The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge
On March 1, 2006, Plaintiffs Denny and Judy Patridge filed their Second Amended Complaint (#30) in this matter alleging breach of contract and various fraud claims against Defendants J.K. Harris & Company, Bobbie Mickey, and Larry Phillips. On June 25, 2007, Defendants filed a Motion for Summary Judgment (#50). After the motion for summary judgment was fully briefed, Defendants filed a Supplement to the Motion for Summary Judgment (#57). The matter is now fully briefed, and for the reasons that follow Defendants' Motion for Summary Judgment and its Supplement are GRANTED.*fn1
Plaintiff Denny Patridge operated an insurance business named Patridge Insurance Services. While operating his business, Denny purchased trusts from an entity named the Aegis Company. Denny established separate bank accounts for these trusts, one of which was the Patridge Asset Management Trust, and transferred money earned from his business into these bank accounts. The funds which Denny transferred were not included in his gross income. Denny and his wife, Plaintiff Judy Patridge, received a letter from the IRS in June of 1999 indicating it was going to conduct an audit of Plaintiffs' tax returns. Plaintiffs notified Aegis of the letter, and Aegis supplied Plaintiffs with a letter to send to the IRS in response. Plaintiffs received a second letter from the IRS in August or September of 1999 seeking certain information from Plaintiffs. Aegis again prepared a letter which Denny mailed to the IRS and which did not contain the requested information. On January 27, 2000, Plaintiffs received a Notice of Deficiency from the IRS. Plaintiffs contacted Aegis who put them in touch with David Parker, an attorney. Parker informed Denny that he would handle the matter. On March 10, 2000, Parker wrote to the IRS on behalf of Plaintiffs. Later in the month, the IRS and the United States Treasury Department raided Parker's office and an Aegis office. Parker then informed Plaintiffs that he could no longer represent them.
Plaintiffs then retained the services of J.K. Harris & Company in responding to the Notice of Deficiency received by the IRS. Plaintiffs first met with Craig Carmichael of J.K. Harris on April 14, 2000, in St. Louis, Missouri. A second meeting between Plaintiffs and J.K. Harris occurred on April 20, 2000. At that meeting, Plaintiffs indicated that they did not want to go to Tax Court on the matter because Denny knew of another individual who had a similar trust to the one held by Denny and that person lost in Tax Court. Denny testified that Defendant Bobbie Mickey, an executive vice president of J.K. Harris, told him that he would get an audit reconsideration and there was no discussion of any other options at that point. Mickey informed Denny that he could go to audit reconsideration and not have to go to Tax Court.
Plaintiffs also signed an Engagement Agreement with J.K. Harris regarding the work J.K. Harris would perform for Plaintiffs. The Engagement Agreement states, "We will represent you with the IRS in regard to your income tax audit for the year(s) '96, '97 ." The word "(Appeal)" was also written below this line. The Engagement Agreement further indicates, "Review Business Trust -Appeal IRS Decision on Trust (If Applicable)," "Prepare for Audit Appeal," "Respond to IRS by 4/27/00 - Notify of P.O.A.", and "Send 433A/B for Possible Pre-Qualification of OIC at end of appeals." The Agreement states that its purpose is "to confirm the understanding of the terms of our engagement and the nature and limitations of the services J.K. Harris & Company will provide." In exchange for these services, Plaintiffs were to pay J.K. Harris $13,000. The contract also had the acronym "E.M.T." written in the margin. Denny testified in his deposition that this stood for "Emergency Management Team." Denny further testified that he understood the term "Review Business Trust" to mean that J.K. Harris would review the trust documents relative to the Patridge Asset Management Trust to determine whether it is legitimate. Denny also indicated that he understood the term "Prepare for Audit Appeal" was referring to seeking audit reconsideration. Denny further understood the line regarding OIC to refer to an offer of compromise with the IRS, but Denny testified the IRS never allowed Plaintiffs to do this.
Judy testified in her deposition that Larry Phillips, an employee of J.K. Harris, met with her and Denny three or four times to get documentation for the 1996 and 1997 calendar years. On July 17, 2000, Phillips wrote a letter to Plaintiffs indicating he had a "discussion with Craig, manager at the IRS Champaign office." The letter indicated "Craig advised me to have a correct return for the years involved - for both the 1040 & 1120, excluding the trust returns." The letter further indicated that Craig wanted a letter from Plaintiffs addressed to William Thompson, District Director for the IRS, stating that they are requesting an audit reconsideration for the years 1996 and 1997, providing a "detailed explanation of why the original request for an audit was not honored; circumstances surrounding your decision not to comply; details of any professional advice that you relied on in making these choices," and "reasons you now feel that the audit should be re-opened at this time." Denny testified that Phillips also informed him in the summer of 2000 that the IRS would not accept the Aegis trusts. Denny wrote a letter on July 11, 2000, to the United States Tax Court, at the suggestion of Phillips, which stated, "We do not wish to petition the tax court for the deficiencies proposed for 1996-1997 personal returns for Denny and Judy Patridge. This is a request for audit reconsideration . . . ." On September 8, 2000, Phillips sent a letter to Denny which stated:
After a discussion with Bobbie Mickey, we feel that corrected tax returns for the years 1996 and 1997 could be prepared at our corporate office in a much more professional manner than doing them by hand in Illinois. Another thought considered was since we have already assembled all the numbers for those years and placed them in separate folders they could be FED-X or UPS to our office very safely. I will make copies of the contents and return the originals to you.
I know that you are not in any rush to have this done, but the sooner we proceed in this direction, the sooner we will get collection out of the loop. Granted, once we file the changed returns, they will be processed and the changed assessments will be due. At that time, you can decide the avenue to take. A payment plan coupled with an Offer and Compromise can be entertained or just the Offer. All this will allow additional time for you to get your finances in order.
Denny testified that he got a phone call from Mickey in the fall of 2000 about the possibility of filing amended returns. On October 2, 2000, Phillips sent a fax to Denny which stated, "Long time no hear. Have you changed any plans of sending me the tax data for 1996 & 1997? Please advise." Denny did not respond to the fax because he was advised by Brent Winters, an attorney who advised Denny regarding his situation, and Rivera, an attorney retained by Denny in the fall of 2000, not to file amended tax returns.
On September 1, 2004, Plaintiff Denny Patridge was charged in a seven count superseding indictment in this court with tax evasion, filing a false tax return, wire fraud, and money laundering. Specifically, the indictment charged Denny with the following counts: (1) filing a false tax return on or about April 12, 1999, for the calendar year 1998, in violation of 26 U.S.C. § 7206(1); (2) tax evasion based upon Denny's actions beginning in July 2000 until the date of the return of the indictment to willfully evade or attempt to evade payment of personal income taxes due and owing for the 1996 and 1997 calendar years, in violation of 26 U.S.C. § 7201; (3) tax evasion based upon Denny's actions in 1999 and 2000 to willfully evade or attempt to evade a large part of his personal income tax due and owing for the 1999 calendar year, and in failing to file an individual income tax return, in violation of 26 U.S.C. § 7201; (4) wire fraud based upon Denny's actions in 2000, which included wiring approximately $200,000 in funds in October 2000, whereby he set up a system to hide his assets from the Internal Revenue Service (IRS) by moving his money offshore to an account under his control but not under his name, in violation of 18 U.S.C. § 1343; (5) wire fraud based upon Denny's actions in October 2000, which included wiring approximately $100,000 in funds, to fraudulently prevent the IRS from obtaining a first lien on his real estate, in violation of 18 U.S.C. § 1343; (6) money laundering based upon Denny's actions in October 2000 of transferring funds to hide them from the IRS yet make the funds available to Denny for use at his direction, in violation of 18 U.S.C. § 1956(a)(1)(B)(i); and (7) money laundering based upon Denny's actions in October 2000 of transferring funds with the intent to engage in conduct constituting the evasion of payment of taxes, in violation of 18 U.S.C. § 1956(a)(1)(A)(ii).
On June 30, 2005, following a jury trial, Denny was found guilty of all counts of the indictment with the exception of Count I. This court entered a judgment of conviction as to Counts II through VII. On September 25, 2006, Denny was sentenced to a term of sixty months' imprisonment on Count II through VII and was ordered to pay restitution in the amount of $168,219.50. Denny filed a Notice of Appeal regarding his criminal convictions on October 2, 2006, and that appeal remains pending with the Seventh Circuit Court of Appeals.
Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). In ruling on a motion for summary judgment, a district court has one task and one task only: to decide, based upon the evidence of record, whether there is any material dispute of fact that requires a trial. Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). "A genuine issue for trial exists only when a reasonable jury could find for the party opposing the motion based on the record as a whole." Michas v. Health Cost Controls of Ill., Inc., 209 F.3d 687, 692 (7th Cir. 2000), quoting Pipitone v. United States, 180 F.3d 859, 861 (7th Cir. 1999). In making this determination, the court must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Burwell v. Pekin Cmty. High Sch. Dist. 303, 213 F. Supp. 2d 917, 929 (C.D. Ill. 2002). Speculation, however, is not the source of a reasonable inference. See Burwell, 213 F. Supp. 2d at 929, citing Chmiel v. JC Penney Life Ins. Co., 158 F.3d 966, 968 (7th Cir. 1998). Therefore, the nonmoving party must "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 248. ...