It has been eight years since the Michigan Supreme Court decided Levy v Martin, a case that essentially redefined the timeframe in which a client can bring a professional malpractice claim against his or her accountant or attorney.

While the statute of limitations for a professional malpractice claim bars a claim brought over two years after an action accrues, the Levy court re-examined the way courts determine when an action actually accrues. Instead of looking solely at the particular transaction that is the alleged malpractice (i.e. a particular year’s tax return) when a professional provides continuous, general service over a period of time, a client’s claim against that professional may not accrue until that time period ends, even though the alleged malpractice itself occurred several years prior.

Notably, it is often the defendant’s own records that are used to determine whether the professional services were of a general, continuous nature and when the services actually ended. For example, courts have relied upon engagement letters, billing records, and fee petitions drafted by the defendant accountants or attorneys to determine the nature and time frame of the defendant’s services.

In Levy v Martin, the defendant accountants prepared the plaintiff’s annual tax returns from 1974 to 1996. In 1997, the plaintiff brought suit against his accountants based upon his 1991 and 1992 tax returns. The accountants immediately filed a motion to dismiss, noting that the statute of limitations for a malpractice claim is two years, and the returns at issue were completed well over two years before the plaintiff’s complaint.

Both the trial court and the Court of Appeals agreed that the plaintiff’s claims were untimely; however, the Michigan Supreme Court reversed their decisions. The Supreme Court found that the two-year statute of limitations did not begin to run until after the accountants discontinued working for the plaintiff. The Court found that the accountants provided general, continuous tax services for the plaintiff, and the 1991 and 1992 tax returns were not separate, distinct services, but rather they were a part of the accountants’ general, continuous services, based upon the lack of separate yearly engagement letters or other indicia of discrete services. Therefore, the plaintiff had until two years after the accountants discontinued their accounting services to bring a malpractice claim against them.

Levy and other cases recognize the “last treatment rule” derived from the applicable statute of limitations. The statute states that a professional malpractice claim “accrues at the time that [the professional] discontinues serving the plaintiff in a professional or pseudoprofessional capacity as to the matters out of which the claim for malpractice arose.” (This statute does not apply to medical malpractice claims.) The last treatment rule interprets this statute broadly, finding that the matters out of which a claim arises means a professional’s general representation or service, rather than a particular act. The reason, originally expressed in the context of medical malpractice, is that a client who receives continuous, general services, places trust in the professional such that they are not likely to recognize or pursue a claim until that relationship of trust has ended.

Impact of Decisions After Levy v Martin
Since the Levy decision, several Michigan courts have addressed the issue of when the statute of limitations accrues in professional malpractice claims. In one such case, Azzar v Tolley, the court found that the plaintiff’s legal malpractice claim accrued when the plaintiff discharged his attorney, even though the alleged malpractice occurred five years prior. The plaintiff and defendant entered into a loan transaction in 1994, and the plaintiff advanced funds to the defendant throughout 1994 and 1995. The plaintiff filed a claim based upon this transaction in 1999. The court found that, because the defendant provided generalized legal services for an uninterrupted period of time until 1999, the plaintiff had two years after defendant stopped serving as plaintiff’s attorney to file a malpractice claim based upon the legal services provided within that time period.

In 2006, the Michigan Court of Appeals found that a plaintiff’s legal malpractice claim was timely even though the claim arose out of a purchase agreement drafted by the defendant attorneys approximately six years prior. In RLVIC, Inc v Dawda, Mann, Mulcahy & Sadler, the court reasoned that the parties had an ongoing relationship and the defendants continued serving the defendants with respect to the purchase agreement transaction after the date the agreement was drafted and executed. Importantly, the court used the defendant law firm’s billing records to determine when in fact defendants stopped providing services relative to the purchase agreement, and used that date to determine when the claim accrued.

Recently, in NM Holdings Co, LLC v Deloitte & Touche, LLP, the defendant accounting firm argued that they provided separate discrete services to plaintiffs each year, but the Bankruptcy Court found the defendant provided a continuous course of annual auditing services. The court relied upon the defendant’s fee application to the court, which referred to the parties’ existing relationship and continuous services. Even though the plaintiff hired another accounting firm in 2003, and the complaint was filed in 2006, the court found the second accounting firm was hired in addition to the defendant and provided distinct services.

In contrast, when a professional provides a discrete service, the statute of limitations begins to run when the discrete service ends. In Mamou v Cutlip, the plaintiff contacted defendant in 1995 to draft a release agreement. The plaintiff believed the release completely resolved his underlying dispute. The plaintiff did not ask the defendant to do anything relative to the release for the next several years, until 1999 or 2000, when the underlying dispute was revived. Because the defendant did not provide a continuous service in the interim, the court found the claim accrued in 1995 and plaintiff’s complaint was untimely.

Likewise, in City of Pontiac v Pricewaterhouse Coopers LLP, the court found the defendant accounting firm provided a series of discrete services, and found the statute of limitations barred the plaintiff’s claims based upon services provided more than two years before the complaint was filed. The plaintiff claimed the defendant provided continuous accounting services from 1993 through the present, but the court instead found a series of discrete services because the parties entered into separate engagement agreements for each annual audit which estimated the fee for each audit and represented the entire agreement relative to each audit. Because the plaintiff could not provide a contract for continuous services, or any other evidence that a professional relationship continued uninterrupted from year to year, with an “accompanying air of trustworthiness” the court determined that the defendant provided a series of discrete services, and plaintiff’s claims were untimely.

Checklist for Appropriate Documentation
In conclusion, the courts interpret the statute of limitations for professional malpractice claims broadly so that when a professional provides general, continuous services, a malpractice claim arises out of the general representation or service, and not the particular act of alleged malpractice. The professional’s own documentation is often used to determine the nature of his or her services. When a professional provides a series of discrete services, consistently using the following documents will help the court determine when a particular service ended:

• Engagement letter that outlines the scope of the engagement
• End-of-engagement letter that indicates you have completed the service you were engaged to provide
• Separate billing for each service or function
• Final billing at the completion of each service

Overall, it is important that engagement letters, billing records, and other documents accurately describe the nature of the service and provide sufficient information so that a court can determine when each service terminated.

About the Author
Katherine Mendel is a member of Plunkett Cooney's Professional Liability practice group. She concentrates her practice in the area of legal, accounting, and real estate malpractice litigation. As a Plunkett Cooney summer associate in 2006, Mendel also worked alongside attorneys in the firm's appellate and complex litigation groups. She is a member of the State Bar of Michigan, the American Bar Association, and the Oakland County Bar Association. Mendel graduated from Thomas M. Cooley Law School cum laude where she was an Assistant Editor of Law Review.

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