Matthew Stein v. Skatteforvaltningen

Background

Matthew Stein and Jerome Lhote sued Skatteforvaltningen, the Danish tax authority, claiming that it breached a 2019 settlement agreement. The alleged breach was Skatteforvaltningen’s failure to notify Danish criminal authorities of the agreement and its terms. Stein and Lhote argued that the breach was material, meaning significant enough to release them from their remaining payment obligations. They also sought a ruling that a 2021 confession of judgment was invalid and unenforceable.

The settlement agreement resolved Skatteforvaltningen’s claims arising from a fraudulent tax-refund scheme involving Stein, Lhote, Luke McGee, and other covered parties. Under the agreement, the covered parties were required to pay a preliminary settlement amount, a possible additional amount based on a later calculation, and applicable interest. Stein, Lhote, and McGee also provided confessions of judgment authorizing judgment in favor of Skatteforvaltningen for unpaid amounts calculated under the agreement.

The covered parties paid the initial payment but did not pay nearly the full amount due by May 28, 2023. After giving notice of the breach and an opportunity to cure, Skatteforvaltningen asserted two contract counterclaims against Stein, Lhote, and McGee. The counterclaims sought the additional cash payment and the true-up amount, both with applicable interest. Skatteforvaltningen requested entry of the 2021 confession of judgment or, alternatively, contract damages in the same amount.

Motion to Dismiss

Stein, Lhote, and McGee initially sought dismissal of Skatteforvaltningen’s counterclaims in their entirety. At oral argument, however, they clarified that they were asking the court to dismiss only Skatteforvaltningen’s alternative request for contract-based damages, while leaving the request for entry of the confession of judgment in place.

The court held that the request was premature. A motion to dismiss generally tests whether a claim is legally sufficient; it ordinarily is not the proper stage for deciding whether a particular form of relief should ultimately be awarded. The court noted that Skatteforvaltningen’s requested damages might never become relevant because the primary request was for entry of the confession of judgment.

Court’s Analysis

The court explained that if Stein, Lhote, and McGee ultimately proved that Skatteforvaltningen materially breached the settlement agreement, Skatteforvaltningen would not be entitled to damages. If Skatteforvaltningen prevailed on that issue, the defendants would still have to show that the primary remedy—the confession of judgment—was unavailable before the alternative damages request would matter.

The court made a preliminary assessment of the defendants’ arguments that the 2021 confession of judgment was invalid, but expressly stated that it was not deciding that claim. The court observed that the confession authorized entry of judgment in New York despite Lhote and McGee’s non-New York residences, which suggested that any residency requirement had been waived or might not apply when enforcement occurs through a filed action. The court also noted that the confession established a method for calculating the judgment amount, which appeared consistent with the requirement that a confession of judgment state the sum for which judgment may be entered.

Disposition

Judge Naomi Reice Buchwald denied Stein, Lhote, and McGee’s motion to dismiss Skatteforvaltningen’s counterclaims as premature. The Clerk of Court was directed to terminate the motion at ECF No. 50. The opinion did not finally decide whether Skatteforvaltningen breached the settlement agreement, whether the defendants breached it, whether the confession of judgment is valid and enforceable, or whether Skatteforvaltningen may ultimately recover contract damages.