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U Nited States of America v. John E. Rogers

June 15, 2011

U NITED STATES OF AMERICA, PLAINTIFF,
v.
JOHN E. ROGERS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Defendants' motion to dismiss and motion in the alternative to strike. For the reasons stated below, the court denies the motion to dismiss and the motion to strike.

BACKGROUND

Plaintiff United States of America brought the instant action against Defendants. Defendant John E. Rogers (Rogers) is allegedly a self-professed tax expert and attorney who creates and promotes abusive tax avoidance schemes. Defendant Sugarloaf Fund LLC (Sugarloaf) and Defendant Jetstream Business Limited (Jetstream) were allegedly created by Rogers. The Government contends that Rogers also created the Distressed Asset Debt (DAD) tax shelter and the Distressed Asset Trust (DAT) tax shelter. Defendants allegedly engaged in three types of transactions that constituted fraud: (1) DAD transactions, (2) DAT transactions, and (3) secured partnership transactions governed by 26 U.S.C. § 743(f) (Section 743(f)). The DAD and DAT tax schemes allegedly employed by Defendants allegedly generated over $370 million of fictitious tax deductions for Rogers' customers. The Government brought the instant action to enjoin Defendants from engaging in activities in violation of the Internal Revenue Code (IRC) and for an award of monetary penalties owed under the IRC. The Government includes in the complaint claims brought pursuant to 26 U.S.C. § 7408 and 26 U.S.C. § 6700 (Section 6700) (Count I), claims brought pursuant to 26 U.S.C. § 7402 (Count II), claims brought pursuant to 26 U.S.C. § 7407, 26 U.S.C. § 6694, and 26 U.S.C. § 6695 (Count III), and claims brought pursuant to 26 U.S.C. § 7408 and 26 U.S.C. § 6707, and 26 U.S.C. § 6111 (Count IV). Defendants have moved to dismiss the action and in the alternative to strike the complaint.

LEGAL STANDARD

In ruling on a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) (Rule 12(b)(6)), a court must "accept as true all of the allegations contained in a complaint" and make reasonable inferences in favor of the plaintiff. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (U.S. 2009)(stating that the tenet is "inapplicable to legal conclusions"); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). To defeat a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (internal quotations omitted)(quoting in part Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint that contains factual allegations that are "merely consistent with a defendant's liability . . . stops short of the line between possibility and plausibility of entitlement to relief." Iqbal, 129 S.Ct. at 1949 (internal quotations omitted). Pursuant to Federal Rule of Civil Procedure 12(f), a "court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Id.

DISCUSSION

Defendants argue that the Government has failed to plead the fraud-based claims with particularity. Defendants also contend that the instant action should be dismissed because of its impact on current and future litigants in other cases. Defendants also argue that the complaint does not contain a short and plain statement of the claims, that it should be stricken, and that the Government should be ordered to provide a more definite statement for relief.

I. Motion to Dismiss

A. Rule 9(b)

Defendants argue that the Government has failed to plead the fraud-based claims with particularity in accordance with Federal Rule of Civil Procedure 9(b) (Rule 9(b)). Pursuant to Rule 9(b), all claims that "sound[] in fraud" must be pled with particularity. Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007)(internal quotations omitted). In order to plead a claim with particularity, a plaintiff must allege the "who, what, when, where, and how" of the fraud. Id. (internal quotations omitted).

1. Who, What, When, Where and How Elements

Defendants argue that the Government has not pled fraud, misrepresentations, and deceptive misconduct with particularity, and thus has not alleged the "who, what, when, where, and how" elements relating to the alleged fraudulent schemes. Defendants also contend that the complaint does ...


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