Opinion
Docket No. 153426.
Submitted May 17, 1994, at Detroit.
Decided September 19, 1994, at 9:45 A.M. Leave to appeal sought.
Gordon, Cutler Hoffman (by Donald M. Cutler), for the plaintiffs.
Dykema Gossett (by Daniel F. Stella and Thomas W.B. Porter), for the defendants.
Plaintiffs appeal as of right an order of the circuit court granting defendants' motion for summary disposition under MCR 2.116(C)(7) and (10). We affirm in part, reverse in part, and remand.
I
This is an action for malpractice against the accounting firm of Deloitte, Haskins Sells and one of its partners, Brock E. Plumb. Deloitte was engaged in 1983 to audit financial statements for plaintiffs Enzymes of America, Inc., and Porta-John Corporation. Deloitte conducted further audits in 1984 and 1985.
In connection with the 1983 audit, Deloitte advised Enzymes to merge with Porta-John, to suspend an initial public offering of stock under securities regulation Form S-18, and to use an accrual method of accounting. Plaintiffs followed Deloitte's advice on all these matters.
During the 1985 audit, Deloitte concluded that the accrual method was not appropriate and advised a return to the cash method of accounting. In October 1985, Deloitte withdrew its opinion on the 1984 audit, and in December 1985, it issued revised audit reports on both the 1984 and the 1985 financial statements using the cash accounting method. Plaintiffs allege that these actions decreased their net worth, placed them in default of loans, and hampered their ability to raise capital. In 1990, Porta-John filed for bankruptcy.
Though Deloitte did not conduct any more audits of plaintiffs' financial statements after 1985, it did assist in the filing of a registration statement and amendments with the Securities and Exchange Commission in 1986, which included a review of unaudited financial statements for the first ten months of the 1986 fiscal year.
By June 23, 1986, Deloitte had billed Enzymes for fees of $187,000, which remained unpaid. Deloitte decided to withhold its working papers from the successor accounting firm until it received $30,000 in payment of outstanding bills and a promissory note from Porta-John for $157,000, personally guaranteed by plaintiffs Braxton. In July 1986, Enzymes paid the $30,000, and Porta-John executed the requested promissory note, signed by the Braxtons. After the due date passed, Deloitte demanded payment on the promissory note and guaranty.
Plaintiffs filed the present action on May 19, 1988. Defendant counterclaimed for payment of the promissory note and guaranty. The trial court granted defendants' motion for summary disposition on all claims.
II
The central issue is whether the trial court erred in finding that plaintiffs' claims are barred by the two-year statute of limitations for professional malpractice, MCL 600.5805(4); MSA 27A.5805(4). Our first task in resolving this issue is to determine which statute-of-limitations provision applies to plaintiffs' claims. Plaintiffs argue that the trial court should have applied the six-year statute of limitations in MCL 600.5813; MSA 27A.5813. We disagree.
A
In Local 1064, RWDSU AFL-CIO v Ernst Young, 204 Mich. App. 445; 516 N.W.2d 492 (1994), this Court resolved a conflict between Nat'l Sand, Inc v Nagel Construction, Inc, 182 Mich. App. 327; 451 N.W.2d 618 (1990), and Bacco Construction Co v American Colloid Co, 148 Mich. App. 397; 384 N.W.2d 427 (1986), adopting the opinion in Nat'l Sand. There, the Court held that MCL 600.5805; MSA 27A.5805 applies to "traditional, common-law torts," including malpractice, regardless of whether the damage is financial in nature or consists of injury to person or property. 182 Mich. App. 335-336.
The Court in Local 1064 also determined that, among the limitation periods of § 5805, the two-year period for malpractice in subsection 4 does not apply to malpractice actions against accountants. The panel declined to address whether the three-year limitation period in subsection 8 or the six-year period in §§ 5813 and 5807(8) applies to accounting actions because the complaint in that case was filed within three years of the alleged wrongs.
While we agree with the reasoning of Nat'l Sand, we disagree with the ultimate holding in Local 1064 that the two-year limitation period does not apply to accountants and follow that holding only because we are bound to do so under Administrative Order No. 1994-4. We consider the rationale in Local 1064 too attenuated. The holding certainly was not dictated by the fact that § 5805(4) does not apply to engineers and funeral home directors, see Nat'l Sand, supra, and Dennis v Robbins Funeral Home, 428 Mich. 698; 411 N.W.2d 156 (1987). Nor do we find dispositive the fact that there are no Michigan cases recognizing a common-law malpractice action against accountants before the enactment of § 5805(4) in 1961 as part of the Revised Judicature Act. The silence of Michigan jurisprudence on the applicability of the term "malpractice" in the accounting context leads us to look outside Michigan. Respectable sources indicate widespread recognition of the concept of "accountant malpractice" in 1961, and the cases since then demonstrate that the trend in 1961 was clearly toward, and not away from, such recognition. See, e.g., Ronaldson v Moss Watkins, Inc, 13 La App 350, 353; 127 So. 467 (1930); L B Laboratories, Inc v Mitchell, 39 Cal.2d 56, 59, 61; 244 P.2d 385 (1952); Carr v Lipshie, 8 A.D.2d 330, 332; 187 N.Y.S.2d 564 (1959), aff'd 9 N.Y.2d 983; 218 N.Y.S.2d 62 (1961); Duro Sportswear, Inc v Cogen, 131 N.Y.S.2d 20, 21-23 (App.Div., 1954), aff'd 137 N.Y.S.2d 829 (1955); Cochrane v American Surety Co of New York, 108 So.2d 315, 316 (Fla App, 1959); Bancroft v Indemnity Ins Co of North America, 203 F. Supp. 49, 53 (WD La, 1962), aff'd 309 F.2d 959 (CA 5, 1962); Lindner v Barlow, Davis Wood, 210 Cal.App.2d 660, 665; 27 Cal.Rptr. 101 (1963); Feldman v Granger, 255 Md. 288, 289-290; 257 A.2d 421 (1969); Delmar Vineyard v Timmons, 486 S.W.2d 914, 915 (Tenn App, 1972); Vernon J Rockler Co v Glickman, Isenberg, Lurie Co, 273 N.W.2d 647, 650 (Minn, 1978). See also Hawkins, Professional Negligence Liability of Public Accountants, 12 Vand L Rev 797 (1959).
B
Despite our disagreement with Local 1064, we must resolve the issue left unaddressed in that case: Whether plaintiffs' claims are subject to a three-year or six-year limitation period. We hold that the three-year limitation period applies under § 5805(8). This provision governs actions "to recover damages . . . for injury to a person or property." As previously noted, this language applies to traditional tort actions for financial losses. Nat'l Sand, supra, cited with approval in Local 1064, supra. The provision is "often referred to as a `negligence' statute of limitations. . . ." Nat'l Sand, supra at 332. Because plaintiffs' claims in this action sound in negligence, § 5805(8) applies instead of the "catchall" six-year limitation period of § 5813.
C
The next step is to determine the effect of § 5805(8) on plaintiffs' claims. Under a three-year limitation period, only those claims accruing after May 19, 1985, remain viable. For purposes of § 5805(8), a claim accrues when the wrong upon which it is based was done regardless of when damage results. MCL 600.5827; MSA 27A.5827. There is no authority for a discovery rule in determining the accrual date in accounting negligence cases. We reject plaintiffs' claim that they did not "recognize" the accounting errors until long after the errors were made.
In this case, the only wrongs alleged to have occurred after May 19, 1985, involved the return to the cash accounting method in the fall of 1985 at defendant Plumb's recommendation. We remand for further proceedings regarding these claims.
As noted in plaintiffs' brief, paragraph 21 of the complaint contains the allegations of wrongdoing that occurred in the fall of 1985. It is these claims that plaintiffs may pursue on remand. If, as defendants contend, plaintiffs have abandoned these claims and there is no proof in support of them, defendants may file another motion for summary disposition under MCR 2.116(C)(10). The sufficiency of these claims is for the trial court to determine in the first instance.
III
Plaintiffs Braxton also contest the trial court's grant of summary disposition of defendants' counterclaim for payment of the promissory note and guaranty. Specifically, plaintiffs argue that they made a sufficient showing of duress and of a lack of consideration to avoid summary disposition.
Deloitte moved for summary disposition of its counterclaim under MCR 2.116(C)(10). Accordingly, we must review all relevant affidavits, depositions, admissions, and other documentary evidence in favor of the nonmoving party and determine whether a genuine issue of fact exists upon which reasonable minds could differ. Farm Bureau Mutual Ins Co v Stark, 437 Mich. 175, 184-185; 468 N.W.2d 498 (1991).
A
To succeed with respect to a claim of duress, plaintiffs must establish that they were illegally compelled or coerced to act by fear of serious injury to their persons, reputations, or fortunes. Apfelblat v Nat'l Bank Wyandotte-Taylor, 158 Mich. App. 258, 263; 404 N.W.2d 725 (1987). "Fear of financial ruin alone is insufficient to establish economic duress; it must also be established that the person applying the coercion acted unlawfully." Id. Plaintiffs contend that this test for duress is outdated, citing Kelsey-Hayes Co v Galtaco Redlaw Castings Corp, 749 F. Supp. 794, 797, n 5 (ED Mich, 1990), in which a federal district court predicted that the Michigan Supreme Court would adopt a broader definition of duress that would not require illegality. However, the established law in Michigan remains unchanged at this time: Illegality is an element of duress. Norton v State Hwy Dep't, 315 Mich. 313, 320; 24 N.W.2d 132 (1946).
In this case, plaintiffs contend that Deloitte violated MCL 339.714(1); MSA 18.425(714)(1) by conditioning the receipt of plaintiffs' original books and records on the execution of a promissory note and guaranty for unpaid fees. Section 714 provides that an accountant's records remain the property of the accountant except those records and books originally belonging to the client. Although the Braxtons submitted affidavits stating that they did not receive their original books and records until after they had executed the guaranty, the affidavits did not indicate that the return of the original books and records, as opposed to Deloitte's working papers, was conditioned on the execution of the guaranty. The affidavits submitted by Deloitte, on the other hand, unequivocally stated that nothing other than Deloitte's own working papers was used as leverage to obtain the note and guaranty. The trial court did not err in dismissing the duress claim.
B
With respect to plaintiffs' argument that the promissory note was not supported by consideration, we note that "no consideration is necessary for an instrument or obligation thereon given in payment of or as security for an antecedent obligation of any kind." MCL 440.3408; MSA 19.3408. In any event, Deloitte's release of its working papers, which it was not required to do under MCL 339.714(1); MSA 18.425(714)(1), constituted consideration for the promissory note and guaranty. The adequacy of the consideration is irrelevant to the enforceability of the note and guaranty. See Dep't of Natural Resources v Bd of Trustees of Westminster Church, 114 Mich. App. 99, 104; 318 N.W.2d 830 (1982). Accordingly, the trial court properly granted summary disposition for defendants with respect to this claim.
Affirmed in part, reversed in part, and remanded.