Legal and tax malpractice summary judgment reversed by D.C. Court of Appeals

In Pair v. Queen, No. 08-CV-1646 (D.C. Aug. 26, 2010), the Court reversed the trial court's award of summary judgment to the attorney who allegedly was responsible for a million dollar tax bill from the IRS.

The relationship between the Pairs and Mr. Queen broke down after Mr. Queen informed appellants that the District of Columbia and the IRS had assessed penalties and interest charges against the estate totaling more than a million dollars. The Pairs allege that they learned the estate's tax returns had been improperly prepared and had been filed almost a year and a half late.

The former clients were both the personal representatives of the estate, and beneficiaries of the estate.

The trial court awarded summary judgment on the attorney malpractice claim. Relying on United States v. Boyle, 469 U.S. 241 (1985), the trial court reasoned that because the plaintiffs were personal representatives of the estate, and as such had a non-delegable duty to the IRS to timely file the tax returns, they were also negligent and did not have standing to bring a lawsuit against someone who joined them in the negligence. The trial court found that the contributory negligence of the personal representatives was a complete bar to the attorney malpractice action.

The trial court dismissed the accountant malpractice count on the same grounds, and also on the grounds that there was no privity between the personal representatives and the accountant.

The D.C. Court of Appeals brusquely reversed these rulings. The Court held that:

Appellants argue, and we agree, that the trial court erred, as a matter of law, in applying United States v. Boyle to bar the Pairs' claims for malpractice and breach of fiduciary duty. The question at issue in Boyle was "whether a taxpayer's reliance on an attorney to prepare and file a tax return constitutes `reasonable cause' under ? 6651 (a)(1) of the Internal Revenue Code, so as to defeat a statutory penalty incurred because of a late filing." Boyle, 469 U.S. at 242. Boyle concerned the duties an estate and its representative owed to the IRS. By contrast, the Pairs' claims of malpractice concern the duties a professional owes to a client.

Mr. Queen's dual status as a personal representative and as attorney for the estate has, understandably, led to some confusion in analyzing the complaint. The Pairs are not seeking to excuse "[t]he failure to make a timely filing of a tax return . . . by [their] reliance on an agent." Boyle, 469 U.S. at 252 (holding that the executor's reliance on the estate attorney to file the return did not constitute "reasonable cause" for the failure to file a timely return). Instead, they are seeking "compensatory and consequential damages" through a malpractice claim. Importantly, nothing in Boyle suggests that a taxpayer's non-delegable duty to the IRS relieves a professional from liability for negligent failure to perform the duties for which an estate has employed him.

The Court of Appeals also held that the trial court had erred in its finding that contributory negligence barred the claims. The Court pointed out that in a 1993 decision, it had recognized that there was a difference between the non-delegable duty of a personal representative to file tax returns with the IRS, and the delegation that occurs when the personal representative reasonably relies on expert advice concerning substantive questions of tax law, such as whether liability exists in the first instance.

Moreover, the Court stated that it is not clear that the personal representatives would be without recourse even if the penalties derived solely from the late filing of the tax returns.

No one contests that the estate suffered substantial penalties as a result of both improper preparation and late filing of the estate tax returns. However, the trial court did not determine whether "the failure to file timely returns was [] due to a lack of diligence or dereliction of duty on the part of [the Pairs] with regard to ascertaining and meeting filing deadlines, [or] rather due to [their reasonable] reliance on [professionals'] erroneous advice and assistance regarding substantive issues."

The Court held that on the record before it, a finding of contributory negligence per se could not be sustained.

With regard to the accountant malpractice claim, the Court held as follows:

We have already concluded that the court erred, as a matter of law, by relying on Boyle to bar the malpractice claims. Moreover, further factual inquiry is required to clarify the roles of Mr. Smith and Mr. Tolliver. The exact nature of their relationship to Mr. Queen is not clear from the present record, and it is important to remember that Mr. Queen was wearing two hats. A key question (perhaps not susceptible of a clear answer) is whether he engaged Mr. Smith and Mr. Tolliver while acting as a personal representative of the estate or solely in his capacity as the estate's attorney.