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McMahan v. Deutsche Bank AG

United States District Court, N.D. Illinois, Eastern Division

September 5, 2017

John T. McMahan and Northwestern Nasal and Sinus Associates, S.C., Plaintiffs,
v.
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

          SHARON JOHNSON COLEMAN United States District Judge

         Plaintiffs 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[1] 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 [140] is granted.

         Background

         Plaintiffs 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).

         Between 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.[2] (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).

         In 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).

         In 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 shelter. (Id.).

         On July 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).

         On 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.

         In 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).

         In 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).

         McMahan filed the instant action on March 26, 2012.

         Legal Standard

         Summary 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 ...


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