(Photo by Maggie Soladay)
The judge overseeing Dewey & LeBoeuf’s bankruptcy does not doubt that the past actions of a former tax partner at Dewey predecessor LeBoeuf, Lamb, Greene & MacRae may form the basis of a malpractice claim. He simply has no interest in being the one to decide the issue.
During a court hearing last week, U.S. Bankruptcy Judge Martin Glenn seemed eager to dispose of two malpractice suits filed in connection with the Dewey bankruptcy in recent months. The basis for the claims at the heart of both suits is tax advice given by Graham Taylor, a former LeBoeuf Lamb partner who, since leaving the firm in the early 2000s, pleaded guilty to committing federal tax fraud in Utah and relinquished his law license in California and New York.
“The question I have for all of you is, why are you here?” Glenn asked two plaintiffs lawyers in a lower Manhattan courtroom last Wednesday. “Why shouldn’t I abstain? The outcome doesn’t seem to affect the assets of the trust. Why do I have jurisdiction?”
Both suits stem from Taylor’s involvement with myCFO Inc., a financial services company that helped clients store money overseas in what turned out to be illegal tax shelters. Taylor and LeBoeuf Lamb served as legal counsel to myCFO, as well as to Chenery Associates, an investment boutique that promoted the same tax shelters to clients. Taylor helped ease investors’ concerns about the deals by issuing documents saying he had found the investments to be legally sound. The Internal Revenue Service disagreed.
In November 2005, Taylor was one of six people implicated in a federal criminal case in Utah stemming from the scheme. Prosecutors said Taylor and the others had helped clients hide money overseas from 1996 to 2005, resulting in $20 million in unpaid taxes. In 2009, after reaching a plea deal with prosecutors under which he admitted to committing tax fraud, Taylor was sentenced to 36 months’ probation and ordered to pay a $125,000 fine. One of his clients, Dennis Evanson, received a 10-year prison term.
The most recent of the two suits to dredge up Taylor’s past, filed in January by a former myCFO director, Philip Groves, blames LeBoeuf Lamb for advising Groves that the so-called nonperforming loans did not need to be registered with the U.S. government as tax shelters. Groves says in his suit that his reliance on a December 2001 opinion written by Taylor resulted in the IRS notifying him in September 2013 that he owes a $5.8 million penalty for registering tax shelters. The IRS determined that Groves could not use the defense that he relied on a legal opinion because LeBoeuf Lamb represented several parties related to the investments and had “an inherent conflict of interest,” according to his complaint.
In October, Chenery Associates and two of its principals filed their own malpractice suit in the Dewey bankruptcy citing Taylor’s tax advice. The plaintiffs in that suit seek $50 million in legal fees they say they paid LeBoeuf Lamb for its work creating and promoting the nonperforming loans. Like Groves, the plaintiffs mention an opinion from Taylor saying they did not need to register the investments as tax shelters.
The two sets of plaintiffs have agreed through a court order that they will only seek money from Dewey’s remaining malpractice insurance and not pursue money that could go to creditors. For that reason, Glenn hopes to move the suits out of his court and into either state or federal court, an arrangement to which all parties seemed agreeable.
“I’m giving you two weeks,” Glenn told lawyers for both the Dewey trust and the malpractice plaintiffs. If no resolution is reached in that time, he added, “I will abstain in the two cases and leave you all hanging.”
The suits are the latest in a string of malpractice and racketeering charges that LeBoeuf Lamb and Chenery faced in the years after Taylor advised clients on the investments. One such case is pending in Pennsylvania, and at least two others have since been dismissed. (None of the rest appear to have made their way into the bankruptcy court.)
Reached last week by phone, Taylor—who lives in San Francisco and says he works as an “international business consultant”—downplayed the actions at the root of the two recent malpractice suits.
“Did I give advice that was wrong? No no no,” says Taylor, a garrulous Australian who moved to the United States in 1977 to practice law. “The question was more: Did we do everything we should do in context of a tax shelter or didn’t we? Not that the advice was in any way incorrect.”
Taylor says his clients misled him into thinking the investments had a business purpose and were not purely meant as tax shelters, a crucial distinction under tax laws. “The moral of the story is, choose your clients more carefully. Especially individuals,” he says. “Sometimes clients are using the lawyers. I think that’s what happened to me.”
Taylor says he left LeBouef Lamb in 2001. His next gig, as a partner in the San Francisco office of Chicago firm Altheimer & Gray, ended in 2003 when the firm imploded. He landed at Seyfarth Shaw, where he worked until 2008. Taylor voluntarily resigned from the California bar in 2009 and the New York bar in 2010, both with attorney disciplinary cases against him pending. The nature of those cases was not immediately clear.
When faced with the criminal charges, Taylor says he entered into a plea bargain to avoid going before a jury in Utah.
“I had a bad Mormon in Utah as a client,” says Taylor, who worked at Coudert Brothers and Pillsbury Winthrop Shaw Pittman earlier in his career. “He did all sorts of things with the (tax) opinion I wrote that the government thought I ought to have known about and that I ought to have tried to stop him. I took the plea because of the risks of being tried by a Mormon jury in a Mormon state.”
Taylor says he was unaware of the two suits in the Dewey bankruptcy that cite his action—without naming him as a defendant—but hopes all the suits stemming from his work at LeBoeuf Lamb result in a tidy resolution. “I was very sorry to hear about their bankruptcy,” he says. “They were a fine group of people.”