Estate of Jobe v. John F. Berry & John F. Berry, P.C.

428 S.W.3d 888

The ESTATE OF Taylor H. JOBE, Deceased, Appellant

v.John F. BERRY and John F. Berry, P.C., Appellees.

No. 06–13–00056–CV.

Court of Appeals of Texas, Texarkana.

Submitted Feb. 12, 2014.

Decided April 9, 2014.

Gregory D. Smith, Nolan D. Smith, Stephen Miles Spitzer, Ramey & Flock, PC, Tyler, for Appellant.

Michael A. Yanof, Cassie J. Dallas, Thompson, Coe, Cousins & Irons, LLP, Dallas, for Appellees.

Before MORRISS, C.J., CARTER and MOSELEY, JJ.

OPINION

Opinion by Justice CARTER.

Taylor H. Jobe died March 20, 2008. His will named his children, Everette Dean Jobe and Laura Jobe Kelly, co-executors of his estate. To assist them in their role, Dean and Kelly retained attorney, John F. Berry, and his firm, John F. Berry, P.C.¹ According to pleadings filed on behalf of the Estate of Taylor H. Jobe (the Estate) in this lawsuit, Berry was to represent Dean and Kelly “in their capacities as the Independent Co–Executors of the Estate, and to give them legal counsel regarding how to carry out their duties ....”

Berry advised Dean and Kelly that they were required to file, by December 20, 2008,² a United States Estate (and Generation–Skipping Transfer) Tax Return (IRS Form 706) with the Internal Revenue Service (IRS) because the Estate's gross value exceeded $2,000,000.00. Berry encouraged Dean and Kelly to hire a certified public accountant (CPA) to prepare the Form 706. After the deadline to file the Form 706 had passed, Berry (1) reminded Dean and Kelly of their obligation, as co-executors of the Estate, to file the Estate's tax return, (2) informed them that the deadline for filing the return had passed, and (3) offered to refer them to a CPA. The record demonstrates that Dean, previously a CPA and currently an attorney employed by the Texas Department of Banking (TDB), and Kelly waited until January 18, 2011, to file the Form 706.

As a result of the late filing, the IRS assessed penalties and interest against the Estate. On May 1, 2012, Dean and Kelly sued Berry on behalf of the Estate for legal malpractice allegedly arising out of the late filing of the Form 706. Berry asserted the statute of limitations as an affirmative defense and filed a motion for summary judgment based on that defense. The trial court agreed with Berry that the Estate's malpractice claims were time-barred and granted summary judgment in Berry's favor.

On appeal, Dean and Kelly contend that the discovery rule and the Hughes³ rule tolled the statute of limitations applicable to the Estate's malpractice claims against Berry and that, as a result, the trial court erred in entering summary judgment for Berry. We conclude that the discovery rule was invoked by the facts of this case. However, because we find that (1) Dean and Kelly knew the deadline for filing the Form 706, (2) Berry informed Dean and Kelly that the Form 706 was late, and, (3) at least as of April 24, 2009, Dean and Kelly knew or should have known, given Dean's professional experience, that the Estate was subject to IRS-assessed penalties and interest as a result of the late-filed return, we further conclude that proper application of the discovery rule to the facts of the case does not save the Estate's claims from the time-bar of the applicable statute of limitations. Finally, we conclude that the tolling principles articulated in Hughes relating specifically to legal malpractice claims are inapplicable to the Estate's claims. As a result, we affirm the trial court's judgment.

I. Factual Background

Dean and Kelly believed Berry was involved in the preparation of the Form 706 and remained responsible for advising them about whether estate taxes were owed and when they would be due. Dean and Kelly sued Berry for legal malpractice on behalf of the Estate, alleging that (1) Berry incorrectly advised them that the Estate would have no tax liability, (2) Berry failed to ensure that the Form 706 was timely filed, and (3) Berry concealed his malpractice in the handling of the Estate's tax return.

A. Timeline of Events

The timeline of events, as established by the summary judgment proof, is critical to an understanding of the claims and arguments raised in this case.

1. Events Occurring Before the December 28, 2008, Deadline

On March 24, 2008, four days after Jobe's death, Dean e-mailed Berry with the intention of securing Berry's legal representation. Dean made the following statements in that e-mail:

• “[Kelly] and I want you to represent us in our capacity as co-executors of the estate.”

• “Assuming you agree [to the representation], we intend to use the accounting firm [Jobe] used to assist us with tax returns, the inventory, the forensic effort to identify separate and community property, etc. I believe the firm has information on all aspects of [Jobe]'s estate.... At present we believe the firm is trustworthy ....”

• “My spouse, Lee Anderson, is a very competent CPA and will be looking over our shoulders to confirm that the accounting advice and product we receive appear normal. Are there any other professionals you believe we should retain for specific tasks?”

• “I spoke with the accountant, Jim Forbis, this morning and will be sending him my contact info. He has already met and spoken with [Kelly.]”

• “[Forbis] mentioned that [Jobe] and [Jobe's ex-wife] Rose owe a LOT in taxes from last year. I believe there are funds already set aside for this purpose, although [Kelly] will know more about this.”

Berry agreed to represent Dean and Kelly in their capacity as co-executors of the Estate.

On April 15, 2008, Jobe's will (the Will) was admitted to probate. The Will (1) left Jobe's home and personal property to his ex-wife, Rose, (2) placed $2,000,000.00 in the Rose Jobe Family Trust, (3) established three separate lifetime trusts, one for each of Jobe's children, Dean, Kelly, and Margaret, and (4) divided the residue of the Estate in three equal parts and placed one part in each of those lifetime trusts. Dean and Kelly advanced funds to Rose in exchange for a disclaimer of interest that Rose was to prepare.

On May 8, 2008, Berry's firm sent a letter to Dean and Kelly advising that the Estate would likely owe taxes “[s]ince the estate is likely to exceed the available Estate Tax Exemption.” The letter identified the steps that had to be taken before the Estate's assets and claims could be properly inventoried and reminded Dean and Kelly that the return, “unless extended, is due on December 20, 2008.” Berry advised Dean and Kelly to seek the advice of a CPA regarding the tax return and offered to recommend a CPA for that purpose. ⁴

On December 18, 2008, two days before the Form 706 deadline, Dean e-mailed Berry, writing, “Whether we can trace all the recent proceeds is a separate question of proof. Obviously we need to get the accountant involved. He will need to get started on tax returns soon, and we should pay him to help us document and trace.”

The December 20, 2008, deadline for filing the Form 706 passed. Neither the tax return nor a request for an extension of the filing deadline was filed.

2. Events Occurring After the December 28, 2008, Deadline

On April 2, 2009, Berry filed a probate inventory in County Court at Law No. 2 of Gregg County showing that the value of the Estate exceeded $2,700,000.00. Again, this confirmed that a Form 706 was due.

On April 24, 2009, Berry wrote an e-mail that is especially important in determining if summary judgment was proper. The e-mail addressed to Dean and Kelly warned, “We need to file the estate tax return, and I would recommend that we use an accountant to do so. Forbis doesn't do that type of work.... We should do this as soon as possible as we are already late, and part of the problem was Rose's delay in filing the disclaimer.” On May 15, 2009, Berry sent another e-mail to Dean and Kelly asking, “Do we have an accountant lined up to do the estate tax return?” Dean replied, stating that he would soon “confirm on CPA choice or offer someone else ....”

On May 26, 2009, Dean informed Berry via e-mail that he was inclined to use Forbis to handle the Estate's tax return. In a separate e-mail sent on that day, Dean stated that Forbis “is agreeable to handling tax returns for the estate. Although I'm certain he doesn't have the expertise of your neighbor, in my view the estate is not large enough to require seeking out top-notch expertise.... At your convenience we need to sends [sic] him the information he will need.”

On June 19, 2009, Berry acknowledged Forbis' retention in a letter to him. The letter (1) stated, “I understand that you are going to prepare the estate tax return, and I am pleased to hear this”; (2) communicated Berry's willingness to coordinate the funding of a family trust with Forbis and “assist [Forbis] in the preparationof the estate tax return so that [they could] wind everything up”; and (3) enclosed a copy of the Will and codicil, along with the Estate's inventory, appraisement, and list of claims.

Almost three months passed without activity.

On September 9, 2009, Berry informed Dean via e-mail that he had received a draft copy of the Form 706 from Forbis, but stated that he needed additional time to review it because he did not agree with the numbers shown and wanted to make sure the return followed the Will and codicil.

On October 12, 2009, Berry reported to Dean:

The estate tax return drafted by Jim Forbis, does not really follow the will and codicil, nor does it include the annuities paid directly to Rose, so I will send him the additional information. I will recommend that we take losses in the estate for reductions in the values of the assets, and I am not expecting any estate tax, or certainly not much to be due, given the losses. The gross estate was slightly over the tax exempt amount, taking off the items that were paid or distributed directly to Rose. The expenses and losses should take care of the rest.⁵

On August 6, 2010, Berry sent Forbis a letter pointing out the changes that...