Jalali v. Root, 109 Cal. App. 4th 1768 (2003)

Farideh Jalali sued her former employer for racial discrimination and sexual harassment. During the first phase of the trial, the jury awarded Jalali $750,000 in compensatory damages. During the punitive damages phase of the trial, the employer offered to settle the matter for $2.75 million for all claims, conditioned on confidentiality. Jalali accepted the offer after conferring with her attorney (Root) who told her that her taxes on the settlement would be “40 percent of your share” after deducting Root’s contingency fee. Due to the alternative minimum tax, Jalali ended up having to pay taxes on the entire $2.75 million (i.e., not just on her “share” of it) and then sued Root for the $310,000 difference between what she expected to receive and what she actually retained after taxes. The Court of Appeal reversed the judgment that had been entered in Jalali’s favor, holding that since Root had not given ”knowingly false tax advice for his own benefit,” he did not breach his fiduciary duty to Jalali.