Accountants, like other licensed professionals, can be sued for malpractice. But cases involving accounting malpractice are few and far between. Until recently, there’s been scarce guidance from Michigan appellate courts about the applicable standards for accountant-malpractice claims.
The Court of Appeals recently issued a published decision in which it provided some much-needed guidance regarding accountant-malpractice claims. In Broz v Plante & Moran, PLLC, the plaintiffs sued the defendant, a large public accounting firm, for accounting malpractice. The plaintiffs also asserted claims for breach of contract, negligent misrepresentation, breach of fiduciary duty, and “estoppel to mitigate and indemnity.”
The Court held that accountant-malpractice plaintiffs, like other malpractice plaintiffs, bear the burden of proving both the standard of care and a breach of the standard of care. In so holding, the Court relied on longstanding case law regarding other types of professional malpractice, as well as MCL 600.2912a, which requires the malpractice plaintiff to prove that the defendant “failed to provide the recognized standard of acceptable professional practice or care.” The plaintiffs argued that this statute didn’t apply to accountant-malpractice claims. But the Court disagreed, finding that the burden imposed by MCL 600.2912a applies, without exception, to all malpractice plaintiffs.
The plaintiffs submitted both a report and an affidavit from an accounting expert, who concluded that the defendant breached its duty to the plaintiffs by providing bad advice and structuring the plaintiffs’ businesses in a manner that resulted in tax liability. Nonetheless, the Court determined that the plaintiffs failed to meet their burden of proof: “It is not enough to say that defendant violated its duty to plaintiffs or provided bad advice because a professional’s bad advice, even when combined with a bad result, is not necessarily malpractice.” Instead, the expert “must establish what the professional’s duty is by identifying the relevant standard of care, and then specify what the defendant did or failed to do that violated that standard of care.” Since the plaintiffs’ expert did neither, the Court affirmed the dismissal of the plaintiffs’ claim for accounting malpractice.
The Court also affirmed the dismissal of the plaintiffs’ claims for breach of contract, negligent misrepresentation, breach of fiduciary duty, and “estoppel to mitigate and indemnity.” Relying on familiar case law involving other types of professional malpractice, the Court found that these claims were duplicative of the accountant-malpractice claim.
What this Decision Means for Accountants
Broz arms accountants facing malpractice claims with a published decision that leaves no room for doubt as to the burden of proof—it’s up to the plaintiff to prove the standard of care and a breach of the standard of care. The Court’s recognition that bad accounting advice isn’t necessarily malpractice, even when it culminates in bad results, will be a helpful tool in the arsenal of those defending accountant-malpractice claims. So, too, will the Court’s willingness to rely on defense-friendly case law developed in other malpractice cases when considering similar issues in accountant-malpractice cases.