DOUGLAS COE v. PROSKAUER ROSE LLP ( 2022 )

NOTICE: This opinion is subject to modification resulting from motions for reconsideration under Supreme Court
Rule 27, the Court’s reconsideration, and editorial revisions by the Reporter of Decisions. The version of the
opinion published in the Advance Sheets for the Georgia Reports, designated as the “Final Copy,” will replace any
prior version on the Court’s website and docket. A bound volume of the Georgia Reports will contain the final and
official text of the opinion.
In the Supreme Court of Georgia
Decided: September 7, 2022
S21G1250. COE et al. v. PROSKAUER ROSE, LLP.
MCMILLIAN, Justice.
In 2002, Douglas Coe, Jacqueline Coe, and GFLIRB, LLC
(collectively the “Coes”) were involved in the sale of a company in
which they held a substantial interest, and their accountants, BDO
Seidman, LLP (“BDO”), 1 advised them of a proposed tax strategy in
which the Coes could invest in distressed debt from a foreign
company in order to offset their tax obligations. In connection with
the proposed tax strategy, BDO advised the Coes to obtain a legal
opinion from an independent law firm, Proskauer Rose LLP
(“Proskauer”). The Coes followed BDO’s advice, obtained a legal
opinion from Proskauer, and claimed losses on their tax returns as
1BDO Seidman, LLP and its partners Kurt Huntzinger, Michael Whitacre,
Denis Field, Charles Bee, Adrian Dicker, Robert Greisman, and Michael Kerekes are
referred to collectively as “BDO.”
a result. But in 2005, the Internal Revenue Service (“IRS”) initiated
an audit, which ultimately led to a settlement in 2012.
After settling with the IRS, the Coes filed suit against
Proskauer in December 2015, asserting legal malpractice, breach of
fiduciary duty, fraud, negligent misrepresentation, and other
claims. After limited discovery on whether the statute of limitation
barred the Coes’ claims, the trial court concluded that it did and
granted summary judgment in favor of Proskauer, and the Court of
Appeals affirmed. See Coe v. Proskauer Rose LLP, 360 Ga. App. 68(860 SE2d 630) (2021). We granted the Coes’ petition for certiorari
to address whether that holding was correct and conclude that it was
not. 2 For the reasons set forth below, we reverse the judgment of the
Court of Appeals and remand the case with instructions to reverse
2 We are aided by amicus curiae briefs filed by (1) Georgia-based
accounting firms Amici Aprio, LLP; Bennett Thrasher, LLP; Frazier & Deeter,
LLC; Hancock Askew & Co.; Mauldin & Jenkins LLC; and Nichols Cauley &
Associates, LLC and (2) Georgia law firms Alston & Bird LLP; Coleman Talley
LLP; DLA Piper (US) LLP; Drew Eckl & Farnham, LLP; Fisher & Phillips LLP;
FordHarrison LLP; Hawkins Parnell & Young LLP; Hunter, Maclean, Exley &
Dunn, P.C.; King & Spalding LLP; Maynard Cooper & Gale LLP; Miller &
Martin PLLC; McGuireWoods LLP; and Morris, Manning & Martin LLP
(joined by seven former presidents of the State Bar of Georgia).
2
the trial court’s order and remand the case for further proceedings
consistent with this opinion.
1. Background and Procedural History.
Construed in the light most favorable to the Coes as the non-
moving party on summary judgment, 3 the record shows that in
October 2001, the Coes were approached by BDO regarding a
proposed tax strategy in connection with the sale of a company in
which the Coes held a substantial interest. BDO had been Douglas
Coe’s accounting firm since 1985, and the Coes “placed a tremendous
amount of trust and faith in [it].”
BDO advised the Coes that adopting a distressed-debt strategy
(the “Strategy”) would result in a higher-than-average return on
their investment while providing the Coes with legal tax benefits
that they could use to offset the capital gains tax from the sale of the
company. The Strategy involved investments in distressed debt with
3 See Doctors Hosp. of Augusta v. Alicea, 299 Ga. 315, 315 (1) (788 SE2d
392) (2016) (when reviewing a motion for summary judgment, courts “construe
the evidence most favorably towards the nonmoving party, who is given the
benefit of all reasonable doubts and possible inferences” (citation omitted)).
3
Gramercy, 4 an experienced investment advisory company. BDO
assured the Coes that the Strategy was legal and would be
supported by a legal opinion letter (the “Opinion”) from Proskauer,
an independent law firm, and that the Opinion would satisfy the IRS
that the Strategy complied with all applicable tax laws. BDO and
Gramercy emphasized that the Opinion would allow the Coes to
prevail in the event of an IRS audit and would provide protection
from IRS penalties against the Coes.5 Following BDO’s and
Gramercy’s assurances about the Opinion and Proskauer’s expertise
in tax law and the Strategy, the Coes agreed to engage Proskauer to
issue the Opinion.
In its March 22, 2002 engagement letter, Proskauer stated that
it was “asked to represent [the Coes] in connection with rendering
4 Gramercy Advisors LLC; Gramercy Financial Services, LLC; Gramercy
Capital Markets Recovery Fund, LLC; Gramercy Emerging Markets Recovery Fund,
LLC; KSHER AA, LLC; Marc Helie; and Jay Johnston are collectively referred to
“Gramercy.”
5 The parties agree that a taxpayer’s reliance on an independent legal
opinion is a critical element of a “reasonable cause and good faith” defense to
IRS penalties. See Neonatology Assoc. v. Commr., 115 T.C. 43, 98 (7) (2000),
aff’d, 299 F3d 221 (3d Cir. 2002) (“The good faith reliance on the advice of an
independent, competent professional as to the tax treatment of an item may
meet this requirement.”).
4
tax advice in connection with certain investment transactions that
[the Coes] conducted in 2001” and that, in connection with the
investment transactions, Proskauer would charge $30,000, payable
upon execution of the engagement letter. Also, the letter provided:
We have advised you that we also represent BDO
Seidman, LLP and Gramercy Advisors and their affiliated
entities in connection with various matters. You
acknowledged and expressly agreed that we would be free
to continue to represent BDO Seidman, LLP and
Gramercy Advisors and you waived any conflict resulting
from or attributable to such representation.[6]
On April 15, 2002, Proskauer issued the Opinion to the Coes.
In the Opinion, Proskauer first outlined the various entities
involved in the Strategy, the representations made by those entities,
and the agreements documenting the various transactions.
Proskauer then rendered a number of opinions on discrete issues
regarding the Strategy, ultimately concluding that there was a
6 Douglas Coe averred that other than a brief conversation with Ira
Akselrad at Proskauer, in which Akselrad asked Coe to sign the engagement
letter, he had no other conversations with anyone from Proskauer and that
Akselrad did not provide any details about Proskauer’s relationship with BDO
and Gramercy.
5
“greater than fifty percent likelihood that the tax treatment of the
[Strategy] would be upheld if challenged by the [IRS]” and that the
investor “should not be subject to a penalty” under multiple code
sections. 7 The Opinion also provided a substantial, over-70-page
legal analysis supporting the various opinions provided therein.
Relying on the Opinion, the Coes then included the losses generated
by the Strategy on their tax return for the 2001 tax year.
The IRS initiated an audit of the Coes’ 2001 tax return on
January 11, 2005, and the Coes retained the law firm of
Chamberlain Hrdlicka (“Chamberlain”) 8 to represent them during
the audit. Eventually, the Coes entered into a settlement agreement
with the IRS in January 2012. During that time period, a number of
news reports publicized the IRS’s investigations of similar tax
strategies. In 2005, a United States Senate subcommittee report
7 The same day, BDO issued an almost identical opinion letter to the
Coes.
Proskauer characterizes Chamberlain as “sophisticated tax counsel.”
8
Douglas Coe averred that “[i]t was not within the scope of Chamberlain
Hrdlicka’s agency relationship with [Coe] to apprise [Coe] of all publicly
available facts that might bear upon claims against my former professional
advisors.” No other evidence of the scope of Chamberlain’s services, such as an
engagement letter, appears in the record.
6
concluded that tax avoidance transactions like the Strategy
“required close collaboration between accounting firms, law firms,
investment advisory firms, and banks,” and in 2008, an IRS notice
identified similar distressed-debt transactions as improper tax
avoidance strategies subject to penalties. Also, beginning in 2009,
several BDO partners entered guilty pleas to counts of conspiracy to
defraud the United States and to tax evasion in connection with tax
shelters similar to the Strategy that they promoted to other clients.
In June 2012, BDO entered into a deferred-prosecution agreement
with the United States Department of Justice relating to the
fraudulent marketing and selling of illegal tax shelters.9
After their settlement with the IRS, the Coes retained separate
counsel, Loewinsohn Flegle Deary Simon LLP (“Deary”), to pursue
their claims against Proskauer. In December 2015, the Coes filed
suit against Proskauer, asserting legal malpractice, breach of
fiduciary duty, negligent misrepresentation, fraud, and other
9Neither the BDO partners’ guilty pleas nor the deferred-prosecution
agreement specifically referenced Proskauer’s involvement.
7
claims. In support of their claims, the Coes alleged that Proskauer
and BDO were not independent, and instead Proskauer, BDO, and
Gramercy jointly designed, promoted, and implemented the
Strategy as part of a conspiracy. 10 Specifically, they alleged that
Proskauer had an illegal business arrangement with BDO and
Gramercy, whereby BDO recommended that Proskauer provide
opinion letters to BDO’s clients in connection with the Strategy, and
that Proskauer knowingly allowed BDO to use their legal opinion
letters to market the Strategy to its clients. According to the Coes,
the Opinion was not tailored to their circumstances, but rather was
10 In opposition to the motion for summary judgment, the Coes submitted
the affidavit of Charles Bee, a former BDO Vice-Chairman, who had pleaded
guilty to crimes arising out of BDO’s activities in designing and marketing
various tax shelters, including those involving options and distressed debt. As
to BDO’s relationship with Proskauer, Bee averred:
During the time period that the BDO Tax Solutions Group was
functioning, one of the law firms with whom the BDO Tax
Solutions Group had a significant relationship was the Proskauer
Rose law firm from New York; the lead attorney there on tax
shelter matters was an attorney named Ira Akselrad. Proskauer
was involved both in writing opinion letters for clients of BDO and
also in providing direct legal advice to BDO regarding these
shelters. I would characterize Proskauer as one of the “go to” law
firms that BDO used and on whom it relied for advice about these
transactions, including the distressed debt transactions that BDO
promoted to its clients.
8
a boilerplate opinion letter that was part of this pre-planned scheme.
And although Proskauer represented and advised the Coes that the
Strategy was a legal investment strategy, Proskauer had knowledge
that federal authorities were investigating the legality of similar tax
shelters and that the IRS was auditing and disallowing similar tax
strategies.
Furthermore, the Coes alleged that there was an undisclosed
fee-splitting arrangement between Proskauer, BDO, and Gramercy
wherein they would split substantial fees based on the size of the
distressed debt rather than an hourly rate. Proskauer never
informed the Coes that Proskauer represented and advised BDO on
the Strategy specifically. However, in the spring of 2002, as BDO’s
counsel, Proskauer advised BDO that any taxpayer claiming
Strategy losses on a tax return would face a 100% chance of an IRS
audit. But Proskauer never informed the Coes that it represented
BDO on the Strategy, that it gave BDO materially different advice
regarding the Coes’ chance of an IRS audit, or that the IRS
considered the Strategy an illegal tax shelter. Despite this
9
knowledge, Proskauer maintained in its Opinion that the Coes
“should not” incur IRS penalties.
The Coes have asserted that they had no knowledge that
Proskauer was not independent from BDO; that Proskauer was
participating in any improper conduct; that certain BDO partners
were convicted in 2009; of news coverage of the same or similar tax
strategies as the Strategy; or of the litigation against accounting and
law firms regarding the same or similar transactions as the
Strategy.
Proskauer filed a motion to dismiss the complaint on several
grounds, including that the Coes’ claims were barred by the
applicable statute of limitation because they were on notice of their
claims no later than February 13, 2009, when the first of four BDO
partners pleaded guilty to crimes associated with similar tax
avoidance strategies and that tolling based on alleged fraudulent
concealment did not apply.11 After the Coes responded to the motion
11OCGA § 9-3-96 provides: “If the defendant or those under whom he
claims are guilty of a fraud by which the plaintiff has been debarred or deterred
10
to dismiss, the trial judge converted the motion into a motion for
summary judgment and ordered the parties to simultaneously
submit evidence pertinent to the motion, which was subsequently
supplemented following discovery limited to the issues raised in the
motion to dismiss.
Following a hearing, the court granted Proskauer’s motion for
summary judgment. The trial court reasoned that the four-year
statute of limitation for each of the Coes’ claims began to run in
2002, when the Coes undertook the underlying Strategy or
alternatively in 2009, when the first of the BDO partners entered
his criminal guilty pleas. As for tolling under OCGA § 9-3-96, the
trial court concluded that it did not apply because the fraud alleged
to have tolled their claims was the same fraud about which the Coes
were suing and because failure to disclose one’s alleged malpractice
is not fraud.
The Coes appealed, arguing that the statutes of limitation had
from bringing an action, the period of limitation shall run only from the time
of the plaintiff’s discovery of the fraud.”
11
not begun to run on their claims and that, alternatively, the trial
court erred in finding that the applicable statutes of limitation for
their causes of action were not tolled by Proskauer’s fraud. The
Court of Appeals affirmed the trial court’s grant of summary
judgment to Proskauer but on somewhat different grounds. The
Court of Appeals analyzed the legal malpractice, fraud, negligent
misrepresentation, and breach of fiduciary duty claims jointly,
concluding that a four-year statute of limitation applied to those
claims and that they accrued in 2002 when the alleged breach and
malpractice occurred. As for tolling, the Court of Appeals concluded
that the Coes had failed to meet their burden of showing that the
statute of limitation was tolled because the Coes, exercising
ordinary care, should have been on notice of their claims based on
news reports about similar tax shelters promoted by BDO, which
had been determined to be illegal, and that the Coes were aware
through the engagement letter that Proskauer was doing some work
for BDO. See Coe, 360 Ga. App. at 73 (2).
We granted the Coes’ petition for certiorari and posed the
12
following questions:
1. Were the [Coes]’ claims of fraud and negligent
misrepresentation barred by the four year statute of
limitations period applicable to legal malpractice claims?
2. Did the [Coes] fail, as a matter of law, to exercise
ordinary care to discover [Proskauer’s] allegedly
fraudulent acts?
2. Statutes of Limitation Applicable to Fraud and Negligent
Misrepresentation Claims.
It is well settled that the statute of limitation for fraud and
negligent misrepresentation claims is found in OCGA § 9-3-31,12
while the statute of limitation for legal malpractice claims is set out
in OCGA § 9-3-25. 13 See Armstrong v. Cuffie, 311 Ga. 791, 793 (1)
n.4 (860 SE2d 504) (2021) (“It has long been the law in this state
that a cause of action for legal malpractice, alleging negligence or
unskillfulness, is subject to the four-year statute of limitation in
OCGA § 9-3-25.” (citation and punctuation omitted)); Anthony v.
12 OCGA § 9-3-31 provides: “Actions for injuries to personalty shall be
brought within four years after the right of action accrues.”
13 OCGA § 9-3-25 provides in relevant part: “All actions upon open
account, or for the breach of any contract not under the hand of the party
sought to be charged, or upon any implied promise or undertaking shall be
brought within four years after the right of action accrues.”
13
American Gen. Financial Svcs., 287 Ga. 448, 461 (4) (697 SE2d 166)
(2010) (applying four-year statute of limitation provided in OCGA §
9-3-31 to plaintiffs’ claim for fraud arising from economic loss);
Hardaway Co. v. Parsons, Brinckerhoff, Quade & Douglas, 267 Ga.
424, 426 (1) (479 SE2d 727) (1997) (applying four-year limitation
period for negligent misrepresentation action claiming injury to
personalty as set forth in OCGA § 9-3-31).
Here, the Court of Appeals focused its analysis on the Coes’
legal malpractice claim, determining that the limitations period
began to run “from the date of the breach of the duty and not from
the time when the extent of the resulting injury is ascertained nor
from the date of the client’s discovery of the error.” Coe, 360 Ga. App.
at 71 (1). In so doing, the court rejected the Coes’ assertion that
malpractice claims involving pending proceedings such as the IRS
audit do not accrue until the termination of the administrative
proceeding. 14 See id. at 72.
This issue does not fall within the scope of the questions that we posed
14
on granting the Coes’ petition for certiorari. Therefore, we decline to address
14
However, the Court of Appeals erred by failing to separately
analyze the Coes’ fraud and negligent misrepresentation claims.
Although both statutes of limitation include the same language –
that the relevant action must be brought within four years “after the
right of action accrues” – fraud, negligent misrepresentation, and
legal malpractice claims each requires different elements.
Therefore, even though the Coes’ claims arose from the same series
of transactions with BDO and Proskauer, each claim should have
been analyzed separately to determine when the right of action
accrued for that particular claim. See Daniel v. Ga. R. Bank & Trust
Co., 255 Ga. 29, 30 (334 SE2d 659) (1985) (“Various causes of action
in tort arising from the same set of facts may commence running at
different times depending on the nature of the several causes of
action involved, and the fact that the statute has run as to one does
not necessarily mean that the statute has run as to all.”). See also
Green v. White, 229 Ga. App. 776 (494 SE2d 681) (1997) (separately
the Coes’ arguments to this Court that their malpractice claims did not accrue
until the Coes paid penalties to the IRS. See Supreme Court Rule 45.
15
analyzing the timeliness of a legal malpractice and fraud claims
based on the same representation).
Turning to the Coes’ claims as alleged in their second amended
complaint, 15 the essential elements for a claim of negligent
misrepresentation are:
(1) the defendant’s negligent supply of false information
to foreseeable persons, known or unknown; (2) such
persons’ reasonable reliance upon that false information;
and (3) economic injury proximately resulting from such
reliance.
Hardaway, 267 Ga. at 426 (1) (citation omitted). “Because the
resulting loss must necessarily occur after the negligent act and
reliance thereon, the statute of limitation runs from that point.” Id.
at 427 (1) (emphasis supplied). Accordingly, until economic loss is
actually sustained by a plaintiff, he does not have a cause of action,
and the statute of limitation “cannot commence until such loss is
sustained with certainty.” Id. at 427-28 (1) (acknowledging that
15 In moving for summary judgment on the issue of when these claims
accrued, Proskauer focused its arguments on when the Coes suffered damages
and has not disputed the merits of the Coes’ claims. Thus, we treat these
allegations as undisputed for purposes of this analysis.
16
“[w]ith the benefit of hindsight, we can see now that at the time [the
plaintiff] signed the contract, it may have been foreseeable, or even
likely, that it would lose money due to delays caused by apparent
errors in the initial designs,” but holding nonetheless that “the
statute of limitation begins to run when the plaintiff suffers
pecuniary loss with certainty, and not as a matter of pure
speculation” (emphasis in original)).16
16 In Count III of their second amended complaint, the Coes alleged that
during the course of its representation, Proskauer “negligently made numerous
affirmative representations that were improper, incorrect and/or false;
negligently omitted material facts; and negligently gave numerous improper,
inaccurate, and wrong recommendations, advice, instructions, and opinions to
[the Coes.]” The Coes further alleged that they reasonably relied on
Proskauer’s representations that Proskauer either knew or reasonably should
have known were improper, inaccurate, or wrong. And the Coes alleged that,
but for this reliance, they would not have failed to pursue amnesty programs
that the IRS was offering for participants in similar tax shelters.
The Coes identified the following injuries proximately caused by
Proskauer’s alleged negligent misrepresentation:
(1) they paid substantial fees/monies to [Proskauer] and the
Strategy Participants, (2) they unnecessarily purchased the
[Strategy] and made other investments to effectuate the
[Strategy], (3) they made additional investments in Gramercy’s
investment fund as part of the [Strategy], (4) they have been
assessed and owe substantial back-taxes, interest and penalties
and will be assessed additional such amounts, (5) they paid
substantial money/fees to lawyers and accountants and incurred
other expenses in connection with [the audit], (6) they have and
will continue to incur substantial additional costs in hiring new
17
“The tort of fraud has five elements: a false representation by
a defendant, scienter, intention to induce the plaintiff to act or
refrain from acting, justifiable reliance by plaintiff, and damage to
plaintiff.” Bowden v. The Medical Center, Inc., 309 Ga. 188, 199 (2)
(a) n.10 (845 SE2d 555) (2020) (citation and punctuation omitted).
See also Holmes v. Grubman, 286 Ga. 636, 640-41 (1) (691 SE2d 196)
(2010) (explaining that “the same principles apply to both fraud and
negligent misrepresentation cases and that the only real distinction
between [the two claims] is the absence of the element of knowledge
of the falsity of the information disclosed” (citation and punctuation
omitted)). As with negligent misrepresentation, “[t]o establish a
cause of action for fraud, a plaintiff must show that actual damages,
not simply nominal damages, flowed from the fraud alleged.” Glynn
County Fed. Employees Credit Union v. Peagler, 256 Ga. 342, 344 (2)
tax and legal advisors to rectify the situation, [and] (7) . . . they lost
the opportunity to avail themselves [of] other legitimate tax-
savings opportunities.
18
(348 SE2d 628) (1986) (emphasis supplied).17
17 In Count IV of their second amended complaint, the Coes alleged that
Proskauer “made numerous knowingly false affirmative representations and
intentionally omitted numerous material facts to [the Coes,]” reciting 78
paragraphs enumerating the alleged fraud, including:
(3) Failing to disclose in the [Opinion] or otherwise the actual roles
and relationships of the Strategy Participants (e.g., the conspiracy)
in the . . . Strategy;
...
(4) Failing to disclose in the [Opinion] or otherwise that Proskauer
. . . and the Strategy Participants were splitting and/or sharing
fees;
...
(8) Failing to advise [the Coes] in the [Opinion] or otherwise that
the [Opinion] was not an “independent” legal opinion from an
“independent” law firm;
...
(10) Failing to advise [the Coes] that the [Opinion] could not be
relied upon by [the Coes] to protect [the Coes] from incurring
penalties if audited;
...
(18) Failing to advise [the Coes] that Proskauer . . . had already
prepared a “form” opinion letter approving the . . . Strategy and
needed to only fill in several blanks for each of the many clients to
which it rendered such opinion letter;
...
(42) Failing to advise [the Coes] in the [Opinion] or otherwise that
the purchase, sale, and/or exchange of the distressed debt
investments were not arms-length transactions;
...
(46) Failing to advise [the Coes] in the [Opinion] or otherwise that
Gramercy would not perform collection efforts on the distressed
debt investments;
...
(53) Failing to advise [the Coes] that the purpose of the [Opinion]
was to induce clients to purchase tax shelters; [and]
19
Thus, to maintain their negligent misrepresentation and fraud
claims, the Coes were required to have sustained actual damages
with certainty. See Hardaway, 267 Ga. at 427-28 (1); Peagler, 256
Ga. at 344 (2). On appeal, the Coes argue that they did not suffer an
actual injury until the IRS rejected Proskauer’s faulty tax advice
and imposed penalties in 2012 because the parties had contemplated
that the Coes would incur fees for the Opinion and potential audit
expenses, but not that they would incur IRS penalties. However, this
argument is belied by the Coes’ complaint. The damages that the
Coes alleged with respect to their negligent misrepresentation and
fraud claims include the fees that they paid in reliance on what the
...
(57) Failing to advise [the Coes] that Proskauer Rose and its co-
conspirators unlawfully, willfully, and knowingly devised and
intended to devise a scheme and artifice to defraud, and for
obtaining money and property by means of false and fraudulent
pretenses, representations, and promises, to wit, a scheme to
defraud the IRS through the design, marketing, and
implementation of fraudulent tax shelter transactions[.]
The Coes identified the same injuries proximately caused by Proskauer’s
alleged fraud as they did for their negligent misrepresentation claim.
20
Coes now contend are misrepresentations and material
nondisclosures in the Opinion and engagement letter, and it is
undisputed that the Coes paid Proskauer’s fees. We recognize that,
oftentimes, it is only with the benefit of hindsight that a plaintiff is
able to ascertain that he has not received the benefit of his bargain
as a result of fraud or negligent misrepresentation. Nonetheless,
because the Coes could have maintained their claims for negligent
misrepresentation and fraud at the point when they relied on those
representations and paid those fees in 2002, their claims for
negligent misrepresentation and fraud began to accrue at that time.
See Hardaway, 267 Ga. at 426 (1); Peagler, 256 Ga. at 344 (2). That
the Coes also alleged additional, later economic damages arising
from Proskauer’s actions does not change the fact that the statutes
of limitation for their negligent misrepresentation and fraud claims
began to run on the date that they first could have successfully
maintained those actions. See Colormatch Exteriors v. Hickey, 275
Ga. 249, 251 (1) (569 SE2d 495) (2002) (“The true test to determine
when a cause of action accrues is to ascertain the time when the
21
plaintiff could have first maintained his or her action to a successful
result.” (citation and punctuation omitted)).
Proskauer argues that the Coes should not be able to
circumvent the malpractice limitation period by asserting fraud and
negligent misrepresentation claims where “the duties arose from the
same source (that is, the attorney-client relationship), were
allegedly breached by the same conduct, and allegedly caused the
same damages.” Anderson v. Jones, 323 Ga. App. 311, 318 (2) (745
SE2d 787) (2013). See Griffin v. Fowler, 260 Ga. App. 443, 450 (2)
(579 SE2d 848) (2003) (“[T]he damages flowing from [the plaintiff’s]
separate claim that [the defendant] fraudulently misrepresented his
expertise or experience to induce employment are no different from
the damages flowing from the alleged legal malpractice. Therefore .
. . there [would be] no separate cause of action for fraud apart from
the malpractice claim[.]”). As an initial matter, neither Anderson nor
Griffin involved a grant of summary judgment based on a statute of
limitation and are not applicable here, and Anderson addressed
overlapping breach of fiduciary duty and legal malpractice claims,
22
which is not at issue in this appeal. However, to the extent that the
language in these cases can be construed to support that fraud and
negligent misrepresentation claims are always duplicative of legal
malpractice claims if based on the same facts and that those fraud
and negligent misrepresentation claims will fail on statute of
limitation grounds in the same way as the legal malpractice claim,
these cases are disapproved.18 See Daniel, 255 Ga. at 32 (explaining
that tort claims may have different elements and must be analyzed
separately to determine when each claim has accrued).
3. Whether the Coes Failed to Exercise Reasonable Diligence as
a Matter of Law.
Having determined that the Coes’ fraud and negligent
misrepresentation claims accrued in 2002, more than four years
before the Coes filed their lawsuit in 2015, we must now turn to the
question of whether the Court of Appeals correctly determined that
18 We note an additional case with similar language that is not cited by
Proskauer. See Stewart v. McDonald, 347 Ga. App. 40, 50 (3) (815 SE2d 665)
(2018) (“[The plaintiff’s] claims for damages for fraud and breach of fiduciary
duty are factually based upon [the defendant’s] breach of his fiduciary duties
to [the plaintiff] in the performance of his duties as a lawyer, so the claims are
duplicative of [the plaintiff’s] legal malpractice claim.”).
23
the statutes of limitation for the Coes’ claims were not tolled because
“there was sufficient evidence that the [Coes], exercising ordinary
care, should have been on notice regarding the issues surrounding
the distressed debt strategy.” Coe, 360 Ga. App. at 73 (2).
OCGA § 9-3-96 provides that when a defendant is “guilty of a
fraud by which the plaintiff has been debarred or deterred from
bringing an action, the period of limitation shall run only from the
time of the plaintiff’s discovery of the fraud.” As we recently
explained, in order to toll a limitation period under this statute, a
plaintiff must make three showings:
first, that the defendant committed actual fraud; second,
that the fraud concealed the cause of action from the
plaintiff, such that the plaintiff was debarred or deterred
from bringing an action; and third, that the plaintiff
exercised reasonable diligence to discover his cause of
action despite his failure to do so within the statute of
limitation.
Doe v. St. Joseph’s Catholic Church, 313 Ga. 558, 561 (2) (870 SE2d
365) (2022) (citation and punctuation omitted).
Proskauer does not dispute that the Coes carried their burden
to show fraud for purposes of summary judgment; thus, consistent
24
with the second question posed in granting certiorari, our inquiry is
focused on the third requirement. 19 “Fraud will toll the limitation
period only until the fraud is discovered or by reasonable diligence
should have been discovered.” Doe, 313 Ga. at 568 (2) (citation and
punctuation omitted). “Reasonable diligence cannot be measured by
a subjective standard, but, rather, must be measured by the prudent
man standard, which is an objective one.” Id. (citation and
punctuation omitted). However, “[w]here a confidential
relationship[ 20] exists, a plaintiff does not have to exercise the degree
19 While Proskauer does not dispute that the Coes carried their burden
to show fraud, it does argue in the alternative that the Coes failed to establish
that Proskauer’s alleged fraud “debarred or deterred” them from discovering
their causes of action after they retained new counsel in 2005 because the Coes
were “no longer deterred from learning the true facts.” However, because this
issue is outside the scope of the questions posed in granting certiorari, we
decline to address it. See Supreme Court Rule 45.
20 “A ‘confidential’ relationship exists ‘where one party is so situated as
to exercise a controlling influence over the will, conduct, and interest of
another, or where, from a similar relationship of mutual confidence, the law
requires the utmost good faith.’” Doe, 313 Ga. at 562 (2) (quoting OCGA § 23-
2-58). The parties do not dispute that a confidential relationship existed
between Proskauer and the Coes, at a minimum, during the period of time
when Proskauer was actively representing the Coes in drafting the Opinion.
However, after that point in time, the parties diverge in their views of the duty
Proskauer retained to the Coes and the concomitant degree of care that the
Coes were required to exercise. We need not parse this issue at this time
because, as we explain below, even assuming that Proskauer’s heightened duty
25
of care to discover fraud that would otherwise be required, and a
defendant is under a heightened duty to reveal fraud where it is
known to exist.” Hunter, Maclean, Exley & Dunn, P.C. v. Frame, 269
Ga. 844, 848 (1) (507 SE2d 411) (1998). “Put another way, a
confidential relationship imposes a greater duty on a defendant to
reveal what should be revealed, and a lessened duty on the part of a
plaintiff to discover what should be discoverable through the
exercise of ordinary care.” Id.Also, in resolving this question, it is important to keep in mind
the procedural posture of this case – that we are reviewing the grant
of a motion for summary judgment. “On appeal from the grant of
summary judgment, we construe the evidence most favorably
towards the nonmoving party, who is given the benefit of all
reasonable doubts and possible inferences” and is “only required to
present evidence that raises a genuine issue of material fact.”
Nguyen v. Southwestern Emergency Physicians, 298 Ga. 75, 82 (3)
to the Coes expired upon release of the Opinion, genuine issues of material fact
exist as to whether the Coes exercised reasonable diligence to discover their
causes of action.
26
(779 SE2d 334) (2015) (citation and punctuation omitted).
With these principles in mind, we turn to Proskauer’s theories
as to why the Coes could have discovered their claims with
reasonable diligence no later than 2009. First, Proskauer argues
that as of March 2002, the Coes had actual notice that Proskauer
was not an independent law firm based on the information provided
in Proskauer’s engagement letter. Second, Proskauer argues that
the Coes had constructive knowledge by 2009 of Proskauer’s alleged
misrepresentations in the Opinion when it became “widely known”
that the IRS was pursuing entities involved in tax avoidance
schemes like the Strategy.
As for the claims that Proskauer failed to disclose that it was
not an independent law firm, Douglas Coe submitted an affidavit
that he was unaware that Proskauer advised BDO on the Strategy
and thus was not an independent law firm. Moreover, the
engagement letter only vaguely referred to matters in which
Proskauer represented BDO and did not disclose Proskauer’s role in
crafting the Strategy and sharing in fees earned. And it is
27
undisputed that this failure to disclose was made during
Proskauer’s active representation of the Coes such that Proskauer
had a higher duty to disclose material facts. See Hunter, 269 Ga. at
848 (1). We fail to see why a person exercising reasonable diligence
would not be entitled to rely on the disclosure or lack thereof made
by his or her attorney even after the legal engagement was
completed, at least until other facts come to light that would cause
a reasonably diligent person to revisit the issue. Thus, a genuine
issue of material fact exists as to whether the Coes had actual
knowledge about Proskauer’s lack of independence, and we cannot
say that, as a matter of law, the Coes had knowledge that Proskauer
was not an independent law firm based solely on the language in the
engagement letter.
As for its argument that the Coes had constructive notice of the
alleged misrepresentations and material omissions made in the
Opinion, Proskauer submitted an excerpt of 98 selected sources to
the trial court as evidence that the Coes should have been on notice
of their claims against Proskauer well before 2011. These sources
28
included an episode of CBS 60 Minutes, two congressional reports,
and publications from various news outlets, which emphasized
BDO’s role and related claims against law firms arising from faulty
tax advice.
Notably, only two of the articles specifically mentioned
Proskauer: one article in Crain’s New York Business and one article
in The New York Times, which stated that evidence of a coordinated
partnership between BDO and Proskauer was lacking. 21 We are not
persuaded by Proskauer’s characterization of this information,
involving highly complex investment and tax transactions, as so
“widely known” as to establish, as a matter of law, that the Coes, in
21 See Tommy Fernandez, Tax Shelter Crackdown Hits Law Firms,
Crain’s N.Y. Bus. June 14, 2004, 2004 WLNR 1763012 (noting that tax shelter
litigator David Deary “says he will file suits against two other New York firms,
Proskauer Rose and Pryor Cashman Sherman & Flynn” based on their
marketing and selling of the illegal tax shelters); Lynnley Browning, U.S. is
Denied Most Papers Sought from Auditing Firm, N.Y. Times July 7, 2004,
https://www.nytimes.com/2004/07/07/business/us-is-denied-most-papers-
sought-from-auditing-firm.html (discussing a federal judge’s ruling that
“‘evidence of any such coordinated partnership between BDO Seidman and
[Proskauer] is lacking’” and the judge’s conclusion that “the evidence of
favorable opinion letters . . . ‘standing alone, are not enough for this court to
conclude that [Proskauer] and BDO were promoters’”).
29
exercising reasonable diligence, should have discovered their claims
before 2011.22
And there is no evidence in the record that the Coes were
specifically aware of the reports identified by Proskauer. To the
contrary, Douglas Coe submitted an affidavit that, prior to 2012, he
was not aware of the BDO partners’ convictions, of Proskauer’s
participation in any improper conduct, or of any other allegations in
the Coes’ complaint. And in a subsequent affidavit, he specifically
denied having seen any of the documents, articles, television
broadcasts, or other lawsuits referenced by Proskauer. Thus, a
genuine issue of material fact exists as to whether the Coes had
actual knowledge of, or should have discovered with reasonable
22 Although in a different procedural posture, we find it instructive that
in Doe we explained that the allegations in that complaint adequately pleaded
tolling under OCGA § 9-3-96 because “[t]his is not a case where the allegations
in the complaint establish as a matter of law that the plaintiff could have easily
discovered the fraud alleged from a readily available public source, that the
plaintiff in fact knew about the alleged fraud when it occurred, or that the
plaintiff was on clear notice that the defendant had defrauded him.” Doe, 313
Ga. at 570 (2) n.10. Likewise, the existence of news reports and other lawsuits
referencing Proskauer and BDO do not establish as a matter of law that the
Coes could have discovered their claims against Proskauer through the
exercise of reasonable diligence.
30
diligence, the news reports and other lawsuits referencing
Proskauer.
Moreover, we conclude that the Coes produced evidence
sufficient to support that they exercised reasonable diligence to
discover their causes of action within the limitations period. Most
notably, after the IRS initiated its audit in 2005, the Coes did not
simply ignore the problem; they hired independent counsel with an
established reputation in tax matters to assist them in the audit
process. See Scully v. First Magnolia Homes, 279 Ga. 336, 339 (2)
n.11 (614 SE2d 43) (2005) (“questions of reasonable diligence must
often be resolved by the trier of fact”); Sanders v. Looney, 247 Ga.
379, 381 (3) (276 SE2d 569) (1981) (holding that the question of the
plaintiffs’ exercise of proper diligence was for the jury and noting
that the existence of a confidential relationship may justify the
plaintiffs’ reliance on representations and excuse the failure to make
their own determination).
Proskauer also argues that Chamberlain, as sophisticated tax
counsel, either knew or should have known the basis for all of the
31
Coes’ claims against Proskauer and that in any event, as the Coes’
counsel, Chamberlain’s constructive knowledge was imputed to the
Coes for purposes of determining tolling. Pretermitting whether
constructive knowledge of legal counsel is imputed to the client in
these circumstances, there is no evidence in the record of what
Chamberlain knew about Proskauer’s role in the Strategy, other
than the fact that Proskauer had provided legal and tax advice to
the Coes, or that Chamberlain actually was aware of the IRS’s
efforts against similar tax shelters. Moreover, there is no evidence
in the record showing what Chamberlain should have known, only
Proskauer’s legal argument that Chamberlain should have been on
notice about the IRS’s efforts against similar tax shelters. 23 See
Smith v. Jones, 278 Ga. 661, 662 (2) (604 SE2d 187) (2004)
(conclusory affidavit unsupported by substantiating fact or
circumstances is insufficient to raise a genuine issue of material
fact); Adams v. Carlisle, 278 Ga. App. 777, 785 (3) (a) n.16 (630 SE2d
23 It does not appear from the record that any discovery has been taken
of Chamberlain’s knowledge about these issues during the relevant time
period.
32
529) (2006) (“Allegations, conclusory facts, and conclusions of law
cannot be utilized to support or defeat motions for summary
judgment.” (citation and punctuation omitted)). Thus, we conclude
that the Court of Appeals erred in determining that the Coes failed,
as a matter of law, to exercise reasonable diligence to discover
Proskauer’s allegedly fraudulent acts. See Sanders, 247 Ga. at 381(3) (“Ordinarily, questions of whether the plaintiff could have
protected himself by the exercise of proper diligence are, except in
plain and indisputable cases, questions for the jury.” (citation and
punctuation omitted)).
Accordingly, we reverse the judgment of the Court of Appeals
and remand the case with instruction to reverse the trial court’s
order and remand the case for further proceedings consistent with
this opinion.
Judgment reversed and case remanded with direction. All the
Justices concur, except Bethel, J., disqualified.
33