Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDIll: Consumer Protection Claims Concerning Tax Shelter Scheme Dismissed , (Apr 8, 2013)

By Jody Coultas, J.D.

An investor failed to state an Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) claim against Deutsche Bank AG based on allegedly fraudulent conduct because the allegations did not satisfy the heightened pleading standard of Federal Rule of Civil Procedure 9(b) (McMahan v. Deutsche Bank AG, April 5, 2013, Zagel, J.). In a footnote, the court stated that if McMahan satisfied Rule 9(b) with respect to Deutsche Bank’s omissions, they could establish a CFA claim despite the lack of a common law duty to disclose. Leave to file an amended complaint was granted.

The investor was engaged in a tax shelter scheme known as "Son of Bond and Option Sales Strategy" created, promoted, and executed by a network of banks, accounting firms, and law firms across the country. The purported tax benefits of the scheme were disallowed by the IRS, resulting in substantial fines and back tax payments for those who participated. The investor alleged that Deutsche Bank violated the CFA by making material misrepresentations and omissions concerning the Son of BOSS Investment.

To state a CFA claim, the investor needed to prove a deceptive act or practice by Deutsche Bank, intent on the part of Deutsche Bank that the investor rely on the deception, that the deception occurred in the course of conduct involving trade or commerce, and actual damage that were proximately caused by Deutsche Bank’s conduct.

The court dismissed the CFA claims for failure to meet the pleading standard of Rule 9(b). The investor properly alleged the specific misrepresentations made, but failed to present any information about when the meeting in which the misrepresentations were made took place, where it was held, or who said what. The investor needed to provide greater detail about the circumstances surrounding the statements, including when and where they occurred, and what material facts should have been disclosed at what times.

The case is No. 12 C 4356.

Attorneys: Sheldon J. Aberman (Cary J. Wintroub & Associates) for John T. McMahan. Allan N Taffet (Duval & Stachenfeld LLP) for Deutsche Bank AG.

Company: Deutsche Bank AG

Cases: StateUnfairTradePractices IllinoisNews