Texas jury: TaxMasters and CEO must pay $195 million

Abbott

AUSTIN, Texas (Legal Newsline) - A Texas jury last week returned a $195 million verdict against Houston-based TaxMasters Inc., its predecessor companies and its founder and CEO Patrick Cox for violating the state's Deceptive Trade Practices Act.

The Travis County jury, after an eight-day trial, found that the company and its CEO committed a total of 110,383 violations.

Of the $195 million, the company must pay $113,099,820 in customer restitution, $81,205,000 in civil penalties and $1,045,998 in attorney fees.

"Today's decision marks a significant victory for the Texans and TaxMasters customers nationwide who sought help from TaxMasters with their income tax debts and were taken advantage of in the midst of a national economic downturn," Texas Attorney General Greg Abbott said in a statement Friday.

"While the TaxMasters CEO made hollow promises about fighting for taxpayers and their pocketbooks in television ads, the evidence proved that the firm didn't even bother to show up when it came time to fulfill those promises, but instead misled and defrauded their customers."

TaxMasters filed for Chapter 11 bankruptcy protection just one day before the jury trial was set to begin, Abbott noted. Cox had sought to delay the trial, but his request was denied.

Last month, the company filed its Chapter 11 petition in a federal court in Houston, listing less than $50,000 in assets and between $1 million and $10 million liabilities. The company was known for its television advertisements starring its CEO, Cox.

Abbott sued the company in May 2010. Seven months later, Minnesota Attorney General Lori Swanson filed her own suit.

According to the Texas lawsuit, TaxMasters misled customers about the terms of its service contracts, didn't disclose its no-refunds policy and untruthfully claimed that the firm's employees would immediately begin work on cases. The latter did not happen until the customers paid in full, even if it resulted in missed filing dates with the IRS, Abbott claimed.

Abbott's investigation included nearly 1,000 customer complaints. A Dallas Morning News report noted that Cox had recently donated $23,500 to Gov. Rick Perry's re-election campaign when the lawsuit was filed.

Swanson, meanwhile, said the company tricked customers into paying advance fees of $2,000 to $8,000 by misstating the help it would provide with unpaid tax bills.

In some cases, the company claimed it could substantially reduce people's tax bills by up to 90 percent, but then delivered little or no help, Swanson said. In other cases, the company falsely promised that it could stop IRS collection efforts against consumers who hired it, she said.

Contrary to TaxMasters' promises, most citizens do not qualify for special IRS programs that reduce a person's tax debt, Swanson noted.

Since the company claimed very little in assets in its bankruptcy petition, Abbott's office is unlikely to recover anything.

However, the Attorney General's Office said Friday that it will continue to "actively participate" in the bankruptcy case to seek to recover restitution for customers.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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