Judge Elaine W. Mandel, Case Number: 24SMCV04563, Date: 2025-03-06 Tentative Ruling

Judge: Elaine W. Mandel, Case: 24SMCV04563, Date: 2025-03-06 Tentative Ruling

Case Number: 24SMCV04563 Hearing Date: March 6, 2025 Dept: P

Tentative Ruling

Ansary v. PriceWaterhouseCoopers, Case no. 24SMCV04563

Hearing date March 6, 2025

Defendants PWC’s Demurrer to the Complaint

Plaintiffs sue defendants PriceWaterhouseCoopers, LLP, PWC affiliates PWC US Tax, LLP and PWC Advisory Services, LLC (collectively “PWC”), as well as Hushang and Shahla Ansary for breach of fiduciary duty, negligence, fraud and indemnity. Plaintiffs allege defendants conspired to send plaintiffs incorrect tax documents which mislabeled U.S. income, resulting in increased tax liabilities. Defendants PWC demur, arguing failure to state sufficient facts and failure to name a necessary and indispensable party.

PWC requests judicial notice of (1) public information regarding defendant Hushang Ansary’s role as Iranian ambassador to the United States, per the Office of the Historian’s official website, and (2) information that a “corporation uses Schedule K-1 to report [a shareholder’s] share of the corporation’s income, deductions, credits, and other items,” as reflected by the Internal Revenue Service’s official website. Evid. Code §452 allows the court to take judicial notice of regulations issued by or under the authority of the United States or any public entity in the United States. Evid. Code §452 also allows the court to take judicial notice of “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” GRANTED.

“The function of a demurrer is to test the sufficiency of the complaint as a matter of law.” Holiday Matinee, Inc. v. Rambus, Inc. (2004) 118 Cal.App.4th 1413, 1420. A complaint “is sufficient if it alleges ultimate rather than evidentiary facts,” Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550, but plaintiff must allege essential facts “with reasonable precision and with particularity sufficient to acquaint [the] defendant with the nature, source and extent” of the plaintiff’s claim. Doheny Park Terrace Homeowners Ass’n., Inc. v. Truck Ins. Exchange (2005) 132 Cal.App.4th 1076, 1099.

Defendants Ansary are majority shareholders in Parman International B.V. (“PIBV”). Compl. para. 10. Plaintiffs, minority shareholders in PIBV, allege PIBV engaged PWC to provide tax services. Compl. para. 13. Plaintiffs allege PWC prepared tax forms for PIBV, including K-1 shareholder forms. Id. Plaintiffs allege PWC therefore owed duties to plaintiffs as a “tax preparer.” Compl. para. 34.

Plaintiffs allege Gill Ostrick served as Plaintiffs’ tax preparer. Compl. para. 12. Plaintiffs allege PWC failed to make an “IRC §951 income inclusion” and instead provided K-1 forms that “reflected figures that did not include the IRC §951 income inclusion.” Compl. para. 27. Plaintiffs allege this resulted in increased tax obligations, and defendants failed to provide necessary information to resolve the tax discrepancy. Compl. para. 28. Plaintiffs allege PWC “arranged for plans and schemes” to divert funding from PIBV on behalf of defendants Ansary. Compl. para. 31.

Plaintiffs do not allege they were direct clients of PWC, do not allege any specific misrepresentations, do not allege the existence of a contract between plaintiffs and PWC and do not name PIBV as a defendant.

PWC demurs to all causes of action, arguing failure to state facts sufficient to constitute a cause of action. PWC argues California law expressly does not impose fiduciary duties or tort liability on CPA firms with regards to shareholders of the CPA’s client. See Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 406. Binding precedent states CPAs do not owe duties to shareholders and downstream recipients of a CPA’s client. Further, PWC argues that since PIBV is the client, PWC could only disclose on the K-1 forms what it was authorized to disclose by PIBV. See IRC §7216; Bus. & Prof. Code §22252.1(a). Plaintiffs allege PWC was the CPA for PIBV, as such the claim fails.

The negligence claim similarly fails, as plaintiffs have not alleged a direct relationship such that PWC, as a CPA, owed plaintiffs any duty.

Plaintiffs do not allege specific misrepresentations, merely exclusions, rendering the fraud claim insufficiently pled.

Plaintiffs do not allege existence of a contract between PWC and plaintiffs, rendering the claim for indemnity insufficient. SUSTAINED with 15 days leave to amend.

PWC additionally argues the complaint fails to name a necessary and indispensable party, PIBV. Per Code Civ. Proc. §389(a), a party is necessary if, in its absence, complete relief cannot be accorded among those already parties, or if their rights would be prejudiced by the outcome of the case. Plaintiffs’ claims directly arise from tax forms created by PWC on behalf of, and at the direction of, PIBV. PWC is legally bound to only disclose what PIBV allows it to disclose.

If PWC were to be held liable for disclosures or lack thereof on the K-1 forms, PIBV must necessarily be joined as the controlling party and client of PWC. If plaintiffs succeed in their claims against PWC, failure to join PIBV could result in conflicting judgments, as PWC would need to bring a separate suit for indemnification and relief from PIBV. Plaintiffs’ allegations make it clear that PIBV is a necessary and indispensable party to the litigation. PIBV must be joined. SUSTAINED with 15 days leave to amend.