Professional Liability

Experience

• Tax advice claim defeated. The owners of a small business chose a risky tax strategy to deal with the gain on the sale of their business. Years after the IRS came calling, the owners sued their CPA firm, claiming the accountants had assured them the tax strategy would succeed. We successfully defended the CPA firm. Bottom line: The costs incurred by the CPA firm were a fraction of the total exposure.
• High-damage lawsuit defeated. A CPA firm was sued when several years of audits it performed did not uncover a massive lapping scheme involving a revolving line of credit from a bank. The accounting firm faced claims for the thefts and massive consequential damages from the audit client, its shareholders, the lender, and the holding company that acquired the lender. We quickly negotiated a resolution with the audit client’s shareholders in return for the audit client dropping its claim. We then won a jury verdict against the bank and sustained a dismissal of the holding company’s claim in a ruling by the state supreme court.
• RICO charges by heiress against CPA dismissed. When the disgruntled heir of a family fortune wanted a “deep pocket” to pay her claim that another heir had stolen from the decedent, she sued the decedent’s CPAs for treble damages and her attorneys' fees under the Racketeer Influenced and Corrupt Organizations Act. We argued that the allegations of fraud and common enterprise lacked credibility, and the federal court dismissed the claim.
• Medicare reimbursement lawsuit dismissed for no payment. After a hospital chain was sold to another operator, several of the sold hospitals were hit with millions of dollars in Medicare cost assessments. The buyer and the seller “tag teamed” a lawsuit in an effort to squeeze the CPA firm of the sold chain into paying the assessments on the grounds that financial statement audits had been inadequately reserved for the risk of subsequent assessment and had failed to properly disclose the risk in footnotes. We used creative discovery to demonstrate that the parties specifically bargained for the risk of a future Medicare assessment in their purchase price, as well as aggressive case management techniques (including an appearance at a mediation and refusing to offer any payment for settlement) and the use of an engagement letter indemnity clause, to force the dismissal of the lawsuit without any payment.
• Complex cross-border tax claim rejected. When a foreign corporation hired a U.S. CPA firm to prepare domestic, federal, and state tax returns, the CPAs never bargained to provide tax consulting on the client’s international operations. After the client was hit with tax in another country, it sued the U.S. accounting firm for failing to advise on ways to avoid the foreign tax. We used vigorous discovery (including detailed requests for the tax advisory records and files of the client’s foreign-based CPA firm) to demonstrate the baseless nature of the claim; the claim was dropped without any payment.
• Established precedent regarding statute of limitations. Client v. CPA, 798 N.W.2d 557 (Minn. Ct. App.). A lawyer now with Moss & Barnett defended an accountant against a claim of tax malpractice. The case established that the statute of limitations for such claims begins when the returns are filed.
• Ponzi auditor exonerated. In re Kelley (Bankr. D. Minn. 2015; File No. 12-0X008). After the collapse of a massive Ponzi scheme, the bankruptcy trustee sued an auditor of one of the special purpose entities used to conduct the fraud alleging the CPA had negligently failed to detect the fraud, causing damages of $116 million. After a two-week trial, the arbitration panel rejected the claim and awarded a total defense victory to the CPA firm.

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