J&J Founder’s Grandson Sues Proskauer Firm for $100 Million
FOLLOW UP STORY:
Proskauer Blames Accountants for Tax Strategy Issues
By David Voreacos
John Seward Johnson Jr., a grandson of Johnson & Johnson’s founder, sued the New York law firm Proskauer Rose LLP for more than $100 million, claiming it fraudulently induced him to invest in an abusive tax shelter.
Johnson, a sculptor, and his wife, Joyce, relied upon false statements by Proskauer before investing in 2000 in a shelter later ruled improper by the Internal Revenue Service, according to a complaint filed today in state court in Manhattan.
The Johnsons seek more than $40 million for taxes, penalties and interest, as well as fees, and for lost income and value from J&J shares they sold, according to the complaint. They also asked for punitive damages of $100 million. Proskauer partner Jay Waxenberg and former partner Ira Akselrad also were named as defendants.
The firm “intentionally and fraudulently induced” the Johnsons to invest by “making false representations about the legitimacy, intent and purpose of the tax program and related transaction,” according to the complaint. The lawsuit alleges fraud, legal malpractice and unjust enrichment.
Proskauer partner David Lederkramer said the firm declined to comment on the case. Akselrad didn’t immediately return a call seeking comment. Waxenberg declined to comment on the case.
Meeting at Proskauer
In October 2000, Johnson attended a meeting at Proskauer’s offices that included a principal of the Diversified Group Inc., which sold tax planning strategies, according to the complaint.
The defendants falsely said the tax shelter would “legitimately and legally obviate the necessity to pay taxes otherwise arising in connection with a sale of J&J shares,” according to the complaint.
The defendants said that “Seward Johnson was one of their favorite clients” and that the tax shelter was “being offered to favored clients of Proskauer,” according to the complaint.
Proskauer knew that the shelter “lacked a legitimate business purpose and lacked economic substance,” according to the complaint. Proskauer produced a 63-page tax opinion that was “rife was misleading and false assumptions and omitted critical facts” while saying Johnson wouldn’t have to pay taxes on the sale of J&J shares, according to the complaint.
The firm produced about 380 opinion letters “to other clients who participated in similar types of tax transactions,” according to the complaint.
The case is Johnson v. Proskauer Rose LLP, New York State Supreme Court, New York County (Manhattan).