Frank v. Lockwood

procedures under the CBA in terminating his employment. In
a petition in error appeal from the Commission, the district
court has jurisdiction to determine contract issues related to
disciplinary actions; the petitioner is not required to file a claim
with the county under § 23-135.
Regarding Pierce’s claims of insufficient evidence, we con-
clude that the evidence fails to show that the Department
considered Pierce’s alleged conduct on August 6, 2002, to be
a serious violation of the personnel manual, warranting termina-
tion. The Department’s decision to charge Pierce with a second
offense of “[i]mmoral, indecent, disgraceful, or inappropriate
conduct” was apparently motivated by a second allegation of
misconduct that played no role in the Commission’s decision to
uphold Pierce’s termination. The district court therefore erred
in affirming Pierce’s termination based on his alleged conduct
on August 6. Accordingly, we reverse the district court’s judg-
ment, which affirmed the decision of the Commission to uphold
Pierce’s termination. We remand the cause with directions to
the district court to remand the case to the Commission to
vacate its order.
R eveRsed and Remanded with diRections .
R ogeR FRank et al ., appellees , v . FRed a. lockwood
and FRed a. lockwood & co ., p.c.,
a nebRaska coRpoRation ,
appellants .
749 N.W.2d 443
Filed May 23, 2008. 	No. S-06-731.
1. Directed Verdict: Evidence: Appeal and Error. Concerning the overruling of
a motion for a directed verdict made at the close of all the evidence, appellate
review is controlled by the rule that a directed verdict is proper only when reason-
able minds can draw but one conclusion from the evidence, where an issue should
be decided as a matter of law.
2. Judgments: Verdicts. On a motion for judgment notwithstanding the verdict,
the moving party is deemed to have admitted as true all the relevant evidence
admitted that is favorable to the party against whom the motion is directed, and,
further, the party against whom the motion is directed is entitled to the benefit of
all proper inferences deducible from the relevant evidence.
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736 	275 NeBRASkAR ePORTS
3. ____: ____. To sustain a motion for judgment notwithstanding the verdict, the
court resolves the controversy as a matter of law and may do so only when the
facts are such that reasonable minds can draw but one conclusion.
4. Judgments: Verdicts: Directed Verdict. A motion for judgment notwithstanding
the verdict may be granted when the movant’s previous motion for directed ver-
dict, made at the conclusion of all the evidence, should have been sustained.
5. Malpractice: Accounting: Negligence: Proximate Cause: Proof: Damages.
A plaintiff alleging accounting negligence must prove three elements: (1) the
accountant’s employment, (2) the accountant’s neglect of a reasonable duty, and
(3) that such negligence resulted in and was the proximate cause of loss (damages)
to the client.
6. Negligence: Proximate Cause: Words and Phrases. A proximate cause is a
cause that produces a result in a natural and continuous sequence and without
which the result would not have occurred.
7. Malpractice: Accounting: Taxes: Interest: Proof: Damages. Interest on taxes
is recoverable in accounting malpractice actions to the extent plaintiffs carry their
burden of showing that they were damaged by the imposition of interest.
8. Malpractice: Accountants: Negligence: Penalties and Forfeitures: Damages.
Penalties may be recoverable as an element of damages when such penalties are
the result of an accountant’s negligence.
Appeal from the District Court for Scotts Bluff County:
R obeRt o. hippe, Judge. Affirmed in part, reversed in part, and
remanded for a new trial on the issue of damages.
David A. Domina and Claudial . Stringfield-Johnson, of
Dominal aw Group, P.C.,l .l.O., andk evin J. Dostal for
appellants.
Jarrod P. Crouse, of Sorensen, Mickey & Hahn, P.C., and
Anthony Viorst, of Viorstl aw Offices, P.C., for appellees.
heavican , c.J., connolly , geRRaRd , stephan , mccoRmack ,
and milleR-leRman , JJ.
milleR-leRman , J.
NATURe OF CASe
Fred A.l ockwood and Fred A.l ockwood & Co., P.C.,
appeal the order of the district court for Scotts Bluff County
overruling their motion for judgment notwithstanding the ver-
dict. A jury had found in favor of Roger Frank (Frank) and his
wife, Connie Frank, on their claim for accounting malpractice
in connection with their 2001 personal federal and Nebraska

income tax returns and awarded damages of $37,879 against
lockwood. We reverse in part, and remand for a new trial.
STATeMeNT OF FACTS
Frank owns and operates various business ventures. In 1997,
Frank purchased land near Scottsbluff, Nebraska, and titled the
land in the name of one of his businesses, Franke nterprises,
Inc., an S corporation that for tax purposes passes its income
and deductions through to its owners, Frank and his wife. In
February 2001, Frank, on behalf of the corporation, entered into
a contract to sell a portion of the land. After signing the con-
tract, Frank explored possibilities for deferring taxation of gain
on the sale of the land by use of a like-kind exchange pursuant
to the Internal Revenue Code, I.R.C. § 1031 (2000).
In June 2001, Frank consulted an attorney who specialized
in § 1031 exchanges. The attorney advised Frank that, among
other things, he should consult a tax professional regarding
tax implications of a § 1031 exchange. Frank’s accountant at
the time wasl ockwood. Frank testified at trial in this present
case that on occasions in June and September 2001, he spoke
withl ockwood, and thatl ockwood told him the Franks had
$225,000 in tax credits that could be used to offset taxes that
may be incurred as a result of the land sale. Frank’s attor-
ney testified that he spoke withl ockwood in September and
thatl ockwood also told him such tax credits were available.
lockwood testified at trial that he might have stated the Franks
had tax credits, but he denied that he advised Frank such credits
could be used to offset tax on the sale because such a calcula-
tion would require knowledge of financial information that was
not available at that time.
The sale closed on October 9, 2001, and Franke nterprises
received proceeds of $1,296,781.20. Of this amount, $1 million
was deposited with a qualified intermediary that would hold the
proceeds for purposes of the anticipated § 1031 exchange. The
remaining proceeds, less closing costs, were transferred to the
Franks. Frank testified that his decision to retain the remain-
ing proceeds rather than using the entire proceeds in a § 1031
exchange was based onl ockwood’s advice regarding the avail-
ability of tax credits. Subsequent to the sale, on October 15,
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738 	275 NeBRASkAR ePORTS
Frank met withl ockwood to review the Franks’ 2000 personal
tax returns, the filing of which had been extended and which
are not directly at issue in this case. Frank testified that at the
October 15 meeting,l ockwood provided greater detail regard-
ing the tax credits and again advised him that the credits could
be used to offset tax from the sale. In contrast,l ockwood testi-
fied that he gave Frank information regarding the tax credits on
October 15 but that he did not tell Frank that the credits could
be used to offset tax from the land sale.
In early 2002, after using part of the land sale proceeds
to purchase replacement properties for a § 1031 exchange,
Frank determined that he had purchased sufficient replacement
property and that he could withdraw the remaining proceeds
of approximately $500,000 being held by the qualified inter-
mediary. Frank testified that he made this decision based on
lockwood’s advice that he could use tax credits to offset any
capital gains tax resulting from failure to use the entire pro-
ceeds to buy replacement property.
On April 15, 2002, the date when the Franks’ 2001 personal
tax return was due, Frank met withl ockwood regarding his
2001 income taxes. On that day,l ockwood informed Frank,
for what Frank testified was the first time, that Frank would not
be able to use any of the tax credits to offset the capital gains
tax from the land sale and that as a result, the Franks would
owe a large tax liability for 2001.l ockwood advised Frank to
file an extension, butl ockwood had not estimated the Franks’
2001 tax liability and did not advise Frank to pay an estimate
of taxes due. Frank testified that ifl ockwood had advised
him to pay estimated taxes on April 15, 2002, he would have
done so.
On October 4, 2002,l ockwood provided the Franks with
a 2001 tax return. Filing instructions included with the return
stated that the return was to be mailed on or before October 15,
2002. After receiving the return, Frank decided to consult with
another accountant to review the return. After reviewing the
return, the other accountant gave Frank a list of suggestions for
reducing the tax liability, which list Frank gave tol ockwood.
lockwood incorporated most of the suggestions into revised
tax returns which were completed in November. Frank did

not file the returns and pay the tax liability until some time in
December. Frank consulted with his attorney prior to filing the
tax returns. Frank testified at trial that in December, prior to
filing the returns, he was aware that penalties and interest were
accruing. A letter dated December 12, 2002, from Frank’s attor-
ney tol ockwood was entered into evidence at trial. Frank had
authorized the attorney to write the letter. The attorney stated
in the letter that although penalties and interest were accruing,
it was important to take time to ensure that “whatever is filed
is the best result you can prepare.”
After the Franks filed the tax returns and paid the taxes
for 2001, both the Internal Revenue Service (IRS) and the
Nebraska Department of Revenue provided the Franks notices
that penalties and interest were due with respect to the 2001
returns. Penalties were approximately $27,925 for the federal
and $2,291 for the state; interest was approximately $6,285
for the federal and $1,378 for the state. Penalties and interest
related to both returns totaled approximately $37,879.
On July 15, 2003, the Franks and Franke nterprises filed a
complaint againstl ockwood and Fred A.l ockwood & Co., P.C.
(hereinafter referred to collectively as “lockwood”). The Franks
asserted a cause of action for accounting malpractice. Trial in
the matter was held February 13 through 16, 2006. After the
Franks rested their case,l ockwood moved for directed verdict,
arguing that there was no proof of damages and no proof of
proximate cause of damages. The court sustained the motion
for directed verdict as to Franke nterprises on the basis that all
income and deductions were passed through to the Franks and
therefore the damage, if any, was to the Franks and not to Frank
enterprises. The court also sustained the motion for directed
verdict to the extent that the Franks claimed lost profits because
any such damages were not definite. The court overruled the
remainder of the motion for directed verdict, and the defense
presented its case.l ockwood renewed the motion for directed
verdict at the close of all the evidence, and the court overruled
the renewed motion.
On February 16, 2006, the jury returned a verdict in favor
of the Franks and awarded damages in the amount of $37,879.
lockwood filed a motion for judgment notwithstanding the
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740 	275 NeBRASkAR ePORTS
verdict. The court overruled the motion. The court noted that
the jury’s damage award was equal to the amount the evidence
established as penalties and interest paid by the Franks with
respect to their 2001 federal and Nebraska tax returns. The
court therefore determined that “the jury awarded nothing in
actual income taxes paid” and that the verdict “represents the
exact amount the jury concluded was paid in penalties and
interest.” The court noted that there was evidence from which
the jury could find that (1)l ockwood gave Frank erroneous
advice regarding the availability of tax credits to offset any tax
due on the 2001 returns that might result from the land sale; (2)
Frank’s decision to forgo reinvesting the entire proceeds of the
land sale in a like-kind exchange was based on such erroneous
advice; (3) if Frank had known that the tax credits could not be
used to offset tax and that he would have a large tax liability for
2001, he would have paid estimated taxes in order to avoid pen-
alties and interest for late payment of such tax liability; and (4)
lockwood’s erroneous advice caused the Franks to incur penal-
ties and interest that they would not otherwise have incurred.
The court concluded that “the verdict represents an appropriate
item of damage that was proximately caused by negligent pro-
fessional advice, and the verdict should stand.”
lockwood appeals.
ASSIGNMeNTS OFe RROR
lockwood generally asserts, restated, that the district court
erred in overruling his motions for directed verdict and his
motion for judgment notwithstanding the verdict because there
was insufficient evidence that the Franks suffered damages as
the result of his advice in connection with the preparation and
filing of the Franks’ 2001 income taxes.
STANDARDS OF ReVIeW
[1] Concerning the overruling of a motion for a directed ver-
dict made at the close of all the evidence, appellate review is
controlled by the rule that a directed verdict is proper only when
reasonable minds can draw but one conclusion from the evidence,
where an issue should be decided as a matter of law. Bellino v.
McGrath North, 274 Neb. 130, 738 N.W.2d 434 (2007).

[2,3] On a motion for judgment notwithstanding the verdict,
the moving party is deemed to have admitted as true all the
relevant evidence admitted that is favorable to the party against
whom the motion is directed, and, further, the party against
whom the motion is directed is entitled to the benefit of all
proper inferences deducible from the relevant evidence. Id. To
sustain a motion for judgment notwithstanding the verdict, the
court resolves the controversy as a matter of law and may do
so only when the facts are such that reasonable minds can draw
but one conclusion. Id.
ANAlYSIS
[4]l ockwood assigns error to the denial of his motions for
directed verdict and for judgment notwithstanding the verdict.
A motion for judgment notwithstanding the verdict may be
granted when the movant’s previous motion for directed verdict,
made at the conclusion of all the evidence, should have been
sustained. McLain v. Ortmeier, 259 Neb. 750, 612 N.W.2d 217
(2000). We conclude that the court erred in denying parts, but
not all, ofl ockwood’s motion for judgment notwithstanding
the verdict.
Evidence Supports Finding That Lockwood
Neglected a Reasonable Duty.
[5,6] We have stated that before a plaintiff may recover for
accounting malpractice, the essential elements of any negligence
action must be proved, namely, (1) duty, (2) breach, (3) causa-
tion, and (4) resulting damages. World Radio Labs. v. Coopers &
Lybrand, 251 Neb. 261, 557 N.W.2d 1 (1996). Stated in the terms
we have used in other cases of professional negligence, a plain-
tiff alleging accounting negligence must prove three elements:
(1) the accountant’s employment, (2) the accountant’s neglect
of a reasonable duty, and (3) that such negligence resulted in
and was the proximate cause of loss (damages) to the client.
See Bellino, supra (regarding attorney negligence).l ockwood
does not appear to dispute that his employment by the Franks
was shown. Therefore, in determining whether the district court
should have granted judgment notwithstanding the verdict, we
consider whether the evidence supports findings thatl ockwood
neglected a reasonable duty and that such negligence resulted in
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742 	275 NeBRASkAR ePORTS
and was the proximate cause of the penalties and interest paid by
the Franks. In this respect, we note that a proximate cause is a
cause that produces a result in a natural and continuous sequence
and without which the result would not have occurred. Id.
With regard to neglect of a reasonable duty, the district court’s
ruling referred primarily to evidence thatl ockwood gave erro-
neous advice regarding the § 1031 transaction. Although it
recognized that the jury’s damage award was attributable to
penalties and interest, the court emphasized that the Franks’
mistaken assumption, based onl ockwood’s erroneous advice,
that tax credits were available to offset tax on the land sale
was the cause of the damages awarded. We disagree with the
emphasis of such analysis.
Based on evidence in the record that the Franks paid penal-
ties and interest of approximately $37,879 related to their 2001
federal and Nebraska tax returns, the district court determined
that the jury found malpractice and that the damages awarded
by the jury consisted exclusively of penalties and interest.
Neither Frank norl ockwood disputes this characterization, and
we agree that the evidence supports this interpretation of the
jury’s award. Because only penalties and interest are at issue,
we need not determine or comment on whether any other items,
such as the taxes paid by the Franks, were recoverable as dam-
ages. In this regard, we note that the Franks did not file a cross-
appeal relative to the fact that the jury did not award damages
in connection with the amount of taxes paid.
The Franks incurred penalties and interest on their 2001 tax
returns because the taxes were not timely paid on April 15,
2002, and because the tax returns were not timely filed on the
extended due date of October 15. Althoughl ockwood’s advice
in connection with the payment and filing of the returns can
give rise to liability, as discussed below, based on the evidence
in this case,l ockwood’s advice regarding the availability of
credits as they pertained to the Franks’ tax exposure due to the
land sale could not be found to be the proximate cause of the
penalties and interest actually incurred.
We recognize that erroneous advice regarding the § 1031
transaction could conceivably have caused the Franks to fail
to plan ahead for taxes being due on April 15, 2002. However,

Frank’s testimony was that he learned froml ockwood on April
15 that the tax credits were not available and that a large tax
liability would be due. Frank further testified that ifl ockwood
had advised him to pay an estimated tax on that day, he would
have done so. Such testimony indicates that Frank’s financial
situation was such that he would have been able to timely pay
the taxes on April 15, thereby avoiding penalties and interest
for late payment of taxes, even without advance knowledge that
a tax liability would be due.
However, we note that Frank also testified thatl ockwood
failed to advise him on April 15, 2002, that when filing for an
extension of time to file their 2001 returns, the Franks should
have paid an estimate of their tax liability in order to avoid pen-
alties and interest. The accountant who was asked by Frank to
review the returns prepared byl ockwood testified at trial that a
reasonable accountant would have advised a client to pay such
estimate when filing for an extension. Based on this evidence,
the jury could have found thatl ockwood neglected a reason-
able duty by failing to advise the Franks to pay an estimated
tax liability on April 15, 2002. Therefore, althoughl ockwood’s
advice regarding the § 1031 transaction could not be found to
have caused the Franks to fail to timely pay their taxes, the jury
could have found thatl ockwood’s further failure to advise the
Franks to pay an estimated tax on April 15 caused the Franks
to fail to timely pay their taxes.
We therefore determine that there was evidence from which
the jury could have found thatl ockwood neglected a reasonable
duty and was liable for damages that resulted from such negli-
gence. We must next consider whetherl ockwood’s negligence
in failing to advise the Franks to pay estimated taxes on April
15, 2002, resulted in and was the proximate cause of the penal-
ties and interest that comprise the jury’s award of damages.
Although Interest May Be Recoverable Under Proper
Circumstances, Evidence in This Case Did Not
Establish That the Franks Suffered Damages
From Paying Interest on Taxes.
The evidence indicates that the Franks paid interest of $7,663
with respect to their federal and Nebraska taxes. Although we
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744 	275 NeBRASkAR ePORTS
adopt a rule that interest paid to taxing authorities is available
as an item of damages in an accounting malpractice case upon
proper proof, and we reject a rule that interest on taxes is pre-
cluded as a recoverable item of damages, we conclude that under
the evidence presented in this case, the jury could not have
found that the Franks suffered damage as a result of the payment
of interest. Therefore, the district court should have granted
judgment notwithstanding the verdict to the extent interest was
awarded as an item of damages.
We note that some courts have held that interest due on taxes
is not recoverable as an item of damages in an accounting mal-
practice action. See, Eckert Cold Storage, Inc. v. Behl, 943 F.
Supp. 1230 (e.D. Cal. 1996); Leendertsen v. Price Waterhouse,
81 Wash. App. 762, 916 P.2d 449 (1996); Alpert v Shea Gould
Climenko, 160 A.D.2d 67, 559 N.Y.S.2d 312 (1990); Orsini v.
Bratten, 713 P.2d 791 (Alaska 1986). Generally, the reasoning
behind such decisions is that because the plaintiff had the use
of the money during the period of late payment or underpay-
ment, the plaintiff is not damaged when he or she is ultimately
required to pay interest for such use of the money. The court
in Eckert Cold Storage, Inc., stated that “interest paid to the
I.R.S. represents a payment for the plaintiffs’ use of the tax
money during the period after the taxes came due and before
they were paid; as such, to the extent that the I.R.S. charges the
market rate, interest is not a proper element of damages.” 942
F. Supp. at 1235. We agree with the reasoning of these courts
to the extent that interest paid to the IRS represents a payment
for use of money and that therefore, a person who has use of
the money is not generally damaged by the payment of interest.
However, as discussed below, we also recognize that there may
be exceptions to this general rule.
The Franks urge us to reject a blanket rule precluding recov-
ery of interest on taxes as an item of damages, and we agree
that a blanket rule should not be adopted. The Franks cite
to O’Bryan v. Ashland, 717 N.W.2d 632 (S.D. 2006), as the
preferred analysis. In O’Bryan, the Supreme Court of South
Dakota held that “the issue whether a plaintiff has actually been
damaged from the interest charged by the IRS to the taxpayer
on unpaid tax liability is a question of fact,” and the court

refused “to adopt a blanket rule forbidding interest recovery
in accounting malpractice actions.” 717 N.W.2d at 639. The
Supreme Court of South Dakota noted that other courts have
acknowledged the possibility that plaintiffs could prove that
they were truly damaged by the imposition of interest and that
such courts have determined that “whether a [plaintiff] has been
damaged is left to the finder of fact, with the burden of proof
on the [plaintiff].” Id. at 637.
We agree with the Supreme Court of South Dakota that it
is possible that a plaintiff could prove under appropriate cir-
cumstances that the plaintiff was damaged by the imposition of
interest. A plaintiff might be able to show that he or she was
damaged by the imposition of interest either because he or she
could have borrowed money during that time at a rate lower
than what was assessed by the taxing authorities or because he
or she had sufficient money to pay the taxes but the value of the
use of such money to the plaintiff during the penalty period was
less than the rate of interest charged by the taxing authorities.
For example, in O’Bryan, the South Dakota Supreme Court
noted evidence that the plaintiff “would not have necessarily
had to borrow the money [to pay taxes] from a bank; he may
have been able to borrow money from his family as he had
done before.” 717 N.W.2d at 639. The jury in O’Bryan could
have inferred from such evidence that the plaintiff would have
paid his family no interest or interest at a rate below the market
rate that would have been charged by a bank. Therefore, the
jury could have found that the plaintiff suffered a loss when he
had to pay interest to the IRS at a rate higher than was other-
wise available to the plaintiff.
[7] The O’Bryan approach, which we favor, is similar to that
taken by the Massachusetts Court of Appeals in Miller v. Volk,
63 Mass. App. 303, 305-06, 825 N.e.2d 579, 582 (2005), in
which the court did not adopt a blanket rule precluding recov-
ery of interest paid to the IRS in an accounting malpractice
action, but denied recovery of interest under the particular facts
of the case because “no proof was offered that the interest paid
to the IRS on the deficiency exceeded the value to the plaintiffs
of having use of the money in the meantime. There was, in
other words, no proof of actionable damages.” While we do not
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746 	275 NeBRASkAR ePORTS
hold that plaintiffs are completely barred from recovering dam-
ages related to interest paid to the IRS, we think that the burden
remains on the plaintiff to prove that the circumstances were
such that he or she was damaged by the payment of interest.
We therefore do not adopt a blanket rule precluding recovery
of interest on taxes as an element of damages. Instead, we hold
that interest on taxes is recoverable in accounting malpractice
actions to the extent plaintiffs carry their burden of showing
that they were damaged by the imposition of interest.
The dissent in this case disagrees with placing such burden
on the plaintiff. The dissent urges adoption of an approach
set forth in Ronson v. Talesnick, 33 F. Supp. 2d 347 (D.N.J.
1999). Under the Ronson approach, once the plaintiff has
proved that he or she paid interest to the IRS, the burden shifts
to the defendant to prove that the plaintiff benefited from the
defendant’s negligence. In Ronson, the federal district court for
New Jersey attempted to determine whether New Jersey state
law would allow a plaintiff to recover interest paid to the IRS
in an accounting malpractice action. Based on New Jersey’s
adoption of the collateral source rule and the benefits rule in
other types of tort actions, the federal district court predicted
that New Jersey would follow the above approach in which the
plaintiff merely needed to prove that he or she paid interest to
the IRS as a result of the defendant’s negligence and then the
defendant had the burden to show that the plaintiff benefited
from the defendant’s negligence.
We disagree with the underlying reasoning in Ronson. We
do not think the collateral source rule and the benefits rule are
applicable to the present question because such rules presume
that the plaintiff has proved damages. As noted above, we
generally agree with the reasoning of other courts that interest
paid to the IRS represents a payment for use of money and that
therefore, a person who has use of the money is not gener-
ally damaged by the payment of interest. We recognize that
there may be circumstances under which a plaintiff actually
is damaged, but the burden remains on the plaintiff to prove
that such circumstances exist. We have stated, “Damages, like
any other element of a plaintiff’s cause of action, must be
pled and proved, and the burden is on the plaintiff to offer

evidence sufficient to prove the plaintiff’s alleged damages.”
J.D. Warehouse v. Lutz & Co., 263 Neb. 189, 195, 639 N.W.2d
88, 92-93 (2002). The dissent agrees with the reasoning in
Ronson that a defendant should not benefit from a presumption
that a plaintiff maintained a sum of money and earned interest
in an amount comparable to the interest rate charged by the
IRS. However, because the plaintiff has the burden to prove his
or her damages, we do not think that the plaintiff should bene-
fit from the presumption that he or she did not benefit from
having use of the money and therefore was damaged by pay-
ing interest. “[T]o the extent that the I.R.S. charges the market
rate, interest is not a proper element of damages.” Eckert Cold
Storage, Inc. v. Behl, 943 F. Supp. 1230, 1235 (e.D. Cal. 1996).
To the extent that interest charged by the IRS is above the mar-
ket rate or does not reflect the value of the use of the money,
we think it is the plaintiff’s duty to so prove, and the plaintiff
must put on evidence, that the interest charged by the IRS was
greater than the value of the use of the money. In the present
case, the Franks put on no such evidence.
The dissent also cites cases which adopt an interest dif-
ferential approach to measuring damages in these situations.
We note that the Ronson approach and the interest differential
approach are significantly different in that Ronson puts the bur-
den on the defendant to prove a benefit to the plaintiff, while
under the interest differential approach, the burden apparently
still remains on the plaintiff to prove the interest differential.
We do not reject the interest differential approach as a possible
measure of damages, and we think that it could be one of the
circumstances referred to above in which a plaintiff could prove
damages from the payment of interest to the IRS. However, in
the present case, the Franks did not present sufficient evidence
regarding the interest differential; they presented evidence that
they paid interest to the IRS, but they presented no evidence
that they actually earned less than what they paid. Because the
Franks’ evidence regarding interest differential was inadequate,
we need not decide in this case whether we would adopt the
interest differential approach. However, we note that even if we
were to adopt the interest differential approach, we would still
conclude in this case that because the Franks did not present
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748 	275 NeBRASkAR ePORTS
sufficient evidence regarding interest differential, they did not
prove damages with respect to the interest paid to the IRS.
With the foregoing principles in mind, we observe that under
the circumstances of this case, the Franks failed to provide evi-
dence that they were damaged by the payment of interest. To the
contrary, Frank testified that ifl ockwood had told him to pay
estimated taxes on April 15, 2002, he would have done so. The
evidence also indicates that the Franks paid the taxes due when
they filed the tax returns in December. Such evidence indicates
that the Franks had the use of the money for the period after the
taxes were due on April 15 and before they paid the taxes in
December. The Franks did not present evidence to indicate that
there were circumstances, such as those outlined above, such
that they were damaged by the payment of interest on their taxes.
The evidence showed only that the Franks had to pay interest to
the taxing authorities for use of the money between April and
December. There was no evidence from which the jury could
have concluded that the Franks were damaged by payment of
the interest because there was no evidence that the value of the
use of the money to the Franks during that time was less than
the rate of interest charged by the taxing authorities. Because
there was no evidence of damage resulting from the payment of
interest, we conclude that the district court erred when it failed
to grantl ockwood’s motion for judgment notwithstanding the
verdict to the extent that the jury awarded damages of $7,663
for interest paid on the Franks’ federal and Nebraska taxes, and
we reverse the district court’s ruling to that extent.
Under the Facts of This Case, the Franks May Recover
Penalties Related to Failure to Timely Pay Taxes,
But Not Penalties Related to Failure to
Timely File Returns.
The evidence presented at trial indicates that the Franks
incurred penalties of $27,925 with respect to their federal taxes
and $2,291 with respect to their Nebraska taxes, for a total of
$30,216. We conclude that penalties may be a recoverable ele-
ment of damages; however, we further conclude that only a por-
tion of the penalties in this case was the result ofl ockwood’s

advice and, in particular, his failure to advise the Franks to pay
estimated taxes on April 15, 2002.
[8] As a general matter, it has been held that penalties may
be recoverable as an element of damages when such penalties
are the result of an accountant’s negligence. See, Bick v. Peat
Marwick & Main, 14k an. App. 2d 699, 799 P.2d 94 (1990);
Moonie v. Lynch, 256 Cal. App. 2d 361, 64 Cal. Rptr. 55 (1967).
We agree with these authorities that penalties may be recovered
as an item of damages in an accounting malpractice action.
Unlike interest, penalties are not a payment for use of money
but instead are a payment beyond interest to penalize a taxpayer
for late payment of taxes or late filing of a return. To recover
penalties, the taxpayer must show that the accountant’s negli-
gence was the proximate cause of the penalties.
The penalties incurred by the Franks in this case appear to
have been of two types—those incurred because the Franks
failed to pay taxes when due on April 15, 2002, and those
incurred because the Franks failed to file their returns when due
as extended to October 15. Under federal law, I.R.C. § 6651
(2000) provides in subsection (a)(1) that a taxpayer may be
assessed a penalty for failure to timely file a return and provides
in subsection (a)(2) that a taxpayer may be assessed a separate
penalty for failure to timely pay taxes due. In addition, I.R.C.
§ 6654 (2000) provides that penalties may be assessed for
underpayment of estimated taxes. Nebraska law provides for
similar penalties for failure to timely file returns, Neb. Rev. Stat.
§ 77-2789 (Reissue 2003), and for underpayment of estimated
taxes, 316 Neb. Admin. Code, ch. 20, § 007 (1998).
The evidence indicates that the Franks were required to pay
their federal and Nebraska tax liabilities for 2001 on April 15,
2002. Because extensions were filed for and granted, the tax
returns themselves were not due on April 15, but were due
on the extended due date of October 15. However, the Franks
did not file their 2001 tax returns or pay the tax due on such
returns until December. Because the Franks failed to timely pay
on April 15 and failed to timely file on October 15, they were
subject to both penalties for late payment of taxes and penalties
for late filing of returns.
FRANk v. lOCkWOOD 	749
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750 	275 NeBRASkAR ePORTS
As indicated above, there was sufficient evidence from
which the jury could find thatl ockwood was negligent in fail-
ing to advise the Franks to pay an estimate of their 2001 tax
liability on April 15, 2002. Because the failure to timely pay
taxes subjected the Franks to possible penalties, the jury could
have found thatl ockwood’s negligence resulted in and was
the proximate cause of any such penalties that were imposed.
We therefore conclude that the district court did not err in
denyingl ockwood’s motion for judgment notwithstanding the
verdict with respect to any portion of the damages award that
was attributable to penalties for the Franks’ failure to timely
pay taxes.
However, to the extent any penalties were imposed for the
Franks’ failure to timely file the tax returns, such late filing
penalties were not a result ofl ockwood’s advice or the failure
to pay taxes on April 15, 2002. Instead, based on the evidence,
the late filing penalties were the result of the Franks’ failure to
file their 2001 federal and Nebraska tax returns on or before
the extended due date of October 15. In this regard, there was
evidence thatl ockwood provided a tax return to the Franks in
early October with instructions that stated that the return was
to be mailed on or before October 15. The evidence further
indicates that the return was not filed at that time because Frank
chose to have another accountant and Frank’s attorney review
the return. Frank’s testimony and the letter Frank’s attorney
sent tol ockwood in December indicated that Frank was aware
that penalties and interest were accruing but chose to take time
for a careful review of the returns. Therefore, the evidence was
not sufficient for a jury to determine thatl ockwood breached a
duty with respect to the October 15 filing deadline or that any
damages resulting from the late filing of returns were the result
ofl ockwood’s advice. Because late filing penalties imposed
were not the result ofl ockwood’s negligence, the district
court erred when it deniedl ockwood’s motion for judgment
notwithstanding the verdict with respect to the portion of the
damages award that was attributable to late filing penalties, and
we reverse the district court’s ruling to that extent.
We note that the evidence presented at trial establishes only
total amounts for the penalties imposed by the IRS and for

penalties imposed by the Nebraska Department of Revenue.
The evidence does not distinguish whether such penalties were
penalties occasioned by the failure to timely pay taxes or by
the failure to timely file returns, or some combination of both.
As we have determined above, to the extent such penalties are
penalties for failure to timely file returns, under the facts of
this case, they are not recoverable as damages. However, to
the extent such penalties are penalties for failure to timely pay
the taxes, under the facts of this case, they are recoverable as
damages. Because the evidence in the record does not allow
us to determine what portion of the penalties are for late pay-
ment of the taxes which are recoverable, we find it necessary to
remand this cause to the district court for a new trial limited to
a determination of the portion of damages attributable to penal-
ties imposed for failure to timely pay taxes and, upon a proper
showing, awarding the Franks an amount of damages equal to
penalties for failure to timely pay taxes. See Adams State Bank
v. Navistar Financial Corp., 229 Neb. 334, 426 N.W.2d 525
(1988) (holding that district court erred in denying judgment
notwithstanding verdict as to two components of damages but
not as to third component and remanding for new trial to deter-
mine damages with respect to third component).
CONClUSION
We conclude that there was not sufficient evidence from
which the jury could find that the Franks were damaged by
the imposition of interest on taxes and that there was not suf-
ficient evidence thatl ockwood’s negligence was the proxi-
mate cause of penalties for the Franks’ failure to timely file
their tax returns. The district court therefore erred in denying
lockwood’s motion for judgment notwithstanding the verdict
with regard to those two portions of the damages awarded by
the jury, and we reverse the district court’s ruling to that extent.
We further conclude that there was sufficient evidence from
which the jury could find thatl ockwood neglected a reason-
able duty by failing to advise the Franks to pay an estimate of
their taxes on April 15, 2002, and that the evidence supported
a finding thatl ockwood’s negligence was the proximate cause
of penalties imposed for the Franks’ failure to timely pay
FRANk v. lOCkWOOD 	751
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752 	275 NeBRASkAR ePORTS
their taxes. Therefore, the district court did not err in denying
lockwood’s motion for judgment notwithstanding the verdict
with regard to the portion of damages attributable to such late
payment penalties. However, because the portion of damages
awarded attributable to late payment penalties is not ascertain-
able from the record on appeal, we remand the cause to the
district court for a new trial limited to a determination of the
portion of damages attributable to penalties for the failure to
timely pay taxes. The court thereafter should enter judgment,
notwithstanding the original verdict, in the amount determined
to be attributable to late payment penalties.
aFFiRmed in paRt , ReveRsed in paRt , and Remanded
FoR a new tRial on the issue oF damages .
wRight, J., not participating.
connolly, J., dissenting in part.
I disagree with that part of the majority opinion that holds
that the Franks cannot recover interest they paid to the IRS
because of their accountant’s negligence. The opinion con-
cludes that the Franks had use of the money, and the IRS inter-
est is just their “payment” for that use.
I do not believe that the Franks should have the burden to
prove the value of their use of the money was less than the rate
of interest charged by the IRS when they incurred the interest
only because ofl ockwood’s negligence. The majority’s hold-
ing ignores the essential fact that the Franks would not have
incurred a “payment” for their unlawful use of the money but
forl ockwood’s negligent advice, so they are not placed in a
better position by their recovery of this “payment.” I concede
that there may be circumstances when the harm caused by the
practitioner’s negligence is offset by the benefit the taxpayer
received from having use of the money. But the “special bene-
fit” isl ockwood’s burden to prove.
The majority concedes that there was sufficient evidence for
a jury to conclude thatl ockwood breached a duty to the Franks
and “was liable for damages that resulted from such negli-
gence.” But it fails to answer the question “whetherl ockwood’s
negligence in failing to advise the Franks to pay estimated taxes
on April 15, 2002, resulted in and was the proximate cause of
the interest” the Franks paid. To the extent the majority’s failure

to discuss causation implies that the Franks’ payment of IRS
interest is not a legally recognized or compensable injury, I
point out that such a reading is contrary to the greater weight of
authority in tax malpractice cases.
Many courts have recognized compensatory damages for the
difference between what the taxpayers owe the IRS because
of a practitioner’s negligence and what they would have owed
absent that negligence.1 It is true that taxpayers have the bur-
den of proving that they incurred tax liabilities they could have
avoided but for the practitioner’s negligence.2 But the majority’s
opinion imposes an additional burden: Taxpayers must rebut the
presumption that they received a benefit from their unlawful
use of the money. If taxpayers do not rebut this presumption,
then the majority holds that their payment of interest is not
damages. Thus, the issue is not proximate causation, but legally
recognized damages.
The rule that taxpayers must show they were damaged seems
reasonable enough on its face; damages are an element of the
taxpayer’s negligence claim. But the real issue is whether the
Franks received a benefit because ofl ockwood’s negligence
that offset the additional costs they incurred. Obviously, the
Franks had use of the money only because ofl ockwood’s
1 See, e.g., Carroll v. LeBoeuf, Lamb, Green & MacRae, L.L.P., 392 F. Supp.
2d 621 (S.D.N.Y. 2005); Ronson v. Talesnick, 33 F. Supp. 2d 347 (D.N.J.
1999); Jobe v. International Ins. Co., 933 F. Supp. 844 (D. Ariz. 1995),
order withdrawn upon settlement 1 F. Supp. 2d 1403 (D. Ariz. 1997); Dail
v. Adamson, 212 Ill. App. 3d 66, 570 N.e.2d 1167, 156 Ill. Dec. 445 (1991);
Cameron v. Montgomery, 225 N.W.2d 154 (Iowa 1975); Jamie Towers
Housing v. William B. Lucas, 296 A.D.2d 359, 745 N.Y.S.2d 532 (2002);
Wynn v. Estate of Holmes, 815 P.2d 1231 (Okla. App. 1991), overruled
on other grounds, Stroud v. Arthur Andersen & Co., 37 P.3d 783 (Okla.
2001); McCulloch v. Price Waterhouse LLP, 157 Or. App. 237, 971 P.2d
414 (1998); Merriam v. Continental Cas. Co., No. 98-2522-FT, 1999 Wl
326183 (Wis. App. May 25, 1999) (unpublished disposition listed in “Table
of Unpublished Opinions” at 228 Wis. 2d 510, 597 N.W.2d 774 (Wis. App.
1999)). See, also, Jamison, Money, Farmer & Co. v. Standeffer, 678 So. 2d
1061 (Ala. 1996); Worman v. Carver, 87 P.3d 1246 (Wyo. 2004); Jacobl .
Todres, Malpractice and the Tax Practitioner: An Analysis of the Areas in
Which Malpractice Occurs, 48e moryl .J. 547 (1999).
2 See Ronson, supra note 1.
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754 	275 NeBRASkAR ePORTS
negligence. Both their harm and any benefit they received from
having use of the money flowed froml ockwood’s negligence.
But this point gets lost in the majority opinion because it omits
any discussion of causation.
If the Franks’ harm should be offset by the benefit of their
having use of the money, the burden of proving the offset falls
onl ockwood. This commonsense notion of equitable burdens
is addressed in the Restatement (Second) of Torts § 920 at 509
(1979), the “special benefit” rule:
When the defendant’s tortious conduct has caused harm
to the plaintiff or to his property and in so doing has
conferred a special benefit to the interest of the plaintiff
that was harmed, the value of the benefit conferred is
considered in mitigation of damages, to the extent that this
is equitable.
Mitigation of damages is an affirmative defense, which the
defendant has the burden to prove.3 Under the Restatement,
lockwood must prove that a “special benefit” to the Franks
resulted from his negligence and offset the taxpayer’s damages.
While “mitigation of damages” here is merely shorthand for
expressing the plaintiff’s net damages, many courts have rec-
ognized the rule that a “defendant generally may show that an
act or omission forming the basis of a complaint was a benefit
as well as an injury to the plaintiff.”4
Other courts put the burden on the tax practitioner to prove
it is equitable to offset the taxpayer’s harm with the taxpayer’s
benefit in using the money.5 Yet the majority opinion relies on
O’Bryan v. Ashland6 to place the burden on the Franks to prove
they have not benefited from the use of the money. This burden
runs counter to the special benefit rule. Notably, the O’Bryan
court made conflicting statements on this issue. Both parties
3 Roth v. Wiese, 271 Neb. 750, 716 N.W.2d 419 (2006). Compare David v.
DeLeon, 250 Neb. 109, 547 N.W.2d 726 (1996).
4 See 22 Am. Jur. 2d Damages § 383 at 347 (2003).
5 See, Ronson, supra note 1; Billings Clinic v. Peat Marwick Main, 244 Mont.
324, 797 P.2d 899 (1990); Wynn, supra note 1. Compare Lee v. Lee, 47
S.W.3d 767 (Tex. App. 2001).
6 O’Bryan v. Ashland, 717 N.W.2d 632 (S.D. 2006).

had presented evidence on interest rates, and the court reserved
for a future case the refinement of equitable burdens. It quoted
with approval the federal district court’s statement in Ronson v.
Talesnick.7 There, the court stated that “defendants should be
permitted to come forward with evidence of benefit from the
malpractice that could be applied to reduce a plaintiff’s recov-
ery.”8 I believe the majority opinion allowsl ockwood to escape
his burden to prove the Franks had received a benefit from
his negligence.
Although the majority opinion states that it is not adopting a
blanket rule precluding the recovery of IRS interest, it appears
to set a high bar for taxpayers to prove damages. Its rule is
consistent with the reasoning of a minority of courts that have
denied recovery. Those courts reasoned that the recovery of
IRS interest represents a windfall when the taxpayer had use
of the money and could have presumably earned interest on the
money while holding it.9 But I find persuasive the reasoning
of the federal district court in Ronson, rejecting the windfall
rationale for denying interest damages:
Denying recovery of IRS interest from a negligent account-
ant permits the tortfeasor to benefit from the presumption
that a harmed taxpayer has been or should have been
ingenious enough to (1) maintain a sum of money that he
would have otherwise had to pay over to the IRS and (2)
invest that money in a manner in which he earned interest
in an amount comparable to the interest rate charged by
the IRS.10
like the district court in Ronson, I am not that naive to
presume the taxpayer is clairvoyant. Other courts have also
addressed the “windfall” concern. Those courts adopted a mea-
sure of damages that ensures both that the taxpayer does not
receive a double recovery and that the taxpayer is not punished
7 Ronson, supra note 1.
8 Id. at 355.
9 See, Alpert v Shea Gould Climenko, 160 A.D.2d 67, 559 N.Y.S.2d 312
(1990); Leendertsen v. Price Waterhouse, 81 Wash. App. 762, 916 P.2d 449
(1996).
10 Ronson, supra note 1, 33 F. Supp. 2d at 355.
FRANk v. lOCkWOOD 	755
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756 	275 NeBRASkAR ePORTS
for failing to anticipate the practitioner’s negligence. In Streber
v. Hunter,11 the Fifth Circuit allowed damages for the differ-
ence between the interest the taxpayer earned while having use
of it and the interest charged by the IRS.12 The court reasoned
that “interest differential” damages is not a double recovery:
“[A]sking for ‘interest differential’ is not asking to keep the
money earned on the [amount owed for taxes] while possessing
it unlawfully; rather, it is asking to pay only the interest earned
while possessing it unlawfully and not be penalized for conserv-
ative investing.”13
Although the burden of proof was not at issue in Streber,
the case demonstrates that there is no windfall concern if the
plaintiff’s harm is offset by any benefit the taxpayer received
from having use of the money. The question here is which
party should have the burden of proving that offset. In other
cases, we have put the burden of proving an offset on the party
claiming the offset.14 In condemnation actions, we have specifi-
cally held the burden is on the condemnor to plead and prove
special benefits to the remaining property that offset damage to
the property.15
The Franks satisfied the elements of their claim when they
proved thatl ockwood breached a duty to them to use reason-
able prudence and skill in advising them on tax matters for
which they employed him and that his negligence caused them
to incur expenses they would not have incurred otherwise.
Requiringl ockwood to prove an offset does not permit the
Franks to benefit from any presumption regarding damages.
Instead, it eliminates presumptions against either party and
11 Streber v. Hunter, 221 F.3d 701 (5th Cir. 2000).
12 See id. See, also, King v. Deutsche Bank Ag, No. CV 04-1029-HU, 2005
Wl 611954 (D. Or. Mar. 8, 2005) (unpublished opinion).
13 Streber, supra note 11, 221 F.3d at 735. See, also, O’Bryan, supra note 6.
14 See, e.g., Calabro v. City of Omaha, 247 Neb. 955, 531 N.W.2d 541 (1995);
Brown v. Clayton Brokerage Co., 238 Neb. 646, 472 N.W.2d 381 (1991);
Phillips v. State, 167 Neb. 541, 93 N.W.2d 635 (1958).
15 See Frank v. State, 177 Neb. 488, 129 N.W.2d 522 (1964). Accord
Richardson v. Big Indian Creek Watershed Conservancy Dist., 181 Neb.
776, 151 N.W.2d 283 (1967). See, also, NJI2d Civ. § 13.10.

requires each party to produce proof supporting their claims.
Because the evidence did not support an offset of the Franks’
damages, I would give the Franks the benefit of their jury ver-
dict for the interest they paid to the IRS.
amanda c., by and thRough gaRy R ichmond , natuRal paRent
and next FRiend , appellee , v . kelly case , appellant .
749 N.W.2d 429
Filed May 23, 2008. 	No. S-06-1097.
1. Summary Judgment. Summary judgment is proper if the pleadings and admis-
sible evidence offered at the hearing show that there is no genuine issue as to any
material facts, or as to the ultimate inferences that may be drawn from those facts,
and that the moving party is entitled to judgment as a matter of law.
2. Summary Judgment: Proof. A party makes a prima facie case that it is entitled
to summary judgment by offering sufficient evidence that, assuming it went
uncontested at trial, would entitle the party to a favorable verdict.
3. ____: ____. If the moving party makes a prima facie case that it is entitled to
summary judgment, the burden then shifts to the nonmoving party to avoid sum-
mary judgment by producing admissible contradictory evidence which raises a
genuine issue of material fact.
4. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an
appellate court views the evidence in the light most favorable to the party against
whom the judgment was granted, giving that party the benefit of all reasonable
inferences deducible from the evidence.
5. Judgments: Appeal and Error. On questions of law, an appellate court is obli-
gated to reach a conclusion independent of the determination reached by the
court below.
6. Judgments: Collateral Estoppel. Under the doctrine of collateral estoppel, also
known as issue preclusion, an issue of ultimate fact that was determined by a valid
and final judgment cannot be litigated again between the same parties or their
privities in any future lawsuit.
7. ____: ____. Collateral estoppel is applicable where (1) an identical issue was
decided in a prior action, (2) the prior action resulted in a judgment on the merits
which was final, (3) the party against whom the doctrine is to be applied was
a party or was in privity with a party to the prior action, and (4) there was an
opportunity to fully and fairly litigate the issue in the prior action.
8. Constitutional Law: Actions. A civil remedy is provided under 42 U.S.C. § 1983
(2000) for deprivations of federally protected rights, statutory or constitutional,
caused by persons acting under color of state law.
9. ____: ____. In any 42 U.S.C. § 1983 (2000) action, the initial inquiry must focus
on whether the two essential elements to a § 1983 action are present: (1) whether
AMANDA C. v. CASe 	757
Cite as 275 Neb. 757