Marshall v. PricewaterhouseCoopers, LLP

Decision Date15 December 2021
Docket NumberA169635
Citation316 Or.App. 416,505 P.3d 40
Parties John M. MARSHALL and Karen M. Marshall, individuals; Patsy L. Marshall, an individual; Patsy L. Marshall, as Personal Representative of the Estate of Richard L. Marshall, Deceased; and Marshall Associated, LLC, an Oregon limited liability corporation, Plaintiffs-Appellants, v. PRICEWATERHOUSECOOPERS, LLP, a limited liability partnership, Defendant, and Schwabe Williamson & Wyatt, P. C., an Oregon professional corporation, Defendant-Respondent.
CourtOregon Court of Appeals

Scott Hessell, Illinois, argued the cause for appellants. Also on the opening brief were Sperling & Slater, P.C., Jeff S. Pitzer, Peter M. Grabiel, and Pitzer Law. Also on the combined reply and answering on cross-assignment brief were Sperling & Slater, P.C., John J. Dunbar, and Dunbar Law LLC.

Janet M. Schroer, Portland, argued the cause for respondent. Also on the combined answering and cross-assignment of error brief was Hart Wagner LLP. Also on the reply on cross-assignment of error brief were Holly E. Pettit and Hart Wagner LLP.

Before Shorr, Presiding Judge, and Powers, Judge, and Landau, Senior Judge.

SHORR, P. J.

In this complex civil case, plaintiffs appeal from a limited judgment in favor of plaintiffs’ former law firm, defendant Schwabe Williamson & Wyatt, P.C. (Schwabe). On appeal, plaintiffs raise two assignments of error contending that the trial court erred in granting Schwabe's motion to dismiss plaintiffs’ negligence claim as barred by the statute of repose in ORS 12.115(1). In a cross-assignment, Schwabe contends that the trial court erred in rejecting its motion to dismiss plaintiffs’ negligence claim based on issue preclusion grounds. For the reasons that follow, we conclude that the court erred in applying ORS 12.115(1) to plaintiffs’ negligence claim, but did not err in denying Schwabe's motion to dismiss on issue preclusion grounds. As a result, we reverse and remand the judgment as to plaintiffs’ negligence claim.1

I. FACTUAL BACKGROUND

Because both plaintiffs’ first assignment of error and Schwabe's cross-assignment of error require us to review the trial court's rulings on Schwabe's motions to dismiss, we take the facts from plaintiffs’ operative complaint at the time of Schwabe's motions to dismiss. Our review "is limited to the face of the pleadings. In conducting that review, we assume the truth of all allegations in the complaint and give the plaintiff, as the nonmoving party, the benefit of all favorable inferences that could be drawn from those allegations." Kelly v. Lessner , 224 Or. App. 31, 33, 197 P.3d 52 (2008).2

We briefly summarize the relevant facts giving rise to this litigation. Plaintiffs were the sole shareholders of Marshall Associated Contractor Inc. (MAC), a heavy construction corporation that, in 1982, was awarded a contract to complete work on two separate projects in Utah. Disputes over both projects led to a lengthy 20 years of litigation, which finally ended in a 2002 court ruling awarding plaintiffs approximately $40 million.

Interested in minimizing the tax consequences of that award, in June 2002, plaintiffs began negotiating with a company called Fortrend that proposed to purchase all of MAC's stock and assume all its liabilities, including the expected federal and state taxes associated with the $40 million award.3 Plaintiffs’ complaint explains:

"Fortrend claimed, among other things, that MAC's remaining assets would facilitate Fortrend's ‘debt-collection’ business, and that Fortrend would employ MAC's tax liabilities to legitimately offset tax deductions associated with its debt-collection business. As a result, Fortrend said, Plaintiffs would realize a greater net return on its investment in MAC than would otherwise be the case if MAC simply distributed its assets to the shareholders."

Plaintiffs engaged their usual attorneys from the preceding 50 years, Schwabe, in spearheading an evaluation of the proposed deal. Plaintiffs’ accountants, PricewaterhouseCoopers (PwC), also participated in the evaluation.4 Specifically, plaintiffs engaged Schwabe and PwC to examine all legal and tax implications of the proposed transaction, advise plaintiffs on whether the transaction complied with applicable laws, and advise plaintiffs as to whether the transaction created a risk of greater tax liabilities beyond what would be expected from a simple stock sale. Schwabe and PwC also communicated and negotiated with Fortrend on plaintiffs’ behalf and were tasked with handling all aspects of consummating the deal if approved. Plaintiffs assert that they "wanted to avoid any potential controversy or litigation," informed their advisors of that position, and would not have entered the transaction had they been advised or believed that the transaction did not comply with the law.

Schwabe and PwC proceeded to investigate the proposed transaction. Plaintiffs assert that Schwabe quickly identified a risk that the transaction could be challenged as a fraudulent transfer in a bankruptcy proceeding, but ultimately concluded that it was unlikely such a challenge would be successful and did not inform plaintiffs of its research. Plaintiffs also assert that Schwabe became aware of a risk that, if Fortrend did not pay MAC's taxes, plaintiffs could be held liable for any unpaid tax liability as transferees, but did not believe such a challenge would be successful and did not communicate their concerns to plaintiffs at that time. In all, both advisors identified potential tax risks associated with the transaction but viewed them as "minimal." Plaintiffs assert that Schwabe and PwC "both recommended that [plaintiffs] go forward with the proposed transaction."

In January 2003, plaintiffs decided to go through with the Fortrend transaction. Schwabe handled all aspects of negotiating and consummating the transaction with PwC's assistance. Following the close of the transaction in March 2003, both advisors continued to represent plaintiffs in matters related to the transaction, its tax and accounting implications, and plaintiffs’ communications with the IRS.

Plaintiffs contend that, during that period, Schwabe never advised plaintiffs that their earlier advice regarding the transaction's risks may have been flawed or that plaintiffs were at risk for additional tax liability. After closing the transaction, Schwabe wrote to plaintiffs to summarize the transaction and enclose its final bill, stating in part that it believed that it was unlikely the transaction would be challenged as a fraudulent transfer and that any risk plaintiffs faced was "minimal."

Plaintiffs assert that they later discovered the Fortrend transaction was an "improper tax-avoidance" mechanism known as a "Midco" transaction. Although such transactions were apparently marketed to shareholders as a legitimate method for avoiding federal income taxes through the 1990s, in 2001 the IRS issued Notice 2001-16, which made certain Midco transactions "listed transactions" subject to IRS challenge and penalties. Intermediary Transactions Tax Shelter, Notice 2001-16, 2001-1 CB 730, 2001 WL 43969 (2001). Plaintiffs contend that Schwabe never advised them of Notice 2001-16 or the IRS's position on similar transactions.

As a result of plaintiffs’ participation in the transaction, plaintiffs were subject to an IRS investigation that in August 2011 resulted in a determination that plaintiffs were liable to the IRS for over $20 million in back taxes, penalties, and interest. In June 2016, the United States Tax Court ruled that plaintiffs were responsible for the taxes, penalties, and interest based on a theory of transferee tax liability, concluding that plaintiffs had constructive knowledge that MAC's taxes would not be paid. Estate of Marshall v. C.I.R. , 111 T.C.M. (CCH) 1579, 2016 WL 3460226 (2016), aff'd sub nom Marshall v. C.I.R. , 782 Fed.Appx. 565 (9th Cir. 2019), cert. den. , ––– U.S. ––––, 140 S. Ct. 1270, 206 L.Ed.2d 257 (2020).

In March 2017, plaintiffs filed suit against advisors PwC and Schwabe, alleging various claims including the negligence claim at issue before us. Plaintiffs alleged that Schwabe negligently advised plaintiffs in connection with the Fortrend transaction, failed to communicate to them and advise them of the relative risks and benefits of the transaction, and failed to adequately protect plaintiffs’ interests. In particular, plaintiffs contend that Schwabe failed to properly advise plaintiffs of the risk that the transaction was a "listed transaction" that could be challenged by the IRS and result in plaintiffs’ transferee liability for substantial taxes, penalties, and interest. Plaintiffs contend that they would not have proceeded with the transaction but for Schwabe's negligence. They claimed damages in the form of attorney fees and costs associated with "deal[ing] with the IRS and ODR claims of transfer tax liability," fees paid to Schwabe for its representation in the transaction, and the entirety of plaintiffs’ assessed transferee liability.

II. PLAINTIFFS’ FIRST ASSIGNMENT OF ERROR

We begin with a consideration of plaintiffs’ first assignment of error, which asserts that the trial court erred in granting Schwabe's motion to dismiss on the grounds that the statute of repose in ORS 12.115(1) applied to and barred plaintiffs’ negligence claim against Schwabe. Having summarized the factual background of the case, we turn to the procedural facts relevant to plaintiffs’ first assignment of error.

A. Relevant Procedural History

Schwabe moved under ORCP 21 A(9) to dismiss plaintiffs’ negligence claim as untimely. Schwabe contended that the 10-year statute of ultimate repose contained in ORS 12.115(1) barred the claim, and cited Withers v. Milbank , 67 Or.App. 475, 678 P.2d 770 (1984), for the proposition that ORS 12.115(1) applies to legal malpractice claims. Specifically, Schwabe contended that "the alleged negligent conduct occurred no later than March 7, 2003...

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1 cases
  • Marshall v. PricewaterhouseCoopers, LLP
    • United States
    • Oregon Supreme Court
    • November 28, 2023
    ...not encompass plaintiffs' claim because the injury alleged was for purely financial losses. Marshall v. PricewaterhouseCoopers, LLP, 316 Or.App. 416, 432, 441, 505 P.3d 40 (2021). We allowed review and now conclude that the trial court correctly concluded that ORS 12.115(1) applied to the t......

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