(Editor’s Note: The following appeared in sports Litigation Alert. subscribe to the Alert to see a lot more articles like this one.)
A federal judge from the district of Minnesota has denied a CPA firm’s bid to dismiss a claim by NBA Hall of Famer Kevin Garnett, alleging professional malpractice, breach of fiduciary duty, and aiding and abetting.
The defendants, Welenken CPAs and Michael A. Wertheim, had sought to dismiss the claim for lack of personal jurisdiction. However, the court found Garnett has well established that the defendants had sufficient minimum contacts with Minnesota, Camiseta Juventus and exercising personal jurisdiction over them would not be unreasonable.
Throughout his illustrious occupation as a professional basketball player, Garnett relied on Charles A. Banks, IV, a “long-term trusted wealth manager, confidant, and personal friend.” In 2010, Banks hired Wertheim on behalf of Garnett. Originally, Wertheim was hired to file income tax returns, but he ended up taking a much larger role in Garnett’s financial life and in the services in which Garnett had an interest. For instance, Wertheim prepared financial statements, became the registered agent for services in which Garnett had an interest, and created budgets and spending limits for Garnett. Ultimately, instead of simply preparing income tax returns, the defendants “provided accounting services to Banks, Garnett, and essentially all of the services Garnett shared with Banks.” Although Wertheim represented Garnett, he took direction from Banks and had little to no direct contact with Garnett.
In June 2017, Banks “was sentenced to federal prison for admittedly defrauding” a different professional basketball player. seeking to check out Banks for himself, Garnett and his counsel obtained records from the defendants and discovered evidence that Banks had also allegedly been defrauding Garnett, creating a joint investment venture between Banks and Garnett that he called Hammer Holdings, LLC. Allegedly, Banks used Hammer as an individual bank account.
Garnett alleges that Wertheim was fully aware of Banks’s actions, and that he even actively worked with Banks to conceal Banks’s actions from Garnett.
Garnett’s sister, Sonya Garnett, served as Garnett’s primary point of contact for entities and persons involved in his service endeavors. While Wertheim had little contact with Kevin Garnett, he interacted hundreds of times with Sonya, according to the court. They contacted one another mostly through email, but they also met once in person on Jan. 6, 2016, at Sonya ‘s home in Minnesota.
“Notably, although Garnett alleges that Wertheim was aware of Banks’s fraud at the time of the meeting, Wertheim did not go over Banks’s actions with Ms. Garnett,” wrote the court. “During the time that the defendants served as accountants for Hammer and Garnett, Defendants mailed at least one invoice to Garnett in Minnesota and attended to that invoice to Ms. Garnett’s attention. The invoice described the work Welenken did for Garnett as ‘tax return planning, consultation, government correspondence, personal financial statement, bookkeeping and general service consultation, meeting.’”
After discovering Banks’s fraud, Garnett sued the Camiseta Kashiwa Reysol defendants in Hennepin county district Court. The defendants removed the case to the federal court on Sept. 5, 2018 and filed the motion to dismiss.
“Viewing the evidence in a light a lot of positive to Garnett, the defendants’ relevant contacts with Camiseta Flamengo Minnesota, can be summarized as: (1) hundreds of emails with Ms. Garnett relating to Garnett’s finances; (2) a face to face meeting with Ms. Garnett during which Garnett’s finances were discussed and during which Wertheim did not reveal what he knew about Banks’s fraud; and (3) invoices for financial services sent to Garnett in Minnesota,” according to the court.
“The defendants’ main argument is that the third aspect of the Eighth Circuit’s test is not met here. They contend that the contacts cited above do not relate to the underlying action and essentially argue that there is an insufficient relationship between the defendants, the forum, and the cause of action. The defendants believe that, considering that neither Hammer nor Banks’s fraud was discussed with Garnett or Ms. Garnett during any of the defendants’ contacts with Minnesota, Minnesota is not related to the current lawsuit.”
The fault in the defendants’ argument was that “Garnett’s claims do not develop from any affirmative action by the defendants. Instead, Garnett’s claims are all based on the defendants’ alleged decision not to act, i.e. their decision to remain silent relating to Banks’s fraudulent activities.”
The court continued: “The question at issue here is whether a defendant’s inaction in a given state can supply sufficient minimum contacts in that state. While uncommon, courts have grappled with this question before. In Wien Airnull