Collins Einhorn Attorneys Prevail in Accounting-Malpractice Suit

Collins Einhorn Attorneys Prevail in Accounting-Malpractice Suit

By: , Jeffrey R. Hicks, and

There’s no shortage of decisions addressing the requirement of expert testimony in legal and medical-malpractice cases. But decisions addressing the requirement of expert testimony in accounting-malpractice cases are few and far between, as we noted in a couple previous posts (which can be accessed here and here). CEF attorneys hope to change that and recently made some headway.

Copeland v Accountant wasn’t a typical accounting-malpractice case. Plaintiff operated an adult foster-care home—a business that, for reasons unknown, she never incorporated. In the years after she opened the business, she amassed substantial debt and faced both land-contract foreclosure and property-tax foreclosure. Overwhelmed by her situation, she turned to defendant, an accountant, to help her save the business. She put defendant in charge of the financial affairs and left her daughter and son-in-law, who planned to buy the business with her blessing, in charge of the day-to-day operations. Then she took a four-month hiatus, during which time she never bothered to inquire about the happenings of the business. Her absence put her license in jeopardy. She agreed to surrender her license, at which point her son-in-law applied for a license and created a limited-liability company to run the business. Meanwhile, defendant continued to right the ship and chipped away at a lot of debt. He ultimately saved the business from foreclosure.

Months after plaintiff returned, she decided that she no longer wanted to sell the business. She ousted her daughter and son-in-law from the home. Her friend’s limited-liability company bought the business and paid off the remainder of her debt. Then she sued defendant for accounting malpractice, among other theories of liability that she eventually abandoned. Her accounting-malpractice claims, at bottom, were that defendant should’ve paid off more debt and shouldn’t have helped facilitate the creation of her son-in-law’s limited-liability company.

On behalf of defendant, CEF attorneys moved for summary disposition and argued, among other things, that plaintiff’s accounting-malpractice claim should be dismissed because she failed to present expert testimony to establish the standard of care. The trial court rejected the expert-testimony argument. In the trial court’s view, plaintiff simply complained about the manner in which defendant represented her. “It’s not so unusual, it’s not so hard to understand,” the trial court reasoned. The trial court ultimately granted summary disposition on other grounds.

Plaintiff appealed, and defendant cross-appealed. CEF attorneys took the position that the trial court oversimplified the case in general and the accounting-malpractice claim in particular. At the outset, they pointed out that the parties agreed on one thing: the professional relationship was somewhat unconventional. Plaintiff admitted that defendant’s role was “hardly the norm for an accountant. . . .” Defendant agreed that the engagement was “unusual . . . from day one.” CEF attorneys argued that assuming a lack of professional care on the part of defendant—a very generous assumption since he quite literally saved a financially-strapped business in the throes of foreclosure—ordinary laypersons simply cannot draw on their common knowledge and experience to determine what, if anything, defendant should’ve or could’ve done different. The Court of Appeals agreed: “Because of the complex nature of defendant’s professional representations, expert testimony was required to establish the standard of care required of an accountant in the same or similar localities because the standard of care and breach was not ‘so obvious as to be within the common knowledge and experience of an ordinary layman.’” The Court of Appeals thus affirmed the trial court’s grant of summary disposition, albeit on different grounds.

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