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Fiduciary relationship suspends statute of limitations.

A Texas appellate court ruled the fiduciary relationship between an accountant and a client suspended the running of the statute of limitations for the purpose of bringing a malpractice action.

Woodbine Electric Service, Inc. sued accountant William E. MeReynolds, alleging he failed to detect and disclose the embezzlement of funds by a Woodbine employee. The trial court granted McReynolds's motion for summary judgment on the basis that the two-year statute of limitations expired before Woodbine filed its case.

Woodbine appealed, arguing that although it was aware on April 7, 1986, of the embezzlement and its lawsuit was not filed until May 27, 1988, the earlier date was not appropriate for determining when the statute of limitations began to run. Rather, Woodbine argued, it did not become aware of McReynolds's alleged malpractice until December 1987 - the date he presented his accounting records to Woodbine, which then asked its new accountant to review them for evidence of malpractice.

The appellate court, ruling for Woodbine, stated that despite the accountant's failure to disclose material facts to the client, there exists a fiduciary relationship between a CPA and client that halts the running of the statute of limitations for as long as the duty exists. This duty does not cease until the CPA-client relationship ceases.

Since the question of when Woodbine actually knew or should have known McReynolds might have been negligent remained an issue, summary judgment was held inappropriate and the case was remanded to be tried on its merits. (Woodbine Electric Service, Inc. v. William E. McReynolds, 1 lth Circuit Court of Appeals, Eastland, Texas, no. 11-91-230-CV).
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Article Details
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Mar 1, 1993
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