Justia Professional Malpractice & Ethics Opinion Summaries

AMTAX Holdings 227, LLC ("AMTAX") filed a lawsuit against CohnReznick LLP ("CohnReznick") in federal court, alleging breach of fiduciary duty, professional negligence, unjust enrichment, and fraud. The dispute arose from CohnReznick's calculation of a purchase price for a property under a right of first refusal agreement, which AMTAX claimed excluded exit taxes required by Section 42 of the Internal Revenue Code. AMTAX argued that this exclusion violated the agreement and federal law.The United States District Court for the Southern District of New York dismissed AMTAX's complaint for lack of subject matter jurisdiction. The court applied the Grable-Gunn test to determine whether the state-law claims presented a substantial federal issue that would warrant federal jurisdiction. The district court concluded that AMTAX's claims did not meet the criteria for federal question jurisdiction, as they did not necessarily raise a substantial federal issue and allowing federal jurisdiction would disrupt the federal-state balance.The United States Court of Appeals for the Second Circuit reviewed the district court's decision de novo. The appellate court agreed with the lower court's application of the Grable-Gunn test, finding that AMTAX's claims were primarily based on contract interpretation rather than federal tax law. The court held that the federal issue was not substantial enough to warrant federal jurisdiction and that exercising jurisdiction would disrupt the balance of state and federal judicial responsibilities. Consequently, the Second Circuit affirmed the district court's dismissal of the case for lack of subject matter jurisdiction. View "AMTAX Holdings 227, LLC v. CohnReznick LLP" on Justia Law

An individual, referred to as "Client," became the target of a criminal investigation into alleged tax evasion. The grand jury issued a subpoena to Client, who invoked his Fifth Amendment privilege against self-incrimination and refused to produce documents. Subsequently, the grand jury subpoenaed the law firm that had represented Client in tax matters, requesting documents related to that representation and instructing the firm to provide a privilege log if any documents were withheld. The law firm declined to produce certain documents or provide a privilege log, citing attorney-client privilege, the work-product doctrine, and Client’s Fifth Amendment rights.The United States District Court for the Central District of California ordered the law firm to provide the Government with a privilege log, rejecting the firm's assertion of Client’s Fifth Amendment rights. The district court temporarily stayed enforcement of its order, and Client filed an interlocutory appeal.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that an attorney cannot be compelled to provide the Government with a privilege log of documents protected under Fisher v. United States, 425 U.S. 391 (1976). The court explained that providing a privilege log would reveal the existence, authenticity, and Client’s custody of the documents, thus undermining Client’s Fifth Amendment act-of-production privilege. The court determined that to assess whether the documents are indeed protected under Fisher, the district court should conduct an in camera review.The Ninth Circuit reversed the district court’s order and remanded the case for further proceedings, instructing the district court to conduct an in camera review to determine the applicability of the Fisher privilege. View "In re Grand Jury Subpoena, Dated July 21, 2023" on Justia Law

The case involves James B. Church & Associates, P.C. (the Church Firm), which served as legal counsel for Dennis Shogren, the personal representative of the estate of Loren R. Kirk, in a probate action. The estate beneficiaries, including Barbara Sagehorn and the Carter Beneficiaries, alleged that the Church Firm negligently failed to file a protective claim for a refund with the IRS or advise Shogren to do so. This failure purportedly resulted in the estate missing out on a potential $5,000,000 tax refund.The Superior Court of San Bernardino denied the Church Firm's special motion to strike the causes of action under the anti-SLAPP statute. The court found that the firm did not demonstrate that the causes of action arose from its constitutionally protected free speech or petitioning activities. The Church Firm appealed this decision.The Court of Appeal, Fourth Appellate District, Division One, State of California, reviewed the case. The court conducted an independent review and agreed with the lower court's ruling. It determined that the alleged acts forming the basis of the petitioners' causes of action—specifically, the Church Firm's failure to file a protective claim for a refund and failure to advise Shogren to file such a claim—were not protected activities under the anti-SLAPP statute. The court emphasized that the anti-SLAPP statute protects statements or writings made before or in connection with an issue under consideration by a judicial body, not failures to act or speak.Therefore, the Court of Appeal affirmed the order denying the anti-SLAPP motion, concluding that the Church Firm did not meet its burden of proving that the causes of action arose from protected conduct. View "Callister v. James B. Church & Associates" on Justia Law

The case involves Donald Herrington, who was charged with multiple counts of perjury, obtaining money by false pretenses, filing false or fraudulent income tax returns, failure to file an income tax return, and drug possession. Herrington chose to represent himself in court, waiving his right to counsel. He was eventually convicted on several charges and sentenced to twelve years' imprisonment. Herrington appealed his conviction, arguing that his Sixth Amendment right to counsel was violated and that his appellate counsel was ineffective for failing to bring two meritorious arguments on direct appeal.The case was initially heard in the United States District Court for the Eastern District of Virginia, which rejected Herrington's arguments and denied his petition. Herrington then appealed to the United States Court of Appeals for the Fourth Circuit.The Fourth Circuit affirmed the district court's decision in part, reversed in part, and remanded with instructions. The court found that Herrington knowingly, unequivocally, and voluntarily waived his right to counsel, thus affirming that aspect of the district court's decision. However, the court agreed with Herrington that his appellate counsel was ineffective for failing to argue that the jury was erroneously instructed on the requirements for a conviction for failure to file a tax return. The court reversed this part of the district court's decision and remanded the case with instructions to issue a writ of habeas corpus unless Herrington is afforded a new state court appeal in which he may raise this claim. View "Herrington v. Dotson" on Justia Law

The case involves a group of appellants who allegedly purchased luxury vehicles with funds provided by Dilmurod Akramov, the owner of CBC and D&O Group. The appellants would then transfer the vehicle titles back to Akramov's D&O Group without receiving cash or equivalent in exchange. They would then claim a "trade-in credit" against the sales tax due on the purchase of a vehicle. The Arkansas Department of Finance and Administration (DFA) argued that these were not valid sales as required by Arkansas law and denied the sales-tax-refund claims.The appellants challenged the DFA's decision through the administrative review process, which affirmed the DFA's decision. The appellants then appealed to the Pulaski County Circuit Court for further review. The circuit court found that the appellants' attorney, Jason Stuart, was a necessary witness and therefore disqualified him from further representing the appellants. The court also held the appellants in contempt for failing to provide discovery per the court's order.The Supreme Court of Arkansas affirmed the circuit court's decision. The court held that the circuit court did not abuse its discretion in disqualifying Stuart. The court applied the three-prong test from Weigel v. Farmers Ins. Co., which requires that the attorney's testimony is material to the determination of the issues being litigated, the evidence is unobtainable elsewhere, and the testimony is or may be prejudicial to the testifying attorney’s client. The court found that all three prongs were satisfied in this case. The court also affirmed the circuit court's decision to strike the third amended and supplemental complaint filed by Stuart after his disqualification. View "STUART v. WALTHER" on Justia Law

In 2002, Douglas Coe, Jacqueline Coe, and GFLIRB, LLC (collectively the “Coes”) were involved in the sale of a company in which they held a substantial interest. Their accountants, BDO Seidman, LLP (“BDO”), advised them of a proposed tax strategy in which the Coes could invest in distressed debt from a foreign company in order to offset their tax obligations. In connection with the proposed tax strategy, BDO advised the Coes to obtain a legal opinion from an independent law firm, Proskauer Rose LLP (“Proskauer”). The Coes followed BDO’s advice, obtained a legal opinion from Proskauer, and claimed losses on their tax returns as a result. But in 2005, the Internal Revenue Service (“IRS”) initiated an audit, which ultimately led to a settlement in 2012. After settling with the IRS, the Coes filed suit against Proskauer in December 2015, asserting legal malpractice, breach of fiduciary duty, fraud, negligent misrepresentation, and other claims. After limited discovery on whether the statute of limitation barred the Coes’ claims, the trial court concluded that it did and granted summary judgment in favor of Proskauer, and the Court of Appeals affirmed. The Georgia Supreme Court concluded the Court of Appeals erred in determining that the Coes failed, as a matter of law, to exercise reasonable diligence to discover Proskauer’s allegedly fraudulent acts. Judgment was reversed and the matter remanded to the trial court for further proceedings. View "Coe, et al. v. Proskauer Rose, LLP" on Justia Law

The Supreme Court held that summary judgment was improper in this case alleging fraudulent concealment and professional negligence.In her complaint, Plaintiff alleged that Defendants failed properly to prepare and file her delinquent tax returns for tax years 2006 through 2009 and intentionally deceived her about the status of the returns. The trial court allowed Defendants’ motion for partial summary judgment regarding Plaintiff’s fraudulent concealment claim, the corresponding claim for punitive damages, and Defendants’ statute of repose defense for professional negligence for tax years 2006 and 2007. The court of appeals reversed the trial court’s decision regarding the statute of repose and affirmed the trial court’s dismissal of Plaintiff’s fraudulent concealment claim and Plaintiff’s related claim for punitive damages. The Supreme Court reversed in part, holding that genuine issues of material fact existed regarding the fraudulent concealment claim and the accompanying punitive damages claim, as well as the triggering event for the running of the statute of repose. View "Head v. Gould Killian CPA Group, P.A." on Justia Law

Defendants, an attorney and a law firm, structured a tax-deferred exchange for Plaintiffs, a husband and wife and the cattle ranch they owned. It was later determined that the exchange did not qualify for deferred tax treatment under 26 U.S.C. 1031, resulting in significant tax liability for Plaintiffs. Defendants filed an action against Defendants for professional negligence, breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, and misrepresentation. The district court granted summary judgment to Defendants on all claims on grounds that Plaintiffs' claims were time barred. The Supreme Court reversed, holding (1) Plaintiffs' tort claims were timely filed, and the issue of whether Plaintiffs' timely filed their misrepresentation claim was a question of material fact to be resolved by a jury; (2) Plaintiffs properly stated a claim for breach of contract and the claim was not time barred; and (3) the district court erred in granting Defendants a protection order to prevent discovery of alleged work product and attorney-client communications, as further analysis and fact finding were necessary to determine which documents were discoverable and which qualified for work product or attorney-client protection. Remanded.View "Draggin' Y Cattle Co., Inc. v. Addink" on Justia Law

In 2010, Plaintiff was negotiating the sale of three limited liability companies of which he was the sole shareholder. The companies were S Corporations. Plaintiff retained an Accounting Firm to advise him on his tax liability from the contemplated sale. Altaview Concrete, one of the companies, was named as the client. Jeffrey Bickel, a partner at the Accounting Firm, advised Plaintiff that he could restructure the deal to reduce his tax liability to $663,000. The buyer agreed to the restructuring proposals, and the sale closed. Later Bickel and the Accounting Firm (collectively, Defendants) discovered they had greatly underestimated Plaintiff's tax liability. Plaintiff filed a professional negligence claim in district court. The district court granted Defendants' motion for summary judgment, finding that Plaintiff's claim failed to satisfy the writing requirement of Utah Code 58-26-602, which provides that accountants are not liable to third parties unless the accountant identified in writing to the client that the professional services were intended to be relief upon by the third party. The Supreme Court reversed, holding that Defendants were liable to Plaintiff as a third party under section 602 because Defendants identified in writing that the professional services were intended to be relied upon by Plaintiff. View "Reynolds v. Bickel" on Justia Law

Acting on the bad advice of his accountant, plaintiff, the executor of an estate, filed the estate-tax return several months late. Consequently, the IRS assessed significant penalties against the estate. Plaintiff initiated this action seeking a refund of the penalty. The court concluded that it was plaintiff's duty to ascertain the correct extended filing deadline. By relying on his accountant's advice about that nonsubstantive matter, he failed to exercise ordinary business care and prudence, and he could not show reasonable cause to excuse the penalty. Therefore, the court affirmed the judgment of the district court. View "Knappe v. United States" on Justia Law