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Garofalo v. Proskauer Rose LLP

Florida Court of Appeals, Fourth District

August 1, 2018


         Not final until disposition of timely filed motion for rehearing.

          Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm Beach County; Lisa S. Small, Judge; L.T. Case No. 502016CA007003XXXXMB.

          John W. McKenzie, III, W. Ralph Canada, Jr., and Jeven R. Sloan of Loewinsohn Flegle Deary Simon, LLP, Dallas, Texas, for appellants.

          Matthew Triggs of Proskauer Rose LLP, Boca Raton, and David M. Lederkramer and Elise A. Yablonski of Proskauer Rose LLP, New York, for appellee.

          MAY, JUDGE

         The 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.


         The principal plaintiff[1] 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.

         After 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.

         The 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.

         The Complaint and Motion to Dismiss

         On June 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.

         The law 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.

         The 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.

         The trial court granted the law firm's motion and dismissed the complaint with prejudice. From this order, the plaintiffs appeal.

         The Appeal

         The plaintiffs continue to argue that the dismissal with prejudice was premature and the trial court misapplied the statute of repose.[2] The law firm responds that the complaint was filed after the statute of repose period expired, and the "continuing ...

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