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Steinmetz v. Wolgamot

Court of Appeals of Illinois, First District

August 12, 2013

WILLIAM STEINMETZ, M.D., Plaintiff-Appellant,
JOHN P. WOLGAMOT and ACTON & SNYDER LLP, Defendants-Appellees (Michael Vallone, Brian Wasson, William S. Cover, Joe Starns, Bruce Lindahl, and David Dillon, Defendants.)

Appeal from the Circuit Court of Cook County, No. 05 L 14368 Honorable Ronald F. Bartkowicz, Judge Presiding.

Presiding Justice Hoffman and Justice Delort concurred in the judgment and opinion.


JUSTICE ROCHFORD delivered the judgment of the court, with opinion.

¶ 1 Plaintiff, William Steinmetz, M.D., filed a four-count complaint alleging fraud and conspiracy against defendants Michael Vallone, Brian Wasson, William S. Cover, and Joe Starns in count I, breach of fiduciary duty against defendant Bruce Lindahl in count II, legal malpractice against defendants John P. Wolgamot and Acton & Snyder LLP, in count III and accountant's malpractice against defendant David Dillon in count IV. Plaintiff's allegations related to defendants' advice prompting him to enroll and stay enrolled in a program called AEGIS that was to have provided him with asset protection and tax savings. Plaintiff's enrollment in AEGIS allegedly did not provide him with asset protection and tax savings, but instead caused him to incur significant tax penalties and interest obligations to the Internal Revenue Service (IRS) and the Illinois Department of Revenue. Plaintiff sought approximately $3 million in damages against defendants. Defendants Acton & Snyder LLP, and Mr. Wolgamot filed a motion for summary judgment, contending plaintiff's complaint against them for legal malpractice was barred by the applicable two-year statute of limitations. 735 ILCS 5/13-214.3(b) (West 2004). The trial court granted the motion for summary judgment and denied plaintiff's motions to reconsider and for leave to file a second amended complaint. Plaintiff then moved to voluntarily dismiss the remaining counts against all defendants, which the trial court granted. Plaintiff appeals the order denying his motion to reconsider the grant of summary judgment in favor of defendants Acton & Snyder LLP, and Mr. Wolgamot on his legal malpractice action and denying him leave to file a second amended complaint. We affirm.

¶ 2 The following facts are taken from plaintiff's pleadings as well as from his affidavit and deposition testimony. In the fall of 1997, plaintiff owned a successful medical practice. Plaintiff met with his stockbroker, Bruce Lindahl, and asked if there was a legal way to reduce the amount he paid in taxes. Mr. Lindahl referred plaintiff to an attorney, John Wolgamot, of the law firm of Acton & Snyder LLP. Plaintiff knew Mr. Wolgamot to be a well-established attorney who had formerly been the attorney for the city of Danville.

¶ 3 In October 1997, plaintiff met with Mr. Wolgamot at his office. Mr. Wolgamot told plaintiff about the AEGIS program, which could be used to protect and shelter his assets and minimize his tax liabilities. The AEGIS program involved business trusts referred to as common law business organizations (CBOs), charitable foundations, and an offshore trust system. Mr. Wolgamot told plaintiff he had researched the law regarding AEGIS for eight months before recommending it to his clients. Mr. Wolgamot assured plaintiff that AEGIS was legal and that it worked well for the people who had been placed in the program.

¶ 4 Mr. Wolgamot asked plaintiff to meet with Brian Wasson and Joe Starns, who were partners in a business called Midwest Alternative Planning. Plaintiff met with Mr. Wasson in October 1997. Mr. Wasson told plaintiff that the AEGIS trust documents were well written and could not possibly be legally challenged, but if they were, AEGIS would come to his aid.

¶ 5 In the last quarter of 1997, plaintiff spoke about AEGIS with Jay Foster, who had been plaintiff's accountant in Danville "for a number of years." Mr. Foster stated that his accounting partners would not approve of the AEGIS program and that plaintiff was setting himself up for an audit if he entered the program. Nonetheless, based on Mr. Wolgamot's and Mr. Wasson's representations regarding the legality of AEGIS, plaintiff agreed to enroll in the AEGIS program in the last quarter of 1997. David Dillon was plaintiff's AEGIS-approved accountant for the duration of his involvement with AEGIS.

¶ 6 Pursuant to the AEGIS program, plaintiff was set up in five CBOs and a charitable foundation. The setup fee was $10, 000 apiece, for a total of $60, 000 paid to AEGIS. Plaintiff also obtained a credit card from the Swiss American Bank in Antigua. Plaintiff was required to put 150% of his $30, 000 credit limit into a savings account in that bank. Plaintiff put $45, 000 into the savings account. Plaintiff used the credit card to purchase whatever he wanted and he was instructed by Mr. Wasson and Mr. Starns to take out cash advances for personal expenditures. When plaintiff received the monthly credit card bill, he wired money to a trust in Belize, which transferred the money to a second trust in Belize, which in turn paid the credit card bill.

¶ 7 In October 1999, plaintiff received a letter from the IRS informing him it intended to audit his tax returns for 1997 and 1998, the first two years that he participated in the AEGIS program. Plaintiff spoke with Mr. Wasson about the October letter from the IRS; Mr. Wasson told plaintiff not to "meet with these people under any circumstances." Based on Mr. Wasson's advice, plaintiff did not meet with the IRS but instead signed his name to a letter dated October 22, 1999, that was sent to the Champaign office of the IRS. The letter signed by plaintiff stated:

"Although I am taking no action at this time, I want to make it crystal clear that if you do not follow the rules and laws of the Internal Revenue Code or the Internal Revenue Regulations in dealing with me, I will follow the instructions of the government and will not only file a complaint against you with the District Director and the Taxpayer Advocate, but I will immediately file a complaint against you in Washington, D.C. with the Treasury Inspector General."

¶ 8 Plaintiff testified in his deposition that sometime later in 1999 (he did not specify the exact date), he received a notice of deficiency from the IRS relating to his participation in the AEGIS program for the tax years 1997 and 1998 that had been the subject of the earlier audit notice. The 1999 notice of deficiency is not contained in the record on appeal. Plaintiff testified that in the notice of deficiency, the IRS stated that the AEGIS trusts were "abusive trusts" and indicated that the tax returns plaintiff filed in connection with the AEGIS program were incorrect or invalid. Plaintiff recognized that the IRS was stating he owed it "large sums of money" and was "disapproving" of the AEGIS trusts.

¶ 9 Upon receiving the notice of deficiency, plaintiff contacted Mr. Wolgamot. Mr. Wolgamot told plaintiff he was "not going to deal with [the] Internal Revenue Service" and that plaintiff should contact Michael Vallone, the "top man" at AEGIS. Mr. Vallone had been sending out newsletters assuring AEGIS members that AEGIS was legal, but also indicating that AEGIS members were having "problems" with the IRS, and that in one instance, the AEGIS office had been "raided by Internal Revenue Service agents with their guns drawn and they carted off a lot of their documents." Plaintiff received in total about two dozen of Mr. Vallone's newsletters. The newsletters identified Scott Gross as an attorney who could help AEGIS members with their IRS problems. Plaintiff contacted Mr. Gross regarding the notice of deficiency he had received from the IRS, but plaintiff testified "nothing came of" said contact. Plaintiff also spoke with Mr. Vallone about the notice of deficiency, and Mr. Vallone responded only that AEGIS was "working on these issues." Plaintiff did not specify the exact dates he spoke with Mr. Gross and Mr. Vallone, although the chronology recited by plaintiff indicates he spoke with them sometime between 1999 and 2002.

¶ 10 Mr. Wolgamot also recommended to plaintiff that he contact Mr. Wasson and Mr. Starns regarding the notice of deficiency. Mr. Wasson and Mr. Starns in turn referred plaintiff to a "legal researcher" named Dan Meador. Mr. Meador told plaintiff that the IRS was wrong with respect to the alleged deficiency, and that he would prepare documents that would help plaintiff deal with the IRS. Mr. Meador prepared a series of documents that were delivered by Mr. Starns to plaintiff. Plaintiff signed the documents prepared by Mr. Meador and sent them to the IRS. Plaintiff did not specify the exact dates he spoke with Mr. Wasson, Mr. Starns and Mr. Meador and signed the documents, although the chronology again indicates a time period of 1999-2002. Plaintiff stated he never considered paying the deficiency to the IRS because he "was being reassured by everybody that this was legal."

ΒΆ 11 Plaintiff testified that in response to Mr. Meador's documents, the IRS sent him a letter stating that Mr. Meador's ...

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