First Circuit Articulates Strict Standard for Discovery Rule

In a recent opinion (RTR Technologies v. Carlton Helming), the First Circuit upheld a District Court’s grant of summary judgment in favor of the accountant, holding the plaintiff’s malpractice claim was time-barred because it was not filed within the three year limitations period as required under Massachusetts law.  In making its ruling, the Court held that the plaintiffs either knew or should have known about their potential claim when they sought a second opinion concerning the advice that they had been given.  The First Circuit articulated a very strict standing, holding that the discovery rule pertains only to those plaintiffs whose injuries are “inherently unknowable.” 

In RTR Technologies v. Carlton Helming, RTR Technologies, a company sued an accountant, who had provided services to the company from 2003 until 2008.  In 2005, the accountant convinced the company to amend the company’s 2002 tax return to re-classify entries on the company’s balance sheets from loans to the principal to income to the principal.  The principal of the company testified she disagreed with the advice, which led her to seek two other expert opinions on the issue, but she nevertheless agreed to the plan and filed the amended return.  A short time after the return was amended, the IRS filed a substantial tax lien against the company.  In 2008, the company hired a new accountant who filed re-amended tax returns for 2002.  The IRS then abated the tax lien.  The plaintiffs sued their previous accountant in Massachusetts state court in the fall of 2009.

The district court granted summary judgment in favor of the accountant holding the company’s malpractice claim was time-barred because it was not filed within the three year limitations period as required under Massachusetts law.  The company appealed the ruling, arguing the discovery rule should apply.  That rule, under Massachusetts law, holds that a cause of action accrues, and the statute of limitations begins to run, when a plaintiff knows or reasonably should know that she may have been harmed by a defendant’s conduct, even if the harm actually occurred earlier.  The company argued it was not aware of the accountant’s malpractice until 2008.  The First Circuit disagreed and found that the company was aware of both the putative injury (the tax liability) and the putative cause (the accountant’s advice to amend the returns) in 2005, evidenced by the fact the company disagreed with the advice at the time it was received, and had sought other opinions before amending the return in 2005. 

“The law normally ministers to the vigilant, not to those who sleep upon perceptible rights,” wrote the First Circuit in the opinion, warning plaintiffs who have constructive knowledge of an actionable legal claim but wait to pursue a cause of action. 

 

Written By: Erin Berry