Donald Kipnis v. Bayerische Hypo-UND Vereinsbank, AG , 784 F.3d 771 ( 2015 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-11959
________________________
D.C. Docket No. 1:13-cv-23998-CMA
DONALD KIPNIS,
LAWRENCE KIBLER,
BARRY E. MUKAMAL
As Chapter 7 Trustee of the Estate of Donald Kipnis,
KENNETH A. WELT
As Chapter 7 Trustee of the Estate of Lawrence Kibler,
Plaintiffs-Appellants,
versus
BAYERISCHE HYPO-UND VEREINSBANK, AG,
a corporation,
a.k.a. Unicredit Bank AG,
HVB U.S. FINANCE, INC.,
a.k.a. Unicredit U.S. Finance, Inc.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(April 17, 2015)
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Before HULL, BLACK and MELLOY, ∗ Circuit Judges.
PER CURIAM:
In this diversity case, plaintiffs-appellants Donald Kipnis and Lawrence
Kibler (collectively, “Plaintiffs”), along with plaintiffs-appellants Barry Mukamal
and Kenneth Welt,1 appeal the district court’s Federal Rule of Civil Procedure
12(b)(6) dismissal of their complaint against defendants-appellees Bayerische
Hypo-Und Vereinsbank, AG and HVB U.S. Finance, Inc. (collectively, “HVB”) as
barred by the applicable statutes of limitations. After review and oral argument,
we certify a question to the Florida Supreme Court as outlined below.
I. BACKGROUND
This appeal arises out of the parties’ participation in an income tax shelter
scheme known as a Custom Adjustable Rate Debt Structure (“CARDS”)
transaction. In short, Plaintiffs alleged that HVB and its co-conspirators defrauded
Plaintiffs by promoting and selling CARDS for their own financial gain.
A. 2001 Introduction to CARDS
∗
Honorable Michael J. Melloy, United States Circuit Judge for the Eighth Circuit, sitting
by designation.
1
On January 21, 2014, Kipnis filed a Chapter 13 bankruptcy petition, which he converted
to a Chapter 7 case on February 6, 2014. On May 1, 2014, the district court granted Barry
Mukamal’s motion, as the Chapter 7 Trustee, to be substituted for Kipnis in the action. Kibler
filed a Chapter 7 bankruptcy petition on January 13, 2015. On March 20, 2015, this Court
granted Kenneth Welt’s motion, as the Chapter 7 Trustee, to be substituted for Kibler in the
action.
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Plaintiffs are owners of Miller & Solomon General Contractors, Inc.
(“M&S”), one of the largest general contractors in south Florida. In 1999, M&S
lost over $3 million, which substantially reduced its working capital just as south
Florida was entering a construction boom. Plaintiffs sought to increase M&S’s
bonding capacity in anticipation of the construction boom, but were unable to
secure the desired long-term financing from conventional bank sources.
Michael DeSiato was both Plaintiffs’ and M&S’s accountant. In 2000,
DeSiato was introduced to Roy Hahn of Chenery Associates, Inc. (“Chenery”), a
financial and tax services boutique that developed and promoted CARDS
transactions. DeSiato told Plaintiffs that CARDS was the type of financing that
could increase M&S’s bonding capacity and provide tax benefits that would flow
to Plaintiffs. Starting in 2000, Chenery and HVB marketed the CARDS strategy to
Plaintiffs.
Plaintiffs analyzed CARDS to determine whether implementing the strategy
would allow M&S to participate in more construction projects. However,
Plaintiffs did not examine the various steps in a CARDS transaction and neither
Plaintiffs nor DeSiato fully understood the complicated procedures involved.
Instead, Plaintiffs relied on the reputations of HVB and Sidley Brown & Wood
LLP (“Sidley”), a law firm that had prepared an opinion letter representing
CARDS as an economically substantive strategy that would pass IRS scrutiny.
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B. CARDS Transactions, Generally
CARDS transactions are designed to create the appearance of a tax loss
without any actual economic loss. A CARDS transaction has three steps.
In the first step, a Delaware limited liability company (“LLC”) is formed to
serve as the borrower. The borrower LLC is comprised entirely of foreign
members to avoid being subject to U.S. taxation. Once formed, the borrower LLC
obtains a euro-denominated loan from an international bank. The borrower LLC
then purchases two certificates of deposit (“CDs”) from the lending bank—one
with 85% of the loan proceeds and the other with 15% of the loan proceeds. The
loan proceeds, in the form of the two CDs, are immediately pledged to the lending
bank as collateral for the loan.
In the second step, the CARDS customer buys the smaller, 15% CD from the
borrower LLC. In exchange, the CARDS customer assumes joint and several
liability for the full value of the loan and agrees to pay 100% of the loan principal
when the loan reaches its maturation date. In the third step, the CARDS customer
converts the 15% euro-denominated CD into U.S. dollars, which the customer then
gives back to the lending bank as collateral for the loan. In the absence of other
acceptable collateral, the money never leaves the custody and control of the
lending bank.
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This currency exchange is a taxable event generating tax benefits. To
achieve the benefits, the CARDS customer claims that his cost basis in the
exchanged currency is the entire loan amount—not just the 15% portion he
actually received from the borrower LLC. This discrepancy creates a tax loss of
85% of the original loan amount, which is used to offset ordinary income.
However, because both the 85% and 15% CDs are held by the lending bank and
are used to repay the loan, the paper loss created by the currency exchange is
illusory.
C. Plaintiffs’ CARDS Transaction: December 2000–December 2001
Plaintiffs’ CARDS transaction, which commenced on December 5, 2000,
and terminated on December 5, 2001, worked as follows. HVB, a large German
bank, served as the lender. Wimbledon Financial Trading LLC (“Wimbledon”),
formed on October 11, 2000, by two United Kingdom citizens, served as the
borrower.
On December 5, 2000, Wimbledon entered into a credit agreement with
HVB, in which HVB agreed to lend Wimbledon €6,700,000 over a 30-year term
with interest. On the same day, Wimbledon requested that HVB transfer the
€6,700,000 to Wimbledon’s HVB account. Wimbledon issued a promissory note
to HVB for €6,700,000, maturing on December 5, 2030, and HVB credited
Wimbledon the same amount. Wimbledon then pledged all of its holdings at HVB
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as collateral. Also on December 5, 2000, Wimbledon purchased an HVB time
deposit in the amount of €5,679,792, maturing on December 5, 2001.
On December 21, 2000, Wimbledon and Plaintiffs entered into a purchase
agreement and an assumption agreement. Under the purchase agreement,
“Wimbledon sold each Plaintiff a portion of the [loan] in the form of a term deposit
in the amount of €520,500 (for a total of [€]1,005,000), plus accrued interest, held
in Wimbledon’s pledged HVB account.” The term deposits, which amounted to
15% of the €6,700,000 loan, were transferred to Plaintiffs’ HVB account on
December 27, 2000. As part of the purchase agreement, Plaintiffs assumed joint
and several liability “for all obligations under the [credit agreement] not covered
by Wimbledon’s collateral.”
Under the assumption agreement, Plaintiffs assumed joint and several
liability for Wimbledon’s obligations, including repayment of the entire
€6,700,000 loan. As collateral, Plaintiffs pledged all of their right, title, and
interest in the accounts and instruments they held with HVB, as well as all
proceeds thereof.
With these agreements in place, Wimbledon, HVB, and Plaintiffs took the
following steps to execute the assumption of the loan. On December 21, 2000,
Plaintiffs wired HVB a total of $1,198,000 to buy three time deposits maturing on
December 5, 2001. On December 27, 2000, HVB transferred the €1,005,000
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referenced in the purchase agreement between Plaintiffs and Wimbledon into
Plaintiffs’ HVB account. Also on December 27, 2000, HVB exchanged €733,750
of the €1,005,000 it had credited to Plaintiffs for $682,387.50, at a rate of 0.93 U.S.
dollars to the euro. On January 11, 2001, HVB exchanged the remaining €271,250
for $256,331.25, at a rate of 0.945 U.S. dollars to the euro.
After Plaintiffs deposited $1,198,000 with HVB, HVB allowed M&S to
withdraw $1,037,680 of the loan proceeds to use as it wished. On January 11,
2001, Plaintiffs began using the withdrawn loan proceeds. Specifically, Plaintiffs
wired (1) $382,000 in fees from their HVB account to an account held by Chenery
(as the promoter of the CARDS transaction) 2 and (2) $556,718.75 to M&S’s
account at Mellon Bank.
On November 13, 2001, less than one year after initiation of the CARDS
transaction, HVB informed Plaintiffs that full repayment of the loan was due on
December 5, 2001. HVB did so despite its prior representations that it would
maintain the loan for 30 years. On December 5, 2001, the mandatory repayment
date, Plaintiffs’ deposits at HVB were converted to the euro at the December 22,
2000 exchange rate. Had the December 5, 2001 exchange rate been applied
instead, Plaintiffs would have made a profit of $70,200 from the currency
2
Plaintiffs’ complaint fails to allege or approximate the dates that they paid the fees to the
CARDS Dealers, other than the wire transfer to Chenery on January 11, 2001. As the district
court pointed out, however, all fees would necessarily have been paid no later than the
termination of the CARDS transaction on December 5, 2001.
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exchange. Plaintiffs’ CARDS transaction closed on December 5, 2001, once all of
the borrowed money was repaid with the pledged collateral.
D. HVB Publicly Admits Fault: February 2006
CARDS transactions and their providers, such as HVB, have been the
subject of investigation by federal authorities. 3 As a result of its involvement in
CARDS, HVB was charged with participating in a conspiracy to defraud the
United States, to commit tax evasion, and to make false and fraudulent tax returns.
On February 13, 2006, HVB entered into a deferred prosecution agreement
(“DPA”) with the U.S. Department of Justice. HVB admitted that, between 1996
and 2003, it assisted tax evasion by U.S. citizens by participating in and
implementing fraudulent tax shelter transactions, including CARDS. HVB
acknowledged that “the documentation used to implement CARDS . . . falsely
stated that the loans were 30-year loans whereas, in truth and fact, as HVB and
other participants knew and understood, they were loans of approximately one year
in duration.” HVB admitted that “CARDS transactions . . . involved false
representations” and “had no purpose other than generating tax benefits for the
clients involved.”
3
The Internal Revenue Service (“IRS”) has issued several notices concerning CARDS
transactions. In March 2002, the IRS issued a notice warning taxpayers against claiming tax
benefits through CARDS shelters, because such benefits would be subject to penalties. See
I.R.S. Notice 2002-21, 2002-1 C.B. 730. On October 28, 2005, the IRS offered a settlement
initiative whereby taxpayers could pay a reduced penalty by relinquishing their CARDS-related
tax benefits. See I.R.S. Announcement 2005-08, 2005-2 C.B. 967. Plaintiffs did not allege they
participated in this 2005 settlement initiative.
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As part of the DPA, HVB agreed to pay the United States $29,635,125,
which included disgorgement of $16,195,999 in fees HVB had collected from its
tax shelter activities, restitution to the IRS, and civil penalties. Given HVB’s
admissions in the 2006 DPA, the CARDS strategy could never have withstood IRS
scrutiny.
E. 2007 Notices of Deficiency and Tax Court Petitions
On October 4, 2007, the IRS issued notices of deficiency to Plaintiffs. The
IRS informed Plaintiffs that the CARDS transaction they had engaged in lacked
economic substance and that the tax benefits they had claimed on their 2000 and
2001 federal tax returns were being disallowed. Specifically, the IRS assessed tax
deficiencies against (1) Kipnis of $650,914 for 2000 and $346,495 for 2001 and (2)
Kibler of $629,361 for 2000 and $351,973 for 2001.
On December 31, 2007, Plaintiffs filed petitions in the tax court, challenging
the IRS’s deficiency determination. Plaintiffs argued to the tax court that they
entered into the CARDS transaction primarily for nontax reasons, namely, to
obtain funds to transfer to their contractor company M&S to increase M&S’s
bonding capacity.
The tax court denied the IRS summary judgment based on a dispute of
material fact as to whether Plaintiffs had a nontax business purpose for the CARDS
transaction.
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F. November 2012 Tax Court Decision
On November 1, 2012, following a three-day trial, the U.S. tax court issued
a decision in favor of the IRS. See Kipnis & Kibler v. Comm’r, 104 T.C.M.
(CCH) 530 (2012). The tax court concluded, inter alia, that Plaintiffs’ CARDS
transaction “lacked economic substance” and that Plaintiffs “did not have a
business purpose for entering into” it. Id.
G. November 2013 Complaint
On November 4, 2013, nearly 12 years after defendant HVB terminated their
CARDS transaction on December 5, 2001, Plaintiffs filed a diversity complaint
against HVB in the U.S. District Court for the Southern District of Florida.
The complaint raised seven claims arising out of defendant HVB’s
participation in Plaintiffs’ CARDS transaction: violation of the Florida Civil
Racketeer Influenced and Corrupt Organization (“RICO”) statute (Count 1),
common law fraud (Count 2), aiding and abetting Sidley’s and Chenery’s fraud
(Count 3), conspiracy to commit fraud (Count 4), breach of fiduciary duty (Count
5), aiding and abetting Sidley’s and Chenery’s breaches of fiduciary duty (Count
6), and negligent supervision of employees and executives (Count 7).
Plaintiffs alleged that defendant HVB and its employees conspired with
Chenery, Sidley, and other individuals and entities (collectively, “CARDS
Dealers”) to perpetuate a fraudulent tax shelter scheme on thousands of their
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clients, including Plaintiffs. According to Plaintiffs, HVB knew that the scheme
would not withstand IRS scrutiny and that CARDS transactions were “nothing
more than illegal tax shelters” that Chenery and HVB “developed and implemented
. . . for the sole purpose of generating unconscionable fees.” Plaintiffs contended
that they were fraudulently induced to enter the CARDS transaction and did so in
reliance on the reputations of the CARDS Dealers involved, including HVB.
Defendant HVB allegedly “owed Plaintiffs fiduciary duties by virtue of [its]
role as Plaintiffs’ lender, its superior knowledge of the CARDS transaction, the
control HVB retained over Plaintiffs’ accounts . . . and the trust and confidence
that . . . Plaintiffs reposed in HVB.” HVB purportedly breached these fiduciary
duties by concealing material information, committing fraud, and advising
Plaintiffs to enter into the CARDS transaction. According to Plaintiffs, HVB made
several misrepresentations, including that it intended to maintain the loans for 30
years.
Plaintiffs “paid a heavy price in damages” as a result of HVB’s wrongdoing,
including “substantial fees (and interest payments)” they paid HVB and other
CARDS Dealers to participate in the CARDS strategy and “hundreds of thousands
of dollars in ‘clean-up’ costs” they incurred after HVB failed to advise them to
amend their tax returns.
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Consequently, Plaintiffs sought to recover the “damages that reasonably
flow” from HVB’s misconduct. These damages included fees they paid to HVB
and other CARDS Dealers, attorney’s fees and accountant’s fees incurred in
litigating against the IRS, back taxes and interest paid by Plaintiffs, punitive
damages, treble damages, and attorney’s fees and costs incurred in the instant
action.
H. Dismissal of Complaint
On January 10, 2014, defendant HVB moved to dismiss the complaint,
pursuant to Rule 12(b)(6). HVB argued that all of Plaintiffs’ claims were barred
by Florida’s four- and five-year statutes of limitations. Even assuming Plaintiffs’
claims were timely filed, the complaint failed to sufficiently allege claims for
relief.
On April 3, 2014, the district court granted defendant HVB’s motion to
dismiss the complaint as barred by the statutes of limitations. Liberally applying
Florida’s delayed discovery rule, 4 the district court found that “the various IRS
notices regarding tax shelters and CARDS transactions, [HVB’s admissions in] the
DPA, and the IRS Notices of Deficiency should have alerted Plaintiffs, through the
exercise of due diligence, to all of the facts giving rise to Plaintiffs’ claims in this
4
The district court acknowledged that Plaintiffs expressly disclaimed reliance on the
delayed discovery rule. However, because the rule was relevant to Plaintiffs’ fraud-based claims
and civil RICO claim, and each of Plaintiffs’ claims arose from the same wrongful conduct, the
district court assumed the applicability of the delayed discovery rule to all of Plaintiffs’ claims.
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lawsuit, including that the various transaction fees Plaintiffs paid to HVB and the
other CARDS Dealers were wrongfully obtained.”
The district court found that Plaintiffs’ claims accrued no later than
December 31, 2007, when Plaintiffs filed their petitions in the tax court. Plaintiffs
had until December 31, 2011, to timely file their fraud, conspiracy, breach of
fiduciary duty, aiding and abetting breach of fiduciary duty, and negligent
supervision claims, and until December 31, 2012, to timely file their Florida civil
RICO claim. Because Plaintiffs did not file the complaint until November 4, 2013,
all of their claims were time-barred.
The district court rejected Plaintiffs’ argument that their claims did not
accrue until November 1, 2012, because they did not sustain any damages until the
tax court issued its final decision. By December 5, 2001—Plaintiffs’ mandatory
repayment date—Plaintiffs had sustained part of the damages they sought to
recover, including the fees they paid to HVB.
The district court found Plaintiffs’ reliance on the Florida Supreme Court’s
decision in Peat, Marwick, Mitchell & Co. v. Lane, 565 So. 2d 1323 (Fla. 1990), to
be misplaced. Peat, Marwick, which involved accrual of the limitations period in
an accounting malpractice action, was wholly distinguishable and limited to
professional malpractice claims (which Plaintiffs had not alleged). Accordingly,
the district court dismissed Plaintiffs’ complaint as time-barred.
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This appeal followed.
II. STANDARD OF REVIEW
We review de novo the district court’s grant of a Rule 12(b)(6) motion to
dismiss for failure to state a claim, accepting the allegations in the complaint as
true and construing them in the light most favorable to the plaintiff. Fuller v.
SunTrust Banks, Inc., 744 F.3d 685, 687 n.1 (11th Cir. 2014). The district court’s
interpretation and application of the statute of limitations is also reviewed de novo.
Ctr. for Biological Diversity v. Hamilton, 453 F.3d 1331, 1334 (11th Cir. 2006).
III. DISCUSSION
The parties agree that Florida law controls the sole issue in this appeal: when
did Plaintiffs’ claims against HVB accrue for purposes of the statutes of
limitations. We set forth the relevant Florida law before outlining the parties’
contentions on appeal. We then state the certified question.
A. Florida Accrual Rules
Absent statutory tolling or another exception, the Florida statute of
limitations begins to run from the time the cause of action accrues. Fla. Stat.
§ 95.031. “A cause of action accrues when the last element constituting the cause
of action occurs.” Id. § 95.031(1). In other words, “a cause of action cannot be
said to have accrued . . . until an action may be brought.” State Farm Mut. Auto.
Ins. Co. v. Lee, 678 So. 2d 818, 821 (Fla. 1996).
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There is a statutory exception to Florida’s general rule that a cause of action
accrues upon occurrence of its last element. This “delayed discovery” exception
operates to postpone accrual “until the plaintiff either knows or reasonably should
know of the tortious act giving rise to the cause of action.” Hearndon v. Graham,
767 So. 2d 1179, 1184 (Fla. 2000); see Davis v. Monahan, 832 So. 2d 708, 709-10
(Fla. 2002) (holding that the only statutory bases for the delayed discovery rule
apply to fraud, products liability, professional and medical malpractice, and
intentional torts based on abuse).
In relevant part, “[a]n action founded upon fraud” accrues when “the facts
giving rise to the cause of action were discovered or should have been discovered
with the exercise of due diligence.” Fla. Stat. § 95.031(2)(a). In any event, claims
founded upon fraud must be brought “within 12 years after the date of the
commission of the alleged fraud, regardless of the date the fraud was or should
have been discovered.” Id.
In addition, under Florida law, a cause of action generally accrues upon the
first injury caused by another’s wrongful act:
[W]here an injury, although slight, is sustained in consequence of the
wrongful act of another, and the law affords a remedy therefor, the
statute of limitations attaches at once. It is not material that all the
damages resulting from the act shall have been sustained at that time
and the running of the statute is not postponed by the fact that the
actual or substantial damages do not occur until a later date.
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City of Miami v. Brooks, 70 So. 2d 306, 308 (Fla. 1954); see also Hynd v. Ireland,
582 So. 2d 772, 773 (Fla. Dist. Ct. App. 1991) (“[I]t is immaterial that not all the
damages resulting from [the defendant’s] alleged fraud had then been sustained.
Clearly, damage actually occurred . . . and the [plaintiff] had more than the mere
possibility of future damage.”). 5
B. Peat, Marwick: Accrual of Professional Malpractice Claims
In Peat, Marwick, the Florida Supreme Court resolved the issue of “whether
the commencement of the [two-year] limitations period in an accounting
malpractice action relating to income tax preparation occurs with the receipt of a
[notice of deficiency] or with the conclusion of the appeals process, under
circumstances where the accountant disagrees with the IRS’s determination.” 565
So. 2d at 1325. Based on their accountant’s recommendations, the plaintiffs in
Peat, Marwick had claimed certain deductions for which the IRS subsequently
issued a notice of deficiency. Following their accountant’s advice, the plaintiffs
challenged the IRS’s determination in tax court. After the tax court entered
judgment against the plaintiffs, they filed a malpractice action against their
accountant. Id. at 1324-25.
5
“As this is a diversity case, in the absence of a controlling decision from the Florida
Supreme Court, we are obligated to follow decisions from the Florida intermediate appellate
courts unless there is some persuasive indication that the Supreme Court would decide the case
differently.” Raie v. Cheminova, Inc., 336 F.3d 1278, 1280 (11th Cir. 2003).
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Both the plaintiffs and their accountant believed that the accounting advice
was correct until the tax court issued its adverse decision. “[C]onsequently, there
was no injury” until that time. Id. at 1326; see also id. at 1325 (noting that “a
cause of action for legal malpractice does not accrue until the underlying legal
proceeding has been completed on appellate review because, until that time, one
cannot determine if there was any actionable error by the attorney”). If the IRS’s
notice of deficiency conclusively established the requisite injury, the plaintiffs
would have had to file their malpractice action at the same time they were
challenging the IRS’s determination in their tax court appeal. Id. at 1326. The
Florida Supreme Court reasoned that it was illogical to require the plaintiffs to
assert “two legally inconsistent positions . . . to maintain a cause of action for
professional malpractice.” Id.
Accordingly, the Florida Supreme Court held that, “under the circumstances
of this case, where the accountant did not acknowledge error, the limitations period
for accounting malpractice commenced when the United States Tax Court entered
its judgment.” Id. at 1327.
The Florida Supreme Court revisited Peat, Marwick in Blumberg v. USAA
Casualty Ins. Co., 790 So. 2d 1061 (Fla. 2001). The insured in Blumberg sued his
insurance company to establish his entitlement to insurance coverage and later
sued his insurance agent for negligent failure to procure valid coverage. Id. at
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1063. The issue was the accrual of the insured’s claim against the insurance agent,
which the Florida Supreme Court characterized as analogous to the malpractice
claim in Peat, Marwick. Id. at 1065 & n.3.
The Florida Supreme Court explained the logic behind Peat, Marwick was
“that a client should not be forced to bring a claim against an accountant prior to
the time that the client incurred damages. A rule that would mandate simultaneous
suits would hinder the defense of the underlying claim and prematurely disrupt an
otherwise harmonious business relationship.” Id. at 1065. Consistent with Peat,
Marwick, the Florida Supreme Court held that “in the circumstances presented
here, a negligence/malpractice cause of action [against the agent] accrues when the
client incurs damages at the conclusion of the related or underlying judicial
proceedings” against the insurance company. Id.
The Florida Supreme Court, however, has cautioned against construing the
holding in Peat, Marwick, a professional malpractice case, too broadly:
Peat, Marwick does not articulate a rule that the running of the statute
of limitations for professional malpractice is held in abeyance until the
conclusion of any collateral litigation in which the client might assert
a position inconsistent with the malpractice claim. Such a rule could
not be reconciled with the commencement point—“the time the cause
of action is discovered or should have been discovered”—established
[by statute].
Larson & Larson, P.A. v. TSE Indus., Inc., 22 So. 3d 36, 44 (Fla. 2009). We also
note that Florida courts have declined to extend malpractice-specific rules to other
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causes of action. See, e.g., Nale v. Montgomery, 768 So. 2d 1166, 1167-68 (Fla.
Dist. Ct. App. 2000) (plaintiffs “cannot rely on malpractice cases to establish
accrual of a cause of action and then apply it to a common law negligence action”).
C. Applicable Statutes of Limitations
Here, Plaintiffs brought claims for violation of Florida’s RICO statute
(Count 1), common law fraud (Count 2), aiding and abetting fraud (Count 3),
conspiracy to commit fraud (Count 4), breach of fiduciary duty (Count 5), aiding
and abetting breach of fiduciary duty (Count 6), and negligent supervision (Count
7).
Under Florida law, all of Plaintiffs’ claims, except for the civil RICO claim
in Count 1, are governed by a four-year statute of limitations. See Fla. Stat.
§ 95.11(3)(a), (j), (p) (prescribing four years for actions “founded on negligence,”
actions “founded on fraud,” and any actions “not specifically provided for in these
statutes”). The statute of limitations for Plaintiffs’ civil RICO claim is five years.
See id. § 772.17.
In accordance with the general accrual rule, Plaintiffs’ claims for conspiracy,
breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and
negligent supervision accrued when they suffered damages. See id. § 95.031(1)
(“A cause of action accrues when the last element constituting the cause of action
occurs.”); Olson v. Johnson, 961 So. 2d 356, 360 (Fla. Dist. Ct. App. 2007) (“A
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conspiracy cause of action accrues when the plaintiff suffers damages as a result of
the acts performed pursuant to the conspiracy.”); Kelly v. Lodwick, 82 So. 3d 855,
857 (Fla. Dist. Ct. App. 2011) (“The last element constituting a cause of action for
negligence or breach of fiduciary duty is the occurrence of damages.”).
In accordance with the statutory exception for delayed discovery, Plaintiffs’
claims for fraud and aiding and abetting fraud accrued when they knew or should
have known that they suffered damages. See Fla. Stat. § 95.031(2)(a); Davis, 832
So. 2d at 709 (claim accrues when the plaintiff “either knows or should know that
the last element of the cause of action occurred”); see also Thompkins v. Lil’ Joe
Records, Inc., 476 F.3d 1294, 1315 (11th Cir. 2007) (listing the four elements of a
fraud claim under Florida law, including “consequent injury to the party acting in
reliance” on the false representation).
We also assume, without deciding, that Plaintiffs’ civil RICO claim accrued
“when the injury was or should have been discovered.” See Lehman v. Lucom,
727 F.3d 1326, 1330 (11th Cir. 2013) (quotation marks omitted); Jackson v.
BellSouth Telecomms., 372 F.3d 1250, 1263-64 (11th Cir. 2004) (interpretation of
Florida’s civil RICO statute is informed by case law interpreting the federal RICO
statute).
D. Contentions of the Parties
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The parties’ primary dispute on appeal concerns the date that Plaintiffs first
suffered an injury in this case.
1. Plaintiffs
Plaintiffs argue that they suffered no cognizable injury until the final
resolution of the tax case. Thus, their claims did not accrue until the tax court
issued its final decision on November 1, 2012. According to Plaintiffs, fees and
costs are not “inherently injurious” under Florida law. The CARDS fees and costs
they paid in 2001 to obtain economic benefits and tax savings did not become
redressable injuries until the tax court’s adverse ruling. Had the CARDS shelter
been upheld by the tax court or never challenged, Plaintiffs would have had no
claim for fees or tax penalties and would have suffered no injury. Because HVB’s
admissions of wrongdoing were not dispositive of Plaintiffs’ tax liability, Plaintiffs
would have no claim against HVB if they had prevailed in the tax court.
Plaintiffs rely on Peat, Marwick and Blumberg for the proposition that a
taxpayer’s claims relating to an illegal tax shelter do not accrue until the taxpayer’s
underlying dispute with the IRS is final. Specifically, the operative accrual date is
when the tax court enters final judgment, rather than when the IRS issues a notice
of deficiency. Unless the tax court upholds the deficiency, the taxpayer has not
been injured. Rather, the taxpayer received exactly what he bargained for—advice
and implementation of a tax strategy in exchange for a fee. The district court’s
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decision places Florida tax shelter fraud victims in an “impossible situation” where
suits brought prior to the tax court determination are premature but suits filed after
are untimely.
Plaintiffs contend that the district court erred by limiting the dispositive rule
in Peat, Marwick to (1) professional malpractice claims or (2) situations involving
a continuing harmonious relationship between the parties. Florida law is clear that,
both in malpractice and non-malpractice cases, a claim accrues only upon actual
injury, not merely potential injury. Moreover, the policy considerations underlying
Peat, Marwick apply here. As in Peat, Marwick, Plaintiffs did not suffer any
cognizable injury until the tax court upheld the deficiency, and should not be
required to assert “two legally inconsistent positions” at the same time. Because
the existence of a harmonious relationship is unnecessary, HVB’s admissions of
wrongdoing and Plaintiffs’ knowledge thereof do not change the date of actual
injury.
Plaintiffs argue that, to the extent the district court focused on HVB’s
admissions in the 2006 DPA as a basis for accrual, upholding the district court’s
ruling would result in the same claim accruing against different defendants at
different times based on the defendants’ public statements or admissions. This
result is inconsistent with Florida law’s preference for “bright-line” accrual rules,
which promote certainty in applying statutes of limitations. The district court’s
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admissions-focused, “defendant-by-defendant” accrual rule also conflicts with
Florida law’s “injury-by-injury” formula for calculating accrual.
2. HVB
On the other hand, HVB argues that Plaintiffs’ claims are time-barred
because they accrued no later than December 5, 2001, when Plaintiffs incurred part
of the damages they seek to recover. By their own admission in the complaint,
Plaintiffs first suffered actual injury in 2001 when they paid “unconscionable fees”
for a long-term CARDS loan that HVB terminated prematurely. This early
termination deprived Plaintiffs of the long-term financing they sought to increase
M&S’s bonding capacity, which was the legitimate “business purpose” they
alleged under oath to the tax court. Under Florida’s settled “first injury” rule,
Plaintiffs’ claims accrued in 2001, when they first suffered injury that was neither
hypothetical nor speculative.
HVB contends that Peat, Marwick, an accountant malpractice case, is
expressly limited to claims for professional malpractice. Plaintiffs here did not—
and could not—assert any malpractice claims against HVB, which are subject to
Florida’s two-year statute of limitations (rather than the four- and five-year periods
applicable to Plaintiffs’ claims). Courts have never applied the malpractice accrual
rule announced in Peat, Marwick outside of the malpractice context, and there is no
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legal or logical basis for the unprecedented expansion of Florida law sought by
Plaintiffs.
HVB argues that the policy concerns behind Peat, Marwick are inapplicable
here. In a malpractice action like Peat, Marwick, the existence of an injury is
speculative until the entry of a final judgment adverse to the client, because only
then can one determine if the professional committed any actionable error. In
contrast, the existence of the injury Plaintiffs alleged they suffered in 2001 was not
contingent on the outcome of the tax court case. Plaintiffs would not be required
to take directly contrary positions, as they acknowledge that HVB’s admitted
conduct was not dispositive of their tax liability. Furthermore, this case does not
implicate the policy concern of protecting client–professional relationships from
needless lawsuits.
Plaintiffs’ argument that the district court adopted a “defendant-by-
defendant” accrual rule mischaracterizes the district court’s order, which had no
occasion to consider when claims accrued against non-existent other defendants.
The argument also relies on the faulty premise that Peat, Marwick applies to
Plaintiffs’ claims, which it does not. To the extent it remains viable, the supposed
“bright-line” rule referred to by Plaintiffs has never been applied to a non-
malpractice claim.
IV. CERTIFICATION
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It is not clear under Florida law when Plaintiffs first suffered injury, and thus
when their claims against HVB accrued for purposes of the applicable statutes of
limitations. Because the relevant facts are undisputed, and this appeal depends
wholly on interpretations of Florida law regarding the statute of limitations, we
certify the following question to the Florida Supreme Court:
UNDER FLORIDA LAW AND THE FACTS IN THIS CASE, DO THE
CLAIMS OF THE PLAINTIFF TAXPAYERS RELATING TO THE CARDS
TAX SHELTER ACCRUE AT THE TIME THE IRS ISSUES A NOTICE OF
DEFICIENCY OR WHEN THE TAXPAYERS’ UNDERLYING DISPUTE
WITH THE IRS IS CONCLUDED OR FINAL?
The phrasing of this certified question is not intended to restrict the Supreme
Court’s consideration of the issues or the manner in which the answers are given.
To assist the Supreme Court’s consideration of this case, the entire record and the
parties’ briefs shall be transmitted to the Florida Supreme Court.
QUESTION CERTIFIED.
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