United States District Court, N.D. Illinois, Eastern Division
John T. McMahan and Northwestern Nasal and Sinus Associates, S.C., Plaintiffs,
Deutsche Bank AG, Deutsche Bank Securities, Inc. d/b/a Deutsche Bank, Robert Goldstein, and American Express Tax and Business Services, Inc. n/k/a McGladrey & Pullen, LLP, Defendants.
MEMORANDUM OPINION AND ORDER
JOHNSON COLEMAN United States District Judge
brought suit against Deutsche Bank AG, Deutsche Bank
Securities, Inc., Robert Goldstein, and American Express Tax
and Business Services, Inc. (“AMEX”) for their
alleged involvement in a conspiracy to create, market, sell,
and implement the now invalidated Son of Bond and Option
Sales Strategy tax shelter (“Son of BOSS
shelter”). After years of litigation, the only
remaining claim is against Deutsche Bank AG and Deutsche Bank
Securities, Inc. (together, “Deutsche Bank”) for
aiding and abetting a breach of fiduciary duty. Plaintiffs
allege that the now-defunct law firm of Jenkens &
Gilchrist (“Jenkens”) breached its fiduciary duty
to Plaintiffs by misrepresenting the chances that the IRS
would approve Plaintiffs' use of the Son of BOSS shelter
and that Deutsche Bank induced, participated in, and provided
substantial assistance for the breach. Before this
Court is Deutsche Bank's motion for summary
judgment, which is limited to whether the statute of
limitations bars the remaining claim. For the following
reasons, Deutsche Bank's motion  is granted.
failed to file a response to Deutsche Bank's Local Rule
56.1 statement of facts. All of of Deutsche Bank's
statements of fact are therefore admitted. LR 56.1(b)(3)(C).
June 2000 and December 2001, Plaintiff McMahan participated
in at least three meetings during which some of the
defendants encouraged him to implement the Son of BOSS
shelter. (Dkt. 142 ¶¶ 1, 9). Goldstein
was present at all three meetings. An attorney from Jenkens
and two representatives from Deutsche Bank attended at least
one of these meetings together. (Id. at ¶ 9).
At all three meetings, at least one defendant suggested that
the Son of BOSS shelter was a legitimate investment strategy
and was valid, legitimate, and legal under federal laws.
(Id. at ¶¶ 2, 10).
connection with McMahan's participation in the Son of
BOSS shelter, Jenkens drafted a letter opining that the
shelter would “more likely than not” be upheld by
the IRS. (Id. at ¶ 3; Dkt. 143-3 at 11).
Goldstein represented to McMahan that Deutsche Bank would
execute the underlying Son of BOSS transactions and that AMEX
would prepare McMahan's tax returns in accordance with
Jenkens's advice. (Dkt. 142 ¶¶ 4, 5). McMahan
implemented the Son of BOSS shelter and used the resulting
losses on his tax returns for 2000 and 2001. (Id. at
¶¶ 8, 11, 14). Deutsche Bank served as a
counterparty to the foreign currency transactions underlying
McMahan's 2001 shelter. (Id. at ¶ 12).
McMahan paid fees to AMEX, Goldstein, Jenkens, and Deutsche
Bank in 2001 in connection with his 2001 Son of BOSS shelter.
(Id. at ¶ 13).
2002, Goldstein advised McMahan that the Son of BOSS shelter
was no longer legitimate. (Id. at ¶ 15). He
also advised McMahan that he could not use any more of the
losses generated in 2001 as a result of the Son of BOSS
23, 2003, Thomas Denney and others filed a class action suit
against Jenkens, Deutsche Bank, and others in the Southern
District of New York (the “Denney suit”
and the “Denney class”). (Id.
at ¶ 17). The Denney class sought damages for
claims arising out of the promotion and implementation of tax
strategies similar to the Son of BOSS shelter. (Id.
at ¶ 17). The Denney class alleged that Jenkens
breached its fiduciary duty to the class members by
“issuing opinion letters expressing ‘canned'
and ‘prefabricated' opinions that were
incorrect.” (Id. at ¶ 18). The class also
alleged that Deutsche Bank assisted Jenkens in its breach by
executing the underlying transactions, failing to advise the
taxpayers of the falsity of the Jenkens opinion letters, and
by assisting in the promotion of the tax shelter.
(Id.). McMahan was a member of the Denney
class. (Id. at ¶ 19). Prior to February 2004,
McMahan hired Chuhak & Tecson, PC (“Chuhak”)
as tax counsel to advise him on his use of the Son of BOSS
shelter and to represent him with respect to the
Denney suit and other tax related matters.
(Id. at ¶ 20). On February 24, 2005, Chuhak
sent McMahan a letter indicating that Jenkens had agreed to
settle the Denney suit for $81.5 million.
(Id. at ¶ 21). On September 28, 2007, McMahan
submitted a claim form to the settlement fund. (Id.
at ¶ 22).
February 19, 2004, a Chuhak attorney sent Deutsche Bank a
letter in which he expressed concern about the advice Jenkens
had given McMahan. Jenkens had advised McMahan that the Son
of BOSS shelter was not the type of transaction that required
disclosure of McMahan's identity to the IRS; McMahan,
however, had also been advised that the IRS might not be
bound by Jenkens's opinion. (Id. at ¶ 24).
Accordingly, the Chuhak attorney requested that Deutsche Bank
invoke the attorney client privilege on McMahan's behalf
and not disclose McMahan's identity to the IRS.
(Id. at ¶ 25). This Court notes that it is
unclear when, and under what conditions, Deutsche Bank would
have had to disclose McMahan's identity to the IRS.
2002, the IRS offered amnesty to taxpayers who voluntarily
disclosed their participation in abusive tax shelters.
(Id. at ¶ 26). Subsequently, in June 2003, the
IRS banned the Son of BOSS shelter. (Id. at ¶
27). On May 5, 2004, the IRS announced a settlement offer
directed at Son of BOSS shelter participants, which a Chuhak
attorney forwarded to McMahan the very next day.
(Id. at ¶¶ 28, 29). Chuhak also forwarded
an IRS notice that indicated that “Son of Boss
transactions are abusive and were . . . undertaken solely to
create tax benefits unintended by any reasonable
interpretation of the tax laws.” (Id. at
¶ 29). In January 2005, a Chuhak attorney informed
McMahan that the state of Illinois had also determined that
the Son of BOSS shelter was abusive and one of a series of
reportable transactions, and that it was offering Son of BOSS
participants an opportunity to participate in a voluntary
compliance program. (Id. at ¶ 30). McMahan did
not participate in any of the federal or state amnesty or
compliance programs. (Id. at ¶ 31).
February 2005, the IRS notified McMahan that it was auditing
his 2001 tax returns. (Id. at ¶ 32). On October
26, 2010, the IRS issued a Notice of Final Partnership
Administrative Adjustment (“NFPAA”) with respect
to McMahan's 2001 tax returns. (Id. at ¶
33). The notice disallowed the Son of BOSS shelter and made
an upward adjustment of McMahan's 2001 taxable income.
(Id.). McMahan settled with the IRS on May 10, 2012.
(Id. at ¶ 35).
filed the instant action on March 26, 2012.
judgment is appropriate when the evidence demonstrates that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(a). This Court must construe all facts and
reasonable inferences in favor of the non-moving party.
Dorsey v. Morgan Stanley, 507 F.3d 624, 627 (7th
Cir. 2007) (citation omitted). “Where the record taken
as a whole could not lead a rational trier of fact to find
for the non-moving party, there is no genuine issue for
trial.” Blythe Holdings, Inc. v. DeAngelis,
750 F.3d 653, 656 (7th Cir. 2014) (internal quotation marks
omitted). “The existence of merely a scintilla of
evidence in support of the non-moving party's position is
insufficient; there must be evidence on which the jury could
reasonably find for the non-moving party.” Madison