IDEAL ELECTRONIC SEC. CO., INC. v. Brown

817 A.2d 806, 2003 D.C. App. LEXIS 84, 2003 WL 548876
CourtDistrict of Columbia Court of Appeals
DecidedFebruary 27, 2003
Docket00-CV-847
StatusPublished
Cited by6 cases

This text of 817 A.2d 806 (IDEAL ELECTRONIC SEC. CO., INC. v. Brown) is published on Counsel Stack Legal Research, covering District of Columbia Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
IDEAL ELECTRONIC SEC. CO., INC. v. Brown, 817 A.2d 806, 2003 D.C. App. LEXIS 84, 2003 WL 548876 (D.C. 2003).

Opinion

BELSON, Senior Judge:

Appellants, Ideal Electronic Security Co., Inc., Ideal Electrical Supply Corporation, Cora Williams and Kenneth Rogers, appeal the judgment entered against them on all counts by the Superior Court of the District of Columbia based on a jury’s finding that appellants’ negligence claims were barred by the statute of limitations. Appellants contend that (1) there was insufficient evidence to support the submission of the statute of limitations defense of appellees, Tyrone Brown and Brown & Company, to the jury or to support the jury’s verdict, and (2) the trial court erroneously admitted a handwritten document into evidence over objection. We disagree and affirm.

I.

In 1991 Ideal Electronic Security Co., Inc. (Ideal) was split into Ideal Electronic Security Co., Inc. (Security) and Ideal Electrical Supply Corporation (Supply). Appellants Williams and Rogers were officers of both companies. Prior to the split, appellee, Tyrone Brown, a certified public accountant and the sole proprietor of ap-pellee Brown & Company, (collectively, Brown), had rendered general accounting sex-vices to Ideal including the preparation of financial statements and tax matters. From 1991 through 1993 Brown prepared Security’s tax returns incorrectly with re *808 spect to reporting unbilled receivables. During this same period, Supply used Louis Simmermacher, an accountant, other than Brown, to prepare its tax returns. Simmermacher, however, used the wrong accounting method in preparing Supply’s return, that is, he used the cash accounting method instead of the accrual accounting method. Supply continued to use Brown to perform annual reviews of its financial statements. Brown disagreed with appellants that his annual reviews of Supply’s financial statements required him to review the tax returns Simmermacher prepared and call any error to the attention of Supply.

In late 1994, IRS Agent Sandra Miller commenced an investigation of the pension plans of Security and Supply. The investigation widened to include Security’s un-billed receivables. Agent Miller prepared a document, marked at trial as defense exhibit 25 (exhibit 25), dated March 2, 1995, that dealt with Security’s unbilled receivables and calculated the back taxes, penalties, and interest that appellant Security owed the IRS due to its incorrect reporting of such receivables in its 1991 through 1994 tax returns.

On August 18, 1995, both Security and Supply terminated Brown, who was still performing some accounting services for Supply, not including the preparation of tax returns, and hired Keller Bruner & Company (Keller). ■ Keller discovered in September 1995 that Supply’s tax returns, prepared by Simmermacher, had erroneously used the cash accounting method. Keller testified that he continued using the same incorrect method in Supply’s 1994 tax return because under IRS regulations a company, while under audit, cannot change its accounting method. 1 Nevertheless, Keller, as well as appellants Williams and Rogers, consciously decided not to bring the use of the wrong accounting method in past returns to the IRS’s attention, gambling that the IRS would not spot the accounting error. Keller also started to review Security’s past filings for the IRS audit. In mid-December 1995, Security and Supply received written requests from the IRS asking for their consent to extend the statute of limitations for its audit of their tax returns for 1992 through 1994.

Finally, on April 2,1997, IRS Agent Lee Turowski, who had replaced Miller and another agent on the case, issued and signed written assessments according to which Security and Supply owed the IRS large sums in interest and penalties for their incorrect tax filings. All four appellants then filed their negligence claim against Brown on October 80, 1998. After trial, a jury found that appellants’ claims were barred by the statute of limitations.

II.

With respect to Security’s claims, the trial court did not err in submitting appellees’ statute of limitations defense to the jury or in finding that there was enough evidence to support the jury’s ver- *809 diet. There was ample evidence that Security was on inquiry notice before October 30, 1995 and, therefore, more than three years before it filed suit on October 30, 1998, that it had a negligence claim against appellee Brown. “[I]n cases where the relationship between the fact of injury and some tortious conduct is obscure at the time of injury, this court has applied the ‘discovery rule’ to determine when the statute of limitations begins to run.” See Knight v. Furlow, 553 A.2d 1232, 1234 (D.C.1989) (citations omitted). Under the discovery rule, a cause of action accrues and the statute of limitations begins to run

when the plaintiff knows or by the exercise of reasonable diligence should know (1) of the injury, (2) its cause in fact, and (3) some evidence of wrongdoing. Under this rule, the plaintiff does not have carte blanche to defer legal action indefinitely if she knows or should know that she may have suffered injury and that the defendant may have caused her harm. Nor need all damages be sustained, or even identified, for the cause of action to accrue; any appreciable and actual harm flowing from the defendant’s conduct is sufficient.

Beard v. Edmondson and Gallagher, 790 A.2d 541, 546 (D.C.2002) (internal citations and quotations omitted). See also Diamond v. Davis, 680 A.2d 364, 372 (D.C.1996); Knight, supra, 553 A.2d at 1234.

The evidence supported a finding that Security failed to meet its duty to act reasonably under the circumstances in investigating matters affecting its affairs. On March 2, 1995, during her examination of Security’s unbilled receivables, IRS Agent Miller spoke with appellee Brown, appellant Rogers, and Bill Storey, Security’s in-house accountant, and requested work papers, an analysis of Security’s unbilled receivables, and Security’s total costs to total receivables ratio. Miller created a document, exhibit 25, showing the correct assessment of Security’s unbilled receivables, and setting both the amounts appellant would be charged in interest and penalties. Security argues that the calculations set forth in exhibit 25 did not indicate that Security would be facing tax liability in the future. These very same calculations, however, later appeared on IRS Agent Turowski’s 1997 assessment of interest and penalties against the company for incorrectly reporting its unbilled receivables. The fact, known to Security, that the IRS was inquiring into Security’s unbilled receivables in early 1995 to the extent of preparing specific tax calculations is strong indication that Security should have investigated whether something may have been amiss regarding the reporting of Security’s unbilled receivables in its past tax returns prepared by Brown.

Appellants terminated Brown in August 1995.

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Bluebook (online)
817 A.2d 806, 2003 D.C. App. LEXIS 84, 2003 WL 548876, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ideal-electronic-sec-co-inc-v-brown-dc-2003.