Accounting malpractice claim is dismissed for being filed too late under "last date of treatment" rule.
Rehman Group, LLC and its affiliates secured the dismissal of an accounting malpractice claim brought against it by Chase Farms, Inc. Chase had obtained $19 million dollars in bank lonans to expland in reliance upon a 2007 inventory and Rehman audit. It subsequently learned that the inventory was over-stated by millions of dollars. This put the plaintiff in breach of its loan terms; the loans were foreclosed and the company was liquidated. The Plaintiffs sued Rehman in 2011; they argued that a proper audit would have discovered the accounting error on inventory and enabled the company to "scale back" and to avoid what turned out to be fatal borrowing and expansion.The accounting firm argued that the audit was a "discrete" service which started the running of the two-year statute of limitations in 2007. It also argued that the inventory error was, in fact, discovered in 2008, so that the six-month discovery statute did not apply. The trial court agreed and dismissed the claim over the Plaintiffs' objection that it had a continuing professional relationship with Rehman that extended throughout 2009, and that Rehman's accounting malpractice continued through that date.
The Court of Appeals applied the interpretation of the "last date of treatment" rule which was adopted by the Republican majority of the Michigan Supreme Court in a 1990 decision. Under its interpretation of that rule, a professional who makes a series of mistakes cannot be sued more than two years after the error is first made. Therefore, the Court of Appeals held that even if Rehman made a continuing error throughout 2007 and 2008, the statute of limitations began running on the first date of the error, essentially "immunizing" the professional from liabilty for subsequent errors. To reach this conclusion, the court was forced to conclude that Rehman did not provide "generalized accounting services" to the plaintiff cooperative over the two-year period. This probably came as a surprise to the members of the cooperative.