938 F. Supp. 2d 795
N.D. Ill.2013Background
- McMahan and NNASA sue Deutsche Bank Defendants, DB and DBSI, and AMEX Defendants for fraud, conspiracy, misrepresentation, ICFA, fiduciary breaches, contract, and malpractice tied to the Son of BOSS tax shelter.
- Defendants allegedly marketed and participated in Son of BOSS despite IRS concerns, with Jenkens & Gilchrist designing the scheme and DB handling related transactions.
- AMEX and Goldstein allegedly vouched for Son of BOSS and prepared returns; Goldstein and AMEX received fees from Jenkens-related sales.
- IRS Notice 2000-44 and later IRS actions (Notice of deficiency for Son of BOSS) foreshadowed the illegitimacy of the scheme.
- Defendants concealed an IRS amnesty program and the 2003 IRS regulations disallowing Son of BOSS; FPAA issued in 2010 increased tax liabilities.
- Court must assess adequacy and timeliness of the complaint, accepting the plaintiffs’ factual allegations as true for purposes of a motion to dismiss: counts, merits, and procedural posture are at issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Statute of limitations applicability | Plaintiffs timely under Khan rule; deficiency notice triggered start of limitations. | Limitations expired before filing; Khan applies to when injury is discovered. | All claims timely under Khan; no dismissal on statute of limitations. |
| Arbitration against AMEX and Goldstein | Engagement letter includes arbitration clause covering the relevant period. | No retroactive scope; 2004 letter may not cover 2001 conduct. | Motion denied; arb. compelled only if a covering agreement is shown. |
| Choice of law for Deutsche Bank Defendants | Tort claims premised on pre-contract conduct; Illinois law governs. | New York law should apply due to contract clauses. | Illinois law governs; contract choice-of-law provisions not controlling for pre-contract torts. |
| Fraudulent misrepresentation claim viability (Count II) | Specific misrepresentations identified; concealment alleged under fiduciary duty. | Pleadings insufficient under Rule 9(b) for particularity; Deutsche Bank duty lacking. | Count II dismissed as to all Defendants; fraudulent concealment insufficient against Deutsche Bank; all claims against DB Defendants dismissed. |
| ICFA claim viability (Count IV) | Deception or omissions in Son of BOSS marketing violate ICFA; reliance and damages alleged. | Claims premised on fraud not pleaded with 9(b) heightened specificity. | Count IV dismissed against all Defendants. |
| Breach of fiduciary duty vs. accounting malpractice (Counts V & VI) | Claims not duplicative; fiduciary duty breached and aids/abets alleged; accrual of damages. | Duplicative with malpractice; contract claim duplicative. | Count V denied; Count VI allowed against Deutsche Bank as aiding and abetting; Count VII dismissed as duplicative; Counts recalibrated for pleading. |
| Civil conspiracy (Count I) | Agreement among Jenkens, Goldstein, AMEX to market Son of BOSS by fraud; DB participated with knowledge. | Rule 9(b) requires specificity; allegations insufficient. | Count I survives; Rule 9(b) relaxed for circumstantial conspiracy allegations. |
Key Cases Cited
- Parish v. City of Elkhart, 614 F.3d 677 (7th Cir. 2010) (standard for ruling on motion to dismiss; notice pleading standard)
- Swierkiewicz v. Sorema N.A., 534 U.S. 506 (U.S. 2002) (requirement of general notice pleading; no heightened pleading for all cases)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleading claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (interpretation of pleading standards; plausibility required)
- Khan v. Grant Thornton, LLP, 978 N.E.2d 1020 (Ill. 2012) (discovery rule start for investors’ tax-shelter claims)
- Amakua Dev. LLC v. Warner, 411 F.Supp.2d 941 (N.D. Ill. 2006) (choice-of-law; tort claims not dependent on contract)
- Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreens Co., 631 F.3d 436 (7th Cir. 2011) (ICFA pleading standards; fraud-based claims require 9(b))
- Berry v. Indianapolis Life Ins. Co., 600 F.Supp.2d 805 (N.D. Tex. 2009) (predictions vs. misrepresentations; applying to fraud contexts)
- Sears v. Likens, 912 F.2d 889 (7th Cir. 1990) (pleading specificity; identify who said what)
- Tricontinental Industries Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824 (7th Cir. 2007) ( Rule 9(b) applicability to professional misconduct disclosures)
- Benson v. Stafford, 407 Ill.App.3d 902 (Ill. App. 2010) (non-reliance clause; scope of fraud claims)