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Leendertsen v. Waterhouse

filed: May 20, 1996.

HOWARD V. LEENDERTSEN AND ELIZABETH LEENDERTSEN, HUSBAND AND WIFE, RESPONDENT,
v.
PRICE WATERHOUSE, A PARTNERSHIP; APPELLANT, AND CLARK, NUBER & CO., A PROFESSIONAL SERVICE CORPORATION, DEFENDANT.



Superior Court County: King. Superior Court Cause No: 93-2-02056-2. Date filed in Superior Court: Nov. 19, 1994, Dec. 6, 1994, Dec. 14, 1994, Jan. 23, 1995. Superior Court Judge Signing: Mary Brucker.

Writted by: Coleman, J., Concurred by: Grosse, J., Becker, J.

Author: Coleman

COLEMAN, J. -- We are asked to address whether the

trial court erred by permitting the Leendertens to recover interest paid to the IRS as a result of an underpayment of taxes caused in part by Price Waterhouse's negligence. PW argues that because the Leendertsens had the value of the use of the money, recovering interest paid to the IRS is inappropriate. We agree and reverse.

Clark, Nuber & Co., a prior defendant in this case, prepared plaintiffs Howard and Elizabeth Leendertsens' tax returns for 1986 and 1987. These returns miscalculated the Leendertsens' net operating loss carrybacks, resulting in excessive tax refunds. Unaware of these mistakes, the Leendertsens hired PW the next year to prepare their 1988 tax returns. PW failed to detect the prior error and obtained an erroneously excessive refund for the Leendertsens in 1989. From 1987 to 1989, the Leendertsens received approximately $400,000 in excessive tax refunds. In 1991, the IRS discovered the mistakes in the tax returns, and in 1994, the Leendertsens paid the IRS $634,608.45.

The Leendertsens sued Clark, Nuber & Co. and PW, claiming negligence and promissory estoppel. The Leendertsens contended the "defendants negligently promised" that the tax refunds could be used in their new business, Hilton Oil. From 1987 to 1990, the Leendertsens invested close to $1 million in the business. In an interrogatory answer, the Leendertsens stated, "Upon receipt of these funds, plaintiffs could do what they wanted with the money. Plaintiffs elected to use the money to fund the growth of Hilton Oil." The Leendertsens also stated, "Plaintiffs justifiably relied on these promises to their detriment by investing refund money in Hilton Oil. Now the plaintiffs will likely have to sell Hilton Oil in order to pay off the tax deficiencies." PW moved for summary judgment. The court granted summary judgment on the promissory estoppel claim and denied summary judgment on the negligence claim.

PW moved to exclude any evidence contradicting the

Leendertsens statements in their complaint and interrogatory responses that the proceeds of their IRS refunds were invested in Hilton Oil. The Leendertsens also brought a motion in limine to exclude any evidence of how they invested their tax refunds. The court denied both motions.

At trial, Howard Leendertsen stated that the excess refund money was used to pay off a line of credit at Seafirst Bank. Leendertsen stated that he was mistaken when he earlier stated that the money went into Hilton Oil because he did not then have the benefit of bank records. PW introduced the Leendertsens' complaints and the portions of their interrogatory responses indicating that the money was invested in Hilton Oil and further presented evidence that the Leendertsens received a substantial return from their investment.

The court instructed the jury that, if it found for the Leendertsens, the jury should consider costs of litigation with the IRS and the interest owed or paid by the Leendertsens because of the excess tax refunds. The court then stated, "In deciding whether these elements actually constituted damage to plaintiffs, you should consider the reasonable value, if any, of the use of the money to the plaintiffs." The verdict form requested damages generally, without specifying the portion for interest paid or owed, and the portion for attorney's fees.

The jury awarded damages of $235,518, assigning 89 percent of the blame to PW, resulting in a principal judgment amount against PW of $209,611.02. PW does not contest on appeal the $31,611.02 attributable to PW's share of ...


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