In the

United States Court of Appeals

For the Seventh Circuit

No. 12-2724

MATTHEW THOMAS et al., on their own behalf

and that of all others similarly situated,

Plaintiffs-Appellants,

v.

UBS AG,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 11 C 4798—John W. Darrah, Judge.

ARGUED DECEMBER 7, 2012—DECIDED FEBRUARY 7, 2013

Before POSNER, WOOD, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge. The three appellants are the

named plaintiffs in a class action suit that seeks damages

from UBS, Switzerland’s largest bank, which specializes

in managing the assets of wealthy persons from all over

the world. Federal jurisdiction is based on the alienage

branch of the diversity jurisdiction.
2 No. 12-2724

The parties have not made clear the source or sources of

the law applicable to the case. The plaintiffs advance

a variety of common law claims without indicating the

state or nation whose law gives rise to them. They

mainly cite law from states in which the three plaintiffs

reside (Arizona, California, and New York), but they

also cite Illinois cases (without explaining why). When

the parties to a diversity case do not mention what

state’s law applies, the court applies the law of the state

in which the court is located. Santa’s Best Craft, LLC v.

St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 345 (7th Cir.

2010). But these parties, by citing cases both from

Illinois (which is that state) and from the three states

in which a plaintiff resides, imply that the law of

all four states applies. This is quadruply strange: The

parties don’t suggest that all the class members reside

in those three or four states or that all the allegedly wrongful acts occurred in those states. They don’t indicate

whether there are relevant differences among the laws

of the four states. They don’t explain why the law of the

state of a plaintiff’s or unnamed class member’s residence

should control under applicable conflict of laws principles

rather than, for example, the law of Switzerland, which

is UBS’s domicile and also the place in which UBS committed the complained of acts or omissions. And they

don’t discuss the possibility that federal common law

may apply instead of state law because, as we’ll see,

the plaintiffs rely in part on a contract with the federal

government.

The problem of choice of law created by a nationwide

class action governed by laws of different states or other
No. 12-2724 3

jurisdictions is usually solved by the district court’s

certifying a different subclass for class members in each

jurisdiction whose law differs in some relevant respect

from that of the other jurisdictions in which members

of the class reside or the allegedly unlawful acts were

committed. The parties have not proposed that solution

and anyway the case was dismissed on the merits

before any class or subclasses were certified.

We’re not at liberty to decide a diversity case on the

basis of the “general common law.” In re Rhone-Poulenc

Rorer Inc., 51 F.3d 1293, 1300-01 (7th Cir. 1995); Central

Soya Co. v. Epstein Fisheries, Inc., 676 F.2d 939, 941 (7th

Cir. 1982). The term denoted the common law

principles created by federal judges for use in diversity

cases—principles that might differ from the law that the

various state courts would have applied to the same

cases if litigated in state rather than federal courts.

In the Erie case the Supreme Court held that to decide

diversity cases on the basis of common law created by

federal judges was an unconstitutional usurpation of state

authority. “There is no federal general common law.

Congress has no power to declare substantive rules of

common law applicable in a state.” Erie R.R. v. Tompkins,

304 U.S. 64, 78 (1938). But parties still are allowed to

specify (within reason, see Lloyd v. Loeffler, 694 F.2d 489,

495 (7th Cir. 1982)) what law shall govern a lawsuit

between them, and the specification can be implicit.

Many common law principles are the same, or

materially the same, in many or even all U.S. states, and

when a case turns on such a principle the parties will
4 No. 12-2724

often cite decisions articulating and applying it without

worrying about which state the decisions come from, as

in our recent case of Adams v. Raintree Vacation Exchange,

LLC, 702 F.3d 436, 438 (7th Cir. 2012); to the same effect

see Phillips v. Audio Active Ltd., 494 F.3d 378, 386 (2d

Cir. 2007). In Adams the parties had implicitly agreed

that “American law” would govern the interpretation of a

forum selection clause in a contract that had been made

in Mexico, but they did not specify a state’s law to

govern the issue—just American rather than Mexican

law. This case is similar. And since there is no indication

that the common law principles invoked by the parties

vary across the states that might have jurisdiction of

claims in the complaint or that federal law might govern

instead of state law or Swiss law instead of American

law, we’ll not worry further about choice of law.

The district judge dismissed the suit on the merits

without, as we said, first considering whether to certify

a class. Normally the issue of certification should be

resolved first, Thomas v. City of Peoria, 580 F.3d 633, 635

(7th Cir. 2009); Bertrand ex rel. Bertrand v. Maram, 495

F.3d 452, 454-56 (7th Cir. 2007), because if a class is

certified this sets the stage for a settlement and if certification is denied the suit is likely to be abandoned, as

the stakes of the named plaintiffs usually are too small

to justify the expense of suit, though that may not be

true in this case. But deciding whether to certify a class

can take a long time. Rule 23(c)(1)(A) requires that the

decision be made at “an early practicable time,” but

early is often not practicable. So when as in this case the
No. 12-2724 5

suit can quickly be shown to be groundless, it may make

sense for the district court to skip certification and

proceed directly to the merits. Cowen v. Bank United of

Texas, FSB, 70 F.3d 937, 941-42 (7th Cir. 1995).

UBS opposed certification even though a defendant

with a winning case has much to gain from it—the judgment for the defendant will be res judicata in any suit

by a class member who had not opted out of the class,

provided “that the named plaintiff at all times adequately represent the interests of the absent class members.” Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812

(1985); see also Hansberry v. Lee, 311 U.S. 32, 45 (1940).

But even a defendant with a winning case may not

have much to gain, if an opt out can be expected to

file another class action against the defendant. That

possibility to one side, a very risk-averse defendant

will oppose certification even in a weak case lest it

lose the case (against the odds) and, because the case

was litigated as a class action, be ordered to pay

very heavy damages.

The plaintiffs, and the other members of the class—who

number in the thousands—are American citizens who

had bank accounts in UBS in 2008 when the UBS taxevasion scandal (of which more shortly) broke. The accounts of the three plaintiffs were large—$500,000 to

$2 million each. The plaintiffs had not disclosed the

existence of the accounts on their federal income

tax returns, as they were required to do by Form 1040,

Schedule B, which on line 7a asked (the current version

is materially the same): “At any time during [2002-2008]
6 No. 12-2724

did you have an interest in or signature or other authority

over a financial account in a foreign country, such as

a bank account, securities account, or other financial

account?” They also did not disclose the income they

earned in those accounts. Neither did they pay federal

income tax on that income, though it was taxable. Eventually they ‘fessed up and paid the taxes they owed plus

interest on those taxes and a 20 percent penalty. They

did this pursuant to an IRS amnesty program, adopted

in the wake of the scandal, called the “Offshore

Voluntary Disclosure Program.” Internal Revenue

Service, 2009 Offshore Voluntary Disclosure Program,

www.irs.gov/uac/2009-Offshore-Voluntary-DisclosureProgram, and Disclosure: Questions and Answers,

www.irs.gov/uac/Voluntary-Disclosure:-Questions-andAnswers (both visited Jan. 31, 2013). The suit seeks to

recover from UBS the penalties, interest, and other costs

that the plaintiffs and the other members of the class

incurred from their scrape with the IRS, plus the profits

(in the hundreds of millions of dollars) they claim UBS

made from the class as a result of the fraud and other

wrongful acts that they allege UBS committed by

inducing them to maintain their accounts with it.

The plaintiffs are tax cheats, and it is very odd, to say

the least, for tax cheats to seek to recover their penalties

(let alone interest, which might simply compensate the

IRS for the time value of money rightfully belonging to

it rather than to the taxpayers) from the source, in this

case UBS, of the income concealed from the IRS. One

might have expected the plaintiffs to try to show that
No. 12-2724 7

they had forgotten they had accounts with UBS (though

that would be preposterous, for these were significant

investments for each of the plaintiffs). Or that UBS had

told them that income earned in those accounts was

somehow tax exempt and moreover that the accounts

themselves were somehow not foreign bank accounts

within the meaning of the tax code and so the plaintiffs

didn’t have to acknowledge having accounts with UBS.

They don’t make any of these feeble arguments. They do

argue, as we’ll see, that UBS was obligated to give

them accurate tax advice and failed to do so, but not

that it gave them inaccurate, as distinct from no, advice.

There are grounds for avoiding penalties for admitted

violations of federal tax law, see, e.g., 26 U.S.C. § 6664(c),

(d); 31 U.S.C § 5321(5)(B)(ii), such as reliance on

plausible advice from a reputable-seeming lawyer or

accountant. United States v. Boyle, 469 U.S. 241, 250-52

(1985); Mulcahy, Pauritsch, Salvador & Co., Ltd. v. Commissioner, 680 F.3d 867, 872 (7th Cir. 2012); Kim v. Commissioner,

679 F.3d 623, 626-27 (7th Cir. 2012); 14A Mertens Law of

Federal Income Taxation § 55:89 (2012). But the plaintiffs do

not invoke any of those grounds or argue that they asked

UBS to advise them on U.S. tax law or that the bank

volunteered such advice.

What’s true is that in 2009 UBS admitted having

helped tens of thousands of its clients to evade U.S.

income taxes, and paid a $780 million fine. (That was the

scandal we referred to; it is separate from the LIBOR

scandal in which UBS has been involved recently.)

Maybe this help included tax advice, but our plaintiffs
8 No. 12-2724

do not argue that they (or other members of the class)

received tax advice from UBS. They argue rather that

the bank should have prevented them from violating

the law. This is like suing one’s parents to recover tax

penalties one has paid, on the ground that the parents

had failed to bring one up to be an honest person who

would not evade taxes and so would not subject himself

to penalties.

There is in general no common law duty to prevent

another person from violating the law. At worst, UBS, as

we’re about to see, violated an agreement with the IRS

designed to prevent the kind of evasion that the

plaintiffs engaged in. That might conceivably make UBS

an aider or abettor of the plaintiffs’s tax evasion and so

make this case a distant relative to Everet v. Williams

(Ex. 1725), better known as The Highwayman’s Case and

eventually reported under that name in 9 L.Q. Rev. 197

(1893). A highwayman had sued his partner in crime for

an accounting of the illegal profits of their criminal

activity. The court refused to adjudicate the case, and

both parties were hanged. Minus the hanging and with

certain exceptions (such as contribution and indemnity)

irrelevant to this case, the principle enunciated in

The Highwayman’s Case applies to accomplices in civil

wrongdoing, as noted in our recent decision in

Schlueter v. Latek, 683 F.3d 350, 355-56 (7th Cir. 2012). In

The Highwayman’s Case one accomplice was seeking a

bigger share of the profit from the crime from the other

one; here one accomplice is seeking a smaller share of

the costs of the crime from the other one. The principle

is the same; the law leaves the quarreling accomplices

where it finds them.
No. 12-2724 9

In 2001 UBS had signed a contract with the Internal

Revenue Service in which it agreed to participate in

the IRS’s Qualified Intermediary Program, 26 U.S.C.

§ 1441; 26 C.F.R. § 1.1441-1(e)(5), a program designed to

encourage foreign banks to help the IRS collect income

tax on income earned by American taxpayers abroad.

Among other things the program required participating

banks to report to the IRS tax information about

depositors who were U.S. taxpayers and to withhold “U.S.-

source income,” such as income on securities of

American companies, and pay it over to the IRS. Two of

the three named plaintiffs claim that the bank told them

not to hold U.S. securities in their accounts. Had they

obeyed the instructions they would not have earned

any US-source income, but the bank would still have

had to report to the IRS tax information about them

if it knew or should have known that they were U.S. taxpayers. See Internal Revenue Service, Qualified Intermediary

Frequently Asked Questions, www.irs.gov/Businesses/

Inte rnational-Busines ses/Qualified-IntermediaryFrequently-Asked-Questions#2 (visited Jan. 31, 2013). The

third plaintiff has not disclosed what was in his account.

Supposing the bank failed to comply with the

reporting requirements in its agreement with the IRS

with respect to any of the plaintiffs (or unnamed class

members)—so what? The plaintiffs argue that they are

third-party beneficiaries of the agreement and so entitled

to enforce it and thus to obtain damages for the breach

by UBS, assuming there was a breach. Their theory is

that had UBS complied with its reporting requirements

they would have known they had to pay taxes on earnings
10 No. 12-2724

in their accounts at the bank—known because the

program required the bank to inform depositors what it

was reporting to the IRS about their earnings on their

deposits. The Supreme Court held recently that a government contract that involves no negotiable terms

but merely brings the other party to the contract under

a statute (or, we can assume, a regulation) does not

confer third-party beneficiary status on anyone. Astra

USA, Inc. v. Santa Clara County, 131 S.Ct. 1342, 1348 (2011).

But there are negotiable terms in Qualified Intermediary agreements, so maybe (we needn’t decide) the

plaintiffs could be third-party beneficiaries: could be,

but aren’t.

A third-party beneficiary is someone whom the contracting parties wanted to have the right to enforce

the contract. Vidimos, Inc. v. Laser Lab Ltd., 99 F.3d 217, 219-

20 (7th Cir. 1996); Sioux Honey Ass’n v. Hartford Fire Ins.

Co., 672 F.3d 1041, 1056-59 (Fed. Cir. 2012); Hess v. Ford

Motor Co., 41 P.3d 46, 51 (Cal. 2002); Fourth Ocean Putnam

Corp. v. Interstate Wrecking Co., 485 N.E.2d 208, 211-13 (N.Y.

1985). It’s unlikely that the IRS would want the tax

cheats that the contract was intended to deter, by

requiring foreign banks to report their income to it, to be

able to shift the burden of the penalties that the IRS

imposes on tax cheats to the foreign banks. True, that

would increase the banks’ incentives to comply with

the contract. But offsetting this effect would be the reduction in the taxpayers’ incentive to honor their tax obligations if they could shift the cost of cheating on their

taxes to the foreign banks.
No. 12-2724 11

And what would UBS, the other party to the contract,

gain from being made potentially liable to its depositors

for failing to prevent them from evading taxes? Less

than nothing. It’s not surprising that there’s no evidence

or even suggestion of an intention by the parties to the

Qualified Intermediary agreement to make the taxpayers third-party beneficiaries of it.

The plaintiffs have a second breach of contract claim:

that they “entered into implied, oral and/or written

contracts with UBS to provide [the plaintiffs] with professionally competent tax advice” and that the contracts

contained “unreasonable and oppressive terms” and “are

unenforceable and void due to lack of mutuality.” Even

before Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007),

and Ashcroft v. Iqbal, 556 U.S. 662 (2009), such an allegation would have failed to state a claim because it

doesn’t provide the minimum information that the defendant would need in order to be able to answer

the complaint. Higgs v. Carver, 286 F.3d 437, 439 (7th Cir.

2002); Ryan v. Mary Immaculate Queen Center, 188 F.3d

857, 859-60 (7th Cir. 1999). The complaint does not tell

the defendant what communications formed the basis

of any of the supposed implied contracts and what their

terms were.

The plaintiffs also charge fraud: that the bank inveigled

them into continuing to invest with it (they had opened

their accounts before the bank joined the Qualified Intermediary Program) by concealing its agreement with the

IRS and the obligation entailed by the agreement to

report tax information about the plaintiffs to the IRS.
12 No. 12-2724

This is a private-entrapment argument: by letting the

plaintiffs think that keeping their money in foreign accounts would enable them to evade federal tax law successfully, UBS caused the plaintiffs to commit tax fraud.

That is another frivolous theory of liability. For if it

were adopted, not only would everyone have a legally

enforceable duty to prevent crimes and other wrongs

when he could; a failure to perform the duty would

give the criminal or other wrongdoer a right of action

against the failed protector.

The plaintiffs further argue that UBS touted the secrecy

of their accounts, consistent with the Swiss tradition of

secret bank accounts. The plaintiffs inferred that the

bank would conceal their accounts not only from competitors, relatives, ex-spouses, private creditors, and

journalists, but also from the Internal Revenue Service,

thus enabling them to get away with not paying any

federal income tax they might owe on the earnings in

the accounts. But such a scheme would of course be

illegal, bringing us back to The Highwayman’s Case.

The plaintiffs also argue that UBS had a fiduciary

obligation to them—the kind of duty that arises from

a gross disparity in knowledge between the provider

and the recipient of a service (a lawyer and a client, for

example, or a physician and a patient) and requires that

the provider treat the recipient as well as he would

want himself treated. E.g., Burdett v. Miller, 957 F.2d 1375,

1381-82 (7th Cir. 1992); In re Daisy Systems Corp., 97

F.3d 1171, 1177-79 (9th Cir. 1996). But a bank is not a

fiduciary of its depositors. It is merely a creditor. Bennice
No. 12-2724 13

v. Lakeshore Savings & Loan Ass’n, 677 N.Y.S.2d 842, 843

(App. Div. 1998); Copesky v. Superior Court, 229 Cal. App. 3d

678, 689-94 (1991). It has no duty to treat them like

children or illiterates, and thus remind them that they

have to pay taxes on the income on their deposits. It has

no duty to read aloud to them line 7a on Schedule B

of Form 1040.

The plaintiffs further claim that UBS was unjustly

enriched at their expense. But the claim again lacks

the minimum specification that UBS would need to

prepare an answer. No doubt the bank “enriched” itself

by charging compensatory fees for its services to the

plaintiffs, but where was the “injustice”? No injustices are

alleged other than those alleged elsewhere in the complaint, which we’ve already discussed, making the unjust

enrichment claim redundant. We explained in ConFold

Pacific, Inc. v. Polaris Industries, Inc., 433 F.3d 952, 957

(7th Cir. 2006), that the legal term “unjust enrichment”

“has two referents, a remedial and a substantive. The

remedial [referent] is to a situation in which a tort

plaintiff asks not for the damages he has sustained but

instead for the profit that the defendant obtained from

the wrongful act.” That has no relevance to this case, for

the plaintiffs haven’t gotten to first base in showing

that UBS committed a tort against them.

“In its substantive sense, unjust enrichment or restitution refers primarily to situations in which either the

defendant has received something that of rights belongs

to the plaintiff (for example, he received it by mistake—or

he stole it), or the plaintiff had rendered a service to
14 No. 12-2724

the defendant in circumstances in which one would

reasonably expect to be paid (and the defendant refused

to pay) though for a good reason there was no contract.”

Id. at 957-58. Neither of these examples relates to this

case. See also Corsello v. Verizon New York, Inc., 967

N.E.2d 1177, 1185 (N.Y. 2012); Murdock-Bryant Construction, Inc. v. Pearson, 703 P.2d 1197, 1201-02 (Ariz. 1985).

We needn’t discuss the plaintiffs’ remaining claims—of

negligence and malpractice—as they are frivolous

squared. This lawsuit, including the appeal, is a travesty.

We are surprised that UBS hasn’t asked for the imposition of sanctions on the plaintiffs and class counsel.

AFFIRMED.

2-7-13