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Miksic v. Boeckermann Grafstrom Mayer, LLC

United States District Court, D. Minnesota

March 28, 2017

BORIS A. MIKSIC, Plaintiff,
v.
BOECKERMANN GRAFSTROM MAYER, LLC, a Minnesota limited liability company f/k/a Johnson, West & Co. P.L.C., BOECKERMANN GRAFSTROM MAYER, P.A., and JOHNSON WEST & CO. P.L.C., Defendants.

          Gregory J. Stenmoe and Michael M. Sawers, BRIGGS & MORGAN, PA, for plaintiff.

          Kyle A. Eidsness and Russell S. Ponessa, HINSHAW & CULBERTSON LLP, for defendants.

          MEMORANDUM OPINION AND ORDER ON DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT AND DEFENDANTS’ MOTION TO EXCLUDE EXPERT TESTIMONY

         The Internal Revenue Service (“IRS”) assessed substantial taxes, monetary penalties, and interest against Plaintiff Boris Miksic for his failure to file U.S. tax forms during tax years 2005 to 2010, and not disclosing his interests in and income from foreign trusts, businesses, and bank accounts. Miksic filed this accounting malpractice action alleging those errors were due to negligent tax preparation by Defendants Boeckermann Graftstrom Mayer LLC, formerly known as Johnson, West & Co. P.L.C., Boeckermann Graftstrom Mayer, P.A., and Johnson West & Co. P.L.C. (collectively “Defendants”).

         Miksic also contends that as a result of Defendants’ negligence, he changed accountants and retained legal counsel to respond to the IRS audit and to bring this action.

         Defendants move for summary judgment on Miksic’s malpractice action and move to exclude testimony by Miksic’s causation and liability expert, Arthur H. Cobb. Specifically, Defendants assert that: the six-year statute of limitations bars Miksic’s malpractice action; Miksic failed to provide meaningful expert testimony as required by Minn. Stat. § 544.42; the doctrines of in pari delicto and laches bar Miksic’s action; and Miksic cannot recover certain IRS penalties, all delinquent tax liabilities, and all attorneys’ fees expended to bring the instant action.

         The Court will deny in part and grant in part Defendants’ motion for summary judgment. The Court will deny the motion as the Court finds that Miksic’s claim is timely, Cobb’s expert testimony provides a meaningful summary of his accounting malpractice opinion, and the in pari delicto and laches doctrines do not apply to the instant action. The Court, however, will grant Defendants’ motion for summary judgment to preclude Miksic from recovering as damages abated Form 5471 penalties, payment for delinquent taxes, and attorneys’ fees expended in the instant action. The Court finds Cobb is qualified to offer his expert opinion in this case and that his opinion will not confuse or mislead the jury, the Court will deny Defendants’ motion to exclude Cobb’s expert testimony.

         BACKGROUND

         I. MIKSIC’S RELATIONSHIP WITH DEFENDANTS

         Miksic is a Croatian-American entrepreneur who lives in the United States. (Aff. of Michael M. Sawers (“Sawers Aff.”), Ex. 1 (“Miksic Dep.”) at 14:12-19, 18:22-19:25, Aug. 12, 2016, Docket No. 45.) English is not his first language. (Id. at 14:19-20.) Miksic owns several American and Croatian companies, including a Minnesota-based corporation named Cortec Corporation (“Cortec”), of which he is the sole shareholder, as well as a Croatian-based company named EcoCortec. (Id. at 18:24-20:21; 28:2-32:20.) Defendants provided accounting services for both Miksic and Cortec since 1988. (Id. at 49:9-50:18.)[1]

         When Miksic first retained Defendants, his primary Certified Public Accountant (“CPA”) was Cliff Lozinski. (Miksic Dep. at 76:20-77:20.) Once Lozinski retired in approximately 2006 (Pl.’s Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 3, Aug. 12, 2016, Docket No. 43), CPAs Cory Parnell and Corey Edmunds took on a substantial role in providing Miksic accounting advice and services, (Miksic Dep. at 76:20-77:20; Sawers Aff., Ex. 8 (“Edmunds Aff.”) ¶¶ 3-4; Ex. 9 (“Parnell Aff.”) ¶ 4).

         II. THE DELINQUENT IRS FORMS

         In March 2010, the IRS notified Cortec that its federal return had been selected for examination. (Sawers Aff., Ex. 10.) As a result of that examination, the IRS notified Miksic that he failed to file various forms pertaining to his foreign interests, including (1) Form 5471 (“Information Return of a U.S. Person With Respect to Certain Foreign Corporations”), (id., Ex. 11); (2) Form 3520 (“Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts”), (id., Ex. 12); (3) Form 3520-A (“Annual Information Return of Foreign Trust With a U.S. Owner”), (id., Ex. 12); and (4) Form TD F 90-22.1 (“Report of Foreign Bank and Financial Accounts”) (hereinafter “FBAR”), (id., Ex. 13), (collectively the “Delinquent Forms”). Miksic alleges that the IRS assessed substantial monetary penalties, interest, and taxes as a result of Miksic’s failure to file the Delinquent Forms between tax years 2005 to 2010.[2] Miksic asserts he may recover those amounts as damages, as well as costs, fees, and expenses to change accountants and retain legal counsel to respond to the IRS audit and to bring this action.

         III. TAX YEARS AT ISSUE

         The parties agree that during tax years 2005 to 2010, Defendants sent Miksic an engagement letter and a questionnaire. (See Defs.’ Mem. in Supp. of Mot. for Summ. J. at 8, July 22, 2016, Docket No. 35; Pl.’s Mem. in Opp’n to Defs.’ Mot. for Summ. J. at 9.) Miksic, however, signed Defendants’ engagement letter only for tax year 2006. (Miksic Dep. at 57:5-58:5; Decl. of Michael T. Berger (“Berger Decl.), Ex. 4 at 2-3, Apr. 7, 2016, Docket No. 27.) That engagement letter states: “[y]ou have the final responsibility for the income tax returns and, therefore, you should review them carefully before you sign them.” (Berger Decl., Ex. 4 at 2.) The questionnaire attached to that letter asked, “[d]id you have any foreign income or pay any foreign taxes during the year?,” and “[w]ere you a grantor or transferor for a foreign trust, have an interest in or a signature or other authority over a bank account, securities account, or other financial account in a foreign country?” (Id. at 5-6.) Miksic asserts he did not return completed questionnaires for several of the tax years at issue. (See Sawers Aff., Ex. 4 at 67:4-10; 71:23-72:9.)

         Instead, Miksic explained that he likely gave the questionnaire to Angie McGillivray, the Chief Financial Officer of Cortec. (Miksic Dep. at 46:20-24, 62:19-23, 63:16-65:6; see also Berger Aff., Ex. 5 at 33:10-34:9.) According to Miksic, McGillivray was “fully aware of all of the financial accounts in which [he] had an interest in the 2005 through 2010 timeframe,” and he provided her with tax information to give to Defendants. (Miksic Dep. at 85:8-12; 48:7-49:8; 63:4-64:12.) Defendants counter that on three separate instances, one of Defendants’ tax preparers (other than Parnell and Edmunds) inquired with McGillivray about Miksic’s foreign financial accounts for tax years 2006, 2008, and 2010. (Berger Decl., Ex. 7, Ex. 10, Ex. 11; see Defs.’ Mem. in Supp. of Mot. for Summ. J. at 13-14.) However, Defendants maintain, McGillivray and Miksic did not disclose Miksic’s foreign accounts which should have been reported on his FBARs.

         Miksic, on the contrary, asserts that Defendants did not follow up with him regarding his blank questionnaires (Sawers Aff., Ex. 4 at 67:4-10; 71:23-72:9), that Parnell and Edmunds never asked Miksic about foreign accounts (Parnell Aff. ¶ 9; Edmunds Aff. ¶ 12), that Defendants’ tax return software defaulted to an inaccurate statement of Miksic’s foreign interests (Edmunds Aff. ¶ 12), and – notwithstanding that Defendants filed an FBAR for Miksic in 2006 and indicated on Miksic’s 2008 and 2009 tax returns that he had foreign accounts – Defendants failed to file FBARS in the tax years at issue succeeding 2006 (Sawers Aff., Ex. 4 at 83:10-84:20; Edmunds Aff. ¶ 7-8, 11). Miksic also contends that Defendants knew about Miksic’s ownership interest in EcoCortec – which needed to be disclosed on Miksic’s Form 5471 – but that Defendants failed to file that form for tax years 2007 to 2009.[3] (Edmunds Aff. ¶ 8.) Lastly, Miksic argues Defendants never inquired whether he owned a foreign trust and that Miksic did not know his interest in and distributions from a Lichtenstein foundation required filing Forms 3520 and 3520A in tax years 2005 through 2008. (Miksic Dep. at 116:16-18; 152:3-154:5.)

         IV. PROCEDURAL BACKGROUND

         On November 24, 2014, Miksic sued Defendants in Minnesota state court, and Defendants removed that action to federal court on December 22, 2014. (Case No. 14-5047 (DWF-TNL), Notice of Removal, Dec. 22, 2014, Docket No. 1.) The parties stipulated for dismissal of that action on February 17, 2015, and it was dismissed without prejudice on February 18, 2015. (Case No. 14-5047 (DWF-TNL), Joint Stipulation of Dismissal, Feb. 17, 2015, Docket No. 5; Dismissal Order, Feb. 18, 2015, Docket No. 6.) Miksic refiled this action on February 18, 2015, before the Court and asserted five claims against Defendants: accounting malpractice; breach of contract; unjust enrichment; negligent misrepresentation; and breach of fiduciary duty. Defendants moved for summary judgment and to exclude expert testimony on July 22, 2016.

         DISCUSSION I. MOTION FOR SUMMARY JUDGMENT

         A. Standard of Review

         Summary judgment is appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A fact is material if it might affect the outcome of the lawsuit, and a dispute is genuine if the evidence is such that it could lead a reasonable jury to return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A court considering a motion for summary judgment must view the facts in the light most favorable to the non-moving party and give that party the benefit of all reasonable inferences to be drawn from those facts. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment is appropriate if the nonmoving party “fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “To defeat a motion for summary judgment, a party may not rest upon allegations, but must produce probative evidence sufficient to demonstrate a genuine issue [of material fact] for trial.” Davenport v. Univ. of Ark. Bd. of Trs., 553 F.3d 1110, 1113 (8th Cir. 2009). If the plaintiff’s version of events “is blatantly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Scott v. Harris, 550 U.S. 372, 380 (2007).

         B. Statute of Limitations

         The parties dispute whether the applicable statute of limitations bars Miksic’s state-law cause of action for accounting malpractice against Defendants. Minn. Stat. § 541.05, subd. 1(5) provides a six year limitation period for a professional malpractice claim. Bonhiver v. Graff, 248 N.W.2d 291, 296 (Minn. 1976) (stating the statute of limitations for an accounting malpractice action is six years and citing to Minn. Stat. § 541.05, subd. 1(5)). Although the statute does not specifically state when that period begins, the Minnesota Supreme Court has “consistently held that the statute begins to run when the cause of action accrues, that is, when the plaintiff can allege sufficient facts to survive a motion to dismiss for failure to state a claim upon which relief can be granted.” Antone v. Mirviss, 720 N.W.2d 331, 335 (Minn. 2006). The Minnesota Supreme Court also explained that a malpractice action accrues when the plaintiff sustained “some damage” as the result of the defendant’s negligence. Id. at 335-36.[4]

         Miksic first sued Defendants on November 24, 2014, and thus any claim that accrued as early as six years from then – i.e., November 24, 2008 – is timely. Defendants assert that Miksic’s claims accrued in April 2006 when he filed his tax forms for tax year 2005 and allegedly suffered “some damage,” due to Defendants’ tax preparation. Additionally, Defendants contend that the tax years at issue comprise a single course of representation such that all of Defendants’ alleged negligence relates back to filing of Miksic’s tax return in April 2006. Defendants rely upon Ames & Fischer Co., II v. McDonald, 798 N.W.2d 557, 563-64 (Minn. Ct. App. 2011) (finding that the applicable statute of limitations for an accounting malpractice claim accrued upon the filing of a tax return), Reid Enterprises, Inc., v. Deloitte & Touche, LLP, No. C8-99-1801, 2000 WL 665684, at *3 (Minn. Ct. App. May 23, 2000) (rejecting plaintiff’s argument that there was separate negligence in each year the returns were prepared), and Herrmann v. McMenomy & Severson, 590 N.W.2d 641, 643-44 (Minn. 1999) (holding malpractice cause of action accrued when plaintiff took first prohibited tax action when such transactions spanned several years).

         Miksic responds that his claims accrued no earlier than January 27, 2011, when the IRS issued its first penalty because prior to that date, not only would he have had no notice of the claim, but his damages would have been “[s]peculative, remote, or conjectural.” See Anderson v. Benson, 394 N.W.2d 171, 175 (Minn. Ct. App. 1986) (rejecting buyer’s alleged damages where buyer introduced no evidence that ...


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