Antitrust Law Daily Wrap Up, RICO—W.D. Ohio: Consumers’ RICO claims against tax return preparation services franchisees fail, (Sep 30, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a group of consumers against several franchisees of a tax return preparation services franchise, the consumers failed to adequately allege fraud with sufficient particularity to pursue RICO claims, the federal district court in Dayton, Ohio has held. Thus, the defendants’ motion to dismiss was granted (Smith-Hutchinson v. ITS Financial LLC, September 23, 2014, Newman, M.).

Consumers Lia Smith-Hutchinson, Phyllis Laney, and Chelsea Cochran used an Instant Tax Service franchise for the preparation of their federal and state income tax returns. The consumers filed suit against ITS Financial, TCA Financial, Tax Tree, and other owners of Instant Tax Service franchises, alleging that the defendants engaged in a scheme to defraud in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). Specifically, the plaintiffs asserted that the fees charged and deducted relating to the return preparation services were greater than those agreed to, estimated, or anticipated. The defendants moved for dismissal of the plaintiffs’ claims.

The court found that the plaintiffs failed to allege fraud with sufficient particularity. The plaintiffs alleged a fraudulent scheme that the defendants furthered by using interstate wires and/or mail to transmit false or fraudulent claims from various Instant Tax Service offices to respective IRS offices. However, there are no allegations that detail what false or fraudulent claims were transmitted from an Instant Tax Service office to an IRS office on behalf of any of the plaintiffs. Moreover, the plaintiffs made no allegations that their tax returns were prepared or filed without their consent, or that Instant Tax Service filed incorrect or inaccurate returns on their behalf. Thus, the plaintiffs failed to allege with sufficient particularity predicate acts of wire and/or mail fraud, according to the court.

Additionally, the plaintiffs failed to adequately allege injury as a result of such fraud. While the transmission of false tax returns could constitute wire fraud, the plaintiffs’ allegations set forth no plausible connection between the alleged injuries – being charged an excessive fee – and the alleged fraudulent conduct of filing of false tax return. The plaintiffs’ claims - that they were charged a fee for tax related services at a rate that was not agreed to by the parties – without more failed to plausibly state the predicate acts of mail and wire fraud, the court concluded.

The case is No. 3:13-cv-192.

Attorneys: Jonathan E. Fortman (Law Office of Jonathan E. Fortman, LLC) for Lia Smith-Hutchinson. Todd Evan Bryant (Ozion Brands, LLC) for ITS Financial, LLC, TCA Financial LLC, TCA Capital, LLC, and Tax Tree, LLC.

Companies: ITS Financial, LLC; TCA Financial LLC; TCA Capital, LLC; Tax Tree, LLC

Cases: RICO OhioNews