Upon the following papers read on this motionto dismiss; Notice of Motion and supporting papers3-27; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers32-37; Replying Affidavits and supporting papers41; it is, ORDERED that this motion by the defendants for an order dismissing the complaint is granted. On June 25, 2007, the plaintiff, nonparty Timothy Stevens, and a third party formed Quogue Street Development, LLC (the “LLC”), to acquire and develop a parcel of real property in Quogue, New York. The plaintiff currently owns a 50% interest in the LLC, and Stevens currently owns 10%. In addition to his capital contribution, the plaintiff loaned the LLC $1,042,487.11 upon its formation. Stevens personally guaranteed repayment of the loan. The LLC defaulted by failing to pay the principal and interest when they came due in July 2013. The property was sold at auction on or about November 18, 2015, and the loan remains unpaid. On March 10, 2016, the plaintiff commenced an action in this court against Stevens, inter alia, to recover on the guarantee (Index No. 603828/2016).1 That action is still pending. On March 29, 2021, the plaintiff commenced this action against William Fischer and Grassi & Co. Certified Public Accountants, P.C. (“Grassi & Co.”), the accountants for Stevens and the LLC. The following allegations are taken from the verified complaint: After the plaintiff commenced the 2016 action against Stevens to recover on the guarantee, Stevens and the defendant William Fischer amended the LLC’s 2014 tax return by converting the plaintiff’s loan to equity, thereby eliminating Stevens’ obligation to repay the loan under the guarantee. Fischer did not consult with the plaintiff before amending the LLC’s 2014 tax return, nor did Fischer send the plaintiff a copy of the amended return or an amended K-1 reflecting the change. The LLC’s 2015 tax returns, which were prepared by Fischer in July 2016, were consistent with the amended 2014 tax return, showing the loan as an equity contribution. The plaintiff contends that he did not discover the change until he received his 2015 K-1 on July 7, 2016. He immediately telephoned Fischer and asked him, “Why did my equity number increase by over a million?” Fischer replied, “[It] is exactly the same as last year’s K-1.” The plaintiff contends that he “took Fischer at his word.” The defendants prepared and filed the LLC’s 2016 tax return in September 2017. The 2016 return was consistent with the 2015 return, showing the loan as a equity contribution. Moreover, because the 2016 return was the LLC’s final tax return, the plaintiff’s equity was reflected as a loss. The plaintiff included the loss on his personal tax return for the year 2016, which he filed in September 2017, relying on the 2016 K-1 prepared by the defendants. In June 2019, the LLC retained Grassi & Co. to represent it in connection with an IRS audit of its 2016 tax return. By a letter dated August 20, 2019, Grassi & Co. advised the plaintiff that the IRS was auditing the LLC’s 2016 tax return. Fischer and another employee of Grassi & Co. have been representing the LLC in meetings with the IRS. The IRS has sought documents related to the amended 2014 tax return that converted the plaintiff’s loan to equity. The plaintiff contends that the defendants have given the IRS documents that would justify the amendment. The complaint contains causes of action for fraud, accounting malpractice, aiding and abetting breach of fiduciary duty, and negligent misrepresentation. The plaintiff seeks to recover the approximately $2 million owed in principal and interest on the loan. The plaintiff’s theory of the case is that the defendants, acting in concert with Stevens, wrongfully amended the LLC’s 2014 tax return in order to wipe out his loan; that the amendment was done without his knowledge or consent; that the defendants intentionally concealed the amendment from him; and that they are attempting to convince the IRS to ratify it. The defendants move to dismiss the complaint, inter alia, as untimely and for failure to state a cause of action. The plaintiff’s first cause of action is for fraud. The plaintiff alleges that Fischer knowingly made a material misrepresentation of fact when he told the plaintiff that his equity in the LLC in 2015 was “exactly the same as last year’s” and that Fischer made a material omission of fact at the same time by failing to tell the plaintiff that his equity in the LLC had been “wrongfully amended” in 2014. To plead a viable cause of action for fraud, the plaintiff must allege that the defendant made a misrepresentation or omission of a material existing fact, which was false and known to be false by the defendant when made, for the purpose of inducing the plaintiff’s reliance thereon; that the plaintiff justifiably relied on such misrepresentation or omission; and that the plaintiff was injured thereby (Lama Holding Co. v. Smith Barney, 88 NY2d 413, 421; see also, New York Univ. v. Continental Ins. Co., 87 NY2d 308, 318). A party cannot claim reliance on a misrepresentation when he could have discovered the truth with due diligence (KNK Enters. Inc. v. Harriman Enters., Inc., 33 AD3d 872). When circumstances suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises (Aozora Bank, Ltd. v. Credit Suisse Group, 144 AD3d 437, 438). Sophisticated business people have a heightened duty to use the means available to them to verify the truth of the information upon which they rely and to use their sophistication to conduct due diligence (McGuire Children, LLC v. Huntress, 24 Misc 3d 1202[A] at *12 [and cases cited therein], affd 83AD3d 1418). A sophisticated plaintiff cannot establish justifiable reliance on an alleged misrepresentation if the plaintiff failed to make use of the means of verification that were available to him (Id.). Thus, to sustain a claim of fraud, sophisticated investors must have discharged their own affirmative duty to exercise ordinary intelligence and conduct an independent appraisal of the risks they are assuming (Id.). Liberally construing the complaint, accepting the alleged facts as true, and giving the plaintiff the benefit of every possible favorable inference (Leon v. Martinez, 84 NY2d 83, 87), the court finds that the plaintiff has failed to state a cause of action for fraud. The plaintiff was on inquiry notice of the alleged fraud when he received his 2015 K-1 on July 7, 2016, and telephoned Fischer, asking him, “Why did my equity number increase by over a million?” Although his suspicions were aroused, the plaintiff took Fischer’s reply, which was not false, at face value and made no further inquiry into or attempt to investigate the matter. The plaintiff is a sophisticated businessman who employed his own accountant to prepare his personal tax returns. Despite having the means to verify Fischer’s statement, he took no action. The court finds that, under these circumstances, the plaintiff’s reliance on Fischer’s statement was unreasonable as a matter of law. Accordingly, the first cause of action is dismissed. The fourth cause of action is for negligent misrepresentation. To recover damages for negligent representation, the plaintiff must demonstrate, inter alia, that he was justified in relying on the information supplied and, as a consequence, suffered damages (see, Goldman v. Strough Real Estate, 2 AD3d 677, 678). The court has already determined that the plaintiff’s reliance was not justified. Accordingly, the fourth cause of action is dismissed. The third cause of action alleges that the defendants aided and abetted Stevens, who breached his fiduciary duty to the plaintiff by amending the LLC’s 2014 tax return. Aiding and abetting a breach of fiduciary duty is governed by the same statute of limitations as that of the underlying tort: three years when the remedy sought is purely monetary and six years for equitable relief Hudson v. Delta Kew Holding Corp., 43 Misc 3d 1223[A] at * 4 [and cases cited therein]). When an allegation of fraud is essential to a breach-of-fiduciary-duty claim, courts have applied the six-year statute of limitations applicable to fraud (Id.). The plaintiff contends that the six-year statute of limitations applies because allegations of fraud are essential to his claim. The court has already determined that the plaintiff does not have a viable claim of fraud against the defendants. In any event, the fraud is alleged to have occurred after the alleged breach of fiduciary duty, when the plaintiff discovered that his equity in the LLC had increased. Thus, the allegations of fraud are only incidental to the breach-of-fiduciary cause of action, and the fraud statute of limitations cannot be invoked (see, New York Seven-up Bottling Co. v. Dow Chem. Co., 96 AD2d 1051, 1053, affd 61 NY2d 828; see also, Hudson v. Delta Kew Holding Corp., supra). Since the plaintiff seeks only money damages, the three-year statute of limitations applies. A tort cause of action cannot accrue until an injury is sustained. Such injury, rather than the wrongful act of the defendant or discovery of the injury by the plaintiff, is the relevant date for marking accrual (Id. at *5). As with other tort claims in which damages are an essential element, the statute of limitations for breach of fiduciary duty begins to run when damages are sustained (Id.). Here, the damages were sustained when the defendants prepared and filed the LLC’s amended 2014 tax return in 2016, converting the plaintiff’s loan to equity and eliminating Stevens’ obligation to repay the loan under the guarantee. This action was commenced more than three years later in 2021. The plaintiff contends that the defendants continued to provide assistance to Stevens by carrying the change forward in the LLC’s 2015 and 2016 tax returns and by representing the LLC at the IRS audit. However, the plaintiff does not allege, nor does the record reflect, that those actions caused the plaintiff to incur additional damages. All of the damages that the plaintiff alleges he sustained as a result of the defendants’ aiding and abetting Stevens’ purported breach of fiduciary duty were sustained in 2016, when his loan was converted to equity. Accordingly, the third cause of action is dismissed as untimely. The second cause of action is for accounting malpractice. To impose a professional duty upon the defendants for the benefit of the plaintiff, the complaint must adequately allege the existence of actual privity of contract between the parties or a relationship so close as to approach that of privity (Weinstein v. CohnReznick, LLP, 144 AD3d 1140, 1140-1141). The plaintiff does not allege, nor does the record reflect, that he was in actual privity with the defendants. The engagement letters clearly establish that the LLC was the defendants’ client, not the plaintiff. Moreover, even if, as the plaintiff contends, the defendants owed him a duty of care as a nonclient, his malpractice claim is time-barred. A cause of action for professional malpractice must be commenced within three years of the date of accrual (CPLR 214 [6]; Williamson v. PricewaterhouseCoopers LLP, 9 NY3d 1, 7). The claim accrues when the malpractice is committed, not when the client discovers it (Id. at 7-8). An accounting-malpractice claim accrues upon the client’s receipt of the accountant’s work product since that is the point when a client reasonably relies on the accountant’s skill and advice (Id. at 8). That is the point when all the facts necessary to the cause of action have occurred and an injured party can obtain relief in court (Id.). Here, the defendants prepared and filed the LLC’s 2016 tax return, which was its final tax return, in September 2017. Also in September 2017, the plaintiff filed his personal tax return, relying on the 2016 K-1 prepared by the defendants. Thus, any malpractice claim accrued in September 2017. The plaintiff commenced this action in 2021, more than three years later. It is, therefore, time-barred. The plaintiff contends that the continuous-representation doctrine tolls the statute of limitations until at least June 2019, when the LLC retained the defendants in connection with the IRS audit. The continuous representation doctrine is a judicial creation modeled on the continuous treatment doctrine in the medical malpractice context (Town of Greenburgh v. Spectraserv, Inc., US Dist Ct, SDNY, Apr. 2, 2010, Young, J. [2010 WL 11712813] at *6, citing Williamson v. PricewaterhouseCoopers LLP, supra at 8-9). It tolls the running of the statute of limitations on a claim arising from the rendition of professional services only as long as the defendant continues to advise the client in connection with the particular transaction that is the subject of the action and not merely during the continuation of a general professional relationship (see, Booth v. Kriegel, 36 AD3d 312, 314). The continuous representation doctrine is designed to benefit the client and to preserve the professional/client relationship (Town of Greenburgh, supra at *7 [emphasis in original]). It reflects both the unfairness of requiring an injured client to challenge its professional advisor while remedial efforts are under way and the potential abuse where the negligent adviser attempts to avoid liability by diverting the client from bringing a legal action until the limitations period expires (Matter of Clark Patterson Engrs., Surveyor & Architects, P.C. [City of Gloversville Bd. of Water Commr.]), 25 AD3d 984, 986). As previously noted, the plaintiff is not the defendants’ client. Thus, the plaintiff is attempting to extend the continuous-representation doctrine to a nonclient. In support thereof, the plaintiff relies on Lemle v. Regen, Benz & MacKenzie, C.P.A’s, P.C.(165 AD3d 414) and Ackerman v. Price Waterhouse(252 AD2d 179), both of which are distinguishable. In Lemle, the plaintiff was the client of the defendant accounting firm, which prepared the plaintiff’s personal income tax returns. In Ackerman, there was a direct professional relationship between the plaintiffs and the accounting firm. The defendant accounting firm in Ackerman was engaged annually between 1980 to 1988 to prepare financial statements and tax returns, including K-1′s, for limited-partnership tax shelters in which the plaintiffs were investors (Id. at 184; see also, Ackerman v. Price Waterhouse, 84 NY2d 535,538). During those years, the firm utilized a particular accounting practice, even after the IRS barred its use in a 1983 Revenue Ruling (Ackerman v. Price Waterhouse, 252 AD2d at 184-185). Transmittal letters from the accounting firm to the limited partners neglected to include warnings from tax counsel about the potential penalties that could be imposed if the IRS conducted an audit and decided to apply the Revenue Ruling retroactively (Id. at 185). The firm continued to advise the limited partners that the accounting practice would be upheld even after the IRS began auditing the limited partnerships and issuing deficiency notices to several limited partners (Id. at 186). Moreover, the firm told the limited partners in a 1985 letter that it would be “handl[ing] [the audit] on behalf of the partnership[s] in general and on your behalf as a limited partner [emphasis added]” (Id.) The Ackerman court found that the plaintiffs had provided ample evidence supporting application of the continuous-representation doctrine, including the repeated use of an improper accounting method, the repeated failure to disclose the risks associated with the same, and its “handling” of the IRS audit for the partnerships (Id. at 205). The court found that, since the accounting firm prepared the K-1′s through 1988, the complaint filed in April 1990 was timely under either the three-year or six-year statute of limitations (Id.). The Ackerman court also found that there was a direct professional relationship between the limited partners and the accounting firm (Id. at 199, 203). In addition to preparing the partnerships’ tax returns and K-1′s, the firm provided tax advice directly to the limited partners. The IRS’s audit was directly related to the firm’s erroneous advice regarding the use of the barred accounting practice. Moreover, the firm’s “handling” of the IRS audit for the partnerships included “handling” the audit for the individual limited partners, in effect, making them clients of the accounting firm. Here, the relationship between the plaintiff and the defendants was limited to the preparation of K-1′s, which was incidental to the preparation of the LLC’s tax returns and ended in 2017, more than three years before this action was commenced. The plaintiff does not allege, nor does the record reflect, that the defendants provided him with any advice regarding the LLC’s tax returns or his own tax returns. More importantly, the plaintiff does not allege, nor does the record reflect, that the defendants performed any services for him or gave him any advice between 2017 and the IRS audit in 2019. In addition, the record reflects that Grassi & Co. is representing the LLC, not the plaintiff, in connection with the IRS audit. The court finds that, under these circumstances, the plaintiff did not have a direct professional relationship with the defendants and that any relationship they may have had ended in 2017 with the last K-1 that the defendants prepared for the plaintiff. Accordingly, contrary to the plaintiff’s contentions, the continuous-representation doctrine does not apply to toll the statute of limitations until June 2019. The plaintiff contends that the statute of limitations was tolled by the doctrine of equitable tolling, which applies when a defendant’s fraudulent conduct results in a plaintiff’s lack of knowledge of a cause of action (De Sole v. Knoedler Gallery, LLC, 137 F Supp 3d 387, 422 [SDNY]). To benefit from the equitable tolling doctrine under New York law, a plaintiff must establish that subsequent and specific actions were taken by the defendant, separate from those that provide the factual basis for the underlying cause of action, and that those subsequent actions by the defendant somehow kept the plaintiff from timely bringing suit (Id. [and cases cited therein]). The plaintiff contends that Fischer’s July 7, 2016, statement to him that his equity interest in the LLC was “exactly the same as last year’s” was an affirmative misrepresentation that prevented him from discovering the alleged malpractice. That statement is the factual basis for the underlying fraud and negligent misrepresentation causes of action, which have been dismissed. The court has already determined that the statement was not fraudulent and that the plaintiff’s reliance on it was unreasonable as a matter of law. Accordingly, it is insufficient to toll the statute of limitations, and the second cause of action for accounting malpractice is dismissed as time-barred. Dated: May 3, 2022
