Friday, January 8, 2010

Claims Against Law Firm Dismissed

The dismissal of claims brought against a law firm was ordered by the New York Appellate Division for the First Judicial Department:

This case involves professional services surrounding the design and implementation of a tax driven, sophisticated, individual private pension plan costing millions of dollars. The parties had various professionals in the form of accountants and lawyers representing them. Plaintiff describes himself, not as a member of the consuming public, but as a sophisticated entity, to wit: "a commodities trader on the New York Mercantile Exchange" who "operated [his] business as a sole proprietor." Therefore, this transaction was "not the modest' type of transaction the statute was primarily intended to reach" (id. [internal citations omitted]). Plaintiff also recognizes that "the target market of the Pendulum Plan' was for businesses, (such as mine) with a stable cash flow and minimal number of ancillary employees" rather than the consuming public in general.

Moreover, as plaintiff admits in his affidavit, it was not the form of the Pendulum Plan in general that ran afoul of IRS regulations, but rather the operation of plaintiff's particular plan that used life insurance as a tax shelter "in amounts that greatly exceeded both IRS imposed limits and the terms of the plan document prepared by Bryan Cave and approved by the IRS." As it was the operation of plaintiff's particular plan that caused the problems with the IRS, this is essentially a private dispute among the parties relating to advice that plaintiff received and his particular plan structure, rather than conduct affecting the consuming public at large.

The court found that claims of unjust enrichment, legal malpractice and negligence were not established:

The allegations do not support the claims for unjust enrichment against Bryan Cave and Smith and Hartstein. Whatever benefits they may have received were too attenuated from the conduct alleged and from their relationships with plaintiff. The claim is also not viable as against Bankers, and Thornhill as Banker's agent, because the express terms of plaintiff's valid insurance contracts govern Bankers' obligations to plaintiff.

The motion court should have dismissed the legal malpractice claims against Bryan Cave and Smith because no attorney-client relationship existed in 2002. The motion court was correct that the tax opinion letter was insufficient to support an attorney- client relationship, considering the letter stated it was for ECI solely and contained disclaimers cautioning readers to procure tax advice tailored to their specific plan. The motion court was also correct that the limited power of attorney was insufficient to show an attorney-client relationship as that document could also have authorized nonattorneys to act on behalf of plaintiff. The limited power of attorney only authorized Bryan Cave to represent "Robert A. Dennenberg, a Sole Proprietorship Defined Benefit Pension Plan" before the IRS and only for "Form 5307," which was the application submitted to the IRS for it to determine whether to approve the Plan. Plaintiff does not contend that Bryan Cave was negligent in submitting the Form 5307.

However, the motion court improperly relied on plaintiff's entirely conclusory allegations that plaintiff retained the services of Bryan Cave in 2001 to support the legal malpractice claim. Plaintiff points to no communications with Bryan Cave for legal advice about implementation of the Plan. Plaintiff offers no objective facts or actions to show the existence of an attorney-client relationship or the parties' mutual agreement that Bryan Cave would perform ongoing legal services for plaintiff.

In a last ditch attempt to hold Bryan Cave responsible, plaintiff claims Bryan Cave was negligent in defending him during his 2004 audit before the IRS, until October 25, 2005 when plaintiff retained new counsel. However, plaintiff points to no damage relating to Bryan Cave's alleged negligence during the audit period. Rather, according to plaintiff's allegations, all of plaintiff's injury stems from the implementation of the Plan, not from any actions the attorneys took during the audit period. Accordingly, the court should have dismissed the cause of action for legal malpractice. (citations and headers omitted)

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