Opinion ID: 537185
Heading Depth: 3
Heading Rank: 3

Heading: Recovery For Adverse Tax Consequences (Associate Defendants' Issue 3)

Text: 138 The Associate Defendants contend that the district court erred in failing to allow them recovery for adverse tax consequences allegedly caused by the misconduct of Cascade and Weston. In response, Cascade asserts that the Associate Defendants have failed to show that any adverse tax rulings they received were a direct result of either fraud or breach of fiduciary duty. (Cascade Reply Br. at 14.) The district court made no express findings concerning the adverse tax consequences allegedly suffered by the Associate Defendants. 26 139 From the record and rulings of the district court, we are unable to determine the basis for the district court's denial of damages for adverse tax consequences. We can theorize at least three possible grounds for the district court's decision: (1) the district court may have held that damages for adverse tax consequences are not allowable as a matter of law; (2) the district court may have concluded that the Associate Defendants had not proved the elements of their claim for those damages, such as the existence of the damages or a causal connection between the damages and the wrongdoing of Cascade and Weston; or (3) the district court may have concluded that the Associate Defendants did not properly raise and preserve the issue in the pretrial order or at trial. 140 On remand, the district court should make express findings concerning its reason for denying the Associate Defendants' claim for damages stemming from adverse tax consequences. We note that at least one circuit court has indicated that tax consequences may potentially be considered in computing damages in certain circumstances. See Sharp v. Coopers & Lybrand, 649 F.2d 175, 189-91 (3d Cir.1981) (investors in tax shelter could recover damages for fraud including damages associated with fraudulently promised tax benefits), cert. denied, 455 U.S. 938, 102 S.Ct. 1427, 71 L.Ed.2d 648 (1982), overruled on other grounds, In re Data Access Systems Securities Litigation, 843 F.2d 1537, 1550 (3d Cir.) (en banc) (implicitly overruling Sharp on statute-of-limitations issue), cert. denied, --- U.S. ----, 109 S.Ct. 131, 102 L.Ed.2d 103 (1988); but cf. Randall v. Loftsgaarden, 478 U.S. 647, 666-67, 106 S.Ct. 3143, 3154-55, 92 L.Ed.2d 525 (1986). 141