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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

JOHN T. MCMAHAN AND 

NORTHWESTERN NASAL AND SINUS 

ASSOCIATES,

Plaintiffs,

v.

DEUTSCHE BANK AG; DEUTSCHE 

BANK SECURITIES, INC., d/b/a 

DEUTSCHE BANK, 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

Before the Court is Defendants’ Motion to Dismiss the Complaint pursuant to Rules

12(b)(6) and 41(b) of the Federal Rules of Civil Procedure. For the following reasons, 

Defendants’ Motion to Dismiss is granted in part and denied in part.

BACKGROUND

In 2012, Plaintiffs John T. McMahan (“McMahan”) and Northwestern Nasal and Sinus 

Associates (“NNASA”), instigated this lawsuit against Deutsche Bank AG and Deutsche Bank 

Securities, Inc. (collectively “DB”), Robert Goldstein (“Goldstein”), and American Express Tax 

and Business Services (“AMEX”) (collectively the “AMEX Defendants”). Plaintiffs’ amended 

complaint seeks damages for civil conspiracy, fraudulent concealment, negligent 

misrepresentation, violation of the Illinois Consumer Fraud and Deceptive Business Practices 

Act (“ICFDBPA”), breach of fiduciary duty, aiding and abetting in the breach of a fiduciary 

duty, and accounting malpractice. All counts arise out of Plaintiffs’ participation in a tax shelter 
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scheme known as the Son of Bond and Option Sales Strategy (“Son of BOSS”) that was created, 

promoted, and executed by a network of banks, accounting firms and law firms across the United 

States. Ultimately, the Internal Revenue Service (“IRS”) invalidated the purported tax benefits of 

the scheme, and the participants paid substantial fines and back tax payments.

Three counts against DB (fraudulent concealment, negligent misrepresentation, and 

violation of the ICFDBPA) and all counts against AMEX and Goldstein have since been 

dismissed. DB now moves to dismiss the two counts remaining against them: aiding and abetting 

Goldstein’s breach of fiduciary duty, and civil conspiracy with Goldstein and AMEX.

FACTUAL BACKGROUND

In the early 1990s, McMahan and his corporation NNASA retained Goldstein, a certified 

public accountant, to perform tax and accounting services. 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 BOSS. McMahan asserts that Goldstein and a lawyer from Jenkens met with 

him in 2001 and explained that Son of BOSS was a legitimate investment strategy that would 

generate either profits or capital losses that could be used to reduce his income tax liability.

McMahan says he 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 also recalls being told that DB 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, Goldstein, Jenkens, and DB allegedly knew that Son of 

BOSS was an illegitimate tax-saving strategy designed solely to avoid tax liability and reap large 

fees from investors. Plaintiffs claim that, unbeknownst to them, Son of BOSS had been designed 
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and structured by Jenkens attorneys and DB employees in such a way that it was impossible to 

generate legitimate tax deductible losses, and nearly impossible to generate profits. Based on a 

notice released by the IRS in 2000 (“Notice 2000-44”), Plaintiffs argue AMEX and Goldstein

knew or should have known that the IRS was investigating Son of BOSS and would likely soon 

disallow all deductions claimed as capital losses stemming from the program.

Nevertheless, Jenkens, DB, Goldstein and AMEX, an accounting firm that employed 

Goldstein during the relevant time period, allegedly 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, and 

DB agreed to execute the underlying currency transactions. McMahan alleges that a fiduciary 

duty arose between Goldstein and himself, but alleges only a derivative duty with regard to 

Deutsche Bank. 

As a result of this scheme, Plaintiffs filed a 2001 tax return that shielded millions of 

dollars from taxation via the Son of BOSS tax shelter. 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 allegedly 

concealed the amnesty program from Plaintiffs and later failed to inform Plaintiffs of the IRS’ 

June 2003 invalidation of a number of tax shelter strategies, including Son of BOSS.

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

Adjustment in which Plaintiffs were advised that an increase in tax basis of $2,075,000 relating 
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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.

STANDARD OF REVIEW

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) does not test the merits of a claim, but

rather the sufficiency of the complaint. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 

1990). In deciding a 12(b)(6) motion, the court accepts all well-pleaded facts as true and draws 

all reasonable inferences in favor of the plaintiff. Id. at 1521. To survive a 12(b)(6) motion, “a 

complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is 

plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 

(2009). “A complaint should not be dismissed for failure to state [a] claim unless it appears 

beyond doubt that the plaintiff is unable to prove any set of facts which would entitle the plaintiff 

to relief.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 546, 127 S.Ct. 1955, 1959 (2007).

Pursuant to Rule 41(b), “[i]f the plaintiff fails to prosecute or to comply with these rules 

or a court order, a defendant may move to dismiss the action.” Dismissal under Rule 41(b) is 

only appropriate when “there is a clear record of delay or contumacious conduct, or when other 

less drastic sanctions have proven unavailing.” Brown v. Columbia Sussex Corp., 664 F.3d 182,

190 (7th Cir. 2011) (quoting Maynard v. Nygren, 332 F.3d 462, 467 (7th Cir. 2003)). When 

considering whether to dismiss a case for failure to prosecute, the court “should consider the 

frequency and magnitude of the plaintiff’s failure to comply with deadlines for the prosecution of 

the suit, the apportionment of responsibility for those failures between the plaintiff and his 

counsel, the effect of those failures on the judge’s calendar and time, the prejudice if any to the 

defendant caused by the plaintiff’s dilatory conduct, the probable merits of the suit, and the 

consequences of dismissal for the social objectives of the type of litigation that the suit 
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represents.” Aura Lamp & Lighting Inc. v. Int'l Trading Corp., 325 F.3d 903, 908 (7th Cir.

2003).

DISCUSSION

I. Failure to State a Claim 

Defendants move to dismiss on two grounds, the first of which is failure to state a claim 

upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). Pursuant to 12(b)(6), Defendants 

argue that both the civil conspiracy claim and the aiding and abetting in breach of a fiduciary 

duty claim were insufficiently pleaded and should be dismissed.

A. Civil Conspiracy

To state a claim of civil conspiracy, a plaintiff must allege that two or more persons made 

“(1) an agreement between two or more persons for the purpose of accomplishing either an 

unlawful purpose or a lawful purpose by unlawful means; and (2) at least one tortious act by one 

of the co-conspirators in furtherance of the agreement that caused an injury to the plaintiff.”

Borsellino v. Goldman Sachs Group., Inc., 477 F.3d 502, 509 (7th Cir. 2007); McClure v. Owens 

Corning Fiberglas Corp., 188 Ill. 2d 102, 720 N.E.2d 242, 258 (Ill. 1999). Once a defendant 

knowingly and voluntarily agrees with another to commit an unlawful act, that defendant may be 

held liable for any tortious act committed in furtherance of the conspiracy, when the tortious act 

is intentional or negligent in nature. Adcock v. Brakegate, Ltd., 164 Ill. 2d 54, 645 N.E.2d 898

(Ill. 1994).

A pleading that merely characterizes a combination of acts as a civil conspiracy is 

insufficient to survive a defendant’s motion to dismiss. Buckner v. Atlantic Plant Maintenance, 

Inc., 182 Ill. 2d 12, 23-24, 694 N.E.2d 565, 230 Ill. Dec. 596 (1998). Because civil conspiracy is 

not an independent tort, when “a plaintiff fails to state an independent cause of action, 
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underlying the conspiracy allegations, the conspiracy claim also fails.” Indeck North American

Power Fund, L.P. v. Norweb PLC, 316 Ill. App. 3d 416, 432, 735 N.E.2d 649, 249 Ill. Dec. 45 

(2000); Cannon v. Forest Pres. Dist. of Cook County, 2015 U.S. Dist. LEXIS 24659 (N.D. Ill. 

2015) (dismissing civil conspiracy count when underlying fraud counts also dismissed); Elias v. 

Stewart Title of Ill., 2011 U.S. Dist. LEXIS 33484 ((N.D. Ill. 2011) (court must dismiss civil 

conspiracy count because underlying count is time-barred).

In this case, Plaintiffs allege that DB knew of the fraudulent nature of the Son of BOSS 

and entered into an agreement with AMEX and Goldstein to devise and market the scheme to 

McMahan and NNASA, thus forming a conspiracy. In their amended complaint, Plaintiffs state 

that pursuant to this agreement, AMEX and Goldstein committed intentional or negligent 

tortious acts of fraudulent misrepresentation, negligent misrepresentation, malpractice, and 

breaches of fiduciary duty. However, the counts against AMEX and Goldstein, from which the 

claims against DB derive, have been dismissed with prejudice. Furthermore, the three counts 

against DB for fraudulent concealment, negligent misrepresentation, and violation of the 

ICFDBPA have also been dismissed with prejudice. Plaintiffs lack the requisite independent

cause of action underlying the civil conspiracy, so this count must be dismissed.

B. Aiding & Abetting in the Breach of a Fiduciary Duty

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). This 

analysis has two parts. First, plaintiff needs to allege a breach of fiduciary duty by showing: “(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 
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Ill.2d 433, 444, 739 N.E.2d 496, 250 Ill. Dec. 733 (2000). In Illinois, “[a] fiduciary relationship 

exists where one party reposes trust and confidence in another, who thereby gains a resulting 

influence and a superiority over the subservient party. This is generally accomplished by 

establishing facts showing an antecedent relationship that gives rise to trust and confidence 

reposed in another.” Khan v. Deutsche Bank AG, 978 N.E.2d 1020, 1041, 365 Ill. Dec. 517 (Ill. 

2012); Ray v. Winter, 67 Ill. 2d 296, 304, 367 N.E.2d 678, 10 Ill. Dec. 225 (Ill. 1977). Second, 

plaintiff needs to allege aiding and abetting liability, which requires a showing that: “(1) the 

party whom the defendant aids performed a wrongful act causing an injury, (2) the defendant 

was aware of his role when he provided the assistance, and (3) the defendant knowingly and 

substantially assisted the violation.” Hefferman v. Bass, 467 F.3d 601 (7th Cir. 2006); see

Thornwood, Inc. v. Jenner & Block, 344 Ill. App. 3d 15, 799 N.E.2d 756, 767, 278 Ill. Dec. 891 

(Ill. App. 2003).

Plaintiffs’ amended complaint alleges that AMEX and Goldstein owed them a fiduciary 

duty due to their professional relationship as accountants and tax consultants. They claim this 

duty was breached when AMEX and Goldstein advised the Plaintiffs to enter into the Son of 

BOSS scheme, which later resulted in the IRS taxes, penalties, and interest payments assessed 

against plaintiffs. Plaintiffs then allege that DB knew about AMEX’s and Goldstein’s fiduciary 

duties, knew the fraudulent nature of the SON of BOSS scheme, and assisted in furthering the 

scheme by executing the underlying currency transactions.

DB argues that Plaintiffs are estopped from any arguments that depend on the fiduciary 

duty claim as that claim, along with all others asserted against AMEX and Goldstein, were 

dismissed for failure to prosecute under Fed. R. Civ. P. 41(b). DB argues that the dismissal was 

an adjudication on the merits, so the doctrine of res judicata applies and Plaintiffs may not 
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pursue an aiding and abetting claim. See Kimmel v. Texas Commerce Bank, 817 F.2d 39, 40 (7th. 

Cir. 1987) (dismissal for failure to prosecute is adjudication on the merits because “the defendant 

must incur the inconvenience of preparing to meet the merits because there is no initial bar to the 

Court's reaching them.”) (quoting Costello v. United States, 365 U.S. 265, 285 (1961)); 

Continental Waste Systems, Inc. v. Zoso Partners, 727 F. Supp. 1143, 1151 (N.D. Ill 1989) 

(dismissal for failure to prosecute “indisputably operates as a judgment on the merits under Rule 

41(b).”).

In their reply Plaintiffs argue that, as pleaded in their amended complaint, Jenkens, along 

with AMEX and Goldstein, owed Plaintiffs a fiduciary duty and DB aided and abetted Jenkens’

breach of this fiduciary duty. Plaintiffs’ amended complaint states that they retained Jenkens for 

the purposes of structuring and implementing the Son of BOSS strategy and producing an 

opinion letter. Despite its role as a creator, designer, and marketer of this strategy, Jenkens issued

a purportedly independent opinion letter asserting that the strategy was legitimate. Plaintiffs 

allege they relied on this opinion letter, which was actually a prefabricated form letter, and

remitted legal fees to Jenkens for professional services rendered.

These facts are sufficient to show a fiduciary relationship between Plaintiffs and Jenkens,

as a fiduciary relationship exists as a matter of law between an attorney and client. Geaslen v. 

Berkson, Gorov & Levin, Ltd., 155 Ill. 2d 223, 228, 613 N.E.2d 702, 184 Ill. Dec. 385 (Ill. 1993).

This clearly establishes the existence of a fiduciary duty that Jenkens owed to Plaintiffs. Coupled 

with allegations of DB’s execution of the underlying currency transactions, knowledge of the 

opinion letter, and assistance in facilitating the promotion of the Son of BOSS scheme, Plaintiffs

have pleaded sufficient facts to proceed on this count.
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II. Prejudice Under Rule 41(b)

Defendants’ second argument is that the case against them should be dismissed for 

prejudice under Rule 41(b). A court may dismiss an action with prejudice under Fed. R. Civ. P. 

41(b) if the plaintiff fails to prosecute or to comply with any court order. Generally, a court 

should exercise this right sparingly and should dismiss a case under Rule 41(b) only “when there 

is a clear record of delay or contumacious conduct, or when other less drastic sanctions have 

proven unavailing.” Salata v. Weyerhaeuser Co., 757 F.3d 695, 699 (7th Cir. 2014) (quoting 

Webber v. Eye Corp., 721 F.2d 1067, 1069 (7th Cir. 1983)). Dismissal has been characterized as

a “harsh sanction that should be imposed infrequently.” Roland v. Salem Contract Carriers, Inc.,

811 F.2d 1175, 1177-78 (7th Cir. 1987).

On December 12, 2013, this Court entered an order stating, “Pursuant to the Court’s 

[Motion to Dismiss] ruling with respect to Defendants AMEX and Goldstein and the arbitration 

issue, the Court is compelling arbitration and staying rather than dismissing the suit. The matter 

is also stayed with respect to Deutsche Bank. There is a claim that one aspect of the arbitration 

clause is unconscionable and unenforceable. This issue may be addressed by the arbitrator.” The 

order set no deadlines.

Defendants argue they will suffer prejudice due to Plaintiffs’ failure to commence 

arbitration and Goldstein’s death on May 14, 2014. Much of the case is centered around 

conversations between McMahan and Goldstein, and Defendants worry that Goldstein’s absence 

will give Plaintiffs an unfair advantage because McMahan will be able to testify to the content of 

these conversations without rebuttal. 

Plaintiffs argue that they have diligently pursued arbitration. To support this assertion, 

they have submitted an affidavit from Plaintiffs’ counsel chronicling their lengthy delay of 
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almost one year to secure an expert witness (which was required to advance the arbitration 

process) due to lack of funds. This affidavit also reveals that Plaintiffs’ counsel did not 

communicate with Defendants’ counsel regarding their arbitration against AMEX and Goldstein 

from February 28, 2014, to June 11, 2015, a period of 468 days. But Plaintiffs’ claims against 

DB were stayed during this time, as indicated in the December 12, 2013 order. The stay was not 

lifted until September 1, 2015. Therefore, the 468-day period of silence occurred during a time 

that Plaintiffs were neither required nor permitted to move forward on their claims against DB. 

Additionally, McMahan submitted an affidavit describing financial hardship due to his

own health issues, his wife’s illness, and the IRS taxes, penalties, and interest payments for the 

Son of BOSS scheme. There is no evidence that Plaintiff exploited or otherwise proffered these 

issues in bad faith. Finally, Plaintiffs argue all parties have been prejudiced by Goldstein’s death 

and that 735 Ill. Comp. Stat. § 5/8-201, also known as the Dead Man’s Act, will protect the 

Defendant. The Act states, with a few exceptions, that “no adverse party or person directly 

interested in the action shall be allowed to testify on his or her own behalf to any conversation 

with the deceased ... or to any event which took place in the presence of the deceased.” Id.

I previously held that Plaintiff’s dilatory conduct caused prejudice to their claims against 

AMEX and Goldstein, but I do not find evidence of substantial prejudice to their claims against 

DB. Due to the stay, Plaintiffs were unable to move forward with their litigation against DB for 

twenty-one of the last twenty-eight months. While I acknowledge the difficulties Defendants 

face in mounting a defense without Goldstein, Rule 41(b) is a harsh sanction, particularly so 

when Plaintiffs’ hands were tied for much of the period of alleged delay. Thus, I decline to 

dismiss the case on this ground.
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CONCLUSION

For the foregoing reasons, Defendants’ Motion to Dismiss is granted in part and denied 

in part.

ENTER:

James B. Zagel

United States District Judge

DATE: March 15, 2016