Rogers v. Deane

• Decision Date: 22 January 2014
• Docket Number: Case No. 1:13–cv–00098–GBL–TRJ.
• Citation: 992 F.Supp.2d 621
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Edwina ROGERS, Plaintiff, v. Jon DEANE, et al., Defendants.

992 F.Supp.2d 621

Edwina ROGERS, Plaintiff,

v.Jon DEANE, et al., Defendants.

Case No. 1:13–cv–00098–GBL–TRJ.

United States District Court,

E.D. Virginia,

Alexandria Division.

Jan. 22, 2014.

Robert W. Johnson, II, Johnson Rogers & Clifton LLP, Washington, DC, for Plaintiff.

Dennis John Quinn, Kristine Marie Ellison, Carr Maloney PC, Washington, DC, for Defendants.

MEMORANDUM OPINION AND ORDER

GERALD BRUCE LEE, District Judge.

THIS MATTER is before the Court on Defendants Jon Deane and Gaffery Deane Talley, PLLC's Motion for Summary Judgment (Doc. 29). This case concerns Plaintiff Edwina Clifton Rogers' claim that her former accountant Jon Deane conspired with her ex-husband Ed Rogers to burden her with household employee taxes and cripple Plaintiff's financial ability to challenge Mr. Rogers for custody of their two children. Specifically, this case is an accountant malpractice claim. Plaintiff alleges that her accountant Mr. Deane had a conflict of interest when he prepared a separate tax return for Mr. Rogers taking all of the deductions and credits, concealed information from Plaintiff, lied to Plaintiff, and conspired with Mr. Rogers to destroy Plaintiff's business. The threshold question is whether Plaintiff has demonstrated that a genuine of fact remains for trial. There are three issues before the Court.

The first issue is whether Plaintiff can recover for breach of contract where (1) she has not produced a contract and disputes the validity of the letter contract Defendants have produced; (2) Defendants assert that their actions were not the proximate cause of her damages; and (3) Defendants assert that Plaintiff has failed to provide evidence that her damages were in the contemplation of the parties at the time of contracting.

The second issue is whether Plaintiff can plead a breach of an implied covenant of good faith and fair dealing as an independent cause of action.

The third issue is whether Plaintiff can recover under a theory of statutory business conspiracy where (1) Defendants claim to have an agency relationship with Mr. Rogers; (2) Plaintiff's legal malice theory is derived from the divorce dispute; and (3) Defendants claim that it was Plaintiff's own actions in not paying her taxes that proximately caused any injury to her business.

The Court GRANTS Defendants' Motion for Summary Judgment (Doc. 29) for three reasons. First, the Court holds that Plaintiff's claim for unpaid taxes, penalties, and interest are consequential damages for which Defendant Mr. Deane is not liable. Plaintiff has failed to provide facts showing that Defendants agreed to be liable for paying Plaintiff's taxes at the time of contracting or that Defendants' actions were a proximate cause of her damages.

Second, the Court grants Defendants' Motion for Summary Judgment on Count II of the Complaint because Plaintiff's claim for breach of covenant of good faith and fair dealing is not an independent cause of action. The Court dismisses Count II of the Second Amended Complaint as duplicative of the breach of contract claim in Count I.

Third, the Court holds that with respect to the statutory business conspiracy claim, Defendant Jon Deane and Mr. Rogers were one legal entity because they had an agency relationship and therefore could not legally conspire. Additionally, the Court holds that even if Mr. Rogers and Defendants could legally conspire, Plaintiff fails to present a prima facie case of business conspiracy because she fails to adequately show legal malice toward or injury to Clifton Consulting proximately caused by Defendants. Therefore, the Court also grants summary judgment on Count III of the Second Amended Complaint.

I. BACKGROUND

Plaintiff Edwina Clifton Rogers (“Mrs. Rogers”) and Edward Rogers (“Mr. Rogers”) were a married couple who, before their separation, filed joint tax returns. Defendant Jon Deane (“Mr. Deane”) is a certified public accountant and practices accounting as a member of Defendant Gaffery Deane Talley, PLLC (“GDT”). (Doc. 24, ¶ 7.) Plaintiff and Mr. Rogers employed Mr. Deane from the mid–1990s to 2010 for his professional tax and accounting services. ( Id. ¶¶ 17–18.) From 1999 to 2008, Mr. Deane prepared federal income tax returns, IRS Form 1040s, and state income tax returns for Plaintiff and Mr. Rogers using the filing status “Married Filing Jointly” (sometimes referred to herein as “joint” or “married filing joint” returns). (Doc. 30, at 3.)

Beginning in 1999, Plaintiff and Mr. Rogers employed various child care employees and were required to pay FICA (Federal Insurance Contributions Act) tax and federal income taxes. (Doc. 24, ¶ 34.) Plaintiff was the statutory employer for purposes of the employment taxes, and her social security number and employer identification number were used for payroll. ( Id. ¶ 35.) From 1999–2008, Mr. Deane filed a Schedule H ¹ with the couple's joint return identifying the Plaintiff as the statutory employer for purposes of the employment taxes, even though Mr. Rogers paid the household employees' salaries and the tax-related liabilities. ( Id. ¶ 37.)

In September of 2009, Plaintiff legally separated from Mr. Rogers, but continued to reside in the same home through 2012. ( Id. ¶ 12.) On or before April 15, 2010, Mr. Deane filed a joint IRS Form 4868, Application for Automatic Extension of Time to File U.S. Federal Income Tax Return ² (“Extension Application”) for Plaintiff and Mr. Rogers as he customarily had filed in the previous years. ( Id. ¶¶ 43, 54; see also Doc. 30–6.) The Extension Application indicated that the Rogers estimated that they had no remaining tax liability.³ (Doc 30–6.) Ultimately, Mr. Deane prepared Mr. Rogers' taxes as “married filing separately” per his instructions. (Doc. 24, ¶ 54.) On July 6, 2010, Plaintiff became aware that Mr. Rogers had filed a tax return for himself as “married filing separately” and had claimed all of the exemptions, deductions, and credits and burdened Plaintiff with the liability for the household employees. ( Id. ¶¶ 54, 98; see also Doc. 30–17.) On that same day, Plaintiff fired Mr. Deane and his accounting firm. (Doc. 30–3.)

Mr. Deane prepared a draft federal income tax return which he shared with Plaintiff in August 2010.⁴ (Doc 38–8, ¶ 22.) Defendants state that Mr. Rogers, rather than Plaintiff, received the exemption for the children because Plaintiff was subject to Alternative Minimum Tax, and as such, she was not allowed to take deductions for personal exemptions. (Doc. 30, at 20.) Additionally, Mr. Deane placed the mortgage interest deduction on Mr. Rogers' tax return because he paid the mortgage from his checking account. ( Id.) Mr. Deane did not include the Schedule H (tax liability for the household employees) on Mr. Rogers' tax return because Plaintiff was the legal employer for those employees. (Doc. 24, ¶ 72.)

According to the draft federal income return Mr. Deane prepared, in 2009, Plaintiff earned over $90,000 in taxable business income but only had $80 in taxes withheld. (Doc. 30–5; see also Doc. 38–10, ¶ 12.) The draft return indicated that Plaintiff had $56,257 in taxes due: $26,667 ⁵ in household employee taxes, $13,520 in self-employment taxes, and $14,930 in unpaid taxes from her income. ( Id.) As such, more than half of Plaintiff's tax liability was a result of the income that she had earned in 2009 without paying taxes. Additionally, the draft return indicated only $760 in penalties and interest. ( Id.) Plaintiff did not file this draft tax return. (Doc. 24, ¶ 98.) Instead, Plaintiff retained a new accountant and filed her “married filing separately” return on or before October 15, 2010 and did not pay her tax liability at that time. (Doc. 38–10, ¶ 35.)

The couple's intent to divorce was known to Mr. Deane at the time he filed the Extension Application and later when he filed the 2009 federal and state separate income tax returns. ( Id. ¶ 63.) Plaintiff and Mr. Rogers' divorce was made final on September 17, 2012. ( Id. ¶ 15.) Mr. Deane is still employed by Mr. Rogers and continues to receive a substantial portion of his business income either directly or indirectly from Mr. Rogers. ( Id. ¶ 66; see also Doc. 30–2.)

Plaintiff responded to an IRS deficiency notice in April of 2011, admitting that she was liable for back taxes and that she did not have enough money to pay her taxes because of her ongoing divorce proceedings. (Doc. 30–17.) In the same letter, Plaintiff indicated that in most of the last ten years, she did not review the tax returns, but she was aware that extension requests were filed in April and July and the filings were ultimately submitted in October. ( Id.) The IRS filed a Notice of Federal Tax Lien against Plaintiff in June of 2011, almost a year after she fired Mr. Deane, because Plaintiff had not paid her taxes. (Doc. 38–10, ¶ 39.)

Plaintiff filed a lawsuit on January 19, 2012 in Fairfax County Circuit Court against Mr. Rogers, her children's nanny, a psychiatrist, and Mr. Deane alleging defamation, common law conspiracy, intentional infliction of emotional distress, violations of the Virginia Computer Crimes Act, and constructive fraud. (Doc. 30–14.) In that case, the parties exchanged discovery including interrogatories, requests for admissions and document production. (Doc. 30, at 5.) Ultimately, Plaintiff voluntarily dismissed her claims against Mr. Deane. ( Id.)

Plaintiff filed the current action on January 23, 2013 and amended her complaint on March 13, 2013, seeking compensatory, punitive, and treble damages for additional interest, penalties, unpaid 2009 employment taxes, and a host of other damages. (Doc. 8.) She alleged that Mr. Rogers and Mr. Deane conspired against her by continually representing both parties despite a conflict of interest, diverted hundreds of thousands of dollars in credits and tax deductions into Mr. Rogers' tax return, diverted the tax liabilities into Plaintiff's tax returns, intentionally damaged Plaintiff's...