Lechter v. Aprio, LLP

CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
Citation565 F.Supp.3d 1279
Docket NumberCIVIL ACTION NO. 1:20-cv-1325-AT
Parties Andrew LECHTER, et al., Plaintiffs, v. APRIO, LLP, et al., Defendants.
Decision Date30 September 2021

[565 F.Supp.3d 1289]

ATTORNEYS FOR PLAINTIFFS: David R. Deary, Donna Lee, Jeven R. Sloan, John William McKenzie, III, Tyler McLean Simpson, William Ralph Canada, Jr., Wilson Edward Wray, Jr., Loewinsohn Deary Simon Ray LLP, Dallas, TX, Edward Jon Rappaport, Saylor Law Firm LLP, Atlanta, GA.

ATTORNEYS FOR DEFENDANTS APRIO, LLP, ROBERT GREENBERGER: Jennifer Peterson, John Earl Floyd, John H. Rains, IV, Bondurant Mixson & Elmore, LLP, Atlanta, GA.

ATTORNEYS FOR DEFENDANT SIROTE & PERMUTT, P.C.: Billie Barker Pritchard, David Lewis Balser, James Andrew Pratt, Martin Robert Thornton, King & Spalding, LLP, Atlanta, GA.

ATTORNEYS FOR DEFENDANT BAKER, DONELSON, BEARMAN, CALDWELL & BERKOWITZ, P.C.: Ryan Andrew Strain, Sam Berry Blair, Baker Donelson Bearman Caldwell & Berkowitz-Memphis, PC, Memphis, TN, Steven G. Hall, Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., Atlanta, GA.

ATTORNEYS FOR DEFENDANTS SMITH, LEWIS & HALEY, LLP, DAVID C. SMITH : Robert Harris Smalley, III, McCamy Phillips Tuggle & Fordham, Dalton, GA.

ATTORNEYS FOR DEFENDANTS FOREVER FORESTS LLC, NANCY ZAK: Samuel Fenn Little, Jr., S. Fenn Little, Jr. P.C., Atlanta, GA.

ATTORNEYS FOR DEFENDANT JAMES JOWERS: Joseph Trent Leman, The Leman Law Firm, Dalton, GA.

ATTORNEYS FOR DEFENDANT LARGE & GILBERT, INC.: Brent David Hitson, Burr & Forman LLP, Birmingham, AL, Tala Amirfazli, Burr & Forman, LLP, Atlanta, GA.

ATTORNEYS FOR DEFENDANT TENNILLE & ASSOCIATES, INC.: Andre T. Tennille, III, Cheeley Law Group, LLC, Alpharetta, GA, Barbara Anne Marschalk, David L. Rusnak, Roberto Bazzani, Drew Eckl & Farnham, Atlanta, GA, Leslie Paige Becknell, Drew Eckl & Farnham, Brunswick, GA.

ATTORNEYS FOR DEFENDANTS ATLANTIC COAST CONSERVANCY, INC., ROBERT D. KELLER : Anthony Joseph Rollins, Colin Dang Delaney, Gregory Keith Smith, Jason S. Bell, Steven Anthony Vickery, Smith, Gambrell & Russell, LLP, Atlanta, GA.

ATTORNEYS FOR DEFENDANT GEORGIA ALABAMA LAND TRUST, INC.: Travis Martin Cashbaugh, Dana Kristin Maine, Robert Edward Buckley, Freeman Mathis & Gary, LLP, Atlanta, GA.



I. Introduction

The practice of claiming charitable deductions through the conveyance of conservation easements has existed for decades; however, the steps a taxpayer must follow to legally qualify for these deductions are complex and often require the involvement of lawyers, accountants, and other tax specialists. The public policy purpose of allowing

[565 F.Supp.3d 1290]

charitable tax deductions for conservation easements is similar to that for all charitable deductions -- to recognize and garner support for a charitable purpose for the public good, and in the instance of conservation easements, to support conservation of land for environmental reasons. This case involves a specific tax saving strategy implemented through the conveyance of conservation easements. To save money on their taxes, property owners would convey easements on their properties exclusively for conservation purposes and then claim deductions on their tax returns based on the value of each easement.

Plaintiffs in this case all claimed deductions on their individual tax returns based on their participation in one of three conservation easement transactions. In each case, the transaction was between a Limited Liability Corporation — or "Syndicate" — that owned the land subject to the conservation easement, and a Land Trust that received the easement. Plaintiffs were each members of one of three Syndicates, and claimed deductions on their tax returns in proportion to their partnership interests in the respective Syndicates. In each case the deductions claimed by the Syndicates were disallowed by the Internal Revenue Service ("IRS") at the partnership level, exposing Plaintiffs to tax liability on the individual level.

In the Amended Complaint, Plaintiffs allege that all Defendants in one way or another materially assisted Plaintiffs in navigating the transactions at issue and falsely represented that the deductions Plaintiffs claimed were lawful when, in fact, Defendants knew that they were not. Plaintiffs further allege that Defendants — led by the accounting firm Aprio, LLP and one of its employees, Robert Greenberger (collectively, "the Aprio Defendants") — conspired to defraud Plaintiffs and other investors by inducing them to buy into a tax scam, which they refer to as "the SCE Strategy." Additionally, Plaintiffs seek to represent a class consisting of all persons who were exposed to personal tax liability for any tax year since January 1, 2008 as a result of their participation in syndicated conservation easement transactions managed by Defendants.

Currently pending before the Court are ten Motions to Dismiss Plaintiffs’ Amended Complaint, [Docs. 170, 171, 172, 173, 177, 179, 180, 181, 182, 183] and PlaintiffsMotion to Strike or Disregard Extrinsic Evidence [Doc. 187].

II. Background1

For ease of reference, the Court has included a table below listing several acronyms that appear throughout this Opinion and Order:

BDR Baseline Documentation Report
FPAA Final Partnership Administrative Adjustment
RAR Revenue Agent Report
A. Overview of the SCE Strategy

Plaintiffs’ theory is that Defendants advanced a fraudulent scheme to induce Plaintiffs to buy into a flawed tax saving strategy, which Plaintiffs refer to as the SCE Strategy. (Am. Compl., Doc. 155 ¶ 1.) The strategy revolved around donations of conservation easements2 to Land Trusts.

[565 F.Supp.3d 1291]

Although tax deductions are generally not allowed for the donation of a partial interest in property, the Internal Revenue Code contains an exception for the donation of a "qualified conservation contribution." (Id. ¶ 37). Under the Internal Revenue Code, a qualified contribution is a contribution of (1) a qualified real property interest; (2) to a qualified organization; (3) made exclusively for conservation purposes. (Id. ¶ 38); see 26 U.S.C. § 170(h). The easements are memorialized through a legal agreement between the property owner and the donee — a "qualified organization," such as a Land Trust or government agency — to permanently restrict development on the land to achieve conservation goals. (Am. Compl., Doc. 155 ¶ 36.) When a property owner places a conservation easement on the property in question, and does so in strict compliance with Section 170(h) of the Internal Revenue Code, the property owner can claim a charitable contribution deduction in an amount equal to "the value by which the easement impairs the fair market value of the property." (Id. ¶ 2.)

The SCE Strategy involved the use of Limited Liability Companies ("LLCs") that were taxed as partnerships for federal tax purposes, which Plaintiffs refer to as "Syndicates."3 (Id. ¶ 39.). Because the Syndicates were taxed as partnerships, they were not liable for federal income tax; instead, the individual partners were liable for income tax in their individual capacities based on income, losses, deductions, and credits that flowed through to them from the partnership, including charitable contributions. (Id. ¶ 40.) Partnerships are also required to file an annual return reporting the partnership's annual "income, deductions, gain, losses, etc." that pass through to the partners, and provide both the individual partners and the IRS with Schedule K-1s reporting each partner's share of the partnership's income and losses. (Id. ¶ 41.) The partners are required to report their shares of the partnership's income and losses, as reflected on the Schedule K-1s, on their individual tax returns. (Id. ¶ 42.)

In the Amended Complaint, Plaintiffs describe three conservation easement transactions performed by Defendants for three different Syndicates. Plaintiffs were members of the Syndicates at issue and, after the transactions were completed, they reported the conservation easements donated by the Syndicates as charitable deductions on their individual tax returns as they were listed on the Schedule K-1s for the Syndicates. (Id. ) Plaintiffs allege that the steps Defendants followed to complete these transactions "were uniform ... in every material way." (Id. ¶ 43.)

First, the "Sponsors" would either form or obtain a majority ownership interest in a Syndicate. (Id. ¶ 43(a).) The Syndicate would own the property that would be subject to a conservation easement. Next, during what Plaintiffs refer to as the "due diligence" period, the Aprio Defendants and the Sponsors would hand pick an appraiser to perform a valuation of the conservation easement restriction, and legal counsel would prepare a Legal Opinion supporting the proposition that donating the easement would result in promised tax benefits. (Id. ¶ 43(b).) The Syndicate would then offer interests in the Syndicate to individuals such as Plaintiffs — whom Plaintiffs refer to as "participants" in the SCE strategy — in exchange for cash. (

[565 F.Supp.3d 1292]

Id. ¶ 43(c).) Up to 95–99% of the shares would be sold to the participants with the remainder held by the original members of the Syndicate. (Id. ¶ 43(d).) The Manager of the Syndicate would then elect to pursue a conservation easement on the property held by the Syndicate and the individual members would ratify that decision. (Id. ¶ 43(e).) An appraiser would then prepare an appraisal to determine the value of the conservation easement.4 (Id. ¶ 43(f).) The Aprio Defendants and the Sponsors would then prepare a Conservation Easement Deed along with David C. Smith and his now-dissolved firm, Smith, Lewis & Haley, LLP (collectively, "the SLH Defendants"); Sirote & Permutt, P.C. ("Sirote"); and the Land Trusts. (Id. ¶ 43(g).) Afterwards, these same individuals and entities would prepare a Baseline Documentation Report ("BDR") for the Syndicate that "ascertains the...

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