Lama v. Shearman & Sterling

Shearman & Sterling (defendant) created three companies, Lama, Rana, and Rasha (the investment companies) (plaintiffs), to help a foreign investor purchase a large share of Smith Barney stock. The companies were structured to avoid taxes on dividends and on the resale of the stock. The investment companies asserted that they asked Shearman & Sterling about potential upcoming changes to the law affecting the investment companies’ tax liability and that Shearman & Sterling promised to update the investment companies if there were any significant changes. The investment companies sold the stock to a third party, making $100 million in profit, but the law had changed since the companies’ formation, resulting in an assessment of $33 million in taxes on the sale. Had they known of the changes to the law, the investment companies asserted, they would not have structured the sale in the same way. The investment companies sued Shearman & Sterling for professional malpractice. Shearman & Sterling filed a motion to dismiss, arguing that the investment companies failed to state a claim for relief. Specifically, Shearman & Sterling alleged that there was no breach of duty, the investment companies did not allege that Shearman & Sterling proximately caused their injuries, and intervening action by the investment companies in selling the Smith Barney stock was the proximate cause of their injuries.