Background on Wisconsin Accountant-Liability Law
Some background on Wisconsin accountant-liability law is in order. In the ’80s and early ’90s, a few notable Wisconsin court decisions greatly broadened the potential liability of accountants. In Citizens State Bank v. Timm, Schmidt & Co., S.C., the Wisconsin Supreme Court in 1983 held that accountants could be held liable for all “foreseeable consequences” of the negligent performance of their duties. In so doing, the court rejected the more traditional rules applicable in other states that limited lawsuits against accountants to those brought by clients (the standard in the 1931 New York decision Ultramares v. Touche) or to those brought by a limited group of third parties (i.e., nonclients) who would be expected to rely on an accountant’s work (a standard drawn from the Restatement (Second) of Torts § 552). Timm thus allowed any third party to sue an accountant, so long as that third party’s reliance on the accountant’s work was “foreseeable”—a vague standard that proved problematic.
Timm’s effect on accountant liability was apparent in a 1992 decision of Wisconsin’s court of appeals, Chevron Chemical Co. v. Deloitte & Touche. Deloitte had audited a company’s financial statements, and the audit report had been provided to the company’s creditors, including Chevron. Deloitte shortly thereafter discovered that, due to the company’s billing irregularities, the financial statements were incorrect, and it urged the company to recall the audit report. The company refused, and, after it went bankrupt, Chevron successfully sued Deloitte based on the very audit report Deloitte had asked to be recalled.
In response to an increase in professional liability claims like this in Wisconsin and elsewhere, the American Institute of Certified Public Accountants (AICPA) led a nationwide effort in the early ’90s to limit accountant liability through, among other things, statutes that would reinstate a privity requirement and bar stale claims. The Wisconsin Institute of Certified Public Accountants (WICPA) participated in that effort in Wisconsin, and the result was the passage of a six-year statute of repose that barred claims against licensed CPAs in Wisconsin after six years.
Van Sickle Lawsuit
Fast-forward to the recent case in Dane County Circuit Court (Van Sickle v. Michael Best & Friedrich LLP, Case No. 21-CV-1624), where a law firm was sued in 2021 by shareholders of its former client for allegedly failing to advise them regarding the tax consequences of converting a C-corp formed in 2010 to an S-corp in 2011. In 2022, the law firm filed a third-party complaint against Grant Thornton LLP, the CPA firm that had prepared the client’s 2010 tax returns and filed the S-corp election in 2011 at the client’s request. When Grant Thornton moved to dismiss the law firm’s third-party claim on the grounds that more than six years had passed since the events in question, the law firm argued that the statute of repose for CPAs violated the law firm’s right to equal protection because there is no similar statute for attorneys. (The law firm’s statute of limitations argument had failed earlier because malpractice claims against lawyers in Wisconsin have a discovery rule that begins to run only when clients discover that they have suffered injury.)
The Dane County Circuit Court upheld the CPA’s statute of repose and dismissed the third-party lawsuit against Grant Thornton—and, in so doing, it made a number of important rulings:
- First, the court held that section 893.66 did not violate the Equal Protection Clauses of the United States and Wisconsin Constitutions. The court acknowledged that licensed CPAs received benefits under section 893.66 that lawyers do not. But this was permissible under the Equal Protection Clauses because CPAs and lawyers are not similarly situated (even though their work might arguably overlap at times) and because Wisconsin’s legislature had acted rationally by deciding, in response to decisions like Timm and Chevron (which do not apply to lawyers), to create a six-year statute of repose for licensed CPAs.
- Second, the court rejected the law firm’s argument that the statute did not apply because professional accounting services does not include tax work but is limited to work that involves recording financial transactions or attest engagements. CPAs provide a much broader range of services to their clients—auditing, tax advice, financial-statement analysis, or managerial-accounting services—and the court decided that section 893.66 protects the CPA engaged in a broader set of services, including the tax work at issue in Van Sickle.
- Third, the court decided that the statute of repose applies to CPAs licensed in states other than Wisconsin when they provide their services to Wisconsin clients. The court reasoned that Wisconsin’s legislature had passed section 893.66 for the purpose of limiting the potential liability of those who obtained the education and training required for the CPA license, regardless of whether they were licensed in Wisconsin or another state.
- Fourth, and finally, the court held that section 893.66 applies not only to lawsuits brought directly by a plaintiff against a CPA but also to contribution claims brought by another defendant who attempted to shift responsibility to the licensed CPA. Observing that section 893.66 bars claims based on any “legal theory,” the court held that the statute barred contribution claims against CPAs after six years.
Conclusion
Having survived a rare constitutional challenge, section 893.66 remains an invaluable tool for CPAs who might otherwise have to defend against stale lawsuits under Wisconsin’s broad liability standards. And the Van Sickle decision, in particular, is a good reminder of the importance of the statute of repose for CPAs providing professional accounting services in Wisconsin.