Getting sued for malpractice

[cactuscom]

Jurisdiction

California

I'm a partner in an accounting firm and a client, after 20 years, is suing us for malpractice.

They're claiming that we misappropriated funds for the last 20 years (incorrect) as well as filing incorrect payroll tax returns (all returns were filed correctly and on time) and they're demanding $3 million dollars or they will pursue legal action.

We don't have malpractice insurance (stupid, I know, it's not my decision).

Aside from waiting for them to instigate legal proceedings and us having a lawyer, what else can we do? How likely is this to actually lead to anything substantial? Do they have an actual case?

 

[adjusterjack]

is suing us for malpractice.

they're demanding $3 million dollars or they will pursue legal action.

waiting for them to instigate legal proceedings

Why is it that people keep saying they are being sued when they aren't being sued.

The threat of a lawsuit is not a lawsuit.

When you are served a summons and complaint, THEN you are being sued.

Until then, turn a deaf ear to the threat and don't talk to them. Learn how to say "no comment" and make it stick.

what else can we do?

Compile and examine all the client's records.

How likely is this to actually lead to anything substantial?

Dunno. Could be a bluff to get you to do something stupid, like talk to them.

Do they have an actual case?

Dunno. If you get sued a court will determine that.

Oh, one more thing.

We don't have malpractice insurance (stupid, I know, it's not my decision).

You could have bought it for yourself.

 

[cactuscom]

Why is it that people keep saying they are being sued when they aren't being sued.

The threat of a lawsuit is not a lawsuit.

When you are served a summons and complaint, THEN you are being sued.

Until then, turn a deaf ear to the threat and don't talk to them. Learn how to say "no comment" and make it stick.



Compile and examine all the client's records.



Dunno. Could be a bluff to get you to do something stupid, like talk to them.



Dunno. If you get sued a court will determine that.

Oh, one more thing.



You could have bought it for yourself.

Thank you for the reply.

 

[army judge]

Seek to retain a CPA to review your work product for your client AFTER retaining an attorney to represent your firm in the ALLEGED, POSSIBLY PENDING lawsuit.

Speak with the CPA and the attorney ONLY about the
LAWSUIT.

SILENCE is your friend and potentially protector, along with CPA who'll AUDIT the unhappy client's work product being disputed, perhaps litigated.

Until you accomplish the above, run SILENT, run DEAFLY.

Spoken words now MIGHT only INCRIMINATE your firm.

 

[cactuscom]

Seek to retain a CPA to review your work product for your client AFTER retaining an attorney to represent your firm in the ALLEGED, POSSIBLY PENDING lawsuit.

Speak with the CPA and the attorney ONLY about the
LAWSUIT.

SILENCE is your friend and potentially protector, along with CPA who'll AUDIT the unhappy client's work product being disputed, perhaps litigated.

Until you accomplish the above, run SILENT, run DEAFLY.

Spoken words now MIGHT only INCRIMINATE your firm.



View attachment 5511

We are both CPAs in the firm.

 

[zddoodah]

I'm a partner in an accounting firm and a client, after 20 years, is suing us for malpractice.

They're claiming that we misappropriated funds

Just FYI, misappropriation is more than malpractice. Malpractice is negligence. Misappropriation is the civil analog of theft. By the way, assuming that the real claim is misappropriation, the reason to throw in malpractice is to get your insurance involved. Insurance will cover negligence; it won't cover alleged criminal conduct.

they're demanding $3 million dollars or they will pursue legal action.

Wait...in the first sentence of your post, you wrote that the client "is suing us." Is that right? Or is it just a threat? Is the client represented by an attorney? Also, while not legally relevant, is the client an individual or a business entity?

We don't have malpractice insurance (stupid, I know, it's not my decision).

It's not just stupid, it's a violation of law. Section 75.8 of Title 16 of the California Code of Regulations request that "[a]n accountancy corporation shall provide and maintain adequate security for claims against it by its clients arising out of the rendering of or failure to render professional services. Security for such claims shall consist of either of the following:

(1) Insurance for each claim in an amount equal to at least $100,000 per licensee, provided that the maximum amount for each claim shall not be required to exceed $1,000,000, and that the minimum amount guaranteed for all claims during any one calendar year shall be at least an amount equal to $250,000 per licensee, provided that the maximum amount shall not be required to exceed $3,000,000; or
(2) A written agreement of the shareholders that they shall jointly and severally guarantee payment by the corporation of liabilities to its clients arising out of the rendering of or failure to render professional services."

Failure to carry the required security exposes shareholders of the corporation to personal liability.

Aside from waiting for them to instigate legal proceedings and us having a lawyer, what else can we do?

The only other legal option would be to try and settle.

How likely is this to actually lead to anything substantial? Do they have an actual case?

There's no conceivable way that anyone who isn't familiar with the facts and circumstances can answer these questions intelligently.

 

[army judge]

We are both CPAs in the firm.

Do you believe you're allowed to review work product being civilly disputed by your dissatisfied client?

I'm a licensed attorney in 20 US states, Australia, UK. If a client was initiating civil litigation regarding my services, I'd be an idiot to attempt to defend myself and/or my firm!

Good luck, here's hoping you eventually prevail and are vindicated.

I pray you consider the wisest, safest assistance ASAP.

Once you've chosen wisely, pull the pin, get your legal and accounting champions to serve and protect your firm, as well as retain your client list.

 

[cactuscom]

Just FYI, misappropriation is more than malpractice. Malpractice is negligence. Misappropriation is the civil analog of theft. By the way, assuming that the real claim is misappropriation, the reason to throw in malpractice is to get your insurance involved. Insurance will cover negligence; it won't cover alleged criminal conduct.




Wait...in the first sentence of your post, you wrote that the client "is suing us." Is that right? Or is it just a threat? Is the client represented by an attorney? Also, while not legally relevant, is the client an individual or a business entity?





It's not just stupid, it's a violation of law. Section 75.8 of Title 16 of the California Code of Regulations request that "[a]n accountancy corporation shall provide and maintain adequate security for claims against it by its clients arising out of the rendering of or failure to render professional services. Security for such claims shall consist of either of the following:

(1) Insurance for each claim in an amount equal to at least $100,000 per licensee, provided that the maximum amount for each claim shall not be required to exceed $1,000,000, and that the minimum amount guaranteed for all claims during any one calendar year shall be at least an amount equal to $250,000 per licensee, provided that the maximum amount shall not be required to exceed $3,000,000; or
(2) A written agreement of the shareholders that they shall jointly and severally guarantee payment by the corporation of liabilities to its clients arising out of the rendering of or failure to render professional services."

Failure to carry the required security exposes shareholders of the corporation to personal liability.




The only other legal option would be to try and settle.




There's no conceivable way that anyone who isn't familiar with the facts and circumstances can answer these questions intelligently.

To clarify, they sent us a letter demanding that money and stating the reasons why saying that if we don't pay in 30 days, they will take legal action.

I'm not savvy to the differences between negligence and malpractice so thank you for clarifying.

The client is an individual with multiple businesses.

The firm is my dad's who is doing things the same as he was 30 years ago. I'm doing my best to update as many things as I possibly can but he is resistant and I am paying for all of it out of my pocket. I'll add insurance to that list and look for a provider.

 

[EeeeekitsaMouse]

What's wrong with your father? Why would he not carry insurance on his own company? You should not be footing the bill for the company to be in compliance with state and federal law.
What were the reasons they gave as to why they think you should pay them 3 million dollars?

 

[army judge]

To clarify, they sent us a letter demanding that money and stating the reasons why saying that if we don't pay in 30 days, they will take legal action.

Such a threat or alert or notice COULD be considered by some as extortion. Speak to three or four attorneys, retain one, he or she will make sure extortion doesn't occur. Regarding the lawsuit, if you want a FAIR AND BALANCED trial, your attorney will ensure you don't get steamrolled to the POORHOUSE!!!

 

[cactuscom]

What's wrong with your father? Why would he not carry insurance on his own company? You should not be footing the bill for the company to be in compliance with state and federal law.
What were the reasons they gave as to why they think you should pay them 3 million dollars?

He's a stubborn dinosaur who made a lot of money doing things in a very narrow way for 30 years and see's no reason to change.

I'm doing the best I can and I've already spent many thousands of dollars upgrading software. Now I'm paying for malpractice insurance out of pocket because he still won't.

The reasons were that they claim that we filed incorrect payroll tax returns and that we misappropriated funds for the last 20 years.

 

[zddoodah]

You didn't say whether the letter you received came from the client or a lawyer. If it's the former, I suggest getting in front of this by having a sit down with all of your firm's shareholders/"partners" and an attorney. If it's the latter, then there is even more urgency.

 

[cactuscom]

You didn't say whether the letter you received came from the client or a lawyer. If it's the former, I suggest getting in front of this by having a sit down with all of your firm's shareholders/"partners" and an attorney. If it's the latter, then there is even more urgency.

The letter is from the client who has since tried calling us several times. We haven't answered. We've also consulted a lawyer.

 

[Zigner]

He's a stubborn dinosaur who made a lot of money doing things in a very narrow way for 30 years and see's no reason to change.

It was a requirement 30 years ago.

 

[army judge]

I'm doing the best I can and I've already spent many thousands of dollars upgrading software. Now I'm paying for malpractice insurance out of pocket because he still won't.

You're a licensed CPA, possessing experience and competency.

You're an adult.

Have you considered spending THOYSANDS OF US DOLLAR$ to found and manage your own firm?

Think about it, mate.

You'd be a huge success, running your firm under your experience, education, licensure, knowledge, YOUR WAY.

GOD bless your pops, he's probably ready to retire anyway.

Maybe Pops will allow you to Comanage his firm.

 

[cactuscom]

You're a licensed CPA, possessing experience and competency.

You're an adult.

Have you considered spending THOYSANDS OF US DOLLAR$ to found and manage your own firm?

Think about it, mate.

You'd be a huge success, running your firm under your experience, education, licensure, knowledge, YOUR WAY.

GOD bless your pops, he's probably ready to retire anyway.

Maybe Pops will allow you to Comanage his firm.

I have my own clients. Being a CPA is miserable honestly so I'm not sure if I want to shell out thousands for something that I don't find fulfilling. I only did so now because it's an established business and we needed to change things ASAP.

 

[cactuscom]

Said client just showed up at our office threatening that if we don't pay him, he's going to go to the IRS, the board of accountancy, district attorney, etc.

 

[army judge]

Said client just showed up at our office threatening that if we don't pay him, he's going to go to the IRS, the board of accountancy, district attorney, etc.

Did you call your police agency or sheriff's office?

 

[cactuscom]

Did you call your police agency or sheriff's office?

No, what would they do exactly?

He requested to talk to my dad (who is not in the office). He threatened again when I told him he wasn't here and then he walked away.

 

[zddoodah]

Again: I suggest getting in front of this by having a sit down with all of your firm's shareholders/"partners" and an attorney.

It also seems like you may have some issues with your father not acting in the firm's best interests. If so, that's a separate legal issue about which you, personally, may want to consult with a different attorney.