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Great Southern Excavators, Inc. v. TEC Partners, LLP

Court of Appeals of Mississippi

April 18, 2017

GREAT SOUTHERN EXCAVATORS, INC., GREAT SOUTHERN SHELL, INC., CHRISTOPHER E. LOVELACE AND EDWARD C. LOVELACE, JR. APPELLANTS
v.
TEC PARTNERS, LLP AND JEFFREY A. TURNIPSEED APPELLEES

          DATE OF JUDGMENT: 09/17/2015

         RANKIN COUNTY CIRCUIT COURT, HON. WILLIAM E. CHAPMAN III.

          ATTORNEY FOR APPELLANTS: CLARENCE MCDONALD LELAND.

          ATTORNEY FOR APPELLEES: ALEXANDER FREDERICK GUIDRY.

          BEFORE LEE, C.J., BARNES AND FAIR, JJ.

          FAIR, J.

         ¶1. This is an accounting malpractice case. In 2001, Great Southern Excavators Inc. and Great Southern Shell Inc. (collectively Great Southern) hired Jeffrey Turnipseed, a member of accounting firm TEC Partners LLP (TEC), to provide accounting and tax services. Both Great Southern corporations were majority owned and operated by two brothers - Christopher Lovelace and Edward Lovelace Jr.[1]

         ¶2. The Lovelaces claimed Turnipseed was hired to oversee their office manager (and aunt) Anita Musgrove in calculating and depositing payroll taxes. In 2004, the IRS alerted Great Southern that it owed back federal payroll taxes. The matter was resolved, but another filing deficiency happened two years later. Great Southern later discovered Musgrove had been embezzling company funds. Great Southern sued TEC and Turnipseed for failure to ensure the payroll tax deposits were made timely and for failure to report Musgrove's embezzlement of company funds.

         ¶3. After years of litigation, TEC moved for summary judgment, which was granted by the circuit court. Great Southern appeals, asserting the circuit judge erred in finding that: (1) expert testimony was required to prove that TEC breached the applicable standard of care; and (2) Great Southern's expert failed to state how TEC breached that standard of care. The case hinges on whether or not Turnipseed and TEC agreed to weekly review by TEC of payroll taxes (Great Southern's employees were paid weekly) - a responsibility not set out in the original written contract. We find that there remain questions of material fact between the parties, and therefore the circuit court erred in granting TEC's motion for summary judgment. We reverse and remand.

         FACTS

         ¶4. Great Southern originally hired TEC to prepare monthly financial statements, prepare tax returns, perform a review of financial statements, and prepare profit/loss reports on a per-job basis. The 2001 engagement letter set out the nature and limitations of TEC's services in which these monthly services would be performed for a monthly fee of $775. Other services, including review of the payroll account by request, were performed and charged for as required.

         ¶5. In 2004, the IRS discovered that Great Southern had not paid its federal payroll taxes. Funds owed to the IRS in Great Southern's payroll account had not been electronically transferred to the IRS account in the same bank. After a meeting with the IRS, funds remaining in the account were immediately deposited with the IRS, and the issue was attributed to an error related to the company computer and its operator, Musgrove.

         ¶6. In the summer of 2006, Great Southern realized there was still a problem with the federal payroll taxes. The corporation immediately alerted the IRS and paid the taxes a few months later with proceeds from loans secured by corporate property. During its review, the IRS notified Great Southern that there was an embezzlement problem. An investigation by Great Southern ensued, and the embezzler was revealed - Musgrove. She had been getting the refund checks and depositing them into her personal account. Musgrove was arrested, pled guilty, and served a two year prison sentence.

         ¶7. Great Southern sued Turnipseed and TEC, submitting that they violated their duty based on an agreement between Christopher and Turnipseed - that Turnipseed would come to the office weekly to ensure that the funds due to the IRS were actually transferred from the payroll account to the IRS account. In support of Great Southern's claim, Christopher stated that, after the 2004 problem, Turnipseed came to Great Southern's office weekly to make sure the payroll taxes were paid. Musgrove testified to the same effect. TEC denied that it "originally agreed" to monitor Great Southern's federal payroll taxes, as the 2001 engagement ...


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