STEPHEN A. GAROFALO, LORI GAROFALO, LOUISIANA PARTNERS FUND, LLC, BATON ROUGE PARTNERS FUND, LLC and NEW ORLEANS PARTNERS FUND, LLC, Appellants,
PROSKAUER ROSE LLP, Appellee.
final until disposition of timely filed motion for rehearing.
from the Circuit Court for the Fifteenth Judicial Circuit,
Palm Beach County; Lisa S. Small, Judge; L.T. Case No.
W. McKenzie, III, W. Ralph Canada, Jr., and Jeven R. Sloan of
Loewinsohn Flegle Deary Simon, LLP, Dallas, Texas, for
Matthew Triggs of Proskauer Rose LLP, Boca Raton, and David
M. Lederkramer and Elise A. Yablonski of Proskauer Rose LLP,
New York, for appellee.
length of time a law firm can be held liable for an alleged
fraudulent tax shelter is challenged in this appeal. The
plaintiffs appeal a final order dismissing their complaint
with prejudice based on the fraud statute of repose. They
argue the trial court erred in dismissing the complaint
because the law firm had an ongoing continuing duty to
correct information in its 2002 opinion letter; and its
failure to do so was an ongoing fraudulent omission. We
disagree and affirm.
principal plaintiff was a co-founder of a telecommunications
company that went public in 1997. The company soared to a
valuation of $36 billion before declaring bankruptcy during
the 2001-2002 market crash. Despite the insolvency, the
principal realized a multi-million-dollar capital gain by
borrowing against his company's shares before the crash.
realizing the gain, the principal met with representatives
from Arthur Andersen LLP ("Andersen") and Bricolage
Capital LLC ("Bricolage"). They pitched an
investment strategy (the "Strategy") designed to
take "advantage of the tax code and tax laws to generate
a completely legal tax loss that could be used to offset [the
principal's] ordinary income and/or capital gains."
The law firm prepared a letter to serve as an independent
opinion on the validity of the Strategy.
defendant law firm delivered the opinion letter to the
plaintiffs on October 8, 2002. The letter confirmed the
legitimacy of the Strategy, and assured legal support if
there was a dispute with the IRS. Accordingly, the plaintiffs
claimed the losses on their tax returns. When the IRS audited
the plaintiffs' tax returns, it concluded the Strategy
was an abusive tax shelter.
Complaint and Motion to Dismiss
22, 2016, the plaintiffs filed a complaint alleging Andersen
and Bricolage conspired with the law firm to lure them into
participating in the Strategy. They claimed the opinion
letter was a "fill in the blank boilerplate legal
opinion" not specifically related to the plaintiffs'
financial situation. The law firm allegedly helped design,
develop, market, and implement the Strategy as part of a
conspiracy to commit fraud; knowingly provided false
information in the opinion letter; and continued its
involvement in the conspiracy by withholding material
information from the plaintiffs after they filed their tax
returns. The plaintiffs alleged the co-conspirators worked
together to lure clients to use the Strategy.
firm moved to dismiss the complaint based on the fraud
statute of repose. In its motion, and at the hearing on the
motion, the law firm argued it had no contact with the
plaintiffs after delivering the opinion letter on October 8,
2002. The complaint was barred by the statute of repose. The
law firm further argued the plaintiffs' "continuing
omission theory" would eviscerate the statute of repose
because the law firm's duty would continue indefinitely.
plaintiffs conceded the lack of contact after October 8,
2002, but suggested the law firm should have been in contact
with them because it owed them a continuing duty to disclose
errors in its opinion and relationship with the
co-conspirators. They argued the law firm's failure to
make corrective disclosures were fraudulent omissions. As a
result, they claimed the repose period should have been
measured from the date of the law firm's last fraudulent
omission, not the delivery of the opinion letter.
trial court granted the law firm's motion and dismissed
the complaint with prejudice. From this order, the plaintiffs
plaintiffs continue to argue that the dismissal with
prejudice was premature and the trial court misapplied the
statute of repose. The law firm responds that the complaint
was filed after the statute of repose period expired, and the