EGHS successfully defends Aon Consulting, Inc. against suit by MCNC
After a five-day trial, a federal judge ruled on December 8 that Aon Consulting, Inc. was not negligent in advising a North Carolina company about the restructuring of its retirement plan in the mid-1990s. U.S. District Court Judge N. Carlton Tilley, who presided over the non-jury trial in Greensboro, ruled that advice given by Aon to MCNC, a North Carolina non-profit information technology company, was reasonable and competent. He also ruled that MCNC's claim was time-barred because Aon did not revisit or reiterate the allegedly improper advice between 1997 and 2003, when a lawyer for MCNC discovered Aon's alleged mistake. Aon was represented by Hugh Stevens and Matt Vaughn of Everett Gaskins Hancock & Stevens, LLP in Raleigh, North Carolina. In 1995 MCNC's general counsel asked Aon to help the company restructure its retirement plan so it would provide MCNC's employees with greater benefits. Aon recommended that MCNC implement an across-the-board salary reduction and contribute the amount of the reduction to the plan as an additional employer contribution. Aon told MCNC that the resulting contribution would not be taxable income to the employees, and that MCNC was not required to withhold state or federal income taxes or Social Security FICA taxes from the contributions. MCNC implemented the recommendation in 1996. In 2001 MCNC replaced the Aon-designed plan with another plan but continued the additional contribution funded by the across-the-board salary reduction. In 2003 a Kilpatrick Stockton attorney who was reviewing MCNC's retirement plan decided that the contribution initially recommended by Aon was unlawful and might cause the IRS to disqualify the plan and require the payment of millions of dollars in income and FICA taxes. Although MCNC had been making the contribution for seven years without the IRS or anyone else having questioned it, the attorney persuaded MCNC to make a submission to the IRS under a voluntary program whereby plan sponsors can negotiate corrections to plan defects anonymously. He also advised MCNC to terminate the additional contribution, which it did. In response to MCNC's voluntary submission the IRS required the company to revise, retroactively, the plan's description of the additional contribution. Although the IRS absolved MCNC of any liability for back taxes, MCNC decided to pay more than $120,000 in FICA taxes attributable to three years on which the statute of limitations for back taxes had not expired and to make additional payments to its employees to cover their additional potential tax liability. In 2005 MCNC sued Aon, claiming that Aon's 1995 advice was negligent. MCNC sought to recover the legal fees it incurred in connection with the voluntary IRS submission and the money it had spent to "correct" the alleged deficiency in FICA withholding. Aon defended on the grounds that the advice was reasonable and that Aon's limited relationship with the plan after 1997 did not give rise to a continuing duty to call the purported "defect" to MCNC's attention. At trial, Aon's lawyers summed up the company's position by telling Judge Tilley that MCNC had sought "answers for which there were no questions" and spent hundreds of thousands of dollars to fix a problem that was not a problem.
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