On August 9, 2023, Justice Borrok of the New York County Commercial Division issued a decision in NFGTV, Inc. v. Lutz & Carr Certified Pub. Accountants, LLP, 2023 NY Slip Op. 50849(U), granting summary judgement on an accounting malpractice claim without expert evidence based on the defendant’s prior conduct, explaining:
In order to succeed on a claim for accounting malpractice, a plaintiff must demonstrate a departure from accepted standards of practice and that the departure was the proximate cause of injury.
In their opposition papers, L&C argues that there are material issues of fact as to whether (i) whether their failure to prepare and file the IRS Form 3115 for NFGTV was a departure from the accepted standards of accounting practice such that it can constitute malpractice, (ii) whether Messrs. Barraud and Springman would have been able to deduct flow-through losses from NFGTV to their individual tax returns to offset their taxable income, such that they were damaged, and (iii) whether the accountants that were hired by the plaintiffs after L&C was terminated failed to correct the 2016 tax returns before the statute of limitations closed, such that their actions constitute an intervening cause. The arguments fail.
A court can find malpractice absent expert testimony where the ordinary experience of the fact finder provides a sufficient basis for judging the adequacy of the professional service.
As discussed above, it is undisputed that L&C both advised that filing the IRS Form 3115 was required and they did in fact file it for one of the plaintiffs’ companies (Two Franks) but not for the other (NFGTV) for the 2016 tax year. Stated differently, L&C established the standard of care required and their own breach by advising that the Form 3115 was required and by admitting that they had made a mistake in not filing it. Additionally, L&C themselves submitted papers to the IRS indicating that as a result of their mistake, the plaintiffs were damaged and that the plaintiffs substantially overpaid their taxes and the individual plaintiffs were entitled to take these deductions on their individual tax returns. This isn’t a question of the plaintiffs’ word against the defendant’s, it is a question of the defendant’s word against the defendant. As such, there are no material issues of fact for trial that the defendant committed professional malpractice. Finally the Court notes that the work done by other accounting firms for subsequent years does not constitute an intervening superseding cause to the work done by L&C for the 2016 tax year because it was L&C that completed the tax returns for the 2017 tax year.
(Internal citations omitted).