Reynolds v. Bickel

This opinion is subject to revision before final
publication in the Pacific Reporter
2013 UT 32IN THE
SUPREME COURT OF THE STATE OF UTAH
R. SCOTT REYNOLDS, an individual,
Plaintiff and Appellant,
v.
JEFFREY G. BICKEL, an individual and
TANNER L.C., a limited liability company,
Defendants and Appellees.
___________________________________
JEFFREY G. BICKEL, an individual and
TANNER L.C., a Utah limited liability company,
Third-Party Plaintiffs,
v.
ALTAVIEW CONCRETE, L.L.C., a Utah limited liability company,
Third-Party Defendant.
No. 20120396
Filed June 4, 2013
Third District, Salt Lake Dep’t
The Honorable Robert P. Faust
No. 110904057
Attorneys:
R. L. Knuth, J. Angus Edwards, Salt Lake City,
for appellant
George W. Burbidge II, Geoffrey C. Haslam, Tyler V. Snow,
Salt Lake City, for appellees
JUSTICE DURHAM authored the opinion of the Court in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE NEHRING,
JUSTICE PARRISH, and JUSTICE LEE joined.
JUSTICE DURHAM, opinion of the Court:
INTRODUCTION
¶1 Plaintiff Scott Reynolds appeals the district court’s grant of
summary judgment for Tanner L.C. and Jeffrey Bickel (Defendants).
The district court held that Defendants are not liable to Mr. Reynolds
because they did not “identif[y] in writing to the[ir] client that the
professional services performed on behalf of the client were
REYNOLDS v. BICKEL
Opinion of the Court
intended to be relied upon by” Mr. Reynolds, as required by Utah
Code section 58-26a-602(2)(b). We reverse.
BACKGROUND
¶2 In July 2010, Scott Reynolds was negotiating the sale of
three limited liability companies of which he was the sole
shareholder (collectively, Altaview Companies or Companies). The
Altaview Companies were S corporations under 26 U.S.C. 1362(a),
meaning that the Companies themselves paid no income taxes.
Instead, Mr. Reynolds reported the Companies’ income on his
individual tax return. The tax liability from the sale of the Altaview
Companies’ assets1 would accordingly fall not on the Companies
themselves, but on Mr. Reynolds. Concerned about his personal tax
liability from the contemplated sale, Mr. Reynolds retained the
accounting firm Tanner L.C. The retention agreement, which was
prepared by Jeffrey Bickel, a partner at Tanner L.C., named
“Altaview Concrete” as the client. Altaview Concrete is one of the
three Altaview Companies. Mr. Reynolds signed on behalf of
Altaview Concrete.
¶3 During July, August, and September of 2010, Defendants
advised Mr. Reynolds and the Altaview Companies’ in-house
accountant, Ben Covington, on Mr. Reynolds’s tax liability from the
sale. Mr. Reynolds intended to proceed with the sale only if his net
proceeds exceeded a certain amount. Based on the buyer’s initial
proposed terms, Mr. Covington and Mr. Bickel estimated
Mr. Reynolds’s tax liability to be between $1,500,000 and $2,000,000.
This was unacceptable to Mr. Reynolds, so Mr. Bickel advised
Mr. Covington on how to restructure the deal to reduce
Mr. Reynolds’s tax liability to $663,000. Mr. Bickel discussed these
restructuring proposals with the buyer’s chief financial officer, and
the buyer ultimately agreed to them. The sale closed on September
15, 2010.
¶4 Several weeks after the sale closed, Mr. Bickel informed
Mr. Covington that “we may have inadvertently excluded from
Scott’s proceeds the distribution of the installment note, which
potentially changes the tax quite a bit.” Defendants had
underestimated Mr. Reynolds’s tax liability by $1,513,641. After
Defendants refused Mr. Reynolds’s request for reimbursement of the
additional $1,513,641, Mr. Reynolds filed a professional negligence
claim in district court.
1
The sale appears to have been structured as a sale of all of the
Companies’ assets, rather than as a stock sale.
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¶5 Defendants admitted in their Answer that they “knew that
a primary reason that Altaview entered into the [retention]
Agreement was to provide tax and transactional services which
would benefit Reynolds by minimizing his tax liability from the
sale.” Nevertheless, Defendants moved for summary judgment,
arguing that Mr. Reynolds’s claim was barred by Utah Code section
58-26a-602 (Section 602), which states that accountants are not liable
to third parties (absent fraud or intentional misrepresentation)
unless (a) the accountant “knew that a primary intent of the client”
was for the services to benefit the third party and (b) the accountant
“identified in writing to the client that the professional services . . .
were intended to be relied upon by the” third party. Defendants
asserted that the writing requirement of Section 602(2)(b) was not
satisfied.
¶6 Before ruling on the summary judgment motion, the
district court asked Mr. Reynolds to submit documents that he
contended satisfied the writing requirement. After reviewing these
documents, the district court granted Defendants’ motion for
summary judgment, holding that “[t]here is no writing which
me[e]ts with Section 58-26-602.” Mr. Reynolds appealed to this court.
We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(j).
STANDARD OF REVIEW
¶7 Whether a motion for summary judgment was properly
granted is a question of law, which we review for correctness. Basic
Research, LLC v. Admiral Ins. Co., 2013 UT 6, ¶ 5, 297 P.3d 578.
ANALYSIS
¶8 Mr. Reynolds concedes that he is not in privity with
Defendants,2 and accordingly he cannot bring a professional
negligence claim against Defendants unless he comes within one of
Section 602’s exceptions. Because he does not allege fraud or
intentional misrepresentation, the only exception available to him is
that of subsection (2). The first prong of subsection (2) is satisfied by
Defendants’ concession that they knew their client, Altaview
Concrete, intended that Mr. Reynolds rely on their professional
services. Thus, the only questions on appeal are (1) whether the
writing requirement of subsection (2)(b) applies to Mr. Reynolds and
2
Had Mr. Reynolds not made this concession, we would consider
whether the actions of Mr. Reynolds and Defendants amounted to
a relationship of accountant and client notwithstanding the fact that
the retention agreement did not name Mr. Reynolds as a client.
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REYNOLDS v. BICKEL
Opinion of the Court
(2) if so, whether the requirement was satisfied by the documents
Mr. Reynolds presented to the district court. We answer both
questions in the affirmative and accordingly reverse the district
court’s grant of summary judgment.
I. THE WRITING REQUIREMENT OF SECTION 602(2)(b)
APPLIES TO MR. REYNOLDS
¶9 Mr. Reynolds contends that the writing requirement of
Section 602 does not apply to him because Defendants knew their
client intended for Mr. Reynolds to rely on their advice. Citing
legislative history of Section 602 and caselaw interpreting similar
statutes from other states, Mr. Reynolds argues that requiring an
accountant to provide a client with “[w]ritten acknowledgement of
[the] client’s own undisputed intentions . . . is a meaningless exercise
that the law does not require.” We disagree with Mr. Reynolds’s
interpretation of Section 602.
¶10 “When interpreting statutory language, our primary
objective is to ascertain the intent of the legislature.” Ivory Homes,
Ltd. v. Utah State Tax Comm’n, 2011 UT 54, ¶ 21, 266 P.3d 751. “The
best evidence of the legislature’s intent is the plain language of the
statute itself.” Marion Energy, Inc. v. KFJ Ranch P’ship, 2011 UT 50,
¶ 14, 267 P.3d 863 (internal quotation marks omitted). We resort to
legislative history and other interpretive tools only if the statute’s
plain meaning cannot be discerned from its text. Id. ¶ 15.
¶11 Here, the contours of the statute are clear. Section 602
provides in full:
A licensee, a CPA firm registered under this chapter,
and any employee, partner, member, officer, or
shareholder of a licensee or CPA firm are not liable to
persons with whom they are not in privity of contract
for civil damages resulting from acts, omissions,
decisions, or other conduct in connection with
professional services performed by that person, except
for:
(1) acts, omissions, decisions, or conduct that constitute
fraud or intentional misrepresentations; or
(2) other acts, omissions, decisions, or conduct, if the
person performing the professional services:
(a) knew that a primary intent of the client was
for the professional services to benefit or
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influence the particular person seeking to
establish liability; and
(b) identified in writing to the client that the
professional services performed on behalf of the
client were intended to be relied upon by the
particular person seeking to establish liability.
The statutory language unambiguously sets forth a default rule with
two exceptions: Accountants “are not liable to persons with whom
they are not in privity of contract . . . except for” (1) cases of fraud or
intentional misrepresentation or (2) cases where the accountant
(a) knew the client intended the third party to rely and (b) the
accountant “identified in writing to the client” an intent that the
plaintiff rely. Because the requirements under subsection (2) are
conjunctive, both the knowledge requirement of subsection (2)(a)
and the writing requirement of subsection (2)(b) must be fulfilled
before liability can run to a third party under this exception. We
have no need to consider legislative history or other interpretive
resources because the language is entirely clear on this point.
¶12 We next examine the writings that Mr. Reynolds presented
to the district court to determine whether they satisfied the writing
requirement of subsection (2)(b).
II. THE DOCUMENTS MR. REYNOLDS PRESENTED TO THE
DISTRICT COURT SATISFIED THE WRITING REQUIREMENT
¶13 Mr. Reynolds presented the court with twenty-five e-mails
and eleven spreadsheets in satisfaction of the writing requirement
of Section 602(2)(b). Most of the e-mail exchanges were between
Mr. Bickel and Mr. Covington (the Altaview Companies’ in-house
accountant) and focused on Mr. Reynolds’s potential tax liability
from the sale. On July 14, Mr. Covington e-mailed several
spreadsheets to Mr. Bickel and asked him to “review [them] . . . and
provide feedback.” The spreadsheets estimated Mr. Reynolds’s tax
liability from the sale under various assumptions. Each spreadsheet
mentioned Mr. Reynolds by name five times. On July 16, Mr. Bickel
replied to Mr. Covington, applauding him for having “done a
tremendous job on these calculations” and posing follow-up
questions. On July 26, Mr. Covington answered the questions and
asked Mr. Bickel to review additional spreadsheets involving
Mr. Reynolds’s tax liability.
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REYNOLDS v. BICKEL
Opinion of the Court
¶14 On August 5, Mr. Covington e-mailed Mr. Bickel with two
specific questions:
Scott will be responsible for paying income tax on any
income for the companies year to date up to the date of
the closing. The Companies will file a final return and
the income to that point will be attributable to his
personal return? / If that is the case I should include the
income as an addition to his basis in his stock, assuming
the taxes will be paid from the proceeds of the closing?
Mr. Bickel responded, “You are correct on both points.” Over the
next week, Mr. Covington, Mr. Bickel, and Mr. Reynolds’s attorney
exchanged several e-mails regarding the buyer’s proposed allocation
of the purchase price to various assets. They discussed strategies for
reallocating the purchase price to reduce Mr. Reynolds’s tax liability.
¶15 Section 602(2)(b) is satisfied if the accountant has
“identified in writing to the client that the professional services
performed on behalf of the client were intended to be relied upon by
the particular person seeking to establish liability.” Defendants
contend that these writings are insufficient because no single writing
explicitly states that “the [Defendants] intended for Reynolds to rely
on the work that the [Defendants] were performing.”3 However,
subsection (2)(b) does not require an explicit statement in a single
writing; it requires an “identifi[cation] in writing” that a third party
is intended to rely on the accountant’s services.
¶16 Because of the similarities between Section 602 and the
statute of frauds, we find appellate opinions interpreting the writing
requirement of the statute of frauds to be instructive. Like Section
602, the statute of frauds employs the phrase “in writing.” UTAH
CODE § 25-5-1, et. seq. Further, the statute of frauds has a signature
requirement that is analogous to Section 602’s requirement that the
writing be authored by the accountant. See id. These requirements
3
Defendants seem to concede that the communications addressed
to Mr. Covington were effectively directed “to the client,” and we
agree that by operation of agency law, communications to
Mr. Covington, an officer and agent of Altaview Concrete, are
properly deemed communications to Altaview Concrete. See Wardley
Better Homes & Gardens v. Cannon, 2002 UT 99, ¶ 22, 61 P.3d 1009(stating that knowledge of a corporate officer or agent “can always
be imputed to a corporation . . . because a corporation has no belief
or intent independent of that of its officers and agents”).
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both have the purpose of ensuring that the party to be bound has
made written acknowledgment of its legal obligations.
¶17 In the statute of frauds context, “[o]ne or more writings,
not all of which are signed by the party to be charged, may be
considered together as a memorandum . . . if there is a nexus
between them.” Machan Hampshire Props., Inc. v. W. Real Estate &
Dev. Co., 779 P.2d 230, 234 (Utah Ct. App. 1989) (citing Gregerson v.
Jensen, 617 P.2d 369, 373 (Utah 1980)). By analogy, we hold that for
purposes of Section 602(2)(b), one or more writings, not all of which
are authored by the party to be charged, may be considered together
as a memorandum if there is a nexus between them.
¶18 A nexus for statute of frauds purposes is indicated “by
express reference in the signed writing to the unsigned one, or by
implied reference glea[n]ed from the contents of the writings and the
circumstances surrounding the transaction.” Gregerson, 617 P.2d at
373. By analogy, we hold that for purposes of Section 602(2)(b), a
nexus may be indicated by express reference in a writing authored by
the defendant to other writings, or by implied reference gleaned from
the contents of the writings and the circumstances surrounding the
transaction.
¶19 Here, several e-mails written by Defendant Jeffrey Bickel
expressly referenced other e-mails and spreadsheets prepared by
Mr. Covington and others. For example, on July 14, Mr. Bickel wrote
to Mr. Covington that he would look over the spreadsheets
Mr. Covington had prepared relating to Mr. Reynolds’s tax liability.
Two days later, Mr. Bickel gave Mr. Covington written feedback on
the spreadsheets and posed follow-up questions. On August 5,
Mr. Bickel responded directly to Mr. Covington’s questions relating
to Mr. Reynolds’s tax liability. On August 10, in response to a group
e-mail from an attorney about the tax implications for Mr. Reynolds
of the buyer’s purchase price allocation proposal, Mr. Bickel wrote,
“I am in agreement with [the attorney’s] comments.”
¶20 Additionally, all of the e-mails and spreadsheets, with the
exception of two e-mails between Mr. Covington and the buyer,
manifest an “implied reference” to one another, based on “the
contents of the writings and the circumstances surrounding the
transaction.” Gregerson, 6l7 P.2d at 373. The common theme of the
e-mail and spreadsheets are the tax implications for Mr. Reynolds of
the sale of the Altaview Companies. Indeed, these writings all reflect
what Defendants have admitted was the purpose of their retention:
to minimize Mr. Reynolds’s personal tax liability from the sale of the
Altaview Companies.
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REYNOLDS v. BICKEL
Opinion of the Court
¶21 Defendants knew that the Altaview Companies were
S corporations under 26 U.S.C. 1362(a) and that Mr. Reynolds was
the only person or entity who could benefit from Mr. Bickel’s advice.
Thus, when Mr. Bickel exchanged e-mails with Mr. Covington
regarding the tax consequences of the sale for Mr. Reynolds, he was
impliedly communicating “that [his] professional services . . . were
intended to be relied upon by” Mr. Reynolds. UTAH CODE § 58-26a-
602(2)(b).
¶22 Although the statute does not specify whether “intended”
refers to the client or the accountant, that ambiguity is immaterial
here because the writings clearly evince intent on the part of both the
client and the accountant. The questions posed by the Altaview
Companies through their officers show that they sought tax advice
for the benefit of Mr. Reynolds. The writings also show that the
Defendants intended Mr. Reynolds’s reliance. Black’s Law
Dictionary defines “intend” as “[t]o contemplate that the usual
consequences of one’s act will probably or necessarily follow from
the act, whether or not those consequences are desired for their own
sake.” BLACK’S LAW DICTIONARY 881 (9th ed. 2009). Accordingly, to
the extent subsection (2)(b) requires a statement of the accountant’s
intent, written acknowledgment that a third party will likely rely on
the accountant’s services is sufficient.
¶23 For three months, Defendants provided ongoing tax
advice, knowing all along that no one besides Mr. Reynolds could
benefit from the advice. Indeed, Defendants admit they “knew that
a primary reason that Altaview entered into the [retention]
Agreement was to provide tax and transactional services which
would benefit Reynolds by minimizing his tax liability from the
sale.” Defendants argue only that they did not communicate in
writing their intent for Mr. Reynolds to rely. We disagree. The
writings presented to the district court plainly show that Defendants
contemplated that, as the natural consequence of their providing
advice regarding Mr. Reynolds’s tax liability, Mr. Reynolds would
rely on the advice. Accordingly, both prongs of the exception found
in Section 602(2) are satisfied, and Mr. Reynolds may proceed in his
professional negligence action against Defendants.
CONCLUSION
¶24 We hold that Defendants are liable to Mr. Reynolds as a
third party under Section 602 because (1) they “knew that a primary
intent of the client” was for Mr. Reynolds to rely on their services
and (2) they “identified in writing . . . that the professional services
. . . were intended to be relied upon by” Mr. Reynolds. We therefore
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reverse the district court’s grant of summary judgment and direct
that Mr. Reynolds be allowed to proceed with his claims against
Defendants.
9