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Junior Larry Hillbroom, et al v. Pricewaterhousecoopers Llp

April 7, 2011


Appeal from the Superior Court of the District of Columbia (CAM4610-09) (The Hon. Judith E. Retchin, Trial Judge)

The opinion of the court was delivered by: Thompson, Associate Judge:

Argued December 2, 2010

Before WASHINGTON, Chief Judge, THOMPSON, Associate Judge, and STEADMAN, Senior Judge.

This appeal arises out of the dismissal of a lawsuit against defendants/appellees, Gregory Jenner (a tax attorney) and PricewaterhouseCoopers LLP ("PwC") (the accounting firm with which Jenner was associated), for professional negligence, breach of contract, and breach of fiduciary duty, in connection with Jenner's alleged failure to timely file formal claims for refunds of a portion of the federal estate taxes paid by the estate of Larry Hillblom ("the Estate").*fn1 Plaintiffs/appellants are several individuals who had an interest in the refunds: Hillblom's heirs, their respective guardians ad litem and trustees, and an escrow agent (the "Escrow Agent') who is the legal successor in interest to the Estate.*fn2 The trial court granted defendants'/appellees' motion to dismiss the suit under Super. Ct. Civ. R. 12 (b)(6), as barred by the statute of limitations. On appeal, appellants contend (1) that the trial court erred in its determination as to when their cause of action accrued, and (2) that, in any event, the running of the limitations period is tolled with regard to the plaintiffs/appellants who are minors (to wit, heirs J.C., N.B.L., and M.F.). Because we conclude that resolution of these issues must await a fuller development of the record, we reverse and remand for further proceedings.

I. Background

The Amended Complaint (the "Complaint'), appellants' opposition to the motion to dismiss, and their briefs on appeal present the following picture.*fn3 In May 1995, Hillblom, a resident of Saipan in the Commonwealth of the Northern Mariana Islands ("CNMI"), died in an airplane crash, leaving the Estate worth approximately $353 million. Hillblom's will, which directed that the bulk of the Estate be given to charity through the creation of a charitable trust, was admitted to probate in the Superior Court of the CNMI on July 17, 1995. Subsequently, several claimants filed petitions seeking a share of the Estate as Hillblom's pretermitted heirs. These heir claimants - Hillbroom, J.C., N.B.L., and M.F. - were established as Hillblom's biological children, after which each became known as a Qualified Heir Claimant ("QHC"). On April 6, 2000, after extensive litigation, the Estate, the charitable trust, the guardian ad litem and a trustee for Hillbroom, and guardians ad litem for J.C., N.B.L. and M.F. entered into a Global Settlement Agreement ("GSA") that divided the Estate between the QHCs and the charitable trust, with the former receiving 60% and the latter receiving 40%. Under the GSA and an April 7, 2000 court order incorporating it, the Escrow Agent was named the legal successor to the Estate's interest in any refunds of estate tax paid by the Estate, and the Escrow Agent was to pursue refunds and receive and hold any recovered amounts for the benefit of the QHCs. A Tax Refund and Escrow Agreement (the "Escrow Agreement') between and among the Escrow Agent and the QHCs and their guardians ad litem and trustees, made effective as of April 6, 2000, also described the Escrow Agent's responsibility to pursue the tax refunds. Execution of the GSA and the Escrow Agreement and issuance of the April 7, 2000 order enabled the Superior Court of the CNMI to close the Estate.

Meanwhile, in June 1999, while the probate litigation was still underway, the Estate's Executor had reported to the IRS an estate tax deficiency in the amount of $43,348,728, and, on July 12, 1999, the Executor paid the deficiency to the IRS. On December 7, 1999, however, the Executor reported a corrected net estate tax amount of $37,655,193, resulting in a federal estate tax overpayment of $5,729,113. According to appellants' brief on appeal, the adjustment reflected "the Estate's administrative expenses [having] increas[ed] well beyond estimated figures due to the dispute with the QHCs." Accompanying the December 1999 revised estate tax return was a legal memorandum to the IRS (the "Refund Claim Memorandum"), prepared by the Executor's tax 5 counsel, that "set forth in detail the grounds upon which the refund claim was based." According to the Complaint, the Refund Claim Memorandum "claimed a refund for the $5,729,113 overpayment of federal estate taxes." Appellants assert that "[a]ll that was needed was for a diligent tax professional to deliver the final refund application paperwork to the IRS."

The Escrow Agreement directed the Escrow Agent to retain Jenner and PwC, who had served as tax advisors to the QHCs since 1998 to pursue the refund claims. The Complaint avers that in early May 2000, lawyers who had served as tax counsel to the Estate met with appellee Jenner and advised him of the "possibility of additional [estate tax] refunds in light of the increased administrative expenses" and "instructed Defendant Jenner to pursue a claim for refund as a result of the additional estate administrative expenses." Thereafter, "numerous additional administrative expenses and death taxes were incurred by the Estate which increased the amount of potential refund available to the QHCs."

In a May 22, 2000 email from appellee Jenner to counsel for the QHCs (filed in the trial court as an exhibit to appellants' opposition to the motion to dismiss), appellee Jenner referred to the "first claim for refund (already filed)" and stated that "there is little that needs to be done at this point," that "Blumenfeld has made his determination granting the claim in its entirety, which must now be reviewed by the Joint Committee."*fn4 Jenner advised that "[t]he refund procedure will run its course in due time and there is very little that can or should be done to expedite it." As to the "additional claims for refund," Jenner advised that "tactically it probably makes sense to wait" for IRS approval of the first refund claim (presumably, the one claimed through the Refund Claim Memorandum) "before filing additional claims," and explained that "subject to any time limitations, which I will check on," to avoid a "higher level of scrutiny," "it would be better to 'bank' the first [claim] before filing any additional claims." The pleadings do not explain when (or whether) the "first refund claim" was paid.*fn5

The Complaint states that, under Internal Revenue Code § 6511 (a), "the last day for [appellees] to file a claim for an estate tax refund [based on deductible administrative expenses] would have been . . . July 12, 2001,"*fn6 and, under other IRC provisions, "the last day for [appellees] to file a claim for . . . refunds [related to foreign or state death tax credits] would have been August 20, 2000." However, the Complaint avers, "[n]o action was ever taken by [appellees] to pursue any refund claims" and appellees "never investigated or otherwise pursued" any refund claims. Appellants assert that appellees "never actually delivered the formal refund claim paperwork to the IRS."

On December 10, 2002, the Escrow Agent and the QHCs engaged new legal counsel to pursue "any and all claims for tax refunds to which the Estate may have been entitled on behalf of the QHCs." The Complaint states that although "the applicable statutes of limitations for the QHCs' claims had already expired by the time new counsel was retained," the new attorneys pursued refunds "under the theory that the Estate, although having failed to file a timely refund claim, had filed a protective claim for refund by submitting the Refund Claim Memorandum to the IRS." According to appellants' opposition to the motion to dismiss, "[b]ased on the QHCs' position that an informal refund claim had been filed, the IRS paid in full the refund associated with the Estate's payment of foreign death tax credits." This transpired even though, according to the Complaint, at least some of the death tax credits had been identified "after May 8, 2000" (i.e., well after the Refund Claim Memorandum was submitted in 1999), and even though appellees "never investigated or otherwise pursued refund claims for these amounts either" before the statutory deadline. With respect to other portions of the refund that the QHCs sought, however, "[t]he IRS disputed [the] interpretation" that the amounts were allowable on the basis of the 1999 protective claim. The Complaint avers that "due to the uncertain nature of the law governing protective refund claims," appellants "faced the real possibility of not receiving a refund at all if the refund claims were litigated." "To resolve the dispute over the refunds without litigation," appellants agreed to settle with the IRS, and to accept a refund of $4,502,851, plus accrued interest. The settlement was approved by the Joint Committee on Taxation on December 17, 2007, and was executed on December 27, 2007.

On June 22, 2009, appellants filed the instant lawsuit. The Complaint alleges that appellees negligently "fail[ed] to file the refund claims on [appellants'] behalf before the expiration of the applicable statutes of limitation[s]."*fn7 If Jenner had timely filed the refund claim, appellants assert, they would have been entitled to over $10 million plus interest, instead of the approximately $4.5 million plus interest that they received from the IRS. The Amended Complaint sought damages of approximately $6.37 million, plus interest and consequential damages.

On October 13, 2009, appellees filed their motion to dismiss, arguing that appellants' claim was barred by the three-year statute of limitations delineated in D.C. Code § 12-301 (2001). Appellees asserted that the three-year limitations period began to run at the very latest by December 10, 2002 (when appellants retained new counsel and admittedly were aware that appellees had missed the tax refund filing deadlines), and therefore expired years before appellants filed their Complaint. Opposing the motion to dismiss, appellants argued that while they became aware of appellees' omissions and inaction more than three years prior to filing their lawsuit claim, the lawsuit was timely filed because they did not suffer an "actual injury," and the limitations period did not begin to run, until they settled their refund claims with the IRS in December 2007.

Appellants also argued that regardless of the trial court's determination as to that issue, D.C. Code ยง 12-302 tolled the limitations ...

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