Opinion
DOCKET NO. A-2152-15T3
10-04-2016
YA GLOBAL INVESTMENTS, L.P., formerly known as Cornell Capital Partners, L.P., YA GLOBAL INVESTMENTS (US), LP, YA OFFSHORE GLOBAL INVESTMENTS, LTD., YORKVILLE ADVISORS GP, LLC and YORKVILLE ADVISORS, LLC, Plaintiffs-Appellants, v. RSM McGLADREY, INC., McGLADREY LLP, MCGLADREY & PULLEN, LLP, E. GEORGE TEIXEIRA, JEFFREY H. YAGER and LAURENCE KARST, Defendants-Respondents.
Donald P. Jacobs argued the cause for appellants (Budd Larner, P.C., attorneys; Peter J. Frazza, of counsel; Mr. Jacobs, on the brief). Veronica E. Callahan (Arnold & Porter) of the New York bar, admitted pro hac vice, argued the cause for respondents (Archer & Greiner, P.C., and Ms. Callahan, attorneys; Thomas J. Herten and Ms. Callahan, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is only binding on the parties in the case and its use in other cases is limited. R.1:36-3. Before Judges Fisher, Ostrer and Leone. On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-1715-15. Donald P. Jacobs argued the cause for appellants (Budd Larner, P.C., attorneys; Peter J. Frazza, of counsel; Mr. Jacobs, on the brief). Veronica E. Callahan (Arnold & Porter) of the New York bar, admitted pro hac vice, argued the cause for respondents (Archer & Greiner, P.C., and Ms. Callahan, attorneys; Thomas J. Herten and Ms. Callahan, on the brief). PER CURIAM
On May 15, 2015, plaintiffs filed this professional malpractice and negligence action against defendants, alleging that, as a result of their reliance on defendants' tax and accounting advice, the Internal Revenue Service determined plaintiffs owed taxes and penalties in excess of $100,000,000. After filing their complaint, plaintiffs quickly moved for a stay of this action pending resolution of an action to be commenced in the United States Tax Court, in which plaintiffs planned on contesting the IRS's assessment. In moving, plaintiffs asserted that they commenced this malpractice action without knowing the accuracy or adequacy of defendants' advice — to be determined in the United States Tax Court — out of concern for the possibility that the statute of limitations on the claims against defendants would expire. Plaintiffs claimed the need for a stay because the simultaneous prosecution of the tax litigation and the malpractice action would put them in the unenviable position of supporting defendants' tax advice in the tax litigation while attacking it in the malpractice action.
Plaintiff YA Global Investments, L.P. is a Cayman Islands limited partnership. Its two limited partners are plaintiffs YA Offshore Global Investments, Ltd., and YA Global Investments (U.S.) LP. Its sole general partnership is plaintiff Yorkville Advisors GP, LLC. And its investment manager is plaintiff Yorkville Advisors LLC. These parties will be collectively referred to as plaintiffs.
Plaintiffs were denied a stay in the trial court, and we denied their motion for leave to appeal. On January 21, 2016, the Supreme Court granted plaintiffs' motion for leave to appeal and summarily remanded to us for consideration of the merits of plaintiffs' arguments; the Supreme Court also stayed the trial court proceedings pending our disposition of the interlocutory appeal.
Plaintiffs first moved for a stay on May 27, 2015; that motion was denied on July 24, 2015. A second motion, which relied on additional information, was denied on January 5, 2016. In this same general time period, the trial judge denied defendants' motion to dismiss pursuant to Rule 4:6-2(e).
Our disposition of this appeal is guided by Grunwald v. Bronkesh, 131 N.J. 483, 499-500 (1993); there, in a similar setting, the Court held that "because a cause of action on a legal-malpractice claim may accrue while the underlying claim is being litigated, a plaintiff can avoid maintaining inconsistent positions by moving to stay the malpractice suit pending completion of the appeal on the underlying action." Although we know little about plaintiffs' contentions in both this and the tax matter, we agree that forcing the unimpeded litigation of this action on its merits may have a tendency to compel plaintiffs to litigate two inconsistent theories in two different fora contrary to the principles enunciated in Grunwald. That is simply unfair to plaintiffs and wasteful of our judicial resources. We, thus, mandate the issuance of a stay pending resolution of the tax litigation.
To be sure, as defendants forcefully argue, the record on appeal presents little clarity about the tax litigation. But, pending further enlightenment as that action proceeds, we assume the two suits are sufficiently related so as to warrant a stay; we do not view the Supreme Court's mandate as permitting us to again conclude the matter is not sufficiently ripe for appellate review at this interlocutory stage. --------
Our ruling is without prejudice to an appropriate application from either side for relief from the stay to the extent necessary to preserve discovery that might otherwise be lost while waiting disposition of the tax litigation. See Vastano v. Algeier, 178 N.J. 230, 240-41 (2003). Also, because so little has been presented about the nature and scope of the tax litigation, we do not foreclose a future revisitation of the necessity or propriety of the stay that we now mandate; indeed, the trial judge should include within the stay order a requirement that plaintiffs seasonably provide the trial court and defendants with reports about the tax litigation's status.
Reversed and remanded for entry of a stay in conformity with this opinion. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION