Kipnis v. Bayerische Hypo–Und Vereinsbank, AG

• Decision Date: 03 November 2016
• Docket Number: No. SC15–740.,SC15–740.
• Citation: 202 So.3d 859
• Parties: Donald KIPNIS, et al., Appellants, v. BAYERISCHE HYPO–UND VEREINSBANK, AG, etc., et al., Appellees.
• Court: Florida Supreme Court

202 So.3d 859

Donald KIPNIS, et al., Appellants,

v.BAYERISCHE HYPO–UND VEREINSBANK, AG, etc., et al., Appellees.

No. SC15–740.

Supreme Court of Florida.

Nov. 3, 2016.

Michael G. Dickler and Scott F. Hessell of Sperling & Slater, P.C., Chicago, IL; and Dennis G. Kainen of Weisberg Kainen Mark, PL, Miami, FL, for Appellants.

Ann Marie St. Peter–Griffith of Kasowitz, Benson, Torres & Friedman LLP, Miami, FL; Michael A. Hanin of Kasowitz, Benson, Torres & Friedman LLP, New

York, NY; and Henry Brownstein of Kasowitz, Benson, Torres & Friedman LLP, Washington, DC, for Appellees.

PERRY, J.

The United States Court of Appeals for the Eleventh Circuit certified the following question of Florida law that is determinative of a cause pending in that court and for which there appears to be no controlling precedent.

UNDER FLORIDA LAW AND THE FACTS IN THIS CASE, DO THE CLAIMS OF THE PLAINTIFF TAXPAYERS RELATING TO THE CARDS TAX SHELTER ACCRUE AT THE TIME THE IRS ISSUES A NOTICE OF DEFICIENCY OR WHEN THE TAXPAYERS' UNDERLYING DISPUTE WITH THE IRS IS CONCLUDED OR FINAL?

Kipnis v. Bayerische Hypo–Und Vereinsbank, AG, 784 F.3d 771, 783 (11th Cir.2015). We have jurisdiction. See art. V, § 3(b)(6), Fla. Const. For the following reasons, we answer the certified question by holding that the plaintiff taxpayers' claims accrued at the time their action in the tax court became final. That action became final ninety days after the tax court's judgment, at the expiration of the time period for an appeal of that judgment.

FACTS

Donald Kipnis and Lawrence Kibler (Kipnis and Kibler) owned Miller & Soloman General Contractors, Inc., one of South Florida's largest general contractors. In search of increased bonding capacity and unable to obtain financing through conventional methods, Kipnis and Kibler's accountant learned about custom adjustable rate debt structure (CARDS) transactions. See Kipnis, 784 F.3d at 774. According to the promoters, a CARDS transaction could increase Kipnis and Kibler's bonding capacity and provide tax savings. Although neither Kipnis, Kibler, nor their accountant fully understood the nature of CARDS transactions, the law firm and banks facilitating the transaction insisted that such transactions were legitimate, economically substantive transactions that were valid for tax purposes.

Relying on the reputations of the banks Bayerische Hypo–Und Vereinsbank, AG, and HVB U.S. Finance, Inc. (appellees), and the law firm facilitating the transactions, Kipnis and Kibler initiated a CARDS transaction, which began on December 5, 2000. See id. at 774–76. In connection with the transaction, Kipnis and Kibler paid promotional fees to the various entities involved in facilitating the transaction, including the appellees. On November 13, 2001, appellees notified Kipnis and Kibler that the CARDS transaction would end in under a month, twenty-nine years earlier than appellees' earlier representations at the beginning of the transaction.

Several months after the conclusion of Kipnis and Kibler's CARDS transaction, the Internal Revenue Service (IRS) determined that CARDS transactions lacked economic substance. See IRS Notice 2002–21, 2002–1 C.B. 730 (Mar. 18, 2002) ; see also Gustashaw v. Comm'r, 696 F.3d 1124, 1135 (11th Cir.2012) ( “There is no question that the CARDS transaction lacked economic substance.”). On February 13, 2006, appellees entered into a deferred prosecution agreement with the United States Department of Justice, in which they admitted to assisting United States citizens with tax evasion by using CARDS transactions. Appellees specifically admitted that “CARDS transactions ... involved false representations” and “had no purpose other than generating tax benefits for the clients involved.”

On October 4, 2007, the IRS issued notices of deficiency, which disallowed the deductions based on the CARDS transaction on Kipnis and Kibler's 2000 and 2001 federal tax returns on the ground that the CARDS transaction lacked economic substance. Kipnis and Kibler challenged the deficiency determinations in tax court. The tax court rejected the IRS's motion for summary judgment, holding that “it appears that that there is a material fact in dispute” on the issue of whether Kipnis and Kibler “had a nontax business purpose in entering into the CARDS transaction.” Kipnis v. Comm'r, Docket Nos. 30370–07, 30373–07, at 1–2 (T.C. Sept. 13, 2011). Following a three-day trial, the tax court upheld the notice of deficiency on November 1, 2012, ruling that Kipnis and Kibler's “CARDS transaction lacked economic substance. It could not be profitable, and [Kipnis and Kibler] did not have a business purpose for entering into the transaction.” Kibler v. Comm'r, 104 T.C.M. (CCH) 530, 2012 WL 5371787, at *13.

On November 4, 2013, Kipnis and Kibler filed a diversity action against appellees in the United States District Court for the Southern District of Florida, alleging a host of state law claims: violation of the state Civil Remedies for Criminal Practices Act; fraud; aiding and abetting fraud; conspiracy to commit fraud; breach of fiduciary duty; aiding and abetting breach of fiduciary duty; and negligent supervision of employees and executives. The federal district court dismissed the complaint, ruling that Florida's five-year statute of limitations on a Civil Remedies for Criminal Practices Act claim and the four-year statute of limitations on all other claims had run. See § 772.17, Fla. Stat. (2013) (Civil Remedies for Criminal Practices Act); § 95.11(3)(a), Fla. Stat. (2013) (negligence); § 95.11(3)(j), Fla. Stat. (fraud); § 95.11(3)(p), Fla. Stat. (2013) ( “[a]ny action not specifically provided for in these statutes”). Kipnis and Kibler appealed, and the United States Court of Appeals for the Eleventh Circuit certified the question of state law to this Court.

ANALYSIS

The question before us, as certified by the Eleventh Circuit is:

UNDER FLORIDA LAW AND THE FACTS IN THIS CASE, DO THE CLAIMS OF THE PLAINTIFF TAXPAYERS RELATING TO THE CARDS TAX SHELTER ACCRUE AT THE TIME THE IRS ISSUES A NOTICE OF DEFICIENCY OR WHEN THE TAXPAYERS' UNDERLYING DISPUTE WITH THE IRS IS CONCLUDED OR FINAL?

Kipnis, 784 F.3d at 784.

Kipnis and Kibler argue that had they won their tax court case, the cause of action alleged in their complaint would not have accrued. Appellees dispute that argument and assert that a claim for fees could have proceeded earlier without impact from Kipnis and Kibler's tax court litigation. This particular issue, the effect of the tax court litigation on Kipnis and Kibler's claim, is not before us and we decline to decide it. But for the purpose of answering the certified question, we assume that Kipnis and Kibler are correct and hold that their claim accrued when their underlying dispute with the IRS became final.

Generally, “the time within which an action shall be begun under any statute of limitations runs from the time the cause of action accrues.” § 95.031, Fla. Stat. (2013). “A cause of action accrues when the last element constituting the cause of action occurs.” § 95.031(1), Fla. Stat.; see also State Farm Mut. Auto. Ins. Co. v. Lee, 678 So.2d 818, 821 (Fla.1996) ( “[A] cause of action cannot be said to have accrued, within the meaning of the statute of limitations, until an action may be brought.”). Damages are often the last element of a cause of action to accrue.

Two interrelated rules are at issue in this case: the “first injury” rule and the “finality accrual” rule.

The general rule, of course, is that where an injury, although slight, is sustained in consequence of the wrongful act of another, and the law affords a remedy therefor, the statute of limitations attaches at once. It is not material that all the damages resulting from the act shall have been sustained at that time and the running of the statute is not postponed by the fact that the actual or substantial damages do not occur until a later date.

City of Miami v. Brooks, 70 So.2d 306, 308 (Fla.1954). Lower courts have labeled this the “first injury” rule. See Philip Morris USA, Inc. v. Barbanell, 100 So.3d 152, 158 (Fla. 4th DCA 2012) ; R.J. Reynolds Tobacco Co. v. Webb, 93 So.3d 331, 333–34 (Fla. 1st DCA 2012). However, a special rule applies when the plaintiff's damages exist by virtue of an enforceable court judgment. In these circumstances, the statute of limitations begins to run when the underlying judgment becomes final. See Peat, Marwick, Mitchell & Co. v. Lane, 565 So.2d 1323, 1326 (Fla.1990). We now label this the “finality accrual rule.”

To determine whether to apply the rule in any particular case, we have considered a series of factors and applied the finality accrual rule where those factors favored the rule's application. Our analysis has focused on whether application of the finality accrual rule would (1) avoid the needless disruption of an ongoing, preexisting relationship between the plaintiff and the defendant that could occur if we required an earlier lawsuit; (2) shield a potential plaintiff from having to argue inconsistent positions in separate actions; (3) ensure that a plaintiff's damages are sufficiently real and concrete prior to a judgment in the underlying litigation; (4) encourage the efficient use of scarce judicial resources; and (5) promote the policies underlying statutes of limitations in the case at bar.

First, we have refused to adopt a “rule that would mandate simultaneous suits [if doing so] would ... prematurely disrupt an otherwise harmonious business relationship,” especially where the plaintiff “has an established relationship” with the defendant. Blumberg v. USAA Cas. Ins. Co., 790 So.2d 1061, 1065 (Fla.2001) ; see also Larson & Larson, P.A. v. TSE Indus., Inc., 22 So.3d 36, 45 (Fla.2009) (discussing the need to avoid “undue disruption” of “an ongoing attorney-client relationship”).

Appellees point out that there was no ongoing relationship to disrupt because Kipnis and Kibler's last transaction with appellees was in 2001. Kipnis...