deprive her of continuous treatment doctrine).
The same policy considerations were noted in a case involving continuous representation by an attorney. See Muller, 437 N.Y.S.2d at 208 (citations omitted) (continuous representation doctrine in attorney malpractice cases often involve "an attempt by the attorney to rectify an alleged act of malpractice"). These justifications apply to the accountant-client relationship as well: accountants who have had an ongoing relationship with their clients are in the best position to correct their alleged acts of malpractice. Thus, the mere awareness by a client of malpractice committed by his or her accountant will not prevent the use of the continuous representation doctrine. See also Alpert, 1991 U.S Dist. LEXIS 15228 (plaintiffs awareness of IRS investigation does not bar use of continuous representation doctrine in their action against accountants).
In sum, there is an issue of fact as to whether or not plaintiffs can rely on the continuous representation doctrine to toll the statute of limitations in their first cause of action. However, since defendants LGC and Lipsky stopped representing the plaintiffs in 1988, the statute of limitations began to run at that time. Consequently, to the extent plaintiffs seek tort damages, they are barred by the three year statute of limitations. On the other hand, plaintiffs may maintain their first cause of action against LGC and Lipsky to the extent that they seek contract damages. Since Greenblatt and Rochlin continued to represent the defendants until 1991, the plaintiffs may seek both contract and tort damages against these two defendants under the first cause of action.
B. The Fraud Cause of Action.
Plaintiffs' second cause of action alleges common law fraud and deceit. Defendants maintain that this cause of action is also barred by the statute of limitations. In New York, a fraud action accrues on the date of the fraudulent act, which in this case was when the plaintiffs purchased their tax shelter investments. Gould v. Berk & Michaels, P.C., 1990 U.S. Dist. LEXIS 3655 (S.D.N.Y. 1990). The statute of limitations for actions based on fraud is six years, N.Y. Civ. Prac. L. & R. 213(8) (McKinney 1990 & Supp. 1993), or within two years of the date that the plaintiff could reasonably have discovered the fraud, whichever is later. N.Y. Civ. Prac. L. & R. 203(g) (McKinney 1990). See also IIT v. Cornfeld, 619 F.2d 909, 928-29 (2d Cir. 1980); Lazzaro, 450 N.Y.S.2d at 104 ("while a fraud action may not be time-barred within six years from commission of the fraud, the time for its commencement may not be extended beyond two years from its discovery where the six-year period has expired").
Applying these statutory periods to plaintiffs' second cause of action, the six year period provided in section 213(8) expired in 1990 at the latest. As to the two year period provided in section 203(g), plaintiffs contend that they did not discover the fraud until sometime in 1991. While plaintiffs admit that prior to this time they received various documents concerning the two investments, they contend that they never examined them but instead forwarded them to the defendants. On the other hand, defendants argue that these documents indicated that plaintiffs could have known about the alleged fraud as early as 1986. Specifically, the plaintiffs acknowledged that they received notices from the IRS concerning these two investments. Cuccolo Aff. P 9. Moreover, in 1986 and in 1987 the plaintiffs retained counsel concerning the Taylor Residential and Transpac Partnership investments respectively.
Defendants correctly argue that Mirman v. Berk & Michaels, P.C., 1992 U.S Dist. LEXIS 16707 (S.D.N.Y. 1992), is directly on point. In that case, the plaintiffs maintained that the defendants, their accountants, failed to disclose material information on investments they had recommended. Plaintiffs argued that the statute of limitations should be tolled since the defendants fraudulently concealed their wrongful conduct. Plaintiffs argument failed, since evidence indicated that they had previously received notice of an IRS investigation concerning the investments. Judge Keenan stated that the knowledge of this IRS investigation "would raise the suspicions of a person of ordinary intelligence and thus give rise to his duty to inquire further." Id. at *9. See also Armstrong v. McAlpin, 699 F.2d 79, 88 (2d Cir. 1983) ("where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him").
The facts in the instant case are strikingly similar to Mirman. Plaintiffs had received notice of an IRS investigation regarding these investments and even retained counsel to represent their interests. Consequently, had the plaintiffs used "reasonable diligence," N.Y. Civ. Prac. L. & R. 203(g), at the time they retained counsel they could have discovered the alleged fraud committed by the defendants. Since plaintiffs retained counsel in connection with their Taylor Residential investment in 1986 and with their Transpac Partnership investment in 1987, their fraud cause of action lapsed no later than 1989. Since plaintiffs failed to commence this action before that time, the Court dismisses the second cause of action.
III. Failure to Plead Fraud with Particularity.
Since the plaintiffs' second cause of action alleging common law fraud has been dismissed, the Court will not consider the defendants' argument that this claim was also not pleaded with requisite particularity pursuant to Fed. R. Civ. P. 9(b).
IV. The Accountant Malpractice Action Relating to the Preparation of the 1986, 1987 and 1988 Tax Returns.
The third cause of action alleges that the defendants committed accountant malpractice in the preparation of plaintiffs' 1986, 1987 and 1988 tax returns.
Specifically, the defendants included "Tobron's total ordinary earnings as dividends on plaintiffs' New Jersey income tax returns" instead of reporting only the actual dividends received by the plaintiffs. Am. Compl. PP 98, 102. In addition, the defendants improperly computed the New Jersey tax credits that plaintiffs were entitled to for taxes they had paid to New York State. Id. In 1990, the state of New Jersey maintained that the plaintiffs owed $ 235,163.88 in back taxes and $ 52,626.46 in penalties for the subject years. Cuccolo Aff. Ex. G. Apparently as a result of "correspondence" between the plaintiffs' new accountants and the state of New Jersey, these figures were adjusted: in 1992 the plaintiffs owed $ 133,890.05 in back taxes and approximately $ 34,435.77 in penalties. Cuccolo Aff. P 23, Ex. H. According to Exhibit H, certain penalties would have been waived had payment been made prior to May 15, 1992. Id. Plaintiffs also point out that they have been charged approximately $ 8,000 by their new accountants for services in connection with these tax deficiencies. Cuccolo Aff. P 23.
Defendants, on the other hand, contend that they took an "aggressive but realistic position" concerning the tax credits.
Greenblatt Aff. P 21. In fact, Greenblatt contends that due to this aggressive position, the Cuccolos have actually saved money since their total bill as of 1992 is less than the back taxes owed as of 1990. Greenblatt Aff. P 23; compare Cuccolo Aff. Exs. G and H. Consequently, defendants contend that even presuming they were negligent, the plaintiffs have suffered no damages, and thus cannot maintain this cause of action.
Essentially, defendants argue that since their successors--plaintiffs' new accountants--effectively negotiated with the state of New Jersey that less back taxes and penalties were due, plaintiffs suffered no damages. Such an argument raises several questions which cannot be resolved on the limited record before the Court. For instance, could plaintiffs have attained the same position concerning their tax liability while not accruing any penalties? Since the record is not fully developed, at this time the Court will deny summary judgment on this issue pursuant to Fed. R. Civ. P. 56(f). However, defendants are given leave to refile their motion after the parties have had the opportunity to conduct discovery on this issue. See, e.g., Rettinger v. American Can Co., 574 F. Supp. 306, 312 (M.D.Pa. 1983) (plaintiff given opportunity to file affidavit "to clarify if disputed material facts exist").
As set forth above, plaintiffs may maintain their first cause of action against all the defendants except to the extent that this action seeks tort damages from defendants LGC and Lipsky. Plaintiffs' second cause of action is barred by the statute of limitations. Plaintiffs may maintain their third cause of action, but the defendants are given leave to refile their motion after the parties have had the opportunity to conduct discovery.
CHARLES E. STEWART JR.
UNITED STATES DISTRICT JUDGE
Dated: New York, New York
July 13, 1993