Molaison v. Lukinovich

• Decision Date: 28 May 2014
• Docket Number: No. 13–CA–781.,13–CA–781.
• Citation: 142 So.3d 342
• Parties: Harold E. MOLAISON and David C. Loeb v. David J. LUKINOVICH and David J. Lukinovich (A Professional Corporation).
• Court: Court of Appeal of Louisiana — District of US

142 So.3d 342

Harold E. MOLAISON and David C. Loeb

v.David J. LUKINOVICH and David J. Lukinovich (A Professional Corporation).

No. 13–CA–781.

Court of Appeal of Louisiana, Fifth Circuit.

May 28, 2014.

William W. Hall, Attorney at Law, William W. Hall, L.L.C., Metairie, LA, Jack E. Morris, Attorney at Law, Metairie, LA, for Plaintiffs/Appellees.

James H. Gibson, Charles M. Kreamer, Sr., David J. Ayo, Attorneys at Law, Lafayette, LA, E. John Litchfield, Attorney at Law, New Orleans, LA, for Defendants/Appellants.

Panel composed of Judges JUDE G. GRAVOIS, MARC E. JOHNSON, and HANS J. LILJEBERG.

JUDE G. GRAVOIS, Judge.

Defendants/appellants, David J. Lukinovich (“Mr. Lukinovich”) and David J. Lukinovich (A Professional Corporation) (collectively, “defendants”), appeal a trial court judgment that found Mr. Lukinovich breached his fiduciary duties to his former clients, Harold E. Molaison (“Mr. Molaison”) and David C. Loeb (“Mr. Loeb”) (collectively, “plaintiffs”) by submitting to an interview with the IRS criminal division's special agent and by testifying in front of a federal grand jury, both pursuant to subpoenas. Plaintiffs alleged that Mr. Lukinovich's testimony before the grand jury resulted in their indictments for criminal tax evasion and conspiracy to commit tax evasion. After plaintiffs were acquitted in a jury trial, and after the government's subsequent unsuccessful civil action against plaintiffs for tax evasion was completed, plaintiffs sued defendants for damages, arguing that defendants were liable to plaintiffs for damages resulting from plaintiffs' indictments.

A bench trial in this matter occurred over the course of two calendar years, on April 26–28, June 13–16, and November 28–December 1, 2011, and on March 19–23, and April 16–18, 2012. Judgment was rendered on December 3, 2012, finding defendants liable to plaintiffs and awarding each of them damages. ¹

On appeal, defendants raise the following assignments of error:

I. The trial court erred in failing to find that Mr. Lukinovich was absolutely immune from liability arising out of his IRS interview and federal grand jury testimony.

II. The trial court erred in failing to find that plaintiffs' claims against Mr. Lukinovich are perempted.

III. The trial court erred in failing to find that plaintiffs' claims are speculative and that they failed to satisfy their burden of proof (assuming they even have claims).

IV. The trial court erred in failing to find that plaintiffs' claims were barred by their unclean hands as a result of their acquisition of an interest in the subject matter of the taking cases and/or misrepresentations made to their tax advisors and the IRS.

V. The trial court erred in its allocation of fault.

VI. The trial court erred in its award of damages for attorneys' fees, mental anguish, and lost income.

VII. The trial court erred in admitting the expert testimony of Messrs. Riess, Ciolino, Tizzard, and Rebowe.

After thorough consideration of this extensive record and the applicable law, we find merit to defendants' first assignment of error, and thus, for the following reasons, find that as a fact witness before the federal grand jury, Mr. Lukinovich enjoyed absolute immunity from civil suit for damages by plaintiffs, the target of the grand jury's investigation, based on any testimony Mr. Lukinovich gave before the grand jury and in the IRS interview, the admitted bases for their suit against defendants. Accordingly, we reverse the judgment of the trial court under review and render judgment dismissing plaintiffs' suit with prejudice at plaintiffs' costs.

FACTS AND PROCEDURAL HISTORY

Mr. Lukinovich was retained by plaintiffs in 1996 to advise them in connection with their 1996 and 1997 income tax returns relative to the tax treatment of monies plaintiffs received from representing a group of landowners in what was known as the “Bayou aux Carpes” takings litigation. After successfully settling the case with the federal government for approximately $8.25 million, plaintiffs collectively received approximately $2 million in compensation for representing the landowners.

A mutual friend recommended Mr. Lukinovich, a board certified tax attorney, to plaintiffs, who asked him to prepare a proposal directed to their landowner-clients offering his services in assisting them with their income tax returns, and specifically regarding the tax treatment of their proceeds from the takings litigation. Mr. Lukinovich was retained by one landowner, Mrs. Pat Morrow, to assist her in preparing her 1996 tax returns. He advised her that as a landowner whose land was subject to an involuntary taking by the government, she could use the “Section 1033” election, a provision of the tax code that allows such landowners the ability to defer taxes on the proceeds of the sale in the takings litigation if the proceeds were “rolled over” into another qualifying piece of real property within a certain time frame.

In July of 1996, plaintiffs asked Mr. Lukinovich if they, too, could use the Section 1033 election to defer the taxes on the fees they earned in the takings litigation. Plaintiffs gave Mr. Lukinovich copies of their representation contracts with the landowners, which he opined looked like standard contingency fee contracts. Mr. Lukinovich researched the matter and memorialized his research in a letter to plaintiffs dated August 21, 1996 (hereinafter, the “hurdles” letter), advising plaintiffs that it did not appear to him, based on the contingency fee contracts, that they had the requisite ownership interest in the land to take the Section 1033 election. He identified two hurdles that needed to be overcome: first, the law partnership Mr. Molaison and Mr. Loeb were supposedly operating under at the time appeared to be the contracting party in some of the representation contracts, rather than plaintiffs individually, and second, the contracts as written were contingency fee contracts that did not support the conclusion that plaintiffs had an ownership interest in and to the land itself.

The parties met on September 4, 1996 to discuss the matter further. Present were Mr. Lukinovich, Mr. Molaison, Mr. Loeb, Gerald Duhon (Mr. Loeb's longtime CPA) and Shannon Chabaud (Mr. Molaison's CPA). At that meeting, plaintiffs advised Mr. Lukinovich that neither issue contained in the hurdles letter would be an obstacle to their taking the Section 1033 election. They advised Mr. Lukinovich that they as individuals, not the law partnership, had entered into the representation. They also advised Mr. Lukinovich that the landowners had indeed transferred an undivided 25% ownership interest in and to the land itself to them at the time they agreed to hire plaintiffs to represent them in 1991; however, such language was “inadvertently omitted” from the contingency fee contracts due to the need for haste to execute the contracts. ² Mr. Lukinovich stated that plaintiffs would need a “writing” to clarify the owners' intent to transfer an ownership interest in and to the land itself to them, so that they could support their position to the IRS.

As recalled by Mr. Lukinovich and Mr. Duhon, at that meeting, it was agreed that Mr. Loeb, with input from Mr. Lukinovich, would draft the “writing” for the landowners to sign. Mr. Loeb proposed entitling it an “act of correction,” according to Mr. Lukinovich, who stated that he had not heard that term before. Mr. Molaison and Mr. Loeb would be responsible for getting the landowners to execute the acts of correction, as well as recording them in the public records, a step that Mr. Lukinovich recommended. Mr. Lukinovich also recommended recording the original contingency fee contracts as well.³ A few hours after the meeting, Mr. Loeb faxed Mr. Lukinovich a draft of an act of correction. Mr. Lukinovich reviewed the draft and recommended making one change regarding the words “contingency fee contract,” which Mr. Loeb subsequently made. Thereafter, Mr. Lukinovich did not provide any other edits to the act of correction.

One of the landowners, Mrs. Pat Morrow, who as noted had hired Mr. Lukinovich to prepare her 1996 tax returns, called Mr. Lukinovich to ask him if she would have any personal tax consequences if she signed the act of correction which had been presented to her by plaintiffs for her signature. Her brother, Jacques Creppel, also a landowner, had the same question. Mr. Lukinovich advised them that they would not have any personal tax consequences to their own tax returns by signing the acts of correction as requested by Mr. Loeb and Mr. Molaison. Mrs. Morrow and Mr. Creppel did not ask Mr. Lukinovich any other questions about the acts of correction. No other landowners contacted Mr. Lukinovich to ask questions about the acts of correction.

In late 1999, the IRS notified plaintiffs that it would be conducting audits of their 1996 and 1997 federal income tax returns. It appears that the audits were initiated in part by repeated complaints made to the IRS by the Goldmans, a group of landowners who told the IRS that the acts of correction plaintiffs asked them to sign were incorrect in that the parties thereto never intended that an ownership interest in and to the land would be transferred to plaintiffs as compensation for representing them in the takings litigation; the payment was to be made in money, not land.⁴ The audits occurred separately: Mr. Loeb's was done first in January of 2000; Mr. Molaison's followed a few months later. Mr. Lukinovich represented plaintiffs before the IRS in the audits.

The audits resulted in the denial of deferral of taxes on Mr. Loeb's and Mr. Molaison's fees in the takings litigation. Thereafter, the Criminal Investigation Division of the IRS commenced a criminal investigation into Mr. Loeb's and Mr. Molaison's tax returns. Special Agent Craig Knippenberg of the IRS interviewed many witnesses, including the aforementioned accountants and many of the landowners, and questioned...