The Accountant/Attorney Liability Reporter: August 2004

Inside this Issue

Donovan Hatem LLP Obtains Summary Judgment for Accounting Firm Based on Statute of Limitations

Donovan Hatem LLP recently obtained summary judgment in an accountant malpractice action based upon the expiration of the statute of limitations found in Mass. Gen. Laws Ann. ch. 260, § 4 (2003). The issue was the date on which the statute began to run because the plaintiff knew or should have known of the alleged malpractice.

The New Massachusetts Business Corporation Act

On July 1, 2004, “The Massachusetts Business Corporation Act” (the “Act”) became effective as new Chapter 156D of the Massachusetts General Laws. This statute, which offers great flexibility and more clarity to the administration and governance of corporations in Massachusetts, will apply to all Massachusetts business corporations that are now subject to Chapter 156B (the primary source of Massachusetts corporate law since its adoption in 1964), as well as foreign corporations qualified to do business in Massachusetts under Chapter 181. It will also be applicable to all professional corporations to the extent not inconsistent with MGL Chapter 156A. The new statute, which as printed by the Secretary of the Commonwealth has over 350 pages and contains 230 separate sections, is based on the American Bar Association’s 1984 Revised Model Business Corporation Act (the “Model Act”) .

Outcome of a Lawsuit May Be “Highly Relevant” to Whether a Plaintiff had “Actual Knowledge” of Harm for Purposes of Tolling the Legal Malpractice Statute of Limitations Under the “Continuing Representation Doctrine

In Rosen Constr. Ventures, Inc. v. Mintz, Levin, Cohen, Glovsky and Popeo, PC, 364 F.3d 399 (1st Cir. 2004), the U.S. Court of Appeals for the First Circuit vacated a decision by the U.S. District Court (D. Mass.) and clarified the “actual knowledge” exception making applicable a tolling of the statute of limitations under the “continuing representation doctrine.” Specifically, the First Circuit held that the earliest the plaintiff knew or should have known that its lawyers may have negligently drafted the plaintiff’s contract with a third-party landowner was the date the plaintiff’s state court breach of contract action against the landowner was dismissed.

Scienter was Adequately Plead in a Rule 10b-5 Claim Based on Allegations that Company’s Audit Firm Ignored Risks

A Federal District Court in New York refused to dismiss a Rule 10b-5 securities fraud suit against AOL and Time Warner’s accounting firm, Ernst & Young, who issued unqualified audit opinions ruling that scienter, or intent to defraud, was adequately alleged in light of the numerous audit risks overlooked in the audit in connection with the January 2001 merger of the two companies. In re: AOL Time Warner, Inc. Securities and “ERISA” Litigation, 2004 WL 992991 (S.D. N.Y. May 5, 2004).

Claims Against Accountant in Civil Case Not Barred by Settlement Agreement Involving Same Claims in Bankruptcy Court

In a civil action against accountants for negligence and gross negligence, the Court of Appeals of Tennessee, at Knoxville, reversed a grant of summary judgment in favor of the accountants, ruling that a United States Bankruptcy Court decision involving similar claims did not bar plaintiffs’ claims. See Hart v. Joseph Decosimo and Company, LLP, et al., 2004 Tenn App. LEXIS 73.

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