Chicago Business Litigation Watch: Gardner v. Leitgeb & Vitelli, LLP Looks at Duty to Client

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In a recent case coming out of New York, the court discusses the different duties an accounting firm owes their clients. Gardner v. Leitgeb & Vitelli, LLP is the result of a dispute regarding business ownership, and the possible remedies that can be sought against a business. Although the defendants in this case did not act wrongly, this case provides a very good illustration of the possible causes of action and equitable defenses available in business litigation.

There was a dispute between parents ("plaintiffs") and their son over the corporate ownership of their family pizzeria called CJEFA ("business"). Son contends that during a four year span ending in 2001, he was the sole shareholder and president of the business. In 2001, son went to the accounting firm of Leitgeb & Vitelli, LLP ("defendants") to receive tax preparation and audit services.

Defendants signed a retainer agreement with the son indicating that the defendants were responsible for representing CJEFA in their New York tax audit, preparing the state sales tax returns and preparing the federal and state income tax returns ending on December 31, 2001.

Furthermore, the defendants did indicate that they were aware of a dispute involving the corporate ownership of CJEFA but upon hiring the defendants, son stated he was the sole owner. Son also represented that his parents, plaintiffs, were engaging in a systematic scheme to illegally acquire the assets from this business.

The firm never signed a subsequent retainer to prepare any further tax returns. The son terminated the firm in 2003 and upon this termination the firm returned all of the legal corporate CJEFA documents to him. At that time the plaintiffs made several attempts to attain these documents but the defendants would not release them because of their belief that the son was the sole shareholder and president of the corporation. This caused plaintiffs to sue the defendants.

Plaintiffs argued that the defendants should be held liable under four separate counts including malpractice, breach of contract, breach of duty and conversion.

As to the issue surrounding breach of duty, the court held that in the state of New York there is no fiduciary relationship between an accountant and his client. A fiduciary relationship describes a relationship where one of the parties has a good faith duty of confidentiality to another party. This is seen in cases involving trustees and attorneys. However, the court here found that there should have been no expectation of this duty, and therefore this count of the suit was dismissed.

Secondly, the court addressed the claims of malpractice and breach of contract. Retainer agreements are binding contracts between two parties that identify the scope of the representation and services agreed to. In this instance, the defendants had been hired by the son and it was only for the preparation of the tax returns associated with the fiscal year ending on December 31, 2001. Therefore, there was no legal agreement between the parties that imputed an obligation on the defendants to complete the tax returns for any other years. This shows that the firm had not acted negligently in their failure to prepare any further tax returns, but were well within their obligations stipulated in their retainer. Because of the foregoing reasons, this court dismissed the claims for malpractice and breach of contract.

As to the last count of conversion. Because there was still a dispute over who the verifiable president and sole shareholder was, the court could not identify the party who had legal ownership of the corporate documents to begin with. In an instance where the plaintiffs can not prove that they are the owners, then they do not have the standing to argue that someone else took unauthorized control over the business documents.

As seen in this case, having the right attorney guiding you through this multifaceted area of law is an invaluable asset.

Jeremy A. Gibson & Associates is a law firm dedicated to business litigation in Chicago and elsewhere in Illinois. Call 877-452-4529 for a free consultation.