UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

JOHN T. McMAHAN and 

NORTHWESTERN NASAL AND SINUS 

ASSOCIATES, S.C., 

 

 Plaintiffs, 

 v. 

DEUTSCHE BANK AG; DEUTSCHE 

BANK SECURITIES, INC., ROBERT 

GOLDSTEIN, AMERICAN EXPRESS TAX 

AND BUSINESS SERVICES, INC. n/k/a 

McGLADREY & PULLEN, LLP 

 

 Defendants. 

 

No. 12 C 4356 

Judge James B. Zagel 

MEMORANDUM OPINION AND ORDER

Plaintiffs, John T. McMahan and Northwestern Nasal and Sinus Associates (“NNASA”), 

filed an eight-count complaint against Deutsche Bank AG (“DB”), Deutsche Bank Securities, 

Inc. (“DBSI”) (collectively, the “Deutsche Bank Defendants”), Robert Goldstein, and American 

Express Tax and Business Services (“AMEX”) (collectively, the “AMEX Defendants”). 

Plaintiffs’ complaint seeks damages for civil conspiracy, fraud, negligent misrepresentation, 

violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, breach of 

fiduciary duty, assisting in the breach of fiduciary duty, breach of contract, and professional 

malpractice. All counts arise out of Plaintiffs’ participation in a now well-known tax shelter 

scheme that was 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 ultimately 

disallowed by the IRS, resulting in substantial fines and back tax payments for those who 

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participated. A few of the parties most responsible for the design and implementation of the 

scheme have been criminally prosecuted, and other individuals and entities involved have made 

substantial settlement payments to the United States government in order to avoid prosecution. 

Defendants have moved to dismiss all counts. Despite the background of the tax-shelter 

scheme at issue in this case, my only task here is to assess the adequacy and timeliness of 

Plaintiffs’ complaint. For these purposes, I accept the following facts from the Complaint as 

true. 

I. FACTS ASSUMED IN THE COMPLAINT 

In the early 1990s, McMahan and NNASA, a corporation owned by McMahan, retained 

Defendant Goldstein, a certified public accountant, to perform tax and accounting services. 

Goldstein annually advised McMahan to make certain investments for purposes of reducing his 

income tax liability. In 2001, Goldstein referred McMahan to the now-defunct law firm Jenkens 

& Gilchrist (“Jenkens”) to engage in a tax shelter strategy known as “Son of Bond and Option 

Sales Strategy” (hereinafter “Son of BOSS”). Goldstein and Erwin Mayer, a lawyer from 

Jenkens, met with McMahan in 2001 and explained to him that Son of BOSS was a legitimate 

investment strategy that would either generate profits or capital losses that could be used to 

reduce his income tax liability. McMahan was told that Jenkens would prepare an independent 

legal opinion letter approving the Son of BOSS investment, which would protect Plaintiffs in the 

event of an IRS audit. McMahan was also told that Deutsche Bank would handle the underlying 

financial transactions, which involved the sale of foreign currency options. Relying on these 

assurances, McMahan decided that he and NNASA would participate in Son of BOSS. 

Despite these representations, Defendants knew that Son of Boss was an illegitimate taxsaving strategy designed solely to avoid tax liability and reap large fees from investors. 

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Unbeknownst to Plaintiffs, Son of BOSS had been designed and structured by Jenkens attorneys 

and Deutsche Bank employees in such a way that it was impossible to generate legitimate taxdeductible losses, and nearly impossible to generate profits. Based on a notice released by the 

IRS in 2000 (“Notice 2000-44”), Defendants knew that the IRS was investigating Son of BOSS 

under suspicion that it lacked economic substance, and would likely soon disallow all deductions 

claimed as capital losses stemming from the program. 

 Nevertheless, Jenkens, DB, Goldstein and American Express Tax and Business Services 

(“AMEX”), an accounting firm that employed Goldstein during the relevant time period, entered 

into an agreement whereby Goldstein and AMEX would represent to Plaintiffs that Son of BOSS 

was a legitimate tax-saving strategy, recommend that Plaintiffs participate in the underlying 

options, and prepare Plaintiffs tax returns to include losses from the Son of BOSS investment. In 

return, Goldstein and AMEX would receive a portion of the fees paid by investors to Jenkens for 

each Son of BOSS sale. Deutsche Bank agreed to participate in the scheme by executing the 

underlying currency transactions despite full knowledge that these transactions lacked economic 

substance and that Jenkens was falsely representing the tax-saving benefits of the strategy to 

investors. As a result of the above scheme, Plaintiffs filed a 2001 tax return that incorrectly 

determined Plaintiffs’ true tax basis due to the illegitimate treatment of the Son of BOSS 

investment. 

In December 2001, the IRS announced an amnesty program that allowed participants 

who voluntarily disclosed their participation in tax shelter strategies, such as Son of BOSS, to 

minimize liability for underpayment penalties without conceding liability for back taxes or 

interest. Defendants and the other co-conspirators concealed the amnesty program from 

Plaintiffs. In June 2003, the IRS formally invalidated a number of tax shelter strategies, 

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including Son of BOSS, by issuing new regulations retroactive to October 1999. Defendants did 

not inform Plaintiffs of the IRS’s action. 

On October 26, 2010, the IRS issued a Notice of Final Partnership Administrative 

Adjustment (FPAA), in which Plaintiffs were advised that an increase in tax basis of $2,075,000 

relating to the Son of BOSS investment was disallowed. As a result, Plaintiffs owed the IRS 

hundreds of thousands of dollars in additional taxes, penalties, and interest payments. 

A 2005 U.S. Subcommittee Report found that tax shelters, like Son of BOSS, could not 

have been executed without the active and willing participation of major banks. Further, the 

report mentioned Deutsche Bank, among others, as having “provided billions of dollars in 

lending critical to transactions which the banks knew were tax motivated, involved little or no 

credit risk, and facilitated potentially abusive or illegal tax shelters.” 

In March 2007, the United States Department of Justice entered into a non-prosecution 

cooperation agreement with Jenkens, in which Jenkens admitted to developing fraudulent tax 

shelters and issuing fraudulent opinion letters. Several Jenkens employees were convicted of tax 

fraud. Further, the firm settled a multimillion-dollar class action lawsuit arising from the 

improper use and marketing of fraudulent tax shelters. 

II. STANDARD OF REVIEW 

In addressing a motion to dismiss, the Court accepts the plaintiffs’ allegations as true and 

draws reasonable inferences in their favor. Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir. 

2010). Federal Rule of Civil Procedure 8(a)(2) requires the plaintiffs to provide “a short and 

plain statement” showing that they are entitled to relief. This statement must “give the defendant 

fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Swierkiewicz v. 

Sorema N.A., 534 U.S. 506, 506 (2002). Though a complaint need not contain “detailed factual 

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allegations, a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic 

Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, the plaintiffs must provide “enough facts to 

state a claim to relief that is plausible on its face.” Id. at 570. A claim is facially plausible “when 

the plaintiff pleads factual content that allows the court to draw the reasonable inference that the 

defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 

III. ANALYSIS 

A. Statute of Limitations 

All Defendants have moved to dismiss on the grounds that Plaintiffs’ claims are timebarred. The statute of limitations is an affirmative defense. "While complaints typically do not 

address affirmative defenses, the statute of limitations may be raised in a motion to dismiss if the 

allegations of the complaint itself set forth everything necessary to satisfy the affirmative 

defense." Brooks v. Ross, 578 F.3d 574, 579 (7th Cir. 2009) (citation omitted). 

 Four of Plaintiffs’ causes of action are common law tort claims (civil conspiracy, fraud, 

negligent misrepresentation and assisting breach of fiduciary duty), subject to a five-year 

limitations period under Illinois law. See 735 ILCS 5/13-205. The complaint also asserts a claim 

under the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), which is 

subject to a three-year statute of limitations. See 815 ILCS 505/10a(e). 

On October 16, 2012, I stayed this case pending the Illinois Supreme Court’s decision in 

Khan v. Grant Thornton, LLP. 365 Ill. Dec. 517 (Ill. 2012). At issue in Khan was the proper 

application of Illinois’s “discovery rule,” which establishes the start of the period of limitations, 

to tort claims brought by investors who had suffered losses in a similar abusive tax shelter. The 

Khan court held that the limitations period did not begin to run against the investors’ claims until 

they received a notice of deficiency from the IRS. Id. at 533. It was not until the deficiency 

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notice issued, the Court held, that the taxpayer is “on notice that he has suffered an injury and 

that the injury was wrongfully caused.” Id. 

In the instant case, Plaintiffs received the notice of deficiency on October 26, 2010. 

Plaintiffs filed their complaint on March 26, 2012. Under Khan, all claims in this case are 

timely. 

B. AMEX and Goldstein’s Motion to Compel Arbitration 

Defendants AMEX and Goldstein move to compel arbitration of all claims brought 

against them based on an arbitration agreement contained in a 2004 engagement letter with 

Plaintiffs. I deny this motion. To properly compel arbitration under 9 U.S.C. § 4, I need to see a 

written agreement that covers the relevant time periods of this case. Plaintiffs’ claims against 

AMEX and Goldstein arise from representations and acts made in 2001. There is no language in 

the 2004 engagement letter to suggest that it applies retroactively, and I am unwilling to compel 

arbitration based only on Defendants’ assurances that the same language was used in their 

engagement letters “in the early 2000’s.” (Goldstein Aff., ¶ 3). If an arbitration agreement 

covering the relevant time period does in fact exist and Defendants are able to produce it a later 

stage, I will revisit this motion. 

C. Choice of Law as to the Deutsche Bank Defendants 

The Deutsche Bank Defendants argue that New York law governs Plaintiffs’ claims 

against them because Plaintiffs entered into account-opening agreements that contained New 

York choice of law clauses. In Illinois, tort claims dependent upon a contract are subject to the 

contract’s choice of law provision. Amakua Dev. LLC v. Warner, 411 F.Supp.2d 941, 955 (N.D. 

Ill. 2006). Plaintiffs’ claims against the Deutsche Bank Defendants are not dependent upon the 

account-opening agreements because, as I interpret it, the Complaint is based entirely on tortious 

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conduct leading up to the execution of the agreements. See, e.g., Chicago Printing Co. v. 

Heidelberg USA, Inc, No. 01 C 3251, 2001 WL 1134862, at *3 (N.D. Ill. Sept. 25, 2001) 

(fraudulent inducement and negligent misrepresentation claims stemming from events prior to 

execution of contract not subject choice of law provision); Union Oil Co. v. John Brown E & C, 

No. 94 C 4424, 1994 WL 535108, at *2–3 (N.D.Ill. Sept. 30, 1994) (same; negligent 

misrepresentation). 

Specifically, the Complaint seeks to hold the Deutsche Bank Defendants directly and 

vicariously liable (as co-conspirators) for misrepresentations (and related breaches of fiduciary 

duty) made to Plaintiffs about 1) the legitimacy of the Son of BOSS investment; and 2) the 

potential tax benefits it could provide. None of this conduct is based on the interpretation or 

construction of the account agreements, and the Deutsche Bank Defendants could potentially be 

liable as co-conspirators even if the account agreements did not exist. See Amakua Dev., 411 

F.Supp.2d at 955. The conduct is “closely related” to the parties’ contractual relationship in the 

sense that the account agreement is the product of the allegedly wrongful inducement. However, 

as explained, the fact that the account agreements were executed subsequent to the complained 

of conduct defeats application of the choice of law provisions. Illinois law governs all claims in 

this case. 

D. Count II: Fraudulent Misrepresentation 

All Defendants move to dismiss Count II alleging common law fraud. In Illinois, fraud 

claims require a five-part showing: (1) a false statement or omission of a material fact; (2) the 

defendant’s knowledge or belief that the statement was false; (3) the defendant’s intent to induce 

the Plaintiff to act; (4) the plaintiff’s reliance upon the truth of the statement; and (5) damages to 

the plaintiff resulting from his reliance on the statement. See Connick v. Suzuki Motor Co., Ltd., 

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174 Ill.2d 482, 496 (Ill. 1996). Fed. R. Civ. P. 9(b) requires a party alleging fraud to state the 

“who, what, when, where, and how” of the circumstances surrounding the fraud. DiLeo v. Ernst 

& Young, 901 F.2d 624, 627 (7th Cir. 1990). 

Defendants argue that Plaintiffs’ fraud allegations are inadequate for a number of 

reasons. First, Defendants argue that Plaintiffs fail to point to any specific misrepresentations 

made by any of the Defendants. That is not quite true. Paragraph 72 and 73 of the Complaint 

reference a meeting between Goldstein, Mayer and McMahan, in which McMahan was told that 

Son of BOSS was a legitimate investment strategy for minimizing tax liability. McMahan was 

further told that Jenkens would provide an independent opinion letter approving of the strategy, 

which would provide McMahan cover in the event of an IRS audit. Both statements were false 

because 1) Goldstein and Mayer knew that Son of BOSS was rigged such that it could not 

produce profits and lacked economic substance such that it could not generate legitimate tax 

benefits; and 2) the opinion letter was not “independent” because, unbeknownst to McMahan, 

Jenkens itself had designed the Son of BOSS tax shelter. 

The AMEX Defendants argue that the representations made at the alleged meeting are 

not actionable because they were no more than predictions that Son of BOSS would be upheld by 

the IRS. See Berry v. Indianapolis Life Ins. Co., 600 F.Supp.2d 805 (N.D. Tex. 2009). I 

disagree. The misrepresentations alleged in this case go beyond predictions about how the IRS 

would treat Son of BOSS. The Complaint alleges that Goldstein and McMahan misrepresented 

the nature of the investment itself (they knew it was rigged and could not possibly generate 

profits) and Jenkens’s role as independent legal counsel (Jenkens was anything but independent). 

 Further, Defendants knew that the underlying foreign option transactions lacked 

economic substance and thus could not produce valid tax benefits. Courts have widely used the 

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“economic substance doctrine” to assess the validity of tax shelters under the Internal Revenue 

Code since at least the 1980s. See generally Joseph Bankman, The Economic Substance 

Doctrine, 74 S. Cal. L. Rev. 5, 7-11 (2000). Thus, any affirmative statements made by the 

Defendants that Son of BOSS could produce valid tax benefits in 2000 were materially false at 

the time they were made, which distinguishes this case from Berry. The question was not 

whether Son of BOSS could generate legitimate capital losses to offset gains; the question was 

whether the IRS would detect the true nature of the scheme. 

Nevertheless, the allegations surrounding the meeting between Goldstein, Mayer and 

McMahan fail to satisfy Rule 9(b). Plaintiffs give no information as to when the meeting took 

place, where it was held, or who said what. See Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 

1990) (internal quotation omitted). It is particularly important for Plaintiff to specify the identity 

of the person making false statements at this meeting since Mayer is not a named defendant in 

this case. 

Outside of this alleged meeting, Plaintiffs do not point to any specific affirmative 

statements made by Defendants that they allege to be fraudulent.1

 Rather, they describe the 

general conduct involved with executing the scheme (i.e. the DB Defendants circulated “certain” 

communications that gave Son of BOSS the appearance of legitimacy (¶ 50); Goldstein prepared 

the 2001 tax return utilizing losses manufactured from Son of BOSS with full knowledge that the 

losses could not legitimately be claimed as tax benefits) and argue that these acts amounted to 

affirmative misrepresentations. 

 

1

 Plaintiffs’ general averment that “certain writings, oral statements and visual presentations” circulated by 

Defendants “constituted an affirmative representation that Son of BOSS was legitimate and legal” (¶ 50) does not 

satisfy Rule 9(b) because it does not identify which particular Defendant(s) made the communications, nor does it 

specify which communications contained misrepresentations. See, e.g., Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 

1990) (dismissing complaint that “lumps all the defendants together and does not specify who was involved in what 

activity.”). The same “who” and “what” problems are present in paragraphs 49, 53, and elsewhere in the Complaint. 

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What Plaintiffs are really alleging here is fraudulent concealment (or fraud by omission), 

which I will interpret Count II as encompassing. In addition to the basic elements of fraud, 

fraudulent concealment requires a plaintiff to “allege that the defendant concealed a material fact 

when he was under a duty to disclose that fact to plaintiff.” See Smith v. Duffey, No. 07 C 5238, 

2008 WL 4874088, at *2 (quoting Connick, 174 Ill.2d at 500). “A duty to disclose a fact may 

arise out of several situations,” including fiduciary or confidential relationships, or “a situation in 

which a plaintiff places trust and confidence in defendant, thereby placing defendant in a 

position of influence and superiority over plaintiff.” Connick, 174 Ill.2d at 500. “[A] position of 

superiority may arise by reason of friendship, agency, or experience.” Id. 

Drawing all reasonable inferences in Plaintiffs’ favor, I find that they have successfully 

alleged that the AMEX Defendants owed them a duty to disclose based on a fiduciary 

relationship. The fiduciary relationship was based on Plaintiffs’ long-term relationship with 

Goldstein, and the fact that Goldstein advised Plaintiffs to participate in, and vouched for the 

legitimacy of, a complex tax-shelter scheme. See Peterson v. H&R Block Tax Services, Inc., 971 

F.Supp. 1204, 1213-14 (N.D. Ill. July 10, 1997) (under Illinois law, ad hoc fiduciary relationship 

may exist between a tax advisor or accountant and client where the parties’ have “long-term, 

ongoing relationships” or where “complex investment advice” has been rendered); Burdett v. 

Miller, 957 F.2d 1375, 1382 (7th Cir. 1992) (district court entitled to find a fiduciary relation 

under Illinois law where accountant “cultivated a relation of trust . . . over a period of years,” and 

invited client “to accept his advice . . . and [rely] on his insight into the arcana of tax shelter 

investments.”]. 

Given this relationship, Goldstein had a duty to disclose material facts about the Son of 

BOSS investment prior to filing their 2001 tax returns. As alleged in the Complaint, these facts 

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included: 1) that Son of BOSS lacked economic substance; 2) that Jenkens was not rendering 

independent legal advice; 3) that the IRS was investigating Son of BOSS and other tax shelters; 

4) that the IRS does not allow individuals to claim tax benefits from investments that lack 

economic substance; and 5) that the IRS was offering a “tax amnesty program” for individuals 

who had participated in potentially abusive tax schemes. Plaintiff has also adequately pled that 

the omissions were intended to, and reasonably did, induce reliance (¶ 56), and that Goldstein’s 

failure to disclose material information caused their injury (¶ 93-94). 

Plaintiffs’ fraudulent concealment claims, however, have not satisfied the heightened 

pleading requirements of Rule 9(b). Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust 

v. Walgreen Co., 631 F.3d 436, 447 (7th Cir. 2011). Plaintiffs must provide greater detail about 

the circumstances surrounding the omissions, including when and where they occurred, and what 

material facts should have been disclosed at what times. While it may be more difficult to plead 

with particularity the circumstances surrounding an omission (i.e. when/where something that 

did not occur should have occurred) than an affirmative misrepresentation, Defendants are 

entitled to clearer notice than what is provided in the Complaint.2

 All of the information 

Plaintiffs need to satisfy Rule 9(b) with respect to the circumstances surrounding the omissions is 

in their possession, so I see no reason to relax the application of the particularity requirement 

here. Cf. PharMerica Chicago, Inc. v. Meisels, 772 F.Supp.2d 938, 955 (N.D. Ill. Feb. 16, 

2011). 

 

2

 A properly pled allegation of fraud by omission would look something like this: “On [date X], McMahan met with 

Goldstein at [location Y] to discuss the Son of BOSS investment. At this meeting, Goldstein intentionally failed to 

disclose [fact Z] in order to induce Plaintiffs’ to participate in the tax shelter. [Fact Z] was material because 

Plaintiff’s would not have gone forward with the investment had they known about it. Goldstein had a duty to 

disclose [fact Z] because he was in a position of superiority over Plaintiffs in that he was rendering complex 

investment advice. Goldstein’s failure to disclose [fact Z] caused Plaintiff to rely on the fact that [fact Z] did not 

exist, which belief was necessary for Plaintiffs to follow through with the investment.” Or something to that effect. 

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Plaintiffs’ fraudulent concealment claim against the Deutsche Bank Defendants fails 

under Rule 9(b), and because the Complaint contains no facts to suggest that the Deutsche Bank 

Defendants owed Plaintiffs a duty to disclose. The facts in the Complaint suggest that Plaintiffs 

had very little direct interaction with the Deutsche Bank Defendants. There is nothing from 

which I can reasonably infer the existence of a long-term relationship, receipt of investment 

advice directly from Deutsche Bank personnel, or the exercise of “dominance” such that an ad 

hoc fiduciary relationship could be imposed. See Tully v. McLean, 409 Ill.App.3d 659, 683 

(2011) (“The essence of a fiduciary relationship is that one party is dominated by another; the 

presence of a significant degree of dominance and superiority.”). Based on the failure to plead a 

duty to disclose, the fraudulent concealment claims against the Deutsche Bank Defendants fall 

short. 

Defendants’ motion to dismiss Count II is GRANTED with respect to all Defendants.3

 

E. Count III: Negligent Misrepresentation 

Defendants next move to dismiss Plaintiffs’ claim for negligent misrepresentation. In 

Illinois, negligent misrepresentation has “essentially the same elements [as fraud], except that . . . 

[t]he defendant need not know the statement is false.” Board of Educ. of City of Chicago v. A,C, 

and S, Inc., 131 Ill.2d 428, 452 (Ill. 1989). Additionally, the Plaintiff must allege that “the 

defendant owes a duty to the plaintiff to communicate accurate information.” Id. The 

RESTATEMENT (SECOND) OF TORTS defines negligent misrepresentation as follows: 

 

3

 The Deutsche Bank Defendants have submitted along with their motion to dismiss a purported copy of the letter 

agreement that governed the digital swap transaction executed in furtherance of the Son of BOSS investment 

strategy. (Dkt. No. 21, Ex. 2). The letter contains a non-reliance clause which states that, in entering into the swap 

transaction, Plaintiffs were “not relying on any communication (written or oral)” by the Deutsche Bank Defendants. 

Id. However, the copy of the letter agreement submitted to the Court is not signed by Plaintiffs and there is no 

evidence that Plaintiffs ever executed and returned the agreement, which appears to have been a condition 

precedent. While the disclaimer could potentially rule out any direct liability for fraud or negligent 

misrepresentation as to the Deutsche Bank Defendants, at this stage I decline to dig further into outside evidence to 

determine the validity of the non-reliance clause. I do note, however, that its wording encompasses only affirmative 

fraud and not fraudulent concealment. See Benson v. Stafford, 407 Ill.App.3d 902, 927-928 (2010). 

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Information Negligently Supplied for the Guidance of Others 

(1) One who, in the course of his business, profession or employment, or 

in any other transaction in which he has a pecuniary interest, supplies false 

information for the guidance of others in their business transactions, is subject to 

liability for pecuniary loss caused to them by their justifiable reliance upon the 

information, if he fails to exercise reasonable care or competence in obtaining or 

communicating the information. 

RESTATEMENT (SECOND) OF TORTS § 552 (1965), cited with approval in Zurad v. Lehman 

Bros. Kuhn Loeb Inc., 757 F.2d 129, 134 (7th Cir. 1985). 

Plaintiffs have adequately pled negligent misrepresentation in the alternative to fraud 

against the AMEX Defendants based on the alleged meeting between McMahan, Goldstein and 

Mayer in which McMahan was told by Goldstein and Mayer that Son of BOSS could produce 

legitimate tax benefits or investment gains (¶¶ 72-73).4

 The complaint adequately alleges that 

Goldstein, in the course of his profession, offered information intended to guide Plaintiffs in a 

complex investment decision (¶¶ 71-73). It can be plausibly inferred from the well-pleaded facts 

in the Complaint that Goldstein breached his duty to exercise reasonable care in communicating 

this information through a combination of key omissions and affirmative false statements, and 

that these omissions and false statements caused Plaintiffs’ injury. Id. See generally Zurad, 757 

F.2d at 134. 

Plaintiffs’ negligent misrepresentation claim against the Deutsche Bank Defendants fails 

for similar reasons as its fraud claim—they have not adequately alleged that the Deutsche Bank 

Defendants owed them a duty. There are insufficient facts in the Complaint to support a 

reasonable inference that the Deutsche Bank Defendants themselves furnished information for 

the guidance of Plaintiffs investment decisions. Rather, the Complaint supports only that the 

 

4

 Although Plaintiffs failed to plead the circumstances of this meeting with particularity, negligent misrepresentation 

claims are not subject to Rule 9(b). See Tricontinental Industries Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 

824, 833 (7th Cir. 2007). 

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Deutsche Bank Defendants exercised an arms-length transaction with Plaintiffs after Plaintiffs 

received investment guidance from other parties (Goldstein and Mayer). 

Defendants’ motion to dismiss Count III is DENIED with respect to the AMEX 

Defendants and GRANTED with respect to the Deutsche Bank Defendants. 

F. Count IV: Violation of the ICFA 

Defendants next move to dismiss Count IV, which alleges that Defendants violated 

Section 2 of the ICFA by making material misrepresentations and omissions concerning the Son 

of BOSS Investment. The ICFA makes it “unlawful to use deception or fraud in the conduct of 

trade or commerce.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 

631 F.3d 436, 441 (7th Cir, 2011). To succeed on an ICFA claim, a plaintiff must prove “(1) a 

deceptive act or practice by the defendant, (2) the defendant’s intent that the plaintiff rely on the 

deception, (3) the occurrence of the deception in the course of conduct involving trade or 

commerce, and (4) actual damage to the plaintiff (5) proximately cause by the Deception.” Avery 

v. State Farm Mut. Auto. Ins. Co., 216 Ill.2d 100, 190 (Ill. 2005). ICFA claims premised on 

fraud must meet the heightened pleading standards of Rule 9(b), while unfair practice claims are 

subject to Rule 8 pleading requirements. Pirelli Armstrong Tire Corp. Retiree Medical Benefits 

Trust v. Walgreen Co., 631 F.3d 436, 446 (7th Cir. 2011). Under the ICFA, it is not necessary to 

plead a common-law duty to disclose in order to state a claim for fraud based on an omission or 

concealment. See, e.g., Celex Group, Inc. v. Executive Gallery, Inc., 877 F.Supp. 1114, 1129-30 

(N.D. Ill. 1995). 

Plaintiffs’ ICFA claims fail against all Defendants because they are premised entirely on 

fraudulent conduct (¶ 149), and, as explained above, none of the allegations satisfy Rule 9(b).5

 

 

5

 If Plaintiffs are able to satisfy Rule 9(b) as to omissions made by the Deutsche Bank Defendants, they can establish 

an ICFA claim despite the lack of a common law duty to disclose. 

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Defendants’ motion to dismiss Count IV is GRANTED with respect to all Defendants. 

 G. Counts V, VI, and VII 

 The AMEX Defendants move to dismiss Count V for breach of fiduciary duty and Count 

VII for breach of contract as duplicative of Count VIII for accounting malpractice. Under 

Illinois law, “a breach of fiduciary duty claim can be properly dismissed if “it alleges the same 

operative facts and the same resulting injury” as a negligence claim, Fabricare Equip. Credit 

Corp. v. Bell, Boyd & Lloyd, 328 Ill.App.3d 784, 791 (1st Dist.2002), or if it mirrors a 

negligence claim. Calhoun v. Rane, 234 Ill.App.3d 90,(1st Dist.1992). A breach of contract 

claim is also subject to dismissal where it duplicates a malpractice claim. See Mitchell v. 

Schoen, No. 11 C 994, 2011 WL 2144211, at *2 (N.D. Ill. May 31, 2011) (“If a contract and a 

tort claim stem from the same common nucleus of operative facts and result in the same injury, 

the contract claim should be dismissed as duplicative.”); Hoagland ex rel. Midwest Transit, Inc. 

v. Sandberg, Phoenix & von Gontard, P.C., 385 F.3d 737, 744 (7th Cir. 2004) (legal malpractice 

claim could not be re-characterized as a breach of fiduciary duty claim or a breach of contract 

claim to avoid dismissal because such claims would be duplicative). 

 Plaintiffs insist that their claims for breach of fiduciary duty and breach of contract are 

not based on the same operative facts as the accounting malpractice claim. Plaintiffs attempt to 

support their position by listing out the general allegations contained in the Complaint, but do not 

show that different sets of operative facts go to different claims, or that distinct injuries are 

alleged (Pl. Resp. to AMEX Def. at pp. 13-14). Nevertheless, I decline to dismiss the breach of 

fiduciary duty claim as duplicative of the malpractice claim based on my interpretation that the 

former goes to intentional breaches of duty while the latter is limited to negligent breaches. See 

generally Obermaier v. Obermaier, 128 Ill.App.3d 602, 633 (1st Dist. 1984) (punitive damages 

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available where breach of fiduciary duty is intentional); Cripe v. Leiter, 291 Ill.App.3d 155, 158 

(1st Dist. 1997) (malpractice claims involve only negligent conduct). The breach of contract 

claim is dismissed as duplicative, however, because it is based entirely on the breach of a duty of 

care rather than any specific contractual provisions (¶ 173). 

 Count VI will be treated as a breach of fiduciary duty claim against the Deutsche Bank 

Defendants. Illinois courts have not clearly recognized a separate tort for assisting in the breach 

of a fiduciary duty, but liability may be imposed directly against a defendant who aids and abets 

another’s breach. See Eastern Trading Co. v. Refco, Inc., 229 F.3d 617, 623 (7th Cir. 2000). 

Under Illinois law, a breach of fiduciary duty claim has three elements: “(1) that a fiduciary duty 

exists, (2) that the fiduciary duty was breached, and (3) that such breach proximately caused the 

injury of which the plaintiff complains.” See, e.g., Neade v. Portes, 193 Ill.2d 433, 444 (2000). 

To properly allege that a defendant is liable for aiding and abetting a breach of fiduciary duty, a 

plaintiff should also allege facts to show the defendant “kn[ew] that the other’s conduct 

constitute[d] a breach of duty and [gave] substantial assistance or encouragement to the other so 

to conduct himself.” See generally RESTATEMENT (SECOND) OF TORTS § 876(B). 

 I have already determined the Complaint adequately alleges that Goldstein owed 

Plaintiffs a fiduciary duty. The Complaint also contains sufficient facts to reasonably infer that 

Goldstein breached this duty by making material misrepresentations and omissions regarding the 

nature of the Son of BOSS investment (¶¶ 72-73), and that these misrepresentations and 

omissions caused Plaintiffs’ injury (¶ 93-94). Finally, the Complaint adequately alleges that the 

Deutsche Bank Defendants knew that Goldstein owed a duty to Plaintiffs (¶ 52), and 

substantially assisted him in breaching that duty by designing the Son of BOSS tax-shelter and 

executing the underlying option transactions with full knowledge that they lacked economic 

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substance (¶¶59-61, 103). Based on the above, Plaintiffs have adequately stated a claim for 

breach of fiduciary duty against all Defendants. 

 Defendants’ motion to dismiss Count V is DENIED. Defendants’ motion to dismiss 

Count VI is GRANTED in part; the Deutsche Bank Defendants will be treated as named under 

Count V based on a theory of aiding and abetting. Defendants’ motion to dismiss Count VII is 

GRANTED. 

 H. Count I: Civil Conspiracy 

 Finally, Defendants move to dismiss Plaintiffs’ claim for civil conspiracy. Civil 

conspiracy is a recognized cause of action in Illinois. Adcock, 164 Ill.2d 54, 62 (Ill. 1994). The 

elements of a civil conspiracy are: “(1) an agreement between two or more persons, (2) for the 

purpose of accomplishing by some concerted action either an unlawful purpose or a lawful 

purpose by unlawful means, (3) in the furtherance of which one of the conspirators committed an 

overt tortious or unlawful act.” Fritz v. Johnston, 209 Ill.2d 302, 317 (Ill. 2004). “The function 

of a [civil] conspiracy claim is to extend liability in tort beyond the active wrongdoer to those 

who have merely planned, assisted or encouraged the wrongdoer’s acts.” Adcock, 164 Ill.2d at 

62. “It is only where means are employed, or purposes are accomplished, which are themselves 

tortious, that the conspirators who have not acted but have promoted the act will be held liable.” 

Id. 

 A civil conspiracy claim that is “premised upon a course of fraudulent conduct can 

implicate Rule 9(b)’s heightened pleading requirements.” Borsellino v. Goldman Sachs Group, 

Inc., 477 F.3d 502, 507 (7th Cir. 2007). Based on the nature of the conspiracy alleged in this 

case—an agreement to market an illegitimate tax shelter scheme through misrepresentation and 

concealment of material facts—I find that Rule 9(b) applies to Count I. However, I also find that 

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it is appropriate to “relax” the application of the particularity requirement to allegations 

regarding the circumstances surrounding the conspiratorial agreement because—unlike specific 

representations or omissions relied upon by Plaintiffs—the requisite information rests largely, if 

not entirely, out of Plaintiffs’ control. See PharMerica Chicago, 772 F.Supp.2d at 955; In re 

Newell Rubbermaid Inc. Sec Litig., 2000 WL 1705279, at *14 (N.D. Ill. 2000). 

 Given this framework, I find that Plaintiffs have adequately pled a claim for civil 

conspiracy. The Complaint avers that Jenkens, Goldstein and AMEX entered into an agreement 

whereby Goldstein and AMEX “would prepare tax returns relating to Son of BOSS [and] would 

not advise the investors that the Jenkens Opinion Letter was baseless, or that there was any legal 

or factual infirmity or vulnerability in the position that [Plaintiffs] would be taking by filing tax 

returns asserting the claims for tax impact espoused by Jenkens.” (¶ 63). In other words, two or 

more parties agreed to sell services (lawful purpose) through fraud (unlawful means). The 

Complaint also adequately alleges that Deutsche Bank Defendants entered into the conspiracy by 

agreeing to carry out the underlying option transactions with full knowledge that the investments 

could not generate legitimate tax benefits, in exchange for a portion of the fees charged by 

Jenkens (¶¶ 59-61, 64). Finally, Plaintiffs have adequately alleged that the underlying tort claims 

that survive Defendants’ motions to dismiss—negligent misrepresentation by the AMEX 

Defendants, breach of fiduciary duty by all defendants, accounting malpractice by the AMEX 

Defendants—were committed in furtherance of the conspiracy. 

 Defendants’ motion to dismiss Count I is DENIED. 

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IV. CONCLUSION 

For the foregoing reasons, Defendants’ motions to dismiss are GRANTED in part and 

DENIED in part. Plaintiffs are granted leave to file an amended complaint. Fed. R. Civ. P. 

15(a)(2). 

ENTER:

James B. Zagel 

United States District Judge 

DATE: April 5, 2013 

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