Kislev Partners, LLP v Sidley LLP  2019 NY Slip Op 31850(U)  June 27, 2019 Supreme Court, New York County Docket Number: 152739/2018 Judge: Saliann Scarpulla is an example of a multi-million dollar tax shelter fraud case in which Plaintiffs waited too long to sue.

“Plaintiffs claim that, in late 2002, they identified a potential real estate project in Lower  Manhattan. They anticipated earning substantial profits on the project, which ultimately resulted in a “16-story residential tower designed by the renowned architect Richard Meier.” To shield themselves from tax liability on those profits, plaintiffs decided to acquire the project property through an entity that possessed embedded tax losses (complaint, ~~ 2, 5).

Plaintiffs were allegedly introduced to the idea of using a tax shelter to acquire the property by Lance Valdez (“Valdez”). Valdez convinced plaintiffs that, rather than acquire the property directly, they should instead assign the right to purchase the property to Valdez and ultimately close through Valdez’s entity, Kislev. “In convincing Plaintiffs that the tax aspects of purchasing Kislev worked, Valdez relied heavily on a pre-prepared Sidley Opinion addressed to Kislev, which exhaustively detailed purported facts surrounding Kislev’s formation and operation” (complaint,~ 5).

With respect to the Sidley opinion letter (the “Opinion Letter”), plaintiffs allege: “In or around July 2001, Valdez and Sidley developed a “Reliance Opinion” addressed to Valdez and entities controlled by Valdez, which opined on the ‘tax bases’ allegedly held by the Valdez entities” (complaint,~ 33). According to plaintiffs, Valdez shared with them the Opinion Letter, which concluded that Kislev had a $142 million tax basis in Euros and that it would incur an ordinary loss in that amount upon sale of the Euros. “Unknown to Plaintiffs, Valdez retained Sidley more than a year and half before the transaction to create the legal opinion for Kislev Partners, which he intended to use to
market to clients at a later date” (complaint, if 5).

Of this alleged scheme between Sidley and Valdez, plaintiffs allege that, unknown to them, but known to Sidley lawyers, the Opinion Letter could not support the supposed tax treatment represented, including in particular the claimed basis in Euros purportedly held by Kislev and sold to plaintiffs. Plaintiffs allege that Valdez provided a copy of the Opinion Letter to them to induce them to pay Valdez the $5,000,000 fee he demanded. Plaintiffs further allege that, at their request, Sidley made various changes to the Opinion Letter, including agreeing to change the addressee of the original Opinion Letter from Valdez to “To Whom It May Concern” at Kislev Partners address.” ”

“”‘The test as to when a plaintiff should have discovered an alleged fraud is an objective one.’ Thus ‘plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which [the fraud] could be reasonably inferred”‘ (Gorelick v Vorhand, 83 AD3d 893, 894 [2d Dept 2011 ]). On a motion to dismiss, the burden is on the defendant to establish that plaintiff discovered the fraud or was on inquiry notice of the fraud more than two years prior to the commencement of the action:
[W]here the circumstances are such as to suggest to a person of ordinary
intelligence the probability that he has been defrauded, a duty of inquiry
arises, and if he omits that inquiry when it would have developed the truth,
and shuts his eyes to the fact which call for investigation, knowledge of the
fraud will be imputed to him.
(Aozara Bank, Ltd. V Credit Suisse Group, 144 AD3d 437, 438 [1st Dept 2016][intemal
quotation marks and citations omitted]).

“A court may find that plaintiffs were on inquiry notice where there is information concerning the fraudulent acts available to the plaintiffs in the public domain (Aldrich v March & McLennan Cos., Inc., 52 AD3d 435, 436 [1st Dept 2008][“a finding that plaintiffs were on inquiry notice of the alleged fraud … is supported by the extensive information that was available to plaintiffs in the public domain. Such information included the lawsuits commenced in the early 1980’s … involving nondisclosure of material information”).

Moreover, plaintiffs, according to their own submissions, had actual notice of the alleged fraud in September 2012 when they settled with the IRS. It was not until December of 2014, more than two years later, that the parties entered into the tolling agreement. Plaintiffs commenced this action in March of2018. Thus, under either standard of actual or inquiry notice, plaintiffs’ fraud;.. based claims are time-barred.

Like the fraud-based claims, plaintiffs’ unjust enrichment claim is barred by the applicable statutes oflimitations. Accordingly, I grant Sidley’s motion to dismiss, pursuant to CPLR 3211 (a) (5) and dismisses the complaint in its entirety as against it.”

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Andrew Lavoott Bluestone

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened…

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened his private law office and took his first legal malpractice case.

Since 1989, Bluestone has become a leader in the New York Plaintiff’s Legal Malpractice bar, handling a wide array of plaintiff’s legal malpractice cases arising from catastrophic personal injury, contracts, patents, commercial litigation, securities, matrimonial and custody issues, medical malpractice, insurance, product liability, real estate, landlord-tenant, foreclosures and has defended attorneys in a limited number of legal malpractice cases.

Bluestone also took an academic role in field, publishing the New York Attorney Malpractice Report from 2002-2004.  He started the “New York Attorney Malpractice Blog” in 2004, where he has published more than 4500 entries.

Mr. Bluestone has written 38 scholarly peer-reviewed articles concerning legal malpractice, many in the Outside Counsel column of the New York Law Journal. He has appeared as an Expert witness in multiple legal malpractice litigations.

Mr. Bluestone is an adjunct professor of law at St. John’s University College of Law, teaching Legal Malpractice.  Mr. Bluestone has argued legal malpractice cases in the Second Circuit, in the New York State Court of Appeals, each of the four New York Appellate Divisions, in all four of  the U.S. District Courts of New York and in Supreme Courts all over the state.  He has also been admitted pro haec vice in the states of Connecticut, New Jersey and Florida and was formally admitted to the US District Court of Connecticut and to its Bankruptcy Court all for legal malpractice matters. He has been retained by U.S. Trustees in legal malpractice cases from Bankruptcy Courts, and has represented municipalities, insurance companies, hedge funds, communications companies and international manufacturing firms. Mr. Bluestone regularly lectures in CLEs on legal malpractice.

Based upon his professional experience Bluestone was named a Diplomate and was Board Certified by the American Board of Professional Liability Attorneys in 2008 in Legal Malpractice. He remains Board Certified.  He was admitted to The Best Lawyers in America from 2012-2019.  He has been featured in Who’s Who in Law since 1993.

In the last years, Mr. Bluestone has been featured for two particularly noteworthy legal malpractice cases.  The first was a settlement of an $11.9 million dollar default legal malpractice case of Yeo v. Kasowitz, Benson, Torres & Friedman which was reported in the NYLJ on August 15, 2016. Most recently, Mr. Bluestone obtained a rare plaintiff’s verdict in a legal malpractice case on behalf of the City of White Plains v. Joseph Maria, reported in the NYLJ on February 14, 2017. It was the sole legal malpractice jury verdict in the State of New York for 2017.

Bluestone has been at the forefront of the development of legal malpractice principles and has contributed case law decisions, writing and lecturing which have been recognized by his peers.  He is regularly mentioned in academic writing, and his past cases are often cited in current legal malpractice decisions. He is recognized for his ample writings on Judiciary Law § 487, a 850 year old statute deriving from England which relates to attorney deceit.