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Tax Fight Over $65 Million

DALLAS (CN) - A chemical company claims in court that an attorney with Fried Frank fraudulently induced a Hanson Building Materials spinoff to sign a tax benefits agreement that limited tax benefits from $65 million in environmental expenditures.

Millennium Chemicals, Millennium America Holdings and Millennium Holdings LLC sued the New York City-based law firm Fried Frank Harris Shriver & Jacobson, partner Richard A. Wolfe, Hanson Building Materials, HBMA Holdings LLC and Lehigh Hanson Inc., in Dallas County Court.

Hanson spun off its chemical, natural resources and tobacco businesses in 1996. The chemical business became Millennium, with the remaining aggregates business becoming the "new" Hanson.

Millennium claims the law firm and Wolfe represented both Hanson and Millennium's predecessor on their tax-sharing agreement (TSA) signed in 1996. Hanson agreed to compensate Millennium for any reduction in tax liability Hanson received from $65 million in deductions or tax benefits due to environmental expenses Millennium paid in 1995 and 1996, the complaint states.

"Unbeknownst to Millennium, Hanson and Wolfe conspired to fraudulently induce Millennium to enter into a November 18, 2003, tax benefits agreement," the 24-page complaint states.

"In particular, the TBA (drafted by Wolfe), though purporting to merely 'clarify' Millennium's compensation rights under the TSA, actually laid the groundwork to subsequently deprive Millennium of its tax benefit rights under the TSA. Hanson and Wolfe's plan was to permit Hanson to defer paying any tax benefit recovery to Millennium at that time.

"In addition, the TBA made it possible for Hanson to utilize approximately $160 million of Millennium's net operating losses (which reduced Hanson's reportable income by no less than $30 million and up to approximately $56 million), and capped Millennium's potential tax benefit recovery - which Millennium would never have done had it known of Hanson and Wolfe's conspiracy to attempt to deprive Millennium of any tax benefit recovery under the TSA."

Millennium claims that Fried Frank and Wolfe represented both parties through the TBA, as well, and never asked for waivers from either on the conflicts of interest. It claims that after the TBA was executed, Hanson and Wolfe deprived it of its tax benefit recovery by arguing that Millennium was "not reasonably certain" that Hanson would recognize a tax benefit until IRS appeals were exhausted.

"Second, Hanson, with Wolfe's active assistance and participation, orchestrated an IRS Appeals Office settlement in order to reverse a prior IRS determination that Hanson obtained a tax benefit which triggered Millennium's tax benefit recovery rights under the TSA," the complaint states. "Third, Hanson and Wolfe negotiated and executed a settlement with the IRS which enabled Hanson to assert any tax benefit it had obtained was not attributable to the $65 million in environmental expenditures, even though under scrutiny Hanson had obtained a benefit equal to the tax effect of these environmental expenditures. This was intended to deprive Millennium of its tax benefit recovery rights under the TSA."

Millennium seeks damages for legal malpractice, breach of contract, breach of fiduciary duty and tortious interference.

It is represented by K. Todd Phillips with Wick Phillips of Dallas.

Follow @davejourno
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