the amount of income taxes paid to the IRS, we find that plaintiff failed to establish through proper summary judgment evidence what amount was paid to the IRS for the relevant tax periods.
In tax malpractice cases, the general rule is fairly well settled that recovery is available for additional taxes owed by the plaintiff that were avoidable but for the negligence of defendants, but not for other, unavoidable taxes. Arthur H. Boelter & Hertsel Shadian, Tax Preparer Penalties and Circular 230 Enforcement § 7:11, Damages for additional taxes, generally (May 2022).
After evaluating the evidence submitted in support of plaintiffs' motion for summary judgment, plaintiffs failed to make a prima facie case that no genuine issues of material fact remained, and we find that the evidence was not sufficient to show that plaintiffs were entitled to judgment as a matter of law. Pursuant to our de novo review, the trial court erred in granting plaintiffs' motion for summary judgment.
CONCLUSION
In light of the foregoing, we reverse the trial court's November 30, 2021 judgment, granting Delvin R. Chapman and Karen H. Chapman's motion for summary judgment, and remand this matter for further proceedings. All costs of this appeal are to be borne by Delvin R. Chapman and Karen H. Chapman.