         IN THE MISSOURI COURT OF APPEALS
                 WESTERN DISTRICT

KENNY S. THOMAS, ET AL.,                     )
                                             )
               Appellants,                   )
                                             )
vs.                                          )       WD78122
                                             )
GRANT THORNTON LLP,                          )       Opinion filed: October 6, 2015
                                             )
               Respondent.                   )


      APPEAL FROM THE CIRCUIT COURT OF JACKSON COUNTY, MISSOURI
               THE HONORABLE S. MARGENE BURNETT, JUDGE

                  Before Division Two: Thomas H. Newton, Presiding Judge,
                     Victor C. Howard, Judge and Mark D. Pfeiffer, Judge

       Kenny and Eileen Thomas and Kelly and Mandy Thomas (collectively “the Thomases”)

appeal the judgment of the trial court dismissing their claims for fraudulent and negligent

misrepresentation, breach of fiduciary duty, and professional negligence against Grant Thornton

LLP as time-barred by the Kansas two-year statute of limitations, K.S.A. §§ 60-513(a)(3) &

(4)(2005). The Thomases contend that the trial court erred in dismissing their petition because

their claims accrued in Missouri in February 2009 and, due to a series of tolling agreements

executed by the parties, were not time-barred under Missouri’s five-year statute of limitations for

general torts and fraud, § 516.120, RSMo 2000, when they filed their petition in June 2014. The

judgment is affirmed.
                               Factual and Procedural Background

       The facts relevant to the question of whether the statute of limitations bars the Thomases’

claims against Grant Thornton are uncontested. In their petition for damages, the Thomases

alleged that Grant Thornton, a national accounting firm, promoted and sold to them through a

former partner in its tax practice group, Allen Davison, several abusive tax shelter schemes

resulting in significant financial damages including fees expended in purchasing the abusive

schemes, penalties and interest assessed by state and federal tax authorities, loss of deductions,

and professional fees incurred. In particular, the petition alleged that Kenny Thomas and his son,

Kelly Thomas, own an automobile dealership in Kansas called Olathe Toyota. They and their

wives, Eileen and Mandy Thomas, are all residents of Kansas.             Mr. Davison, a CPA and

attorney, sold the Thomases three tax arrangements:            a multiple entity structure (parallel

corporation arrangement), an ESOP-S corporation arrangement, and a Roth IRA-C arrangement.

Several entities owned by Kenny and Kelly Thomas, individually or collectively, were created as

part of the tax arrangements to be management companies purportedly providing services to

Olathe Toyota. Olathe Toyota took substantial expenses deductions for purported fees paid to

the various entities for management/consulting services for tax years 2002, 2003, and 2004

resulting in reduced or deferred tax liabilities in those years.

       In August and September 2006, the Internal Revenue Service issued notices of deficiency

to the Thomases, two of the Roth IRA-C entities, and one of the ESOP-S corporation entities for

tax years 2002, 2003, and 2004. The notices of deficiency reflected the IRS’s rejection of the tax

strategies sold to them by Grant Thornton and assessed back taxes and penalties for those tax

years. The Thomases and their affiliated entities contested the deficiencies in United States Tax

Court. Mr. Davison, who resigned from Grant Thornton in 2001, continued to represent the



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Thomases in his capacity as attorney and tax advisor in the tax court proceedings and continued

to reassure them that the tax arrangements were legitimate tax avoidance transactions. After

several years of litigation, the Thomases and their affiliated entities reached a settlement of their

tax court cases in February 2009 agreeing to pay substantial back taxes, interest, and penalties.

       The Thomases filed their four-count petition against Grant Thornton on June 10, 2014,

seeking damages for fraudulent and negligent misrepresentation, breach of fiduciary duty, and

professional negligence. Grant Thornton filed a motion to dismiss asserting that the Thomases’

claims were barred by the Kansas two-year statute of limitations through the application of

Missouri’s borrowing statute, section 516.190, RSMo 2000.

       In their suggestions in opposition to the motion to dismiss, the Thomases argued that

their action was timely filed within the Missouri five-year statute of limitations because the

claims accrued in February 2009 in Missouri when the U.S. Tax Court decision imposed

penalties and interest against the Thomases and because the parties had entered into a series of

tolling agreements beginning in 2011. The first tolling agreement between the parties was

effective on September 1, 2011, and ran through December 30, 2011. The second agreement,

effective on March 2, 2012, ran through September 2, 2013. The third and final agreement was

effective on September 16, 2013, and ran through May 30, 2014. All three agreements contained

the following provision:

       This Agreement effects a tolling and suspension of the statute of limitations only
       on claims for which the statute of limitations has not already expired as of the
       Effective Date of this Agreement. This Agreement has no effect on any claims
       that were barred as of the Effective Date, and does not operate to revive any such
       claims.

       The trial court granted the motion to dismiss and entered judgment for Grant Thornton

finding that the Thomases’ claims originated in 2006 in Kansas and were barred by the Kansas



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two-year statute of limitations made applicable by the Missouri borrowing statute. This appeal

by the Thomases followed.

                                         Standard of Review

          Generally, review of a trial court’s motion to dismiss is limited to the sufficiency of the

pleadings on their face. City of North Kansas City v. K.C. Beaton Holding Co., LLC, 417

S.W.3d 825, 830 (Mo. App. W.D. 2014). Where, as here, both parties introduce evidence

beyond the pleadings, a motion to dismiss is converted to a motion for summary judgment, and

the parties are charged with knowledge that the motion was so converted. Id.; Mitchell v.

McEvoy, 237 S.W.3d 257, 259 (Mo. App. E.D. 2007). Nonetheless, “[w]hen relevant facts are

uncontested, the question of whether a statute of limitations bars an action can be decided by a

court as a matter of law.” Rolwing v. Nestle Holdings, Inc., 437 S.W.3d 180, 182 (Mo. banc

2014)(citing State ex rel. Marianist Province of U.S. v. Ross, 258 S.W.3d 809, 811 (Mo. banc

2008)).

                                              Discussion

          “In ruling on statutes of limitations issues, the law of the forum state is applied.”

Alvarado v. H&R Block, Inc., 24 S.W.3d 236, 241 (Mo. App. W.D. 2000). In Missouri, the

statute of limitations for fraud, negligent misrepresentation, breach of fiduciary duty, and

professional negligence is five years. § 516.120(4) & (5). However, when a cause of action

“originates” in another state, the foreign state’s statute of limitations become applicable through

Missouri’s borrowing statute, section 516.190. Ferrellgas, Inc. v. Edward A. Smith, P.C., 190

S.W.3d 615, 620 (Mo. App. W.D. 2006); Alvarado, 24 S.W.3d at 241-42. Section 516.190

provides, “Whenever a cause of action has been fully barred by the laws of the state, territory or

country in which it originated, said bar shall be a complete defense to any action thereon,



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brought in any of the courts of this state.”         Accordingly, if the foreign state’s statute of

limitations bars an action, Missouri’s borrowing statute acts to bar the action in Missouri as well.

Ferrellgas, 190 S.W.3d at 620; Alvarado, 24 S.W.3d at 242.

       The term “originated” as used in Missouri’s borrowing statute is synonymous with the

term “accrued.” Ferrellgas, 190 S.W.3d at 620 (citing Thompson v. Crawford, 833 S.W.2d 868,

871 (Mo. banc 1992)); Alvarado, 24 S.W.3d at 242. Section 516.100 directs when a cause of

action accrues: “for the purposes of sections 516.100 to 516.370, the cause of action shall not be

deemed to accrue when the wrong is done or the technical breach of contract or duty occurs, but

when the damage resulting therefrom is sustained and is capable of ascertainment….” Damage

is sustained and capable of ascertainment when it can be discovered or made known, not when

the plaintiff actually discovers injury or wrongful conduct, and even if the extent of the damage

remains unknown. Ferrellgas, 190 S.W.3d at 620; Day v. deVries & Assocs., P.C., 98 S.W.3d

92, 96 (Mo. App. W.D. 2003); Alvarado, 24 S.W.3d at 242. “Whether damages are capable of

ascertainment is an objective test, ordinarily decided as a matter of law.” Ferrellgas, 190

S.W.3d at 620. The question is whether damages were capable of ascertainment by a reasonable

person using reasonable diligence. Id.

       Section 516.100 not only determines when a cause of action accrues but also where it

accrues for the purpose of applying the borrowing statute. Ferrellgas, 190 S.W.3d at 620; Day,

98 S.W.3d at 95; Alvarado, 24 S.W.3d at 242. “‘A cause of action accrues when and originates

where damages are sustained and are capable of ascertainment.’” Day, 98 S.W.3d at 95-96

(quoting Elmore v. Owens-Illinois, Inc., 673 S.W.2d 434, 436 (Mo. banc 1984)).

       While section 516.100 governs when negligence and breach of fiduciary duty causes of

action originate or accrue, section 516.120(5) determines when a cause of action for fraud



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accrues. Schwartz v. Lawson, 797 S.W.2d 828, 832 (Mo. App. W.D. 1990). “[A]n action for

fraud accrues not when the damage occurs or can be ascertained, but when ‘facts constituting the

fraud are discovered.’” Cmty. Title Co. v. U.S. Title Guar. Co., Inc., 965 S.W.2d 245, 252 (Mo.

App. E.D. 1998)(quoting Schwartz, 797 S.W.2d at 832).            Specifically, section 516.120(5)

provides that for an action for relief on the ground of fraud, the cause of action is “deemed not to

have accrued until the discovery by the aggrieved party, at any time within ten years, of the facts

constituting the fraud.” “A cause of action for fraud accrues at the time the defrauded party

discovered or in the exercise of due diligence should have discovered the fraud.” Larabee v.

Eichler, 271 S.W.3d 542, 546 (Mo. banc 2008)(internal quotes and citation omitted). The

plaintiff has a duty to make inquiry to discover facts surrounding the fraud, and the plaintiff is

deemed to know of the fraud when plaintiff possesses the means of discovery. Olean Assocs.,

Inc. v. Knights of Columbus, 5 S.W.3d 518, 522 (Mo. App. E.D. 1999); Cmty. Title, 965 S.W.2d

at 252. When a fiduciary relationship exists, however, only the actual discovery of the fraud

serves to begin the limitations period. Cmty. Title, 965 S.W.2d at 252.

       In the context of causes of action in negligence arising out of errant tax advice, Missouri

courts have held that the claim accrued and the statute of limitations commenced to run on the

date the IRS issued and the taxpayer received notices advising of deficiencies. Alvarado, 24

S.W.3d at 242-43; Brower v. Davidson, Deckert, Schutter & Glassman, P.C., 686 S.W.2d 1, 3-4

(Mo. App. W.D. 1984). In Brower, plaintiffs brought a negligence claim against attorneys and

an accountant based on failure to complete within twelve months the distribution to stockholders

of assets of a liquidating corporation.     686 S.W.2d at 1-2.     This court affirmed summary

judgment for the defendants on statute of limitations grounds holding that the plaintiff’s damage




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was capable of ascertainment and the statute of limitations commenced to run on the date of the

IRS report calculating a tax deficiency based upon the failure. Id. at 2-3. It explained:

       From that point on, plaintiffs can scarcely claim that they did not know that they
       were exposed to a substantial tax liability by reason of the failure to complete the
       distribution of the corporate assets [within twelve months]….The
       ‘discoverability’ of the fact of damage…could no longer be an open question. It
       was not only ‘discoverable;’ it was discovered.

       Id. at 3.

       Similarly, in Alvarado, this court held that plaintiffs’ accounting malpractice (negligence)

claim against H&R Block arising out of income tax return preparation services was barred by

California’s two-year statute of limitations as applied by the Missouri borrowing statute. 24

S.W.3d at 241-43. It explained that the cause of action accrued when and where the plaintiffs

ascertained that they had sustained damages in the form of assessed penalties by the IRS

pertaining to the preparation of their income taxes. Id. at 242. That occurred when they received

the IRS notices of deficiency while living in California. Id. at 242-43. The rulings in Brower

and Alvarado are consistent with authority from other jurisdictions, which hold that the statute of

limitations on negligence claims begins to run when the IRS issues notices of deficiency

assessment. See e.g. Thomas v. Cleary, 768 P.2d 1090, 1093-94 (Alaska 1989); Int’l Engine

Parts, Inc. v. Feddersen & Co., 888 P.2d 1279, 1288 (Cal. 1995); Feldman v. Granger, 257 A.2d

421, 425 (Md. 1969); Chisholm v. Scott, 526 P.2d 1300, 1302 (N.M. Ct. App. 1974); Hoover v.

Gregory, 835 S.W.2d 668, 672 (Tex. App. 1992). But see Peat, Marwick, Mitchell & Co. v.

Lane, 565 So.2d 1323, 1326-27 (Fla. 1990), and Clark v. Deloitte & Touche LLP, 34 P.3d 209,

216-17 (Utah 2001)(statute of limitations begins to run when Tax Court renders decision

assessing deficiency).




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       The Thomases argue that their claims accrued in February 2009 when the Tax Court

approved their settlement of their disputes with the IRS. However, as in Brower and Alvarado,

the Thomases knew that they were exposed to a substantial liability for back taxes and penalties

based on the IRS’s rejection of the tax schemes sold to them by Grant Thornton when they

received the notices of deficiency from the IRS in September 2006 at their homes in Kansas.

The notices of deficiency consisting of multiple pages showed the calculated deficiencies and

penalties and included detailed statements explaining how the deficiencies were figured. They

also specifically informed the Thomases that the IRS was asserting that “various management

entities were created to shift income from the operating company Olathe Toyota,” that

transactions between the various entities were not respected by the IRS because the companies

“lack a legitimate business purpose and economic substance, and were formed for the sole

purpose of obtaining tax benefits,” and that payments made by the companies to the taxpayers

and reflected on returns as “loans to shareholders” were “accounts used to shift monies to

shareholders of the operating company or management companies as part of the tax avoidance

transaction and/or do not represent bona fide debts.” At the time and place they received their

notices of deficiency, the Thomases were capable of ascertaining that they had sustained

damages from the use of the abusive tax shelter schemes even though the full amount of the

ultimate damages may not have been determined until the case was settled in tax court. The

Thomases’ claims for negligent misrepresentation, breach of fiduciary duty, and professional

negligence originated in September 2006 in Kansas.

       In their count for fraudulent misrepresentation, the Thomases alleged that Grant Thornton

affirmatively misrepresented to them that the tax schemes were legitimate tax avoidance

strategies that would withstand IRS scrutiny. Because a fiduciary relationship existed between



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Grant Thornton and the Thomases, this claim accrued when the Thomases actually discovered

the fraud. The Thomases contend that they did not learn that Grant Thornton’s advice was

fraudulent until they were forced to settle their tax court claim in 2009. However, as with their

negligence claims, their cause of action for fraudulent misrepresentation also accrued when and

where they received the notices of deficiency. The notices of deficiency alerted the Thomases to

the facts giving rise to their fraud claim.1 Upon receipt of the detailed notices of deficiency, the

Thomases actually discovered that the tax schemes were not legitimate tax avoidance strategies

as allegedly represented by Grant Thornton. See, e.g., Nerman v. Alexander Grant & Co., 926

F.2d 717 (8th 1991)(fraud claim against accounting firm based on representations regarding

investment and tax shelter deductions accrued when they received memo shortly after the

investment was made disclosing risks, even before the IRS notified them that their tax

deductions would be disallowed). All of the Thomases’ causes of action originated in Kansas in

September 2006, and the Kansas statute of limitations applies to those claims through Missouri’s

borrowing statute.

         Under Kansas law, claims for negligent misrepresentation, breach of fiduciary duty, and

professional negligence are governed by the two-year statute of limitations. K.S.A. § 60-

513(a)(4).     Fraud claims shall also be brought within two years.                    K.S.A. § 60-513(a)(3).

Although the parties entered into tolling agreements, the agreements provided that they applied

only to claims for which the statute of limitations had not already expired as of the effective date

of the agreements. The effective date of the first agreement was September 1, 2011, long after

1
  The plaintiffs in Alvarado also brought a fraudulent misrepresentation claim and alleged in their petition that the
first time they knew or could have known that the defendant had made false statements to them was in April 1993
when they discovered that their tax preparer had failed to appear for scheduled meetings with the IRS and had
signed a notice of deficiency waiver without their authorization, which occurred two months after they received the
notices of deficiency in February 1993. This court noted that the statute of limitations on the fraud claim
commenced in April 1993 and that the claim was barred under the California statute of limitations. The parties did
not argue, and this court did not need to decide, whether the notices of deficiency received two months earlier
should have alerted the plaintiffs to the facts constituting the fraud.

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the statute of limitations on the Thomases’ claims had already expired. The trial court did not err

in dismissing the Thomases’ claims for fraudulent and negligent misrepresentation, breach of

fiduciary duty, and professional negligence. The point is denied.

       The judgment is affirmed.




                                             __________________________________________
                                             VICTOR C. HOWARD, JUDGE

All concur.




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