Ackerman v. Price Waterhouse

Tom, J.

(concurring). The motion court’s orders should be affirmed in their denial of class certification for the “global” (non-New York residents) subclass, but reversed to the extent that the class consists of New York residents. While I concur with Justice Mazzarelli’s result, I conclude that additional factors, particularly the burden imposed on New York courts in the absence of a demonstrable New York interest, support this partial affirmance.

Some 1,444 of these putative class members invested in various limited partnerships affiliated with the Commercial Properties Group (CPG) during the 1980’s for tax shelters. The investors were advised that as a consequence of their investment, they would be entitled to certain tax benefits realized by accelerating the deduction of interest expenses of loans made to the partnerships. However, the Internal Revenue Services (IRS) subsequent audits of the limited partnerships resulted in findings of tax underpayments by individual plaintiffs, many of whom settled with the IRS, satisfying arrears and paying interest.

The present case, sounding originally in negligence claims and accountant malpractice claims against Price Waterhouse and other defendants, was commenced by the filing of a class action complaint in 1990. After significant motion practice on the Statute of Limitations defense, most of the original complaint was dismissed in December 1994 as untimely. By then, though, plaintiffs had amended the complaint to add two breach of contract claims, and to allege continuous treatment in connection with the still-extant tort and malpractice claims to toll commencement of the Statute of Limitations.

Plaintiffs sought to incorporate into the original class all other limited partners of the CPG partnerships that were audited and penalized by Federal and State tax authorities in connection with the accounting advice by Price Waterhouse concerning the “Rule of 78’s”. The class has now been defined to include some 1,444 investors in 38 States and four foreign countries. The breakdown of investors by State is as follows: 525 investors are from New York, representing 36% of the proposed class; 192 investors are from Pennsylvania; 130 investors are from Oklahoma; 120 investors are from New Jersey; 80 investors are from Florida; 60 investors are from California; 52 investors are from Washington; 50 investors are from Connecticut; 47 investors are from Virginia; and 188 investors are from 25 more States and four foreign countries.

Justice Gammerman entertained, and ultimately rejected, the Ackerman plaintiffs’ class certification efforts in several successive orders.

By motion dated April 30, 1993, the Ackerman plaintiffs moved to certify as a class, for whom Ackerman would serve as class representative, all persons who invested in any of the limited partnerships listed in the attached appendix. The motion court, in an order dated November 16, 1993, denied class certification with leave to renew after discovery of the State of residence of the putative class members. The court noted the geographic diversity of the putative class members, the absence of demonstrable common class issues, especially in view of the diversity of jurisdictions involved, and that for the tort and malpractice claims, State laws varied greatly, further defeating commonality. This order was not appealed.

After the above-noted amendment of the complaint to add breach of contract claims, and after discovery was conducted as to class members’ residences (providing the class composition noted above), the application for class certification was renewed in March 1994. In its November 15, 1994 order, the court again denied certification. The court noted that plaintiffs claimed damages for both Federal and State tax assessment and penalties, claims that were made not only under the tax laws of the United States but also pursuant to the statutory and administrative schemes of 38 different States, and that Price Water-house was entitled to scrutinize the validity of all such tax rulings. Justice Gammerman again noted the significant conflicts of law issues, now also including diverse State treatments of the contract claims. The court also noted that different States utilized different laws of waiver and estoppel in connection with Statutes of Limitation. This order was appealed, and presently is under review.

Plaintiffs, despite a warning from the court that another renewal might elicit sanctions, renewed the motion in June 1995 and again in August 1995. The June 1995 motion sought certification for investors who were New York residents, bifurcated between contract and tort claims. The August 1995 motion sought certification for all non-New York investors and argued for the application of Pennsylvania law to the contract claims. The court denied both motions and imposed sanctions in its April 22, 1997 order, also presently under review, finding that for all claims, the law of each investor’s forum likely would apply, so that the original factors militating against certification still remained. Specifically with respect to the non-New York “global” class, the court rejected the plaintiffs’ position that Pennsylvania law would govern the contract claims, but also found that Pennsylvania’s restrictiveness on accountant malpractice claims, requiring proof of reliance, actually was contrary to the best interests of the class and that the allegations of the complaint might not even make out contract claims under Pennsylvania law. The court also found that the tort claims raised on behalf of the global class would require analysis of the laws of dozens of States, making resolution of those claims in a single forum unmanageable.

CPLR article 9 sets forth five criteria, comprehensively analyzed in Justice Mazzarelli’s opinion, that basically seek to balance the competing complexities and benefits of litigating the claims individually, perhaps in diverse forums, and litigating the claims together in a single forum. These criteria, though, basically require an evaluation of the burdens on the respective parties, and are less than clear on how to factor in the burden on the host forum. As a practical matter, many certification proceedings litigated in New York have addressed New York-accrued claims or New York residents seeking relief, and usually both (see, e.g., Weinberg v Hertz Corp., 116 AD2d 1, affd 69 NY2d 979, certifying a class of persons renting cars in New York asserting violation of General Business Law § 349, when a similar class consisting of California residents and renters within California, suing under California law, was recognized by that State [Lazar v Hertz Corp., 143 Cal App 3d 128, 191 Cal Rptr 849; accord, Super Glue Corp. v Avis Rent A Car Sys., 132 AD2d 604]). To the extent that plaintiffs now seek to certify a non-New York subclass, though, the present case presents circumstances less typical of State court certification proceedings and warrants greater scrutiny of the sum benefits as contrasted with complexity and cost to the host forum.

Certifying a non-New York subclass to litigate the tort issues, in which the law of each State of residence would be invoked despite the absence of a New York interest, clearly would impose unreasonable burdens on our courts (see generally, Zabel and Eyres, Conflict-of-Law Issues in Multistate Product Liability Class Actions, 19 Hamline L Rev 429 [1996]). As to the tort claims, we all agree that for this reason, certification should not be granted.

As to the global class certification on the contract claims, similar reasoning should apply. In addition to the majority’s trenchant analysis of the statutory criteria, there is an additional question which, under these facts, I think is important: why should the courts of New York be burdened with a massive class of non-New York residents (919 parties) from some 37 foreign States and numerous foreign nations, all of whom lack any significant connection with New York regarding the matter in litigation? As to these contract claims, it seems to me to be a critical consideration that all major events occurred in Pennsylvania rather than New York. The contract between CPG and Price Waterhouse was negotiated and entered into in Pennsylvania; all relevant tax preparation work was completed in Price Waterhouse’s Philadelphia office; the partnership returns and schedules were delivered to CPG in Pennsylvania and then sent to the parties at their out-of-State places of residence; CPG was organized under the laws of Pennsylvania, and the various partnership agreements provided for application of Pennsylvania law. Once New York residents are excluded from the class, almost all New York contacts also are removed. One must question what possible interest New York has in resolution of those claims. I would conclude that the manifest lack of any New York interest in resolution of the non-New York parties’ contract claims, especially when balanced against the burden to be imposed on our courts, provided an ample basis for the exercise of discretion to deny certification. The natural question is why certification was not sought in a State where non-New York claims are clustered.

The administrative burden on our courts will be enormous, with no sum benefits to the residents of our State, resolving legal claims for which New York interest is lacking. At present, the conflicts issue remains unresolved. If further litigation results in a more eclectic approach to these contract claims, numerous hearings will be required on the applicability and requirements of numerous State laws and defenses. The damages of each class member will have to be individually proved. Although this, by itself, likewise would not require denial of class certification, this underscores the hydra-like nature of the putative non-New York class and the excessive burdens that our courts will assume in furtherance of nonresidents asserting claims arising outside of the State. Moreover, the damage claims for each class member, rather then being marginal, as is more typical of class actions and which provides one rationale for certification of a class, tend to be substantial in this case. While this factor by itself might not be dispositive, it further places in doubt the efficacy of certifying this subclass and litigating the matter in New York. Multiple rulings will be necessary to sort out the applicability of the respective Statutes of Limitation and when time periods accrue for each class member. Particularly for the Statutes of Limitation of these numerous States, issues of waiver and estoppel from pleading the defense likely will require litigation. Litigation regarding defenses to contractual liability, and methods of proving damages, whether for a single foreign forum or for numerous foreign forums, in addition to enhancing the predominance of individual claims as noted by the majority, only adds to New York’s litigation burden in this case. Further, to the extent that individual damage awards require an evaluation of particular State tax laws, additional litigation will be necessary to sort out the particular claims, ascertain the applicability of foreign tax laws, evalttate the validity of any foreign tax assessments, and measure damages, potentially employing numerous mini-trials on tax issues alone. Even if some of these many issues ultimately are resolved without undue commitment of judicial resources, the aggregate effect still threatens to impose on our courts an enormous litigation burden for matters that New York has scant, if any, interest.

Finally, it is well established that the findings of the motion court in ruling on proposed class certifications are to be accorded substantial deference (Matter of Colt Indus. Shareholder Litig., 155 AD2d 154, 159, mod 77 NY2d 185). In this case, we should accord that deference with respect to ruling concerning the non-New York plaintiffs.

Ellerin, J. P., Rubin and Andrias, JJ., concur with Mazzarelli, J.; Tom, J., concurs in a separate opinion.

Order, Supreme Court, New York County, entered November 15,1994, affirmed, without costs; order, same court and Justice, entered April 22, 1997, modified, on the law, the facts and in the exercise of discretion, to the extent that the third motion for certification of a class of New York residents only is granted and the sanctions vacated, and otherwise affirmed, without costs; order, same court and Justice, entered April 29, 1997, affirmed, without costs.