Really, the numbers boggle.  Clients collectively lost a $3 Million tax deduction when one of the trustees, without telling anyone else, waived the claim.  A professional malpractice claim followed in 1993 Trust of Joan Cohen v Baum    2017 NY Slip Op 30894(U)  May 2, 2017  Supreme Court, New York County  Docket Number: 150058/2015  Judge: Shirley Werner Kornreich .  Can the defendants seek to push liability onto attorneys?  Not in this case.

“On January 5, 2015, the plaintiffs in the main action, the 1993 Trust of Joan Cohen and the 1993 Trust of Ellen Hakim (collectively, the Trusts), filed a complaint against Baum and his employer, ABA, in which the principal allegation is that Baum, a former2 trustee of the Trusts who provided the Trusts with tax and accounting services, engaged in the ultra vires act of signing, on behalf of each of the Trusts, an IRS Form 870-PT (the Waivers) (Dkt. 63 & 64), which foreclosed the Trust’s ability to contest a particular tax matter with the IRS. To explain, the Trusts are members of Langham, a Delaware LLC that owns a building located at 135 Central Park West. As members of an LLC, the Trusts pay taxes on a pass-through basis. In October 2011, the IRS determined that a May 2005 charitable tax deduction taken by Langham’s members was improper. The deduction related to Langham’s non-cash $86 million charitable contribution of a conservation easement to the National Architectural Trust, which was based on the value of the building’s fa<;:ade being preserved. The Trusts’ respective pro rata deductions were $5,848,000. Langham’s members would go on to challenge the IRS’s position regarding the propriety of their charitable deduction, and in the end, settled for about half of the deduction, without the imposition o_f penalties or interest. In other words, if the Trusts participated in the settlement, they would have been able to maintain a deduction of $2,924,000. ”

“The Trusts, however, were not permitted to participate in the settlement because Baum waived their right to do so by signing the Waivers. The principle issue in the main action is whether Baum had the authority to do so. Baum was one of three trustees. Joan Cohen and Ellen Hakim were the other trustees. It is undisputed that under section 5 of the agreements governing Baum ‘s role as co-trustee, Trust Agreements dated as of February 4, ·1993, Baum lacked the unilateral authority to sign the Waivers; agreement by a majority of the trustees was required. See Dkt. 33 at 13 & Dkt. 34 at 13. It also is undisputed that he signed the Waivers without obtaining such majority consent. Baum, who always prepared and signed the tax returns, did not even notify the other trustees of the IRS’s deficiency notices or that he had received the Waivers, let alone that he intended to sign them.”

“On July 21, 2016, the Baum Parties filed the TPC, which contains two causes of action. See Dkt. 141. The first is a claim that Manocherian, the “Tax Matters Partners of Langham”, 3 breached sundry duties to the Trusts. For instance, Baum complains that Manocherian failed to disclose the IRS ‘s audit of Langham. As explained below, a detailed merits analysis of Manocherian’ s alleged wrongdoing is unwarranted because, even assuming the claims made against him are well pleaded, the Baum Parties lack standing to maintain such claims. Simply put, as a former trustee, Baum has no right to prosecute these derivative claims on behalf of the Trusts. ”

“The Baum Parties’ claims against Manocherian are derivative. They are all based on Manocherian’s duties to Langham as its “Tax Matters Partner”. While the precise meaning of “Tax Matters Partner” is somewhat unclear, there is no dispute (and the court assumes for the purpose of this motion) that Manocherian had contractual and fiduciary duties to Langham and the Trusts with respect to the tax matters he handled on their behalf. A successful claim for breach of such duties would result in recovery going to Langham or the Trusts. Baum, to be clear, was not a beneficiary, and thus a loss suffered by the Trusts is not a loss that affects Baum. Baum, personally, could not recover from Manocherian . “