Gimme Tax Shelter

The Georgia Supreme Court has reversed and remanded a dismissed legal malpractice claim against Proskauer Rose

In 2002, Douglas Coe, Jacqueline Coe, and GFLIRB, LLC (collectively the “Coes”) were involved in the sale of a company in which they held a substantial interest, and their accountants, BDO Seidman, LLP (“BDO”), advised them of a proposed tax strategy in which the Coes could invest in distressed debt from a foreign company in order to offset their tax obligations. In connection with the proposed tax strategy, BDO advised the Coes to obtain a legal opinion from an independent law firm, Proskauer Rose LLP (“Proskauer”). The Coes followed BDO’s advice, obtained a legal opinion from Proskauer, and claimed losses on their tax returns as a result. But in 2005, the Internal Revenue Service (“IRS”) initiated an audit, which ultimately led to a settlement in 2012.

After settling with the IRS, the Coes filed suit against Proskauer in December 2015, asserting legal malpractice, breach of fiduciary duty, fraud, negligent misrepresentation, and other claims. After limited discovery on whether the statute of limitation barred the Coes’ claims, the trial court concluded that it did and granted summary judgment in favor of Proskauer, and the Court of Appeals affirmed. See Coe v. Proskauer Rose LLP, 360 Ga. App. 68 (860 SE2d 630) (2021). We granted the Coes’ petition for certiorari to address whether that holding was correct and conclude that it was not. For the reasons set forth below, we reverse the judgment of the Court of Appeals and remand the case with instructions to reverse the trial court’s order and remand the case for further proceedings consistent with this opinion.

The court noted that the case is at summary judgment phase and found sufficient evidence that the statute of limitations was tolled

we conclude that the Coes produced evidence sufficient to support that they exercised reasonable diligence to discover their causes of action within the limitations period. Most notably, after the IRS initiated its audit in 2005, the Coes did not simply ignore the problem; they hired independent counsel with an established reputation in tax matters to assist them in the audit process.

As to imputed knowledge of counsel

Proskauer also argues that Chamberlain, as sophisticated tax counsel, either knew or should have known the basis for all of the Coes’ claims against Proskauer and that in any event, as the Coes’ counsel, Chamberlain’s constructive knowledge was imputed to the Coes for purposes of determining tolling. Pretermitting whether constructive knowledge of legal counsel is imputed to the client in these circumstances, there is no evidence in the record of what Chamberlain knew about Proskauer’s role in the Strategy, other than the fact that Proskauer had provided legal and tax advice to the Coes, or that Chamberlain actually was aware of the IRS’s efforts against similar tax shelters. Moreover, there is no evidence in the record showing what Chamberlain should have known, only Proskauer’s legal argument that Chamberlain should have been on notice about the IRS’s efforts against similar tax shelters.

(Mike Frisch)