The Accountant/Attorney Liability Reporter: October 2007

Inside this Issue

Immigration Impact On Employment Practices

In light of the current immigration climate, and the resulting increase in workplace audits, all employers should take the time to determine whether they are in compliance with all employee documentation requirements. Although often overlooked, immigration considerations may significantly affect a company’s employment practices and, for those companies failing to take immigration seriously, the results can be devastating. These requirements are equally applicable to private individuals who may employ non-immigrant aliens to perform household maintenance and care services.

First Circuit Finds No Attorney-Client Relationship Exists Between Counsel Retained By A Corporation And A Corporation’s Investors

The First Circuit recently affirmed a grant of summary judgment for two law firms and an attorney based on the lack of an attorney-client relationship between investors in a corporation and counsel retained by that corporation to investigate the fraudulent transfer of its investors’ funds. In International Strategies Group, Ltd. v. Greenberg Traurig, LLP, 482 F.3d 1 (1st Cir. 2007), the plaintiff, International Strategies Group, Ltd. (“ISG”), a Hong Kong based investment company, brought a lawsuit against A. John Pappalardo (the “Attorney”), Greenberg Traurig, LLP (“GT”), the Attorney’s present firm, and Eckert, Seamans, Cherin & Mellot, LLC (“ESCM”), the Attorney’s former law firm (collectively, the “Law Firms”), alleging that it had relied on the Attorney’s representations as counsel for the Corporation of the Bank House (“COB”) in attempting to recover monies fraudulently transferred from one of COB’s investment programs.

Court Enforces Limitation Of Liability Clause In Accountant’s Engagement Letter

The Massachusetts Superior Court recently issued a key decision on the enforceability of limitation of liability clause contained in an accountant’s engagement letter. In Palmer, et al. v. Ernst & Young LLP, et al., C.A. No. 05-0290-BLS2 (April 10, 2007), the Plaintiffs, Mr. and Mrs. Palmer, engaged Ernst & Young LLP (“E&Y”), to devise a tax saving plan that would defer the payment of taxes owed by Mr. Palmer. Lee Williams (“Williams”), an E&Y partner, who was an accountant and a lawyer, advised Mr. Palmer that he could transfer the shares he owned in a software and technology company to a family trust in exchange for a private annuity (“the Annuity Plan” or the “Plan”). Several weeks later, E&Y presented Mr. Palmer with an engagement letter. The first page of the engagement letter stated, in bold and capital letters, “Privileged Opinion and Advice of Counsel.” The letter acknowledged that the IRS had not yet recognized the legality of the Annuity Plan but expressed confidence that the Plan could be successfully defended.

Court Holds Statute Of Limitation Begins To Run When Client Incurs Legal Fees To Defend Claims Arising From Accounting Firm

In Petricca v. PwC, C.A. No. 05-00004, Berkshire County Superior Court (January 24, 2007) a Massachusetts trial judge addressed the issue of when the plaintiff knew or should have known his accountant’s advice caused him appreciable harm for statute of limitations purposes. The plaintiff’s claim arose from advice he received from his accountant in 1987 regarding the distribution of $3.1 million in proceeds from the sale of land owned by the plaintiff and his brother. The money was contributed to a corporation in which the plaintiff and his brother were the sole shareholders. The funds were then distributed to the shareholders to repay debt and redeem the plaintiff’s stock. This was done over a period of several months in accordance with a plan developed by the accountant.

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