Legal Malpractice

Sidley Austin, KPMG and Legal Malpractice

By (Andrew Lavoott Bluestone)

It appears certain that they gave bad tax shelter advice, but this plaintiff opted out of a successful class action only to see his own case dismissed,

EDWARD H. ARNOLD, Plaintiff, -against- KPMG LLP, and SIDLEY AUSTIN BROWN & WOOD LLP, Defendants.

05 Civ. 7349 (PAC)
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
2008 U.S. Dist. LEXIS 25855
March 28, 2008, Decided
March 28, 2008, Filed
Plaintiff Edward H. Arnold ("Arnold") brings this action against Defendants KPMG ("KPMG"), an accounting firm, and Sidley Austin Brown & Wood ("Brown & Wood"), a law firm, for damages allegedly suffered when he bought tax shelters from KPMG with Brown & Wood's endorsement. The tax shelters, which were effectuated through the purchase and sale of securities, were designed to offset Arnold's income but were determined to be unlawful tax-avoidance schemes.

The Court held oral argument on the matter on March 6, 2008. [*3] (Transcript of Oral Argument, March 6, 2008 ("Tr.").) The Court ruled that: (1) Arnold's federal securities claims are time-barred by operation of the relevant statute of limitations (Tr. at 7-11); and (2) Arnold's numerous state law claims merge into single claims for professional malpractice against each defendant (Tr. at 11-12). In light of these holdings, the Court heard oral argument as to: (1) whether the Court should exercise supplemental jurisdiction over the state law malpractice claims in light of the dismissal of the federal claims, and (2) whether the state law malpractice claims are time-barred under the statute of limitations. The Court now exercises its supplemental jurisdiction over the state law malpractice claims and dismisses them as time-barred.

In this case, Defendants argue that the three-year statute of limitations accrued when the opinion letters were issued. Arnold contends that because the fraudulent scheme was continuous, the claim did not accrue against either Defendant until KPMG revealed its fraudulent conduct by entering into a deferred prosecution agreement with the Department of Justice in August 2005. In the alternative, Arnold argues that the statute of limitations was tolled.

The Court rejects the argument that the appropriate date of accrual was August 2005; the claim for malpractice accrued when each Defendant issued its opinion letter.

Full post as published by New York Attorney Malpractice Blog on April 25, 2008 (boomark / email).