ISLAND CONSOLIDATED v. GRASSI CO PC (2025)

Order, Supreme Court, New York County (Margaret A. Chan, J.), entered January 9, 2025, which denied defendant's motion to dismiss the amended complaint, unanimously affirmed, with costs.

Plaintiffs brought this action alleging professional malpractice and gross negligence in connection with defendant's sales tax advice and guidance.  The parties’ relationship is governed by engagement agreements that set forth the services defendant agreed to perform, including preparing and auditing financial statements and preparing corporate and partnership income tax returns for plaintiffs.  The scope of the services did not mention giving sales tax advice.  The engagement agreements did, however, provide a framework for plaintiffs to add “Additional Services” beyond those already listed, and that such additional services may be the subject of a separate written agreement.  The engagement agreements also required notice and mediation prior to the filing of any lawsuit.

In early 2015, at plaintiffs’ request, defendant agreed to provide sales tax advice and guidance.  No separate engagement agreement was executed governing this additional service.  Plaintiffs allege that they expended large sums of money and reorganized their business operations based on this allegedly incorrect advice from defendant.

Supreme Court correctly concluded that defendant failed to establish that the complaint should be dismissed based on plaintiffs’ alleged failure to satisfy a condition precedent for commencing this lawsuit – namely, the notice and mediation requirement.  While the failure to satisfy an agreed-upon condition precedent could warrant dismissal (see e.g. Archstone Dev. LLC v. Renval Constr. LLC, 156 A.D.3d 432, 433, 67 N.Y.S.3d 7 [1st Dept. 2017]), defendant did not establish that the engagement agreements and their condition precedent language unambiguously covers plaintiffs’ causes of action, all of which involve the sales tax advice provided by defendant, a service that was not included on the specific list of services contained in the engagement agreements.

The court also correctly denied defendant's motion to the extent it sought dismissal based on the statute of limitations.  While the allegedly incorrect sales tax advice was originally given to plaintiffs in 2015, plaintiffs alleged that in 2021, in response to a New York State tax audit, defendant undertook the representation of plaintiffs in defense of the sales tax advice and guidance it had provided in 2015, thus supporting the application of the continuous representation doctrine sufficient to toll the statute of limitations (see Lemle v. Regen, Benz & MacKenzie, C.P.A's, P.C., 165 A.D.3d 414, 415, 85 N.Y.S.3d 37 [1st Dept. 2018];  cf.  Apple Bank for Sav. v. PricewaterhouseCoopers LLP, 70 A.D.3d 438, 438, 895 N.Y.S.2d 361 [1st Dept. 2010]).

Furthermore, even assuming that plaintiffs’ causes of action are subject to the engagement agreement language limiting the amount and type of damages available, it would be premature, at this pre-discovery stage and without any finding as to whether defendant was grossly negligent, to dismiss any of the categories of damages.

We have considered defendant's remaining contentions and find them unavailing.