Appeals court greenlights fraud suit against Proskauer related to tax shelter advice
A New York state appeals court has greenlighted a fraud suit against Proskauer Rose related to tax shelter advice the law firm provided to heirs of the Johnson & Johnson fortune approximately 15 years ago.
Upholding a trial court ruling that denied a motion to dismiss and also OK’d punitive damages if the plaintiffs prevail, the Appellate Division, First Department said in its Thursday ruling that Proskauer could potentially be held liable for a failure to disclose its relationship with a tax consulting firm, Bloomberg BNA and the New York Law Journal (sub. req.) report.
The plaintiffs say that when law firm attorneys Ira Akselrad and Jay Waxenberg discussed the tax shelter offered by the Diversified Group, they failed to reveal what the suit describes as a joint marketing and fee-sharing arrangement with TDG that effectively made Proskauer and the tax consulting firm partners.
The trial court dismissed a malpractice claim against Proskauer, finding that it was time-barred, and the law firm argued that the fraud claim also should be dismissed because it was based on the same claimed conduct.
However, the appellate panel agreed with the trial court on this front, too. It said the malpractice claim was properly dismissed, but the fraud claim “alleged independent, intentionally tortious conduct, particularly concerning Proskauer’s failure to disclose its true relationship with TDG.” This conduct “gave rise to separate and distinct damages from the malpractice claim.”
Both sides said they are pleased with the ruling, the articles report.
Proskauer’s David Lederkramer, who has been handling the defense of the case for the firm, said Proskauer plans to appeal seeking dismissal of all remaining claims and is “confident we will prevail.”
Sean Mack of Pashman Stein is one of the lawyers representing the plaintiffs. He said his clients do not intend to appeal the dismissal of the malpractice claim because the remaining fraud claim is “the essence of the complaint.”
John Seward Johnson Jr., a grandson of the founder of Johnson & Johnson is the lead plaintiff in the case, the New York Law Journal notes. He says he and relatives lost $40 million over Proskauer’s advice that the tax shelter was legitimate.
Hat tip: Reuters (sub. req.)
