Overseas sues Proskauer for hundreds of millions in tax obligations

By Caroline Salls

Pittsburgh, Nov. 19 - Overseas Shipholding Group, Inc. filed a legal malpractice and breach of fiduciary duty lawsuit against general outside counsel Proskauer Rose, LLP and four of its individual partners in connection with the company's obligation to pay hundreds of millions of dollars in "otherwise completely avoidable" income taxes, according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

In addition to Proskauer Rose, the defendants named in the lawsuit are Alan P. Parnes, Richard H. Rowe, Peter G. Samuels and Steven O. Weise.

Overseas Shipholding said Proskauer repeatedly advised the company's management in 2011 and 2012 that its unsecured credit agreements did not render subsidiary OSG International, Inc. jointly and severally liable for the borrowings of the parent company.

In addition, the company said Proskauer Rose advised that Overseas Shipholding's borrowings would not have any adverse tax consequences and it was not necessary for management to disclose a potential tax issue regarding the credit agreement to its board of directors, audit committee, independent auditors, regulators or the public.

"In reliance on Proskauer's advice, [Overseas] continued to borrow hundreds of millions of dollars under its existing unsecured credit agreement under the mistaken assumption that it could do so without any incremental U.S. income tax liability," the complaint said.

Contrary to Proskauer's advice, the company said the joint and several structure of the credit agreements did result in significant negative tax consequences.

Specifically, as a result of the credit agreements' structure, every time Overseas borrowed money under one of the agreements, the amount borrowed was deemed to be a distribution to the parent company from the subsidiary to the extent of OSG International's otherwise current or accumulated untaxed foreign income and to the extent the amount of those borrowings, together with OSG International's investment in other U.S. property, exceeded the value of its previously taxed income.

Overseas said each of these distributions was subject to income taxation, making it obligated to pay hundreds of millions in income taxes.

Through the lawsuit, the company said it is looking to recover the tax obligations that resulted from Proskauer's alleged malpractice and breach.

Overseas Shipholding, a New York-based tanker company, filed for bankruptcy on Nov. 14, 2012. Its Chapter 11 case number is 12-20000.

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