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Peter & Deborah Amato v. KPMG LLP

June 13, 2006

PETER & DEBORAH AMATO, ET AL., PLAINTIFFS
v.
KPMG LLP, ET AL., DEFENDANTS



The opinion of the court was delivered by: Judge Jones

MEMORANDUM AND ORDER

THE BACKGROUND OF THIS ORDER IS AS FOLLOWS:

We have a plethora of motions before us which will be addressed in this Memorandum and Order. First, we have three Motions to Compel Arbitration and Stay All Proceedings, or Alternatively, for Additional Time to Respond to Complaint (docs. 7, 8, 10) filed by Defendants KPMG LLP ("KPMG"), Presidio Advisors LLC and Presidio Growth LLC (collectively, "Presidio"), and Deutsche Bank AG ("Deutsche Bank") and Deutsche Bank Securities, Inc. ("DBSI") (collectively "Deutsche Bank Defendants") on January 13, 2006. Second, pending before the Court is a Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) (doc. 9) filed by Defendant Sidley Austin Brown & Wood LLP*fn1 ("Sidley Austin") on January 13, 2006. Finally, we have before us a Motion to Remand for Lack of Subject Matter Jurisdiction (doc. 23) filed by Plaintiffs on February 6, 2006.

For the reasons that follow, we will deny Plaintiffs' Motion to Remand, grant in part and deny in part Sidley Austin's Motion to Dismiss, order Plaintiff Mr. Chebalo to submit to arbitration his claims against the Deutsche Bank Defendants, and stay all further proceedings in this case against all Defendants pending the completion of the arbitration process between Plaintiff Mr. Chebalo and the Deutsche Bank Defendants in accordance with the arbitration clause contained in the Customer Agreement.In addition, the Court will set a telephonic status conference for December 4, 2006, which will be initiated by Plaintiffs' counsel, advising the Court on the progress of the arbitration procedure.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On or about October 28, 2005, Plaintiffs*fn2 filed a complaint against Defendants*fn3 in the Court of Common Pleas of Luzerne County, Pennsylvania alleging various misconduct relating to Plaintiffs' participation in an investment strategy known as Offshore Portfolio Investment Strategy ("OPIS"). By stipulation of the parties, the time for Defendants to respond to Plaintiffs' complaint was extended to January 6, 2006. On January 6, 2006, the Deutsche Bank Defendants, with the consent of all Defendants, removed the action to this Court.

Plaintiffs' complaint alleges that in 1998 they realized a significant capital gain from the sale of certain companies, including Keystone Automotive Warehouse. (Compl. ¶¶ 22-25). Plaintiffs are individuals who hoped to avoid tax liability by investing in a tax-advantaged investment strategy, OPIS, that was allegedly marketed to them by KPMG. Id. ¶¶ 25, 47, 48. Plaintiffs allege that they participated in the OPIS strategy after meeting with a representative of KPMG, who advised them that they could recognize significant tax benefits through their participation in OPIS. Id. ¶ 25. Subsequently, Plaintiffs claimed substantial tax losses on their tax returns. Id. ¶ 13. Plaintiff allege that the IRS and the Commonwealth of Pennsylvania later challenged such losses. Id. ¶¶ 32, 99-101.

The crux of the allegations in the complaint is that the Deutsche Bank Defendants engaged in a scheme to induce wealthy and sophisticated persons, like Plaintiffs, to pursue the OPIS strategy when they knew or should have known that OPIS was an abusive tax shelter that would be disallowed by the IRS. Id. ¶ 85. As a result, Plaintiffs now claim that they were misled about the propriety and nature of the OPIS strategy and seek damages from not only KPMG, Sidley Austin, and Presidio, but also against the Deutsche Bank Defendants, which provided credit and account services to Plaintiffs. Id. ¶¶ 85, 105-225.

Plaintiffs allege that "KPMG expressly represented to present plaintiffs that KPMG and the [Sidley Austin] law firm would independently provide opinion letters." Id. ¶¶ 61, 108. As a result, Plaintiffs "reasonably relied to their significant detriment on the independence of Brown & Wood in connection with entering into the OPIS transaction and in engaging Brown & Wood." Id. ¶ 61. Moreover, Plaintiffs allege in the complaint that Sidley Austin wrongfully issued alleged "independent" opinion letters to Plaintiffs that concluded it was "more likely than not" that the tax deductions generated by OPIS would be upheld if challenged by the IRS. Id. ¶ 67. Plaintiffs allege that Sidley Austin knew or should have known that OPIS was not "more likely than not" to be upheld by the IRS, since it based this opinion on facts that it knew or should have known were not correct and in any event, since the transaction had no economic substance other than to reduce taxable income. Id. ¶¶ 67, 153. Plaintiffs assert that KPMG, acting as Sidley Austin's agent in this alleged fraudulent marketing endeavor, represented to Plaintiffs that the promised tax opinion of Sidley Austin was "independent." Id. ¶ 154. The Senate Subcommittee found the evidence suggested that Sidley Austin and KPMG were "close collaborators, rather than independent actors." Id. ¶ 60.

Plaintiffs additionally allege that the Senate Subcommittee questioned Sidley Austin's compliance with American Bar Association Model Rule 1.5, which prohibits charging of unreasonable fees. Id. ¶ 65. Sidley Austin was paid at least $50,000 for each allegedly "independent" opinion letter and Plaintiffs allege that the letters were in fact canned creations. Id. ¶¶ 64, 69. Plaintiffs assert that Chief Judge Thomas F. Hogan of the United States District Court for the District of Columbia has already stated that Sidley Austin's tax shelter opinion letters have "little indication" that they are "independent opinion letters that reflect any sort of legal analysis, reasoned or otherwise. In fact, when examined as a group, the letters appear to be nothing more than an orchestrated extension of KPMG's marketing machine." Id. ¶ 69 (quoting United States v. KPMG LLP, 316 F. Supp. 2d 30, 40 (D.D.C. 2004)).

Plaintiffs' complaint alleges the following twenty causes of action:

(1) misrepresentation/fraud against KPMG; (2) negligent misrepresentation against KPMG; (3) breach of fiduciary duty against KPMG; (4) professional malpractice against KPMG; (5) consumer fraud against KPMG; (6) aiding and abetting fraud, aiding and abetting breaches of fiduciary duty against KPMG; (7) civil conspiracy against all Defendants; (8) misrepresentation/fraud against Sidley Austin; (9) negligent misrepresentation against Sidley Austin; (10) breach of fiduciary duty against Sidley Austin; (11) professional malpractice against Sidley Austin; (12) consumer fraud against Sidley Austin; (13) aiding and abetting fraud, aiding and abetting breaches of fiduciary duty; (14) misrepresentation against Deutsche Bank; (15) negligent misrepresentation against Deutsche Bank; (16) aiding and abetting fraud, aiding and abetting breaches of fiduciary duty against Deutsche Bank; (17) misrepresentation/fraud against Presidio; (18) negligent misrepresentation against Presidio; (19) consumer fraud against Presidio; and (20) aiding and abetting fraud, aiding and abetting breaches of fiduciary duties against Presidio. Plaintiffs also seek punitive damages against all Defendants.

The Motions pending before the Court have been fully briefed and the Court heard oral argument on such Motions on May 24, 2006.

DISCUSSION

A. Sidley Austin's Motion to Dismiss

Defendant Sidley Austinfiled a Motion to Dismiss this action pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 12(b)(6), or, in the alternative, pursuant to Fed.R.Civ.P. 9(b). Before elaborating upon Sidley Austin's Motion, we will provide the applicable standard of review for a motion to dismiss. In considering a motion to dismiss, a court must accept the veracity of a plaintiff's allegations. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); see also White v. Napoleon, 897 F.2d 103, 106 (3d Cir. 1990). In Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996), our Court of Appeals for the Third Circuit added that in considering a motion to dismiss based on a failure to state a claim argument, a court should "not inquire whether the plaintiffs will ultimately prevail, only whether they are entitled to offer evidence to support their claims." Furthermore, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see also District Council 47 v. Bradley, 795 F.2d7 310 (3d Cir. 1986).

We initially note that in considering Defendant Sidley Austin's Motion, we must construe the complaint in the light most favorable to Plaintiffs, take the allegations in the complaint as true, and draw all reasonable inferences that can be drawn from the pleading in Plaintiffs' favor.

i. Fraud, Negligent Misrepresentation, and Consumer Fraud Claims

In its Motion, Sidley Austin argues that Plaintiffs' claims for fraud, negligent misrepresentation, and consumer fraud against it fail because Plaintiffs have not and cannot plead reliance or a misrepresentation of past or present material fact. Sidley Austin asserts that Plaintiffs cannot allege that they relied upon any communications by Sidley Austin in entering into the transaction because Plaintiffs themselves submit that they never spoke to anyone from Sidley Austin. Moreover, Sidley Austin maintains that Plaintiffs could not reasonably have relied upon the substance of the promise made by KPMG as an agent of Sidley Austin, that Sidley Austin, acting independently, would provide them with an opinion letter. In that regard, Sidley Austin contends that the alleged statements by KPMG cannot satisfy the elements of justifiable reliance.

In response, Plaintiffs assert that they have stated viable fraud, negligent misrepresentation, and consumer fraud claims. Plaintiffs argue that a promise can be the basis of a fraud claim under Pennsylvania law, "reliance" cannot be decided on a Fed.R.Civ.P. 12(b)(6) motion, and a determination as to whether Plaintiffs had personal knowledge of the alleged misrepresented facts is not susceptible to resolution on a Fed.R.Civ.P. 12(b)(6) motion.

Sidley Austin accurately submits that Plaintiffs must plead in their fraud, negligent misrepresentation, and consumer fraud claims that Sidley Austin made a misrepresentation of a past or present material fact and that Plaintiffs incurred damages by justifiably relying on those same misrepresentations. See Krause v. Great Lakes Holdings, Inc., 563 A.2d 1182, 1187 (Pa. Super. Ct. 1989); GMH Assocs. v. Prudential Realty Group, 752 A.2d 889, 901 (Pa. Super. Ct. 2000); Gibbs v. Ernst, 647 A.2d 882, 889 (1994)(justifiable reliance is an element of fraud); Kramer v. Dunn, 749 A.2d 984, 991 (Pa. Super. Ct. 2000)(justifiable reliance is an element of negligent misrepresentation); Toy v. Metro. Life Ins. Co., 863 A.2d 1, 9 (Pa. Super. Ct. 2004)("The Courts of this Commonwealth have consistently held that, to establish a private right of action under the UTPCPL, a plaintiff must demonstrate that he/she detrimentally relied upon the deceptive practice of the defendant and that the plaintiff suffered harm as a result of this reliance.").

At this early stage of the litigation and taking the allegations in the complaint as true, as we must at this juncture, we do not agree with Sidley Austin that Plaintiffs do not, and cannot, allege either that a material misrepresentation of past or present fact was made, or that they relied upon such a misrepresentation.

Plaintiffs allege that Sidley Austin, through KPMG, promised Plaintiffs an independent "more likely than not" opinion letter. Plaintiffs allege that Sidley Austin failed to disclose that these opinions were not independent and that Sidley Austin made the promise to "fraudulently induce[] plaintiffs to enter into the OPIS transaction." (Compl. ¶¶ 153-54). In response, Sidley Austin argues that a promise to do something in the future, which promise is not kept, is not fraud. As the United States District Court for the Eastern District of Pennsylvania explained in Leonard A. Feinberg, Inc. v. Central Asia Capital Corp., 974 F. Supp. 822 (E.D. Pa. 1997), while fraud claims may not rest solely upon misrepresentations of future promises, "it is equally true that a cause of action for fraud can be predicated on future promises if the defendant knew at the time he made the promise that he would not carry it out." Id. at 843 (citing Killian v. McCulloch, 850 F. Supp. 1239, 1255 (E.D. Pa. 1994)). As such, Plaintiffs' allegations concerning the fact that Sidley Austin promised an independent opinion and that Sidley Austin knew the opinion was not in fact independent are not merely future promises that cannot be the basis of a fraud claim under Pennsylvania law.

In addition, Sidley Austin maintains that Plaintiffs cannot establish the requisite reliance to prove their fraud, negligent misrepresentation, and consumer fraud claims. In that regard, Sidley Austin argues that Plaintiffs could not "justifiably have believed both that KPMG was the agent for [Sidley Austin] and that [Sidley Austin] was independent of KPMG." (Sidley Austin Br. Supp. Mot. Dismiss at 7).

We are in agreement with Plaintiffs that allegations concerning the fact that KPMG was the agent for Sidley Austin with respect to the making of the promise of the independent opinion letter does not as a matter of logic preclude Sidley Austin from exercising independent judgment in the provision of that opinion letter. Moreover, Plaintiffs allege in the complaint that they reasonably relied to their significant detriment on the independence of Sidley Austin in connection with entering into the OPIS transaction and in engaging Sidley Austin. "Neither [Sidley Austin] nor KPMG, both of which owed fiduciary duties to their clients (the present plaintiffs), disclosed the collaboration, although it was a material fact and they had a duty to do so. In fact, and to the contrary, KPMG expressly represented to present plaintiffs that KPMG and the law firm would independently provide opinion letters. Had plaintiffs known of the undisclosed collaboration between [Sidley Austin] and KPMG, they would not have entered into the OPIS transaction." (Compl. ¶ 61). We find that contrary to Sidley Austin's arguments, Plaintiffs' complaint sufficiently alleges reasonable reliance. See Compl. ¶¶ 153, 160, 178.*fn4

Taking Plaintiffs allegations in the complaint as true, as we must at this juncture, Plaintiffs have stated fraud and negligent misrepresentation claims upon which relief can be granted. Sidley Austin's Motion is accordingly denied to that extent.

We must now consider Sidley Austin's additional reason for which it argues Plaintiffs' consumer fraud claim fails, specifically because Plaintiffs did not enter into the transaction for personal, family, or household purposes. Sidley Austin contends that Plaintiffs entered into the transaction to protect funds generated by the sale of a corporate entity that they owned, and by which they earned their livelihood. Sidley Austin asserts that Plaintiffs were not acting as consumers, but instead as investors and that Pennsylvania courts have rejected claims by individuals under the Unfair Trade Practices and Consumer Protection Law ("UTPCPL") where the purchase was not made primarily for personal, family or household purchases.

In response, Plaintiffs argue that Sidley Austin's argument rests incorrectly on the type of product purchased, and not the purpose of the purchase, which controls. Plaintiffs distinguish case law relied upon by Sidley Austin and assert that they purchased the tax shelters to lessen their personal, not business, tax liabilities.

We initially note that, as submitted by Plaintiffs, Pennsylvania's consumer fraud statute, the UTPCPL, provides that "[a]ny person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by any person of a method, act or practice declared unlawful . . . may bring a private action to recover actual damages[.]" 73 P.S. § 201-9.2(a). Although Sidley Austin argues that when Plaintiffs purchased the alleged OPIS tax shelter they were acting as investors, not as consumers, and therefore the tax shelters were purchased primarily for business, not personal purposes, we reiterate that we are in agreement with Plaintiffs that Sidley Austin's argument incorrectly rests on the type of product purchased, as opposed to the purpose of the purchase. In that regard, Plaintiffs citation to the Pennsylvania Commonwealth Court case of Valley Forge Towers South Condominium v. RonIke Foam Insulators, 574 A.2d 641 (Pa. Commw. Ct. 1990), is apt. In Valley Forge, the Pennsylvania Commonwealth Court explained that:

If a laundry business were to purchase a home-use model, department store dryer for the primary purpose of drying clothes for the laundry business, such a purchase would be primarily for a business purpose, despite the fact that the dryer may have been a typical 'consumer product.' On the other hand, if the parents of twelve growing children purchased an industrial washer and dryer from a business supplier to be used primarily to do the family's laundry, the purchase would be primarily for a family purpose and come within the ambit of 73 P.S. § 201-9.2, notwithstanding the fact that industrial washers and dryers generally might not be considered typical 'consumer products.'

Id. at 648.

While we agree with Plaintiffs that the cases relied upon by Sidley Austin are factually distinguishable from the case sub judice,*fn5 at this juncture we will consider Sidley Austin's citation to the Third Circuit Court of Appeals case of Algrant v. Evergreen Valley Nurseries Ltd. Pshp., 126 F.3d 178, 186-88 (3d Cir. 1997), for the proposition that investment securities are not "goods" for purposes of the UTPCPL. In Algrant, the plaintiffs alleged that the fraud was in the valuation fixed by the issuer of the investment securities themselves and misrepresentations the issuer made concerning the securities. The Third Circuit explained that only one trial court, in addition to the district court in the Algrant case, has held that the UTPCPL does not cover the sale of investment securities. Id. at 187. In addition, the Third Circuit stated that Pennsylvania cases which hold that the UTPCPL covers the purchase of securities also deal specifically with the transaction, and not with the securities themselves. Id.

As previously noted, this case concerns individuals who hoped to avoid personal tax liability by investing in a tax-advantaged investment strategy, OPIS, that was allegedly marketed to them by KPMG. (Compl. ¶¶ 25, 47, 48). The crux of the allegations in the complaint is that the Deutsche Bank Defendants engaged in a scheme to induce wealthy and sophisticated persons, like Plaintiffs, to pursue the OPIS strategy when they knew or should have known that OPIS was an abusive tax shelter that would be disallowed by the IRS. Id. ¶ 85. As a result, Plaintiffs now claim that they were misled about the propriety and nature of the OPIS strategy and seek damages from not only KPMG, Sidley Austin, and Presidio, but also against the Deutsche Bank Defendants, which provided credit and account services to Plaintiffs. Id. ¶¶ 85, 105-225. Accordingly, we find that the factual circumstances of this case are distinguishable from those in Algrant, which, as noted, at least in part concerned fraud allegations in the valuation fixed by the issuer of investment securities themselves.

Additionally, we note that Plaintiffs are individuals, and not businesses. Although Sidley Austin argues that Plaintiffs entered into the transaction to avoid paying taxes on gain from the sale of the business that they owned and by which they earned their livelihood, Plaintiffs purchased the alleged tax shelters to lessen their personal, as opposed to their business, tax liabilities. While we express no opinion as to the ultimate viability of Plaintiffs' consumer fraud claims, we find that taking all of Plaintiffs' allegations in the complaint as true, Plaintiffs have stated consumer fraud claims upon which relief can be granted.

ii. Breach of Fiduciary Duty Claims

In the Motion, Sidley Austin argues that Plaintiffs' claim for breach of fiduciary duty fails because Sidley Austin did not stand in a fiduciary relationship to Plaintiffs at the time it entered into the transaction. Sidley Austin contends that Plaintiffs did not seek and did not obtain legal advice from it before the OPIS transaction, thereby precluding the existence of an attorney-client, and hence fiduciary, relationship. In response, Plaintiffs assert that its breach of fiduciary duty claim is not limited to events before the consummation of the OPIS transaction. Plaintiffs maintain that part of their claim includes excessive and inappropriate fees charged by Sidley Austin, as well the issuance of opinion letters to Plaintiffs which Plaintiffs allege Sidley Austin knew or should have known in the exercise of reasonable professional care were not correct. (Compl. ¶¶ 167, 171).

In Count X of the complaint, Plaintiffs assert a breach of fiduciary claim against Sidley Austin in which they allege that Sidley Austin was employed in a fiduciary capacity by Plaintiffs and owed Plaintiffs the duties of a fiduciary. Plaintiffs allege that Sidley Austin owed Plaintiffs fiduciary duties of care and loyalty and that Sidley Austin "negligently or intentionally failed to act in good faith and solely for the benefit of plaintiffs in all matters for which Sidley Austin was employed." (Compl. ¶¶ 163-64). Plaintiffs allege that they suffered significant injury from Sidley Austin's actions, which were designed to benefit itself and which were detrimental to Plaintiffs. Moreover, Plaintiffs allege that Sidley Austin's actions "reflect a series of actions in which Sidley Austin failed to act for plaintiffs' benefit but acted, instead, for its own (financial) benefit, was a real factor in bringing about plaintiffs' injuries. Sidley Austin's breaches of its fiduciary obligations were a proximate cause of damage to plaintiffs." Id. ¶ 166. Finally, Plaintiffs assert that Sidley Austin also breached its fiduciary duties by charging excessive and inappropriate fees to Plaintiffs in connection with the OPIS transaction. Id. ¶ 167.

A careful review of Plaintiffs' complaint reveals that Sidley Austin has read Plaintiffs' allegations too narrowly. We find that as Plaintiffs assert, they have not limited their claim to events that transpired before the consummation of the OPIS transaction, evidenced at least in part by Plaintiffs' allegations concerning "excessive and inappropriate fees" charged by Sidley Austin. Although Sidley Austin argues that Plaintiffs have not alleged any damages proximately caused by events occurring after their entry into the transaction and that Plaintiffs have asserted conclusory allegations of damages, we disagree. Plaintiffs have alleged that Sidley Austin's actions were a real factor in bringing about Plaintiffs' injuries and that its breaches of fiduciary obligations were a proximate cause of damages to Plaintiffs. In addition, Plaintiffs have listed the following specific categories of damages which they seek: compensatory damages; lost profits; punitive damages; restitution and disgorgement of profits; recoupment of professional and other fees paid to Sidley Austin; interest including pre-judgment interest and recoupment of interest paid to the IRS;*fn6 and other relief deemed just and proper by the Court.

Moreover, Plaintiffs need not specifically plead how the alleged damages at issue would have been avoided had Sidley Austin conducted itself differently after Plaintiffs entered the transaction in which Sidley Austin's fiduciary obligations allegedly arose.

Accordingly, we find that Plaintiffs have stated a breach of fiduciary claim against Sidley Austin upon which relief can be granted in Count X of the complaint.

iii. Professional Malpractice Claims

In the Motion, Sidley Austin argues that Plaintiffs' claim for professional malpractice fails because Sidley Austin did not cause Plaintiffs' damages in its professional capacity. In that regard, Sidley Austin maintains that the attorney-client relationship had not been established as of the time Plaintiffs entered into the OPIS transaction and that Plaintiffs' payment of back taxes was not caused by Sidley Austin's malpractice.

We initially note that under Pennsylvania law, a plaintiff must prove the following elements by a preponderance of the evidence to establish a cause of action for legal malpractice: "(1) the employment of the attorney or other basis for duty; (2) the failure of the attorney to exercise ordinary skill and knowledge; and (3) that such negligence was the proximate cause of the damage to the plaintiff." Thompson v. Glenmede Trust Co., 1996 U.S. Dist. LEXIS 16248 at *13-14 (E.D. Pa. 1996)(quoting Gans v. Mundy, 762 F.2d 338, 341 (3d Cir. 1985)).

Count XI of Plaintiffs' complaint asserts a professional malpractice claim against Sidley Austin in which Plaintiffs allege that they engaged Sidley Austin as their professional attorneys and that the engagement create a duty in Sidley Austin toward Plaintiffs. In that regard, Plaintiffs allege that "Prior to its engagement by plaintiffs, as already described, Sidley Austin committed various frauds and negligent and other misrepresentations against plaintiffs, including its actions in inducing plaintiffs to invest in OPIS. During the course of its engagement as plaintiffs' professional attorneys, Sidley Austin failed to exercise ordinary skill and knowledge. It was impeded by a conflict of interest between its role as participant as a promoter of the OPIS tax shelter and its role in providing a supposedly 'independent' opinion letter to plaintiffs." (Compl. ¶¶ 169-70). Plaintiffs further allege that among other things, Sidley Austin failed to exercise ordinary skill and knowledge in preparing its opinion letters and that the law firm knew or should have known that the factual bases behind its opinion were not correct. "Among other things, Sidley Austin failed to exercise the skill and knowledge of an expert in tax planning strategies, a standard to which it held itself out to plaintiffs." Id. ¶ 173. Plaintiffs assert that each action delineated in the complaint and taken by Sidley Austin was negligent and proximately caused actual damage and losses to Plaintiffs. Id. ¶ 175.

Again, we find that Sidley Austin has read Plaintiffs' complaint too narrowly and find that Plaintiffs' professional malpractice claim against Sidley Austin seeks damages for events following the OPIS transaction. Although Plaintiffs admit that they entered into the OPIS transaction prior to their engagement of Sidley Austin, Plaintiffs' complaint reflects that it is the events that occurred during the course of the engagement with Sidley Austin that are subject to Plaintiffs' professional malpractice claims. See Compl. ¶ 170 ("During the course of its engagement as plaintiffs' professional attorneys, Sidley Austin failed to exercise ordinary skill and knowledge . . . ).*fn7 Taking all of Plaintiffs' professional malpractice allegations as true, as we must at this juncture, we find that Plaintiffs have stated a professional malpractice claim against Sidley Austin upon which relief can be granted.

iv. Aiding and Abetting Claims

In the Motion, Sidley Austin argues that Plaintiffs' claim for aiding and abetting fails because Pennsylvania does not recognize a claim for aiding and abetting fraud and Plaintiffs have not alleged that Sidley Austin's aiding and abetting was the cause of their damages. In that regard, Sidley Austin maintains that Plaintiffs have failed to allege that any assistance or encouragement by the law firm caused damage to Plaintiffs and that Plaintiffs did not have any communication with Sidley Austin before they entered the transaction.

In response, Plaintiffs assert that they have stated viable aiding and abetting claims and that Pennsylvania law does not reject aiding and abetting liability for fraud. In addition, Plaintiffs maintain that they have adequately alleged that ...


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