Antitrust Law Daily Wrap Up, RICO—11th Cir.: Tax shelter scheme statute of limitations question certified to Florida top court, (Apr 20, 2015)

By Linda O’Brien, J.D., LL.M.

A question about when a group of investors’ Racketeer Influenced and Corrupt Organizations Act (RICO) claims against a tax shelter organizer accrued for purposes of the statute of limitations was certified to the Florida Supreme Court by the U.S. Court of Appeals in Atlanta (Kipnis v. Bayerische Hypo-Und Vereinsbank, AG, April 17, 2014, Per Curiam).

Donald Kipnis, Lawrence Kibler, and Barry E. Mukamal owned the Miller & Solomon (M&S) general contracting company and sought to increase the company’s bonding capacity. In 2000, HVB U.S. Finance, the U.S. affiliate of leading German bank Bayerische Hypo-Und Vereinsbank, marketed to M&S an income tax shelter known as a Custom Adjustable Rate Debt Structure (CARDS) as a method of financing that could increase the company’s bonding capacity. The three owner investors agreed to participate in the CARDS transaction, which began in December 2000 and ended in December 2001. Subsequently, the scheme was determined to be illegal and the investors were assessed tax deficiencies by the IRS.

In November 2013, the investors filed suit against HVB and several other entities and individuals, alleging that the defendants conspired to perpetuate a fraudulent tax scheme in violation of RICO. In April 2014, the district court granted HVB’s motion to dismiss the complaint as barred by the statute of limitations. The plaintiffs appealed.

The appellate court determined that it was not clear under state law when the plaintiffs first suffered injury and when their claims against HVB accrued for purposes of the applicable statute of limitations. The parties agreed that Florida law controlled the sole issue on appeal: when did the plaintiffs’ claims against HVB accrue for purposes of the statute of limitations. Under Florida law, the statute of limitations for the plaintiffs’ fraud claims was four years and their RICO claims was five years, the court explained.

The plaintiffs contended that, under Peat, Marwick, Mitchell & Co. v. Lane, 565 So. 2nd 1323 (1990),they suffered no cognizable injury and their claims did not accrue until the Tax Court issued its final decision in November 2012. HVB argued that the plaintiffs’ claims were time barred because they accrued no later than December 2001 when they paid fees for the CARDS loan that HVB terminated prematurely and suffered injury that was neither speculative nor hypothetical.

Because the relevant facts were undisputed and the appeal depended wholly on interpretation of state law, the appellate court certified the following question to the Florida Supreme Court:

“Under Florida law and the facts in this case, do the claims of the plaintiff taxpayers relating to the CARDS tax shelter accrue at the time the IRS issues a notice of deficiency or when the taxpayers’ underlying dispute with the IRS is concluded or final?”

The case is No. 14-11959.

Attorneys: Michael Guerra Dickler (Sperling & Slater) for Donald Kipnis. Mark P. Ressler (Kasowitz Benson Torres & Friedman, LLP) for Bayerische Hypo-Und Vereinsbank, AG, and HVB U.S. Finance, Inc.

Companies: Bayerische Hypo-Und Vereinsbank, AG; HVB U.S. Finance, Inc.

Cases: RICO AlabamaNews FloridaNews GeorgiaNews