Khan v. Deutsche Bank AG
2012 IL 112219
| Ill. | 2012Background
- Plaintiffs Khan and related entities allege damages from 1999–2000 tax-shelter investment strategies marketed by Deutsche Bank and related firms.
- Investments (1999 Digital Options Strategy; 2000 COINS Strategy) were structured to generate tax losses and fees; IRS later disallowed losses and assessed back taxes and penalties.
- Plaintiffs sued for multiple claims including breach of fiduciary duty, negligence/professional malpractice, negligent misrepresentation, and fraud-based theories.
- Trial court dismissed some claims as time-barred under sections 2-615 and 2-619; appellate court reversed on several points, notably the statute of limitations under discovery rule.
- Appellate court held accrual under the discovery rule occurred no earlier than when an IRS deficiency notice or settlement created actual injury, applying Federated/Feddersen distinctions for accounting-related actions.
- This Court affirmatively remands on certain issues while addressing statute of limitations and fiduciary-duty questions as to the Deutsche defendants and Grant Thornton.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When does the limitations period begin? | Khan claims accrual began with injury from fees and misleading advice in 1999–2000. | Accrual occurred in 1999–2000 when fees were paid; or at latest in May 2003 when due diligence should have revealed IRS notices. | Disputed; court adopts discovery-rule timing tied to injury and wrongful cause, not mere receipt of notices; see analysis below. |
| Does a preagency fiduciary duty exist to support breach claim? | Plaintiffs alleged a preagency fiduciary duty based on reliance and control by Deutsche defendants. | Disclaimers and arm's-length transactions negate fiduciary duties; documents can rebut a fiduciary relationship. | Trial court erred in dismissing fiduciary-duty claim; record supports plausible preagency fiduciary duty and breach. |
| Is negligent misrepresentation correctly adjudicated given fiduciary duty question? | Plaintiffs relied on misrepresentations regarding legality and profitability of strategies. | Dismissal proper if fiduciary duty not established; misrepresentation not adequately pleaded without fiduciary basis. | Appellate court’s recognition of negligent misrepresentation claim remains viable; reliance on alleged misrepresentations sustained. |
| Does Grant Thornton’s repose period apply, and is there a two-year extension for IRS assessment? | Grant Thornton’s involvement in Thermosphere taxes entitles extension when IRS assessment occurs. | Two-year extension only runs from final IRS assessment or settlement; repose complies with five-year limit otherwise. | Two-year extension applicable; remand necessary to determine if an assessment occurred; otherwise, reconsider under 13-214.2. |
| Should contract documents be considered at this stage to defeat 2-615 claims? | Disclaimers in documents should not override well-pleaded facts; discovery needed. | Affidavits and contract clauses contradict pleadings and can defeat fiduciary-duty claims. | Contract documents improperly considered at 2-615 stage; analysis limited to complaint, with remand for fuller evidentiary record. |
Key Cases Cited
- Federated Industries, Inc. v. Reisin, 402 Ill. App. 3d 23 (2010) (limits accrual timing in accounting-malpractice-like contexts; notice/deficiency may trigger injury)
- SK Partners I, LP v. Metro Consultants, Inc., 408 Ill. App. 3d 127 (2011) (damages timing in accounting-related matters; contrasts with Federated)
- Golla v. General Motors Corp., 167 Ill. 2d 353 (1995) (discovery rule applies; injury occurs when harmed, not necessarily full extent known)
- Nolan v. Johns-Manville Asbestos, 85 Ill. 2d 161 (1981) (discovery rule; onset when plaintiff knows injury and wrongful cause)
- Witherell v. Weimer, 85 Ill. 2d 146 (1981) (discovery rule foundation; standard for when to commence limitations)
- Armstrong v. Guigler, 174 Ill. 2d 281 (1996) (fiduciary-duty framing; impost to distinguish contract-based vs implied duties)
- Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33 (1994) (preagency fiduciary duty discussion; depends on relation and disclosures)
- Ray v. Winter, 67 Ill.2d 296 (1977) (definition of fiduciary relationship; trust and confidence standard)
- Armstrong v. Guigler, 174 Ill.2d 281 (1996) (implied fiduciary duties and contract-based limitations)