Opinion
Case No. 02-81166-CIV-RYSKAMP/VITUNAC
September 10, 2003
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS
THIS CAUSE comes before the Court pursuant to a series of motions to dismiss. Plaintiff Peter T. Loftin ("Loftin"), filed an action pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO") 18 U.S.C. § 1962 et seq. and common law against Defendants on the grounds that Defendants fraudulently advised him to participate in tax-avoidance strategies currently under IRS review.
KPMG LLP ("KPMG") moved to dismiss on May 6, 2003 [DE 45]. Loftin responded on June 13, 2003 [DE 91]. KPMG replied on June 30, 2003 [DE 106]. Presidio Growth, LLC ("Presidio") has joined KPMG's motion to dismiss.
QA Investments LLC ("QA") moved to dismiss the complaint on May 6, 2003 [DE 39]. Loftin responded on June 13, 2003 [DE 92]. QA replied on June 27, 2003 [DE 103]. QA joins the other Defendants' motions to dismiss to the extent applicable.
Quellos Group LLC ("Quellos") moved to dismiss the complaint on May 6, 2003 [DE 42]. Loftin responded on June 13, 2003 [DE 93]. Quellos replied on June 27, 2003 [DE 102]. Quellos joins the other Defendants' motions to dismiss to the extent applicable.
Sidley, Austin, Brown Wood, LLP ("Brown Wood") moved to dismiss on June 11, 2003 [DE 89]. Loftin responded on July 1, 2003 [DE 107]. Brown Wood replied on July 14, 2003 [DE 114]. These motions are ripe for adjudication.
Loftin and Defendant First Union National Bank/Wachovia Corporation have agreed to arbitrate their dispute. See Agreed Order Granting Defendant First Union's Motion to Compel Arbitration and to Dismiss All Claims, filed July 22, 2003 [DE 116].
I. BACKGROUND
In 1997, Loftin was the sole shareholder of BTI Communications, Inc. ("BTI"), a regional telecommunications company located in Raleigh, North Carolina. (ACC ¶ 19.) In the summer of 1997, Loftin sold his interest in FiberSouth, a BTI subsidiary whose ownership was divided between Loftin and BTI, back to BTL (ACC ¶ 19.) The sale netted $30 million dollars, which Loftin deposited in his First Union account in Charlotte, North Carolina. (ACC ¶ 19.)
References to the Amended Corrected Complaint shall be noted as "ACC."
At the suggestion of his First Union account representative, Loftin met with First Union bank representatives in Raleigh, North Carolina on August 6, 1997 to discuss tax planning regarding the proceeds from the FiberSouth sale. (ACC ¶¶ 20-21.) At the meeting, First Union representatives encouraged Loftin to retain the services of KPMG, a firm of certified public accountants, auditors and consultants that provides a variety of accounting, auditing and consulting services, for tax planning purposes in connection with the capital gains stemming from the FiberSouth sale. (ACC ¶¶ 9, 21.)
The next day, August 7, 1997, Loftin met with representatives from First Union and KPMG. (ACC ¶ 22.) KPMG representatives presented Loftin with the FLIP tax planning strategy and told him that in order to implement the strategy, he would have to retain the services of QA, a firm knowledgeable about the strategy. (ACC ¶ 22.) Loftin claims that KPMG told him that he would either make substantial money, incur large capital losses, or both, as a result of participating in the FLIP strategy. (ACC ¶ 24.) Loftin asserts that KPMG told him that the strategy complied with IRS rules and regulations and would withstand an IRS audit. (ACC ¶ 26.) KPMG also promised Loftin a legal opinion certifying the "economic substance" of the FLIP strategy. (ACC ¶ 23.) Loftin agreed to implement the FLIP strategy and to hire KPMG to prepare his tax returns. (ACC ¶ 31.)
Implementation of the FLIP strategy commenced on September 16, 1997, when Loftin purchased a warrant from Larkhaven Capital, Inc. ("Larkhaven"), a foreign corporation organized under the laws of the Cayman Islands, for 4,250 shares of Larkhaven at a price of $2,100,000. The warrant expired on September 30, 1998 and entitled Loftin either to exercise the warrant or settle the warrant based upon a "put" value based on the net asset value of Larkhaven multiplied by the percentage of Larkhaven covered by the warrant. The same day, Loftin purchased 1,408 shares of Union Bank of Switzerland ("UBS"), a foreign bank, at a price of $1,064.81 per share for a total of $1,499,246. Also on September 16, Larkhaven purchased 28,392 shares of UBS for a total price of over $29 million. UBS was committed to finance 100% of Larkhaven's purchase of UBS shares. Larkhaven sold European-style "call options" to UBS at a strike price of 1,451.60 Swiss Francs per share for the bank to purchase its shares. The call options allowed Larkhaven to earn a fixed daily payment for each day the price of UBS stock closed above a certain level. The call options expired on November 5, 1997.
On November 5, 1997, when UBS shares were trading at 1,708 Swiss Francs, UBS exercised its call option and purchased 29,610 shares of its stock from Larkhaven at the strike price of 1,451.60 per share. The same day, Loftin purchased from UBS 28,392 over-the-counter call options on UBS shares. Loftin's call options expired, unused, on November 25, 1997.
On December 10, 1997, Loftin put his warrant back to Larkhaven for its value of $2,048,857. On December 22, 1997, Loftin sold 1,267 shares of UBS for $1,835,402 for a profit of approximately $486,294. These transactions were designed to effect a "basis shift" from the redeemed UBS shares held by Larkhaven to the UBS shares held by Loftin, thereby enabling Loftin to recognize a capital loss on his sale of UBS shares. (ACC ¶¶ 38, 39). QA orchestrated each of the transactions. (ACC ¶ 42.)
KPMG's opinion letter was delivered on June 8, 1998, and Brown Wood's opinion letter was delivered on June 15, 1998, both advising Loftin that the FLIP strategy was "more likely than not" to be considered proper. (ACC ¶ 33.) In October of 1998, Loftin filed his KPMG-prepared 1997 federal income tax return in which he claimed over $27,416,629 in capital losses from the FLIP strategy. (ACC ¶ 40.)
In 1999, Loftin entered into a transaction to sell a portion of his equity stake in BTI to another investor, resulting in $65 million in proceeds. (ACC ¶ 45.) Loftin contacted KPMG for tax advice concerning the $65 million and other capital gains from his investment portfolio and was told that he could employ a BLIP strategy. (ACC ¶ 46.) Presidio, rather than QA, served as the investment advisor for the BLIP strategy. (ACC ¶ 47.) Loftin received another favorable opinion letter from Brown Wood subsequent to committing to the BLIP strategy. (ACC ¶ 51.) KPMG prepared Loftin's 1999 and 2000 federal income tax returns, which reported capital losses of approximately $100 million as a result of the implementation of the BLIP strategy. (ACC ¶ 52.)
Although the Amended Corrected Complaint provides a detailed account of implementation of the FLIP strategy, it does not provide a similar account of implementation of the BLIP strategy.
In October 2000, the ERS commenced an audit of Loftin's 1997 tax return. (ACC ¶ 55.) KPMG encouraged Loftin to settle with the IRS, and Loftin states that he is committed to pursuing a settlement agreement with the IRS. (ACC ¶ 55.)
Loftin asserts a six count complaint against Defendants. Count I is a RICO action brought against all Defendants alleging that Defendants fraudulently induced him to enter the FLIP and BLIP securities transactions. Count II is a claim for fraud against all Defendants, alleging that Defendants made misrepresentations of fact they knew to be false, or, alternatively, were recklessly unaware of their falsity. Count III is a claim for breach of fiduciary duty against all Defendants alleging failure to represent accurately and completely the nature of the FLIP and BLIP transactions. Count IV is a claim for negligent misrepresentation against all Defendants, claiming that Defendants falsely represented that the transactions were "more likely than not" to be found proper and legal. Count V is a claim for malpractice against KPMG for failure to provide reasonably competent accounting, financial planning and tax consulting services. Count VI is a claim for malpractice against Brown Wood for failure to provide reasonably competent accounting and tax consultant services.
II. LEGAL STANDARD ON MOTIONS TO DISMISS
Rule 8(a) of the Federal Rules of Civil Procedure requires a "short and plain statement of the claim" that "will give the defendant fair notice of what the plaintiffs claim is and the ground upon which it rests." When examining a motion to dismiss, this Court considers whether the plaintiff has alleged facts sufficient to state a claim for relief. A motion to dismiss should not be granted unless the plaintiff can prove no set of facts in support of its claim entitling it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). "When considering a motion to dismiss, all facts set forth in the plaintiff's complaint `arc to be accepted as true and the court limits its consideration to the pleadings and exhibits attached thereto.'" Grossman v. Nationsbank, 225 F.3d 1228, 1231 (11th Cir. 2000) (quoting GSW, Inc. v. Long County, 999 F.2d 1508, 1510 (11th Cir. 1993)).
III. DISCUSSION
1. RICO and the Private Securities Litigation Reform Act of 1995
RICO, 18 U.S.C. § 1961, et seq., provides civil and criminal liability for individuals engaged in "a pattern of racketeering activity." 18 U.S.C. § 1962(a-d). Private individuals suffering injury resulting from RICO violations have a cause of action under the act. See 18 U.S.C. § 1964. The elements of a civil RICO cause of action are "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Durham v. Business Mgmt. Assocs., 847 F.2d 1505, 1511 (11th Cir. 1988) (quoting Sedima S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 105 S.Ct. 3275, 3285 (1985)). A pattern of racketeering activity consists of two "predicate acts" of racketeering activity occurring within a ten year period. 18 U.S.C. § 1961(5). "Racketeering activity" includes acts that are indictable under designated criminal offenses, including federal statutes prohibiting mail and wire fraud. 18 U.S.C. § 1961(1).
Defendants argue that Loftin's RICO claim is barred by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 18 U.S.C. § 1964(c). The PSLRA provides that a civil RICO claimant may not "rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962" unless the person who committed said fraudulent conduct has been criminally convicted. 18 U.S.C. § 1964(c). Defendants move to dismiss the RICO claim with prejudice because the conduct Loftin relies on as predicate acts of racketeering, alleged wire and mail fraud, would be actionable as securities fraud claims.
Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) provides that
[i]t shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility or any national securities exchange . . . (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules an regulations as the Commission may prescribe as necessary or appropriate in the public interest for the protection of investors.
In addition, SEC Rule 10b-5 provides that
[i]t shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statement made, in the light of the circumstances under which they were made, not misleading or (c) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
The Court finds that this case presents facts that fall within the purview of the PLSRA bar. Loftin alleges in his Corrected Amended Complaint that each Defendants' "multiple predicate acts of racketeering include mail and wire fraud in violation of 18 U.S.C. § 1341 and 1343" and that "Defendants executed or attempted to execute such schemes through the use of the United States mails and through transmissions by wire in interstate commerce." (ACC ¶ 60.)
Loftin points to specific acts of alleged mail and wire fraud with respect to both the FLIP and BLIP transactions. Regarding the FLIP transaction, on September 7, 1997, QA sent Loftin a copy of an investment advisory agreement and provided wiring instructions for funding the UBS Securities LLC brokerage account; on May 15, 1998, a KPMG representative faxed Loftin a draft of a tax opinion letter relating to Loftin's purchase of UBS stock; on June 8, 1998, KPMG sent Loftin an opinion on the consequences of the FLIP transaction allegedly containing false and misleading statements regarding the likely impact of implementation of the FLIP strategy; on June 15, 1998, Brown Wood mailed a tax opinion to Loftin allegedly containing false and misleading statements regarding the likely impact of implementation of the FLIP strategy; finally in 1998, KPMG prepared an allegedly illegal and fraudulent tax return for Loftin knowing that Loftin would place the tax return in the mail.
Regarding the BLIP transaction, on November 4, 1999, KPMG faxed Loftin a memo to effectuate a step in the strategy instructing Loftin to sign the document and mail the original, and fax a copy, to Presidio; on December 31, 1999, Brown Wood sent Loftin an opinion letter allegedly containing false and misleading statements regarding the likely tax consequences of implementation of the BLIP strategy; on April 5, 2000, KPMG sent Loftin an opinion regarding the tax consequences of implementation of the BLIP strategy allegedly containing false and misleading statements; finally, in 2000 and 2001, KPMG prepared allegedly illegal and fraudulent tax returns for Loftin knowing that Loftin would place the returns in the mail. Since the conduct on which Loftin relies is conduct that would be actionable under 15 U.S.C. § 78j(b) and SEC Rule 10b-5, the PSLRA bar applies to warrant dismissal of Loftin's RICO claim with prejudice.
Courts examining this issue have reached similar conclusions. InFlorida Evergreen Foliage v. DuPont, 165 F. Supp.2d 1345 (S.D.F1. 2001), aff'd, Green Leaf Nursery v. DuPont, ___ F.3d ___, 2003 WL 21949591 (11th Cir. Aug. 15, 2003), Plaintiffs alleged that DuPont executed a scheme to defraud them into settling their initial case for less money than they would have sought otherwise by withholding information and making false statements. Plaintiffs alleged that DuPont, inter alia, gave misleading and false answers to discovery requests, false answers to court orders to produce, intentionally concealed relevant documents and data and gave false deposition testimony. As this conduct was also the subject of an underlying securities fraud suit, the Court held that the PSLRA bar applied, thereby precluding Plaintiffs' RICO claims.
In Aries Aluminum Corp. v. King, No. 98-4108, 1999 WL 801523, at *2-3 (6th Cir. Sept. 30, 1999), the Sixth Circuit held that fraud committed in connection with the sale and purchase of stock, even counterfeit stock, is not actionable under RICO. The Defendants inAries sent shareholders a letter and research report encouraging investment in their company. Unbeknownst to the shareholders, the company was merely a corporate shell controlled by offshore corporations, the actual sellers of the stock. Plaintiff argued that the sale of the stock was fraudulent because Defendants issued the stock prior to the formation of the company. As Defendant's fraud was "in connection with the purchase or sale of securities," the Court held that Plaintiff could not maintain a RICO action against Defendant. See also Howard v. America Online. Inc., 208 F.3d 741, 749-50 (9th Cir. 2000) (allegations that AOL misrepresented revenues, profits and numbers of subscribers; used improper accounting practices; and illegally sold stock for a profit cannot form the basis of a RICO claim because they are actionable as securities fraud by a plaintiff with proper standing); Bald Eagle Area School Dist. v. Keystone Financial Inc., 189 F.3d 321, 327-30 (3d Cir. 1999) (allegations that Defendants operated a Ponzi scheme via the purchase and sale of collateralized investment agreements would have been actionable under the securities laws and therefore could not form the basis of a RICO claim).
Loftin raises three objections to the application of the PSLRA bar. First, Loftin claims that the statutory bar is inapplicable because KPMG was not the issuer of the securities he purchased as part of the FLIP and BLIP strategies. The Court notes that this objection amounts to a concession by Loftin that the conduct in question involved the "purchase or sale of securities." Furthermore, the governing caselaw holds that any person or entity, whether or not the issuer of the securities in question, is a potential defendant in a securities action. See Silverberg v. Paine, Webber, Jackson Curtis, Inc., 710 F.2d 678, 682 (11th Cir. 1983) (investor brings securities fraud action against broker and brokerage firm); Brown v. Ivie, 661 F.2d 62, 63 (5th Cir. 1981) (minority shareholders brought securities fraud action against the two remaining shareholders); In re Checkers Sec. Litig., 858 F. Supp. 1168, 1174 (M.D. Fla. 1994) (securities purchasers brought securities fraud action against corporation, individual defendants and accounting firm). That KPMG was not the issuer of the securities involved in the FLIP and BLIP transactions does not preclude application of the PSLRA bar.
Second, Loftin argues that the PSLRA bar should not apply because KPMG's representations about the securities did not relate to the value of the securities. Again, Loftin cites no law for this proposition. That an alleged misrepresentation relates to the value of the securities in question is not an essential element of a securities fraud claim.See SEC v. Zandford, 535 U.S. 813, 820, 122 S.Ct. 1899, 1903 (2002) ("[N]either the SEC nor this Court has ever held that there must be a misrepresentation about the value of a particular security in order to run afoul of the Act."); Brod v. Perlow, 375 F.2d 393, 396-97 (2d Cir. 1967) ("Neither § 10(b) nor Rule 10b-5 contains any language which would indicate that those provisions were intended to deal only with fraud as to the `investment value' of securities, and, indeed, it is established that a 10b-5 action will survive even though the fraudulent scheme or device is unrelated to `investment value.'"). That the alleged misrepresentations were unrelated to the value of the securities does not foreclose application of the PSLRA bar.
Third, Loftin argues that the statutory bar should not apply to his RICO claim against Brown Wood because the sale of securities was incidental to Brown Wood's alleged fraud. Loftin claims that Brown Wood's primary objective was not the sale of securities, but the sale of "phony tax advice." As such, Brown Wood's alleged misconduct was not "in connection with" the sale of securities, thereby precluding application of the PSLRA bar.
This argument is an attempt on the part of Loftin to recharacterize the allegations set forth in his Complaint. Loftin may not recharacterize his Complaint in a brief responding to a motion to dismiss, as a court reviewing a motion to dismiss may examine only the allegations of the Complaint. Grossman, 225 F.3d at 1231: GSW, Inc., 999 F.2d at 1510. Loftin's Complaint alleges that the Defendants' "pattern of racketeering activity, including the mail and wire fraud, were all committed in an effort to induce [him] to invest in the transactions and, in turn, pay millions of dollars in fees and related expenses to the Enterprise." (ACC ¶ 69.) The transactions consisted of the purchase and sale of securities. (ACC ¶¶ 38, 49.) Thus, Brown Wood's alleged actions were "in connection with" the purchase and transfer of securities, thereby implicating the PSLRA bar.See Zandford, 535 U.S. at 819, 122 S.Ct. at 1903 (explaining that the Act "should be construed not technically and restrictively, but flexibly to effectuate its remedial purposes' and holding that a broker's alleged selling of securities with intent to misappropriate the proceeds was "in connection with" the sale of the securities) (internal quotation omitted). Loftin cites Neibel v. Trans World Assurance Co., 108 F.3d 1123 (9th Cir. 1997) as an example of a tax shelter case brought under RICO rather than the securities act, yet Neibel is distinguishable because it focused on a tax shelter involving home-based tax deductions and had nothing to do with the purchase or sale of securities. Id. at 1125-27. As Brown Wood's issuance of the opinion letters was "in connection with the purchase or sale of securities," the statutory bar applies to bar Loftin's RICO claim against Brown Wood.
The Court finds that the PSLRA bars Loftin's RICO claim and therefore dismisses Count I of the Amended Corrected Complaint with prejudice. As the PSLRA bar is dispositive of the motions to dismiss Count I, the Court declines to rule on whether Loftin properly alleged each element of a claim under RICO and whether Loftin suffered an injury under RICO. For the same reason, the Court declines to rule on Quellos's argument that it is not subject to personal jurisdiction.
2. State Law Claims
A. Fraud and Negligent Misrepresentation
Loftin alleges that Defendants fraudulently induced him to enter into the FLIP and BLIP strategies and negligently misrepresented that the strategies were more likely than not to be found proper and legal. To state a claim for fraud under Florida law, a Plaintiff must demonstrate
(1) a false statement of fact; (2) known by the defendant to be false at the time that it was made; (3) made for the purpose of inducing the plaintiff to act in reliance thereon; (4) action by the plaintiff in reliance on the correctness of the representation; and (5) resulting damage or injury.National Ventures, Inc. v. Water Glades 300 Condominium Ass'n, 847 So.2d 1070, 1074 (Fla. 4th DCA 2003). To allege a cause of action for negligent misrepresentation under Florida law, a plaintiff must demonstrate that
Since Florida and North Carolina law are not materially different with regard to Loftin's state law claims, the Court declines to rule on the choice of law issue.
"[A]n actionable claim for fraud must include the following elements: (1) false representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with the intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party." State Properties, LLC v. Ray, 574 S.E.2d 180, 186 (N.C.App. 2002) (quotation omitted).
(1) there was a misrepresentation of material fact; (2) the representer either knew of the misrepresentation, made the misrepresentation without knowledge of its truth or falsity, or should have known the representation was false; (3) the representer intended to induce another to act on the misrepresentation; and (4) injury resulted to a party acting in justifiable reliance upon the misrepresentation.Florida Women's Medical Clinic, Inc. v. Sultan, 656 So.2d 931, 933 (Fla. 4th DCA 1995). All Defendants move to dismiss the claims for fraud and negligent misrepresentation on the grounds that they are not ripe for review.
"It is well established that the tort of negligent misrepresentation occurs when (1) a party justifiably relies (2) to his detriment (3) on information prepared without reasonable care (4) by one who owed the relying party a duty of care." Jordan v. Earthgrains Companies, Inc., 576 S.E.2d 336, 339 (N.C, App. 2003) (quotation omitted).
Loftin has failed to state claims for fraud and negligent misrepresentation because he has not established that he suffered any injury stemming from Defendants' alleged misconduct. The Amended Corrected Complaint merely establishes that Loftin is in the midst of a dispute with the IRS. According to the Complaint, "Loftin's 1997, 1999 and 2000 [tax] returns are under audit by the Internal Revenue Service (`IRS') . . . [he] is currently in negotiations with the IRS . . . and may be assessed significant penalties." (ACC ¶ 5.) Loftin also alleges that he "has now committed to pursue settling his tax liability with the IRS and will likely have to pay substantial tax repayments, plus undetermined interest and is subject to potential penalties." (ACC ¶ 55.) Loftin argues that he has suffered an injury because he "has committed to settle with the ERS and is just waiting to be told the ultimate number." (Response to KPMG's Motion to Dismiss at 15.) Loftin speculates that he will have to pay the IRS a "hefty sum" as a settlement. (Id.) Until and unless Loftin and the IRS reach a final resolution of the dispute, it is impossible to determine whether Loftin actually suffered damages from Defendants' alleged misconduct. Even if Loftin is anticipating having to make a large payment to the IRS, the amount and nature of the payment remain unknown. Indeed, if Loftin's settlement payment amounts to nothing more than payment for back taxes and interest, he will not have suffered an injury. Hirscfield v. Winer, 1989 WL 120584, at *2 (S.D.N.Y. Oct. 3, 1989) (securities claim concerning sale of tax shelter investments speculative and therefore unripe because IRS proceedings were still in progress and plaintiffs had not suffered an actual injury). Consequently, Loftin has failed to allege that he has suffered an actual injury from the alleged misconduct and therefore lacks standing to bring his claims for fraud and negligent misrepresentation. See Bowen v. First Family Services, Inc., 233 F.3d 1331, 1339-40 (11th Cir. 2000) (standing doctrine requires plaintiff to show actual injury; failure to do so deprives the federal judiciary of subject matter jurisdiction over the claim for lack of an Article III case or controversy).
Although not specifically stated in an additional count, Loftin's fraud claim contains the subsidiary allegation that "Brown Wood provided KPMG, QA and Presidio substantial assistance in the commission of the fraud, knowing of the underlying wrongdoing." (ACC ¶ 77.) Brown Wood characterizes this subsidiary count as one for aiding and abetting in fraudulent conduct. As Loftin's fraud claims are premature, his subsidiary aiding and abetting claim is as well.
Because the Court finds that the prematurity of Loftin's claims for fraud, aiding and abetting in fraud, and negligent misrepresentation is an adequate basis for dismissing Counts II and IV, it issues no ruling on Defendants' arguments that Loftin did not reasonably rely on their representations.
B. Breach of Fiduciary Duty
Loftin brings a claim for breach of fiduciary duty against all Defendants, arguing that they failed to provide complete and truthful information about the FLIP and BLIP strategies. To state a claim for breach of fiduciary duty in Florida, a plaintiff must allege "the existence of a fiduciary duty, and the breach of that duty such that it is the proximate cause of . . . [his] damages." Gracey v. Baker, 837 So.2d 348, 353 (Fla. 2002).
Injury is also an element of a cause of action for breach of fiduciary duty (also known as constructive fraud) in North Carolina.See Jay Group. Ltd. v. Glasgow, 534 S.E.2d 233, 236 (N.C.App. 2000) ("The elements of a constructive fraud claim are proof of circumstances (1) which created the relation of trust and confidence, and (2) led up to and surrounded the consummation of the transaction in which defendant is alleged to have taken advantage of his position of trust to the hurt of plaintiff.") (quotation omitted).
Defendants move to dismiss Loftin's claim for breach of fiduciary duty on the grounds that Loftin has not suffered any injury as a result of their alleged misconduct. The Court finds that Loftin's breach of fiduciary duty claim is premature for the same reasons his fraud and negligent misrepresentation claims are premature. Because the prematurity of the claim is dispositive of the motions to dismiss, the Court declines to rule on whether fiduciary relationships existed between Loftin and each Defendant and whether Defendants breached their alleged fiduciary duties.
C. Malpractice
I. KPMG
Count V is a cause of action for malpractice against KPMG for failure to use the skill and care of a reasonably competent accountant and tax consultant. In both Florida and North Carolina, a cause of action for malpractice arising from a tax matter does not accrue until the ERS assesses a tax deficiency against the plaintiff. Snipes v, Jackson, 316 So.2d 657, 661 (N.C.App. 1984) (plaintiff's malpractice action brought against his attorney, his accountant and his accountant's firm "was not complete and did not fully arise until he was assessed by the I.R.S. If plaintiff had commenced his action prior to the date of assessment, defendants could have properly objected on the ground that the action was premature."); Blumberg v. USAA Cas. Ins. Co., 790 So.2d 1061, 1064 (Fla. 2001) (malpractice action in a tax matter does not arise until final determination that taxpayers' deduction was improper). As no deficiency has been assessed against Loftin, Loftin's claim for accountancy malpractice is unripe and is therefore dismissed.
ii. Brown Wood
Count VI is a cause of action for legal malpractice against Brown Wood for failure to use the skill and care of a reasonably competent attorney in issuing the two opinion letters. To state a claim for legal malpractice in Florida, a plaintiff must allege "(1) that the defendant attorney was employed by the plaintiff; (2) that the defendant attorney neglected a reasonable duty owed to the plaintiff; and (3) that such negligence was the proximate cause of loss to the plaintiff."Olmstead v. Emmanuel, 783 So.2d 1122, 1125 (Fla. 1st DCA 2001). A claim for legal malpractice in North Carolina also requires a showing of injury and causation, Rorrer v. Cooke, 329 S.E.2d 355, 369 (N.C. 1985) ("To establish that negligence is a proximate cause of the loss suffered, the plaintiff must establish that the loss would not have occurred but for the attorney's conduct.").
The Court finds that Loftin's legal malpractice claim is premature for the same reasons the rest of his state law claims are premature. Loftin's claim for legal malpractice is therefore dismissed.
IV. CONCLUSION
The Court, having considered the record, pleadings and being otherwise fully advised, herebyORDERS AND ADJUDGES that Count I of the Amended Corrected Complaint, alleging violations of RICO, is DISMISSED WITH PREJUDICE as it is barred by the PSLRA. The Court further
ORDERS AND ADJUDGES that Counts II-VI of the Amended Corrected Complaint, alleging violations of state law, are DISMISSED for lack of ripeness.
The Clerk of Court shall CLOSE this case and DENY any pending motions as MOOT.
DONE AND ORDERED.