Rezner v. Bayerische Hypo-Und Vereinsbank AG
2010 U.S. App. LEXIS 26272
| 9th Cir. | 2010Background
- Rezner participated in CARDS, a tax-shelter scheme, after HVB formed Pinner Financial Trading and loaned EUR 48,000,000; collateral included a Euro promissory note and municipal bonds
- Rezner pledged securities to HVB to obtain the Pinner loan, acquiring Pinner's promissory note and paying substantial fees to HVB, myCFO, Sidley Austin, LeBoeuf, and Chenery
- IRS issued a notice in 2002 disallowing losses from CARDS-like transactions; Rezner claimed a large tax loss in 2001 and carried it into subsequent years
- HVB admitted participation in unlawful tax shelter schemes in a 2006 Deferred Prosecution Agreement (DPA) with the U.S. Attorney
- Rezner sued HVB in 2006 in the Northern District of California asserting RICO, fraud, and UCL claims; HVB moved for summary judgment asserting PSLRA preemption; district court initially denied PSLRA preemption and granted summary judgment to Rezner on RICO/UCL, later clarified based on evidentiary issues
- On appeal, the Ninth Circuit concluded PSLRA does not bar Rezner’s RICO claim, but held proximate causation failed and vacated the UCL ruling, remanding for further proceedings
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does PSLRA preempt Rezner's RICO claim here? | Rezner | HVB | No preemption |
| Did HVB's fraud against the United States cause Rezner's injury for RICO standing? | Rezner | HVB | No proximate causation |
| Did the district court err in granting summary judgment on the UCL claim based on RICO? | Rezner | HVB | Yes; vacated |
Key Cases Cited
- Financial Corp. of Am. S'holder Litig. (In re Financial Corp. of Am. S'holder Litig.), 796 F.2d 1126 (9th Cir. 1986) (requires 'in connection with' a securities transaction to show 10b fraud)
- Rubin v. United States, 449 U.S. 424 (U.S. 1981) (pledge of securities may transfer an interest but not sustain securities fraud claim unless links to misrepresentation)
- Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930 (2d Cir. 1984) (collateralized loan with no misrepresentation about value not 10b fraud)
- Swartz v. KPMG LLP, 476 F.3d 756 (9th Cir. 2007) (fraud directly connected to a securities transaction in a tax-shelter scheme)
- Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008) (reliance not required; causation proper where a better plaintiff is the victim)
- Hemi Group, LLC v. City of New York, 130 S. Ct. 983 (2010) (no proximate causation when fraud harms a third party (state) and plaintiff is indirect victim)
- Anza v. Ideal Steel, 547 U.S. 451 (2006) (proximate causation lacking where State is direct victim and plaintiff's injuries are indirect)