A New York State Supreme Court justice has ruled that a former Vanguard Group tax lawyer cannot expect to collect a whistleblower's cut of potential back state taxes owed by the mutual-fund giant because he was employed by Vanguard at the time he secretly filed the complaint.
David Danon's state whistleblower complaint, filed in 2013 and made public a year later, "must be dismissed" and cannot be re-filed because Danon violated New York State legal-ethics rules when he and his lawyers brought the suit while he was still working at Vanguard and "in a position to obtain confidential information" against his employer, State Supreme Court Justice Joan Madden wrote in her opinion, dated Nov. 13.
In New York State, the Supreme Court is the highest trial-level court. It is not an appellate court, as the supreme courts in Pennsylvania and New Jersey are.
"Yes, it was dismissed," Vanguard spokesman Brian Woerth confirmed late Tuesday. He said the company might have additional comment Wednesday.
Danon's lawyer, Stephen P. Sorensen, was not immediately available for comment.
In the opinion, Madden added that she was not ruling on the merits of Danon's complaint that Vanguard had systematically underpaid its federal and state income taxes since its founding in the 1970s, saying a state court decision on those merits "would require an intense factual inquiry that cannot be determined based on the record before the court."
Madden also wrote that her order dismissing the New York whistleblower case does not stop New York tax authorities from pursuing potential claims following Danon's "allegations regarding Vanguard's tax prices and filings."
However, she reiterated that Danon, as "Vanguard's prior in-house counsel for tax matters, may not proceed with, nor profit from, any disclosure of confidential information" connected to the case "in violation of New York State attorney ethics rules." He and his lawyer are barred from filing another New York whistleblower case based on the case and its facts.
Separately, Danon has sent complaints about Vanguard's tax practices to the Internal Revenue Service and the Securities and Exchange Commission, both of which subsequently met with him. The agencies do not comment on investigations.
Danon has alleged Vanguard underpaid its taxes in other states as well. Vanguard has said it complies with the law.