Logan v. Morgan, Lewis & Bockius LLP

• Decision Date: 21 October 2022
• Docket Number: 2D21-337
• Citation: 350 So.3d 404
• Parties: Kent LOGAN and Lance Logan, co-personal representatives of the Estate of A. Scott Logan, Appellants, v. MORGAN, LEWIS & BOCKIUS LLP, a Pennsylvania limited liability partnership; BDO Seidman, LLP (n/k/a BDO USA LLP), a New York limited liability partnership; and AIG International Inc., a Delaware corporation, Appellees.
• Court: Florida District Court of Appeals

350 So.3d 404

Kent LOGAN and Lance Logan, co-personal representatives of the Estate of A. Scott Logan, Appellants,

v.MORGAN, LEWIS & BOCKIUS LLP, a Pennsylvania limited liability partnership; BDO Seidman, LLP (n/k/a BDO USA LLP), a New York limited liability partnership; and AIG International Inc., a Delaware corporation, Appellees.

No. 2D21-337

District Court of Appeal of Florida, Second District.

October 21, 2022

Scott F. Hessell of Sperling & Slater, P.C., Chicago, Illinois; Adam P. Merrill of Watershed Law LLC, Chicago, Illinois; and Scott C. Ilgenfritz of Johnson, Pope, Bokor, Ruppel & Burns, LLP, Tampa, for Appellants.

Ceci C. Berman of Brannock Humphries & Berman, Tampa; James P. Fogelman and Shannon Mader of Gibson, Dunn & Crutcher LLP, Los Angeles, California; and Jennifer K. Bracht, Denver, Colorado, for Appellee Morgan, Lewis & Bockius LLP.

No appearance for remaining Appellees.

ROTHSTEIN-YOUAKIM, Judge.

Kent and Lance Logan, co-personal representatives of the Estate of A. Scott Logan (Logan), appeal the trial court's dismissal with prejudice of Logan's claims against law firm Morgan, Lewis & Bockius LLP (Morgan Lewis). Because Logan stated causes of action against Morgan Lewis for aiding and abetting both fraud and breach of fiduciary duty and for civil conspiracy, we reverse.

I. Factual Background¹

In 1999, Logan sold his business for $27.5 million and sought to minimize the tax liability on his capital gains. BDO Seidman, LLP (n/k/a BDO USA, LLP), an accounting firm with a dedicated tax advisory group—along with codefendant AIG International, Inc. (AIGI), and others—was then marketing an "investment strategy" directed toward high-income individuals like Logan. That strategy involved offsetting long and short options in the foreign currency markets.

The only problem was that the executives in charge of BDO's "Tax Solutions" group (the tax executives) knew that their strategy was likely illegal. But they believed that if they could obtain an opinion from a major law firm giving BDO a "clean bill of health" and downplaying the risk of illegality, they could quash the growing concern among others within BDO about potential criminal exposure. BDO could then also continue to market the strategy to new clients and encourage existing clients to claim the strategy's purported tax benefits. The tax executives had considerable incentive to keep the scheme going for as long as possible because they each received ten percent (collectively thirty percent) of the Tax Solutions group's significant profits.

To obtain that legal cover, the tax executives turned in part to Morgan Lewis. From the outset, the attorneys that they consulted at that firm recognized that the strategy was an illegal tax shelter. Morgan Lewis noted that the "tax solutions" were "too good to be true," "dubious," and did not pass the " ‘smell’ test of experts." One Morgan Lewis attorney promptly recognized several "uglies," including "enormous losses and no apparent profit motive." Morgan Lewis commented in an early meeting with the tax executives that "someone wanting to make a [criminal] case could."

As if to remove all doubt, the IRS, in August 2000, issued a warning that tax shelters involving "transactions calling for the simultaneous purchase and sale of offsetting options which were then transferred to a partnership" could give rise to criminal liability. Confirming its awareness of the illegality of BDO's tax shelter, Morgan Lewis internally concluded that the shelter was identical or substantially identical to the type identified in the IRS notice. A senior Morgan Lewis criminal tax expert presciently commented that "BDO's conduct reminds me of an old fashion[ed] Klein conspiracy"—a criminal tax conspiracy designed to obstruct the IRS's auditing of tax returns and collection of taxes.

But as notes of a conference between the tax executives and a principal Morgan Lewis tax attorney demonstrate, the tax executives wanted a whitewashed opinion with a preordained conclusion that was dismissive of any illegality or potential criminal liability: "List of all cr. statutes possible to apply + indication of no guilt." And according to Logan's complaint, Morgan Lewis, despite its knowledge to the contrary, gave the tax executives exactly what they wanted.

Now able to tell their other BDO partners and BDO's board that a major law firm had concluded that BDO had nothing to worry about, the tax executives not only successfully encouraged BDO to continue marketing and implementing the investment strategy, but they also had the cover they needed to continue to assure clients such as Logan that that strategy was perfectly legal and that they would ultimately be successful in any litigation with the IRS.

In late 1999, Logan, through a pass-through entity, engaged in a series of these "investments." When filing his tax return relating to the sale of his business in or about October 2000, Logan, relying on BDO's assurances, filed his return claiming the supposed benefits of those investments, offsetting the purported losses against the substantial taxable gains from the sale of his business.

The IRS, however, eventually figured out what BDO was doing and commenced litigation against BDO in federal court to enforce various civil summonses. BDO asked Morgan Lewis to represent it. While the IRS sought documents about BDO's tax strategies, Morgan Lewis was doing its best to keep its true views about the tax shelter concealed. For example, when BDO was sua sponte court-ordered to brief the applicability of the crime-fraud exception to the attorney-client privilege, Morgan Lewis revised BDO's draft letter to its clients (including Logan) about the court proceedings to remove any reference to that exception. Morgan Lewis also failed to include its written opinion concerning the legality of the tax scheme on any privilege log in the summons enforcement litigation, even though Logan alleges that it was responsive to the IRS's document requests. The tax executives were thus able to tell others at BDO that BDO was "appropriately resisting the summonses."

Ultimately, though, in 2009, several of the tax executives (including those who allegedly orchestrated the false opinion from Morgan Lewis) pled guilty to criminal tax fraud in connection with the scheme. In 2012, BDO entered into a deferred prosecution agreement with the United States Department of Justice. At least one of the Morgan Lewis attorneys was identified by the United States as an unindicted coconspirator.

The IRS also audited Logan. Relying on BDO's assurances that its investment strategy and his resulting tax benefits had been perfectly legitimate, Logan fought the IRS for several years. In 2016, however, the IRS obtained a tax judgment against Logan's partnership disallowing the use of any purported losses from the "investments" against Logan's capital gains. Logan has incurred approximately $11 million in penalties and interest, which he is still litigating with the IRS.

In 2017, Logan brought suit against BDO, Morgan Lewis, and AIGI. In the complaint, Logan alleged, in addition to the facts set forth above and among other things, that BDO's tax executives and Morgan Lewis had cooperated to prevent the illegality of the tax shelter from becoming known to clients such as Logan. Officially, BDO had been telling clients that its "investment strategy" was legal and that BDO would stand behind clients in any disputes with the IRS; in private, BDO and Morgan Lewis had known that BDO's strategy was an illegal tax shelter. Logan alleged that this conduct by Morgan Lewis actively assisted BDO in defrauding and breaching its fiduciary duty to Logan.

Morgan Lewis moved to dismiss the complaint for failure to state a cause of action, arguing that it could not be liable to Logan because it had had no duty to him whatsoever; that it could not conspire as a matter of law with BDO, its own client, simply by providing legal services; that "aiding and abetting" is not a recognized cause of action under Florida law; and that the applicable statutes of limitations and repose barred Logan's claims.

After a hearing, the trial court granted Morgan Lewis's motion to dismiss all of the claims against it for failure to state a cause of action, referring to Morgan Lewis as "counsel for another party retained after the relevant transaction."

II. Analysis

We review de novo the trial court's dismissal of the claims against Morgan Lewis. See Jensen v. Pinellas County , 293 So. 3d 1076, 1079 (Fla. 2d DCA 2020). "[O]n a motion to dismiss for failure to state a cause of action, the circuit court may look only within the four corners of the complaint, must accept the plaintiff's allegations as true, and must resolve all inferences in the plaintiff's favor." Wilson v. News-Press Publ'g Co. , 738 So. 2d 1000, 1001 (Fla. 2d DCA 1999).

As an initial matter, we note that the trial court's stated grounds for dismissing Logan's claims do not survive scrutiny. The court apparently dismissed Logan's claims because Logan had stopped investing before the tax executives had approached Morgan Lewis for the allegedly fraudulent opinion regarding BDO's tax strategy. But Logan's claims are not premised on any reliance on Morgan Lewis's opinion in deciding to participate in BDO's investment scheme. Indeed, none of his claims stem from the investments per se . Rather, they are based on his subsequent filing, in late 2000, of his 1999 tax return—in which, relying on BDO's continued assurances, he claimed the supposed losses from the investments as an offset against his capital gains—and on his ensuing multi-year dispute with the IRS—which BDO continued to cheer on. To that end, Logan alleges that if Morgan Lewis had not provided the tax executives with a false, whitewashed assessment of its scheme, "BDO's board would have shut down BDO's tax solutions practice, including transactions, like Logan's, that were still in process."

Accordingly, the dismissal of Logan's...