Denney v. Bdo Seidman, L.L.P.
| Decision Date | 14 June 2005 |
| Docket Number | Docket No. 04-2705-CV(CON).,Docket No. 04-2659-CV(CON).,Docket No. 04-2808-CV(CON).,Docket No. 04-2654-CV(L). |
| Citation | 412 F.3d 58 |
| Parties | Thomas DENNEY, on his own behalf and on behalf of all others similarly situated, R. Thomas Weeks, on his own behalf and on behalf of all others similarly situated, Norman R. Kirisits, on his own behalf and on behalf of all others similarly situated, TD Cody Investments, L.L.C., on their own behalf and on behalf of all others similarly situated, RTW High Investments, L.L.C., on their own behalf and on behalf of all others similarly situated, NRK Syracuse Investments, L.L.C., on their own behalf and on behalf of all others similarly situated, DKW Partners, on their own behalf and on behalf of all others similarly situated, DKW Lockport Investors, Inc., on their own behalf and on behalf of all others similarly situated, Donald A. Destefano, on his own behalf and on behalf of all others similarly situated, Patricia J. Destefano, on her own behalf and on behalf of all others similarly situated, DD Tiffany Circle Investments, L.L.C., on their own behalf and on behalf of all others similarly situated, Tiffany Circle Partners, on their own behalf and on behalf of all others similarly situated, Diamond Roofing Company, Inc., on their own behalf and on behalf of all others similarly situated, Kathryn M. Kirisits, on her own behalf and on behalf of all others similarly situated, Jeff Blumin, JB Hilltop Investments LLC, Kyle Blumin, KB Hoag Lane Investments LLC, Michael Blumin, MB St. Andrews Investments LLC, Fayetteville Partner and Laurel Hollow Investors, Inc., on their own behalf and on behalf of all others similarly situated, Plaintiffs-Appellees, v. BDO SEIDMAN, L.L.P., Pasquale & Bowers, L.L.P., Dermody, Burke and Brown, Certified Public Accountants, PLLC, Paul Shanbrom, Deutsche Bank AG and Deutsche Bank Securities, Inc., doing business as Deutsche Bank Alex Brown, a division of Deutsche Bank Securities, Inc., Defendants-Appellants, Jenkens & Gilchrist, a Texas Professional Corporation, Jenkens & Gilchrist, an Illinois Professional Corporation, Cantley & Sedacca, L.L.P., Paul M. Daugerdas, and Edward Sedacca, Defendants. |
| Court | U.S. Court of Appeals — Second Circuit |
Michael R. Young (Michelle J. Nadel and I. Bennett Capers, of counsel), Willkie Farr & Gallagher LLP, New York, N.Y. for Defendants-Appellants BDO Seidman, LLP and Paul Shanbrom.
Seth C. Farber (Lawrence M. Hill, of counsel), Dewey Ballantine LLP, New York, N.Y. for Defendants-Appellants Deutsche Bank AG and Deutsche Bank Securities, Inc., doing business as Deutsche Bank Alex Brown, a Division of Deutsche Bank Securities Inc.
W. Ralph Canada, Jr. (David R. Deary, Jeven R. Sloan, Deary Montgomery DeFeo & Canada, LLP, Dallas, TX, Jeffrey H. Daichman, Kane Kessler P.C., New York, NY, Ernest Cory, Cory, Watson, Crowder & Degaris, Birmingham, AL, Joe Whatley and Othni Lathram, Whatleydrake, L.L.C., Birmingham, AL, of counsel), Deary Montgomery DeFeo & Canada, LLP, Dallas, TX for Plaintiffs-Appellees.
Before: LEVAL, CABRANES and KATZMANN, Circuit Judges.
Defendants-appellants appeal from an order of the United States District Court for the Southern District of New York (Shira A. Scheindlin, Judge) denying their motion to compel arbitration based on the District Court's finding that the consulting agreements the parties entered into, each of which contained an arbitration clause, were "mutually fraudulent" and consequently unenforceable. Because we hold that the District Court erred in finding the agreements mutually fraudulent, we reverse the District Court's finding that the consulting agreements are void because of mutual fraud. We reverse also the District Court's finding that the services provided to plaintiffs by defendant BDO Seidman, L.L.P. ("BDO"), that form the basis for this suit, fell outside the scope of the consulting agreements. Finally, we vacate the District Court's order denying defendants' motion to compel plaintiffs to arbitrate their claims and remand the cause for further consideration, consistent with this opinion, of (1) whether the non-signatory defendants can compel arbitration, and (2) whether the non-signatory plaintiffs can be compelled to submit to arbitration.
The full history of this case is reported in the order of the District Court. See Denney v. Jenkens & Gilchrist, 340 F.Supp.2d 338 (S.D.N.Y.2004) ("Denney I"). We recount here only those facts relevant to the disposition of this appeal.
In this putative class action, plaintiffs1 seek damages from defendants2 for alleged violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 ("RICO"), unjust enrichment, breach of contract, breach of the duty of good faith and fair dealing, breach of fiduciary duties, fraud, negligent misrepresentation, professional malpractice, "unethical, excessive and illegal fees," and civil conspiracy. See Denney I, 340 F.Supp.2d at 340.
Plaintiffs claim that they were recruited by accounting firms BDO, Pasquale & Bowers, L.L.P., and Dermody, Burke, and Brown, Certified Public Accountants, in 1999 to participate in a tax scheme, Currency Options Bring Reward Alternatives ("COBRA"). Id. at 341. At that time, plaintiffs were expecting to realize substantial capital gains from certain stock holdings. Defendants told plaintiffs that they could offset such gains, and thereby reduce their taxes, by forming partnerships to engage in digital foreign currency option transactions.3 Id. Defendants assured plaintiffs that COBRA was a lawful tax strategy and that they had an independent opinion letter from Jenkens & Gilchrist, a major law firm, attesting to COBRA's validity.
In the fall of 1999, plaintiffs agreed to engage in COBRA transactions and separately entered into consulting agreements with BDO to memorialize that arrangement.4 Id. at 341, 343-45. In October 1999, plaintiff L. Michael Blumin, acting on behalf of Jefyle Equipment Corporation, entered into a consulting agreement with BDO (the "Blumin Agreement"). Under the Blumin Agreement, BDO was to provide "certain tax, financing and business consulting services" in connection with the expansion of Jefyle Equipment Corporation's "business operations into new strategic markets."
Plaintiffs Thomas Denney, R. Thomas Weeks, and Norman R. Kirisits entered into a similar consulting agreement with BDO that same month for consulting services in connection with the transfer, "by sale, lease or otherwise," of their business operations (the "Denney Agreement"). Under the Denney Agreement, BDO was required to provide "consulting services in conjunction with [Denney, Weeks, and Kirisits's transfer of business operations], including assistance in structuring the Transaction, assisting the client in determining a tax treatment for the Transaction, and [preparing] the 1999 and 2000 income tax returns that would reflect the Transaction."
Subsequently, in November 1999, plaintiff Diamond Roofing Company likewise entered into an agreement with BDO for consulting services in connection with the expansion of its "business operations into new strategic markets" (the "DeStefano Agreement"). The services that BDO agreed to provide under the DeStefano Agreement were identical to those it agreed to provide under the Blumin Agreement. See id. at 345.
Each of these three consulting agreements also contained the following mandatory arbitration clause:
If any dispute, controversy or claim arises in connection with the performance or breach of this Agreement and cannot be resolved by facilitated negotiations (or the parties agree to waive that process) then such dispute, controversy or claim shall be settled by arbitration in accordance with the laws of the State of New York, and the then current Arbitration Rules for Professional Accounting and Related Disputes of the American Arbitration Association ("AAA") except that no pre-hearing discovery shall be permitted unless specifically authorized by the arbitration panel, and shall take place in the city in which the BDO office providing the relevant Services exists, unless the parties agree to a different locale.
Plaintiffs claimed that their COBRA transactions generated losses. See id. at 342. The Pasquale and BDO defendants prepared plaintiffs' tax returns, utilizing these losses to offset plaintiffs' capital gains. Id. Plaintiffs contend that, at the time defendants prepared plaintiffs' returns, defendants knew, or should have known, that the COBRA transactions were "wholly lacking in economic substance [and were] not properly allowable for Federal income tax purposes."
In or around December 2002, the New York State Revenue Department and the Internal Revenue Service separately notified plaintiffs that their income tax returns had been selected for audit. Id. at 342. On July 23, 2003, plaintiffs filed this suit in the District Court, seeking damages from defendants for defendants' design, promotion, sale, and implementation of the COBRA strategy. Specifically, plaintiffs claimed that they were duped into participating in COBRA by defendants and that, in addition to losses directly associated with the COBRA transactions, they have incurred, and will continue to incur, substantial damages in the form of fees paid to accountants and attorneys in connection with the ongoing state and federal audits. See id. at 343.
On January 9, 2004, defendants moved in the District Court to dismiss the suit and compel plaintiffs to arbitrate their claims under the consulting agreements. Although only BDO and certain named plaintiffs were parties to the agreements, the other named defendants urged that arbitration of plaintiffs' claims against them was likewise appropriate because their relationship with plaintiffs was intertwined with BDO's. Defendants further averred that those plaintiffs who had not signed...
To continue reading
Request your trial
-
In re Merrill Lynch Trust Co. Fsb
....... [235 S.W.3d 187] . Charles A. Gall, Joel Randall Sharp, Hunton & Williams LLP, Robert B. Gilbreath, Hawkins, Parnell & Thackston, LLP, Jeffrey L. Crouch, Melinda Morrell Hough, ... See Bridas, 447 F.3d at 415; Comer, 436 F.3d at 1101; Zurich Am., 417 F.3d at 687; Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 71 (2d Cir.2005); Trippe Mfg. Co. v. Niles Audio Corp., 401 ......
-
In re Actions
......Kaplan, Elana Katcher, Gregory Keith Arenson, Richard Jo Kilsheimer, Kaplan Fox & Kilsheimer LLP, New York, NY, for Plaintiffs. Luke A. Connelly, Winston & Strawn LLP, Steven M. Bierman, Sidley ... in arbitration are intertwined with the agreement that the estopped party has signed.” Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 70 (2d Cir.2005) (internal quotation marks omitted) (quoting ......
-
U.S. v. Bdo Seidman, Llp
......R.190 at 10. . After the district court issued its final ruling with respect to Document A-40, the Court of Appeals for the Second Circuit reversed the decision of the United States District Court for the Southern District of New York in Denney v. Jenkens & Gilchrist, 340 F.Supp.2d 338 (S.D.N.Y.2004). See Denney v. BDO Seidman, L.L.P., 412 F.3d 58, 66 (2d Cir.2005). The Intervenors moved for reconsideration under Rule 60(b) of the Federal Rules of Civil Procedure, arguing that, because the district court had relied on Denney when ......
-
Mid-South Maint. Inc. v. Paychex Inc.
...and concerted conduct by both the non-signatory and the other signatory to the contract." Id. at 703 (citing Denney v. BDO Seidman, LLP, 412 F.3d 58, 70-71 (2d Cir. 2005)). Citing the Second Circuit Court of Appeals, the Court opined:"We have previously indicated that signatories to an arbi......
-
How to protect your CEO from being subject to an arbitration award, when not a party to the arbitration agreement.
...non-signatories to arbitration agreements). (4) Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006); Denney v. BDO Seidman L.L.P., 412 F.3d 58, 71 (2d Cir. 2005); Trippe Mfg. Co., v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005); Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F......