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In re Shulman

Court of Appeals of Texas, Fourteenth District

December 12, 2017

IN RE HOWARD SHULMAN, Relator

         ORIGINAL PROCEEDING WRIT OF MANDAMUS 234th District Court Harris County, Texas Trial Court Cause No. 2016-03005

          Panel consists of Justices Boyce, Donovan, and Jewell.

          OPINION

          Kevin Jewell Justice.

         In this original proceeding, relator Howard Shulman seeks mandamus relief from orders abating the underlying case and compelling certain discovery. See Tex. Gov't Code Ann. § 22.221 (West 2004); see also Tex. R. App. P. 52.

         Real party in interest Georgia Foulard engaged attorney Shulman to provide tax planning advice regarding certain property transfers benefitting Georgia as a result of a divorce settlement with her husband, Michael Foulard. Georgia later sued Shulman alleging negligence, breach of fiduciary duty, and other claims. Though she seeks several types of damages, Georgia claims principally that Shulman's alleged wrongful conduct exposed her to approximately $1.6 million in potential federal tax liability. After Shulman moved for summary judgment, Georgia filed a motion to abate all of her claims until potentially August 2021, when she contends the limitations period for the Internal Revenue Service (the "IRS") to assess taxes will expire.

         The trial court, Honorable Wesley R. Ward, presiding judge of the 234th District Court of Harris County, abated the case "until August 15, 2021 or until the IRS assesses the tax liability at issue in the lawsuit, whichever is sooner." Before abating the case, the trial court signed a separate order compelling Shulman to produce documents Shulman contends are subject to the attorney-client privilege. Shulman requests mandamus relief as to both orders.

         Regarding the abatement order, we hold that, under the present circumstances, abating the case for the time period at issue is an abuse of discretion and effectively vitiates Shulman's ability to present a claim or defense. Because relator lacks an adequate remedy by ordinary appeal, we conditionally grant the petition for writ of mandamus as to the abatement order. We deny the petition for writ of mandamus as to the order to produce documents because the trial court has not finally refused Shulman's motion to reconsider and request to review the documents in camera.

         Factual and Procedural Background

         To resolve a divorce proceeding, Georgia and Michael signed a binding Mediated Settlement Agreement ("MSA"). Under the MSA, an offshore company known as Gulfstream Overseas (Bahamas) Ltd. ("GOB"), owned jointly by Georgia and Michael, was to transfer a house and $1.645 million cash to a Bahamian entity established by Georgia. The MSA did not detail the means or method of the transfer, but provided that, "Mike shall cause GOB to convey the assets to [Georgia's] Bahamian entity and account by any method he shall elect which is calculated to allow a transfer that does not create a taxable event for Georgia or the Bahamian entity except that Georgia shall pay any 'repat' tax on the assets awarded to her herein if Georgia takes any action which creates a taxable 'repat' tax event for these assets awarded to her herein." The MSA further stated that "should the U.S. or Bahamian tax authorities deem the receipt of these assets a taxable event, Georgia shall be responsible for 100% of same and shall indemnify, defend and hold Mike and GOB and his/its property harmless from any liability thereon." The MSA divided marital property. Any disputes regarding the MSA's interpretation were to be resolved by arbitration. Georgia and Michael signed the MSA on October 30, 2013.

         After signing the MSA, Georgia hired Shulman on November 19, 2013 to provide tax planning advice in connection with the property transfer from GOB. In January 2014, Shulman concluded that of multiple methods to effect the transfer, a stock redemption transaction "seemed the most logical" way to characterize the transfer for federal income tax purposes. Shulman believed that Georgia may be forced to recognize a significant amount of taxable income as a result of signing the MSA, unless the MSA was amended.

         Georgia, however, understood the MSA to contemplate the property transfer by means that would not result in a taxable event to her. Georgia did not accept or follow Shulman's advice or recommendations. Georgia hired new tax counsel, Marc Grossberg, who advised Georgia that to avoid creating a taxable event for her, GOB should transfer the property to Michael and then Michael should transfer the property to Georgia.

         In February 2014, the trial court signed an Agreed Final Decree of Divorce, which incorporated the MSA. Subsequently, both Georgia and Michael filed counter-proceedings for enforcement of the MSA. Michael moved to refer the matter to arbitration, which the trial court granted. The principal issue at arbitration concerned the means by which the house and cash would be transferred. According to Georgia, Shulman appeared at the arbitration as part of Michael's legal team. Georgia also contends that Shulman, acting for GOB, hired a tax expert, who testified adversely to Georgia on the issue for which Georgia had engaged Shulman. The arbitrator ruled that Georgia was to sign a stock redemption agreement to transfer the property from GOB to Georgia's Bahamian entity.

         The trial court signed findings of fact and conclusions of law based on the arbitrator's award and ordered Georgia to sign the stock redemption agreement, which she did under protest on January 7, 2015. Georgia filed an income tax return for the 2014 tax year, in which she took the position that she does not owe any tax on the property transfer under the MSA. As of the date of this opinion, the IRS has not assessed any tax or sent a deficiency notice to Georgia related to the property transfer.

         In 2016, Georgia filed the present lawsuit against Shulman, asserting claims for negligence (legal malpractice), breach of fiduciary duty, common law fraud, statutory fraud, and tortious interference with contract. All causes of action are based on Georgia's allegations that Shulman (1) provided negligent tax planning advice, and (2) acted against Georgia's interest by advising Michael and GOB on ways to mitigate Michael's and GOB's tax liability from the property transfer, thus "undo[ing]" the tax benefit to which Georgia believed the MSA entitled her.

         As a result of Shulman's conduct, Georgia maintains, she is potentially exposed to federal tax liability of approximately $1.6 million. Georgia also seeks legal, professional, and expert fees and expenses in excess of $200, 000, disgorgement of attorney's fees, exemplary damages, costs, and interest.

         Georgia served Shulman with requests for production of documents related to Shulman's previous representation of Michael, GOB, and other entities. In response, Shulman asserted the attorney-client privilege. Georgia filed a motion to compel production.

         In the meantime, Shulman filed a traditional and no-evidence motion for summary judgment, seeking judgment as a matter of law based on collateral estoppel, the absence of damages, the absence of causation, and other reasons. Two days later, Georgia moved to abate her lawsuit until either the IRS had assessed taxes on the property transfer or until limitations barred it from doing so on August 15, 2021.[1]

         The trial court heard the motion to abate and the motion to compel, and signed an order compelling Shulman to produce responsive documents within seven days. Shulman filed an Emergency Motion for Reconsideration of the Court's Order Compelling Production and Alternative Request for In Camera Inspection. At a hearing on the motion for reconsideration, Shulman tendered the documents in question for in camera review. The trial court declined to review the documents at that time because Shulman had not shown that Michael wanted to invoke his attorney-client privilege. The trial court instructed Shulman's counsel to determine whether Michael wanted to invoke the privilege. The trial court also signed an order abating the case "until August 15, 2021 or until the IRS assesses the tax liability at issue in the lawsuit, whichever is sooner." When the trial court signed the abatement order, Shulman's summary judgment motion remained pending.

         Mandamus ...


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