Facts

Plaintiffs Catherine Keil and Johann Keil were husband and wife when they retained the services of Dwight Montgomery of Best, Best & Krieger LLP in August 2000 to represent their interests in a dispute with the Internal Revenue Service regarding an audit of their personal income tax returns for the years 1991, 1993 and 1994.

The IRS contended the Keils had underpaid their income tax liability in the amount of approximately $3.7 million. The audit eventually turned into litigation in the U.S. Tax Court. The Keils also subsequently retained Dwight Montgomery and Best, Best & Krieger LLP to represent the interests of one of their business entities in a separate claim by the IRS for unpaid taxes due from that entity for the year 2001.

The defendants did not timely file a petition to challenge a notice of deficiency issued by the IRS to the business entity owned by plaintiffs. The defendants reached settlement with the IRS on behalf of the plaintiffs in their individual capacities for years 1993 and 1994 (the issues regarding the tax for 1991 had previously been successfully brought to conclusion by defendants without additional taxes being owed) in December 2003. The plaintiffs disavowed the settlement, had it set aside by the U.S. Tax Court, which found the attorneys did not have client authority to enter into the stipulated settlement, and engaged new attorneys to negotiate a new resolution with the IRS.

PLAINTIFFS' CONTENTIONS:
The plaintiffs contended that the defendants did not have their consent or authority to settle their dispute with the IRS regarding their personal income tax returns; that the defendants had never told them of the late filing on behalf of their business entity forfeiting their right to challenge the IRS claims for taxes owed by that entity; and that the defendants had settled their personal returns matter so that plaintiffs would never discover the defendants' error on the business return dispute.

The plaintiffs claimed that the defendants misrepresented and concealed the fact that defendants had already accepted and agreed to the settlement with the IRS in 2003, even before written communications were sent to plaintiffs recommending a settlement and requesting authority to accept the same.

The plaintiffs further contended they did not know their case in the U.S. Tax Court was set for trial in December; that defendants had not told them their efforts to get the case continued had been unsuccessful; that defendants had not prepared the plaintiffs for trial; and that defendants had allowed them to leave town on the date the case was set for trial, which was the same date defendants stipulated to a settlement of all issues with the IRS.

DEFENDANT'S CONTENTIONS:
The defendants contended they had consent from at least one of the two plaintiffs, who were no longer married at the time of trial; that defendants had acted within the standard of care at all times and had not misrepresented or concealed any material facts; that plaintiffs' claimed damages were not actually incurred by plaintiffs and/or were not recoverable as damages.

Settlement Discussions

The plaintiffs' lowest demand prior to commencement of trial was $4 million.

Damages

The plaintiffs sought actual damages for fees incurred in setting aside the allegedly unauthorized settlement; and negotiating a new settlement; and for additional taxes, penalties and interest accrued; and punitive damages against both the individual lawyer and law firm.

Result

Defense verdict on all claims (legal malpractice, breach of fiduciary duty, breach of contract, intentional fraud by concealment, and intentional fraud by misrepresentation causes of action).

Other Information

Plaintiff Catherine Keil's motion for new trial as to the cause of action for breach of fiduciary duty was denied on Oct. 29, 2009. EXPERT TESTIMONY: Boyd Lemon testified that the defendants breached the standard of care and committed a breach of fiduciary duty by failing to advise clients of the trial date; failure to prepare clients for trial; and settling clients' case with the IRS without obtaining clients' consent. FILING DATE: April 12, 2006.

Deliberation

one hour

Poll

10-2 (negligence), 12-0 (breach of fiduciary duty), 12-0 (breach of contract), 10-2 (fraud by concealment), 12-0 (fraud by misrepresentation)

Length

four weeks