The plaintiffs said they asked Shay for confirmation that the sale would terminate their personal tax liabilities and she allegedly said it would, the court said.
At the July 14, 2006, closing, Shay and the plaintiffs were told Avant Services would be substituted for Mirabilis in the purchase agreement. Avant was created two days prior and was owned by Mirabilis. The plaintiffs alleged they asked Shay whether that was significant and if they were still covered regarding the tax liabilities. She allegedly assured them everything was fine, according to the opinion.
BCA retained its identity after the stock transfer and Coleman continued to operate the company. The plaintiffs learned several months after the closing that they were still personally on the hook for the taxes. Coleman was then fired from BCA in early 2007. Soon after, he petitioned the Chester County Court of Common Pleas to regain control of BCA after receiving complaints from former clients that the company had canceled their contracts and acted unprofessionally, according to the opinion.
The Chester County court granted Coleman power of attorney status over BCA and ordered he perform an accounting. Coleman said he learned BCA's assets had been "plundered, and the taxes had not yet been paid," according to the opinion.
The IRS seized a bank account in BCA's name to pay the back taxes. In November 2010, the plaintiffs filed this malpractice suit in assumpsit, alleging breach of contract against Duane Morris and Shay. The defendants argued in response that the plaintiffs never discussed their tax liability with Shay, concealed the nature of BCA's tax liability and that Duane Morris' invoices had not been paid, the court said.
According to Musmanno, the plaintiffs are seeking the lost value of BCA's stock, which is estimated to be $2.5 million, and the interest and penalties that accrued on the taxes since July 14, 2006. Duane Morris argued those damages were inconsistent with proof of actual loss required in legal malpractice actions.
Accepting the plaintiffs' allegations as true, Musmanno said the plaintiffs' claims for damages constituted actual loss because they sold their stock without receiving the bargained-for result of their release from liability for the taxes owed.
"Thus, the plaintiffs' claim for the value of their stock, which they bargained away based on their reliance on defendants' legal advice, and the interest and penalties that had accrued on the unpaid taxes, if proved, would constitute the actual losses sustained by plaintiffs," Musmanno said.
Judge Sallie Updyke Mundy and Senior Judge James J. Fitzgerald III joined Musmanno in his opinion.
(Copies of the 14-page opinion in Coleman v. Duane Morris, PICS No. 12-2196, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)