Corporex Rejigs Malpractice Suit Against Proskauer Rose LLP

Corporex Rejigs Malpractice Suit Against Proskauer Rose LLP

(June 02, 2009) Proskauer Rose Legal Action Archives.

"A real estate firm was burned when the Internal Revenue Service torched its Son of Boss-style tax shelter has tried to bolster its claims against Proskauer Rose LLP that allege the law firm gave bad advice that led to the whole mess. "

Imagine Proskauer Rose LLP Giving Bad Advice?

" Corporex Cos. LLC and man other connected companies filed a complaint in U.S. District Court for the Eastern District of Kentucky to strengthen accusations that Proskauer Rose LLP led the firms astray with bad advice on a tax shelter.

Proskauer Rose LLLP allegedly furnished a letter that led the companies, run by Cincinnati-area billionaire William Butler, to dump their money in the tax shelter, only to see the IRS slam them with penalties.

The dispute stems from Corporex's 2001 investment in a tax shelter operated by Diversified Group Inc., which is not a party to the suit. Proskauer allegedly provided a “cookie-cutter” form letter with its “seal of approval” that let DGI fill in the blanks once it found a prospective investor, according to the amended complaint.

DGI later arranged for Proskauer to offer tax advice to Corporex in a separate letter drafted in April 2002. In that letter, the law firm allegedly said the tax shelter “more likely than not” would hold up to IRS scrutiny.

It didn't. In an investigation, the IRS considered its similarity to the disallowed Son of Boss-style shelter, and ended up assessing a tax deficiency, penalty and interest, according to the complaint.

After fighting an eventually settled battle against the IRS, Corporex turned its guns on Proskauer, alleging legal malpractice and fraud in a complaint first filed in January.

Proskauer shot back that the complaint was time-barred by the Kentucky statute of limitations on malpractice, upon which it says the case hinges.

Proskauer also said the court lacked personal jurisdiction over the New York office of the firm. Its attorneys never set foot in Kentucky or spoke to anyone in Kentucky, it said in the motion to dismiss.

Corporex's amended complaint rejigs its allegations, pleading negligent misrepresentation as the first count, rather than malpractice.

Corporex also adds new claims that the investment was “worthless and fraudulent” with no chance of turning a profit, though it still acknowledges the investment was billed as a tax shelter.
Son of Boss shelters are not designed to be profitable. Like BOSS schemes, short for Bond and Option Sales Strategy, Son of Boss shelters use a series of “contrived” steps to generate artificial losses to lower a taxpayer's tax burden, according to the U.S. Department of the Treasury.

The IRS cracked down on Son of Boss shelters in August 2000, when then-Treasury Secretary Lawrence H. Summers denounced them as “abusive tax schemes” that “raise the tax burden on the American people.”

A representative for Proskauer did not immediately respond to a request for comment. A representative for Corporex also did not immediately respond to a request for comment.

Corporex is represented in the matter by Strauss & Troy LPA.

Proskauer is represented in the matter by Frost Brown Todd LLC.

The case is Corporex Cos. LLC et al. v. Proskauer Rose LLP et al., case number 09-cv-00008, in the U.S. District Court for the Eastern District of Kentucky."

Resources
http://www.law360.com/print_article/104400

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