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BLYTHE v. DEUTSCHE BANK AG

January 7, 2005.

FRANKLIN W. BLYTHE, et al., Plaintiffs,
v.
DEUTSCHE BANK AG; DEUTSCHE BANK SECURITIES, INC., d/b/a DEUTSCHE BANK ALEX BROWN, a DIVISION of DEUTSCHE BANK SECURITIES, INC.; CRAIG BRUBAKER; DAVID PARSE; TODD CLENDENING; BDO SEIDMAN LLP; CHRISTOPHER TRUIT; MORRY GOTTLIEB; PAUL SHANBROM; ROBERT GREISMAN; THOM TAYLOR; and CHARLES McNEALY, Defendants.



The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

  Plaintiffs allege that defendants violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ยง 1962, and are liable for damages and other relief arising from unjust enrichment, breach of contract, breach of the duty of good faith and fair dealing, breach of fiduciary duty, fraud, negligent misrepresentation, professional malpractice, and civil conspiracy.*fn1 BDO now moves to compel arbitration with respect to certain plaintiffs, and to stay the proceedings with respect to the remaining plaintiffs.*fn2 Deutsche Bank moves to stay the proceedings with respect to all plaintiffs.*fn3 II. BACKGROUND

  This case arises out of tax and consulting services marketed by defendants. The Complaint alleges that defendants defrauded plaintiffs through the marketing and sale of a tax shelter (a strategy involving digital options or swaps on foreign currency sometimes known as "COBRA") which they knew or should have known the IRS would challenge as lacking economic substance.

  Plaintiffs allege that the tax shelter scheme was developed by Deutsche Bank in concert with the law firm of Jenkens & Gilchrist, P.C. ("Jenkens").*fn4 Deutsche Bank agreed to act as the counter-party to the tax shelter transactions. Jenkens and Deutsche Bank recruited BDO and others to market the schemes to high net-worth clients, including plaintiffs.

  The Blythe Plaintiffs were introduced to the scheme through their longtime accountant Christopher Truitt, an employee of BDO. The Ramsey Plaintiffs were introduced to the scheme by their accountant, Charles McNealy, also an employee of BDO. The Zimmerman Plaintiffs were introduced to the scheme through their accountant Morry Gottlieb, an employee of BDO. The Baker, Ekaireb and Mosley Plaintiffs contacted Jenkens and/or Deutsche Bank directly to learn about COBRA, without dealing with BDO. All individual plaintiffs in this case are members of a putative settlement class with Jenkens in Denney v. Jenkens & Gilchrist,*fn5 also before this Court. The Jenkens settlement class has been preliminarily certified.*fn6 Plaintiffs are also members of other putative classes in Denney that have not yet been preliminarily certified. None of the plaintiffs in this case have opted out of the Jenkens class.*fn7 Deutsche Bank AG, Deutsche Bank Securities, and BDO Seidman are named as defendants in Denney. The individual defendants in this case are not named as defendants in Denney. Some, but not all, of the claims asserted by plaintiffs here are encompassed by Denney.*fn8

  A. BDO's Motion to Compel Arbitration and Stay the Proceedings

  1. The Blythe/BDO Agreement

  On June 30, 1998, Luther J. Blythe entered into a consulting agreement with BDO. This agreement contained the following language:
WHEREAS, Mr. Blythe is interested in transferring, by sale, lease or otherwise, an interest in certain investments, primarily investments in entities owning various golf properties;
WHEREAS, BDO is in the business of providing accounting and consulting services; and
WHEREAS, Mr. Blythe desires BDO to provide certain Consulting services in connection with any potential transactions, and BDO desires to provide such services . . .*fn9
The consulting agreement requires BDO to provide the following services:
consulting services in conjunction with any potential transaction, including assistance in determination of sales price and allocations thereof, assistance in structuring the Transaction, assisting Mr. Blythe and/or its advisors in structuring a reorganization qualifying as a nontaxable merger, income and estate planning for Mr. Blythe, and assisting Mr. Blythe in discussions and/or negotiations with potential purchasers of the golf course investments, on a specifically requested basis. For purposes of this Agreement, (i) the term "Transaction" shall mean the transfer, whether by sale, merger or otherwise, of all or any portion of the golf course investments.*fn10
  The Blythe/BDO Agreement also contains a mandatory arbitration clause, providing for arbitration of "any dispute, controversy or claim [that] arises in connection with the performance or breach of this Agreement."*fn11

  2. The Zimmerman/BDO Agreement

  On September 30, 1999, Jordan B. Zimmerman entered into a consulting agreement with BDO. This agreement contains the following language:
WHEREAS, [Zimmerman] is interested in transferring, by sale, lease or otherwise, any or all of his business operations (. . . such transfer [is referred to as] the "Transaction");
WHEREAS, BDO is in the business of providing accounting and consulting services; and
WHEREAS, [Zimmerman] desires BDO to provide certain tax and business consulting services in connection with the Transaction, and BDO desires to provide such services . . .*fn12
The consulting agreement requires BDO to provide the following services:
consulting services in connection with the Transaction, including assistance in structuring the Transaction, assisting the client in determining a tax treatment for the Transaction, and the preparation of 1999 and 2000 income tax returns that would reflect the Transaction.*fn13
The Zimmerman/BDO Agreement also contains a mandatory arbitration clause identical to that in the Blythe/BDO Agreement.
3. The Unsigned Ramsey/BDO Agreement
  BDO has submitted an unsigned consulting agreement between BDO and, among others, Barnwell S. Ramsey. The agreement appears to be in draft form. Its provisions are similar to those of the Blythe and Zimmerman Agreements, and it contains an identical arbitration clause.

  On the basis of the Blythe and Zimmerman Agreements, BDO moves to compel the Blythe and Zimmerman Plaintiffs to arbitrate their claims. Having been unable to locate a signed agreement with the Ramsey Plaintiffs, BDO does not seek to compel that group to arbitrate, but requests that the Court stay their claims pending certification of the class in Denney, on the ground that if the class action in Denney is certified, it will encompass the Ramsey Plaintiffs' claims.

  B. Deutsche Bank's Motion to Stay the Proceedings

  The Baker, Mosley and Ekaireb Plaintiffs opened brokerage accounts with DB Alex. Brown in 2000. Through individual members or entities within each group, these plaintiffs signed Account Agreements.*fn14 Each Account Agreement contains an identical arbitration clause: I agree to arbitrate with you any controversies which may arise, whether or not based on events occurring prior to the date of this agreement, including any controversy arising out of or relating to any account with you, to the construction, performance or breach of any agreement with you, or to transactions ...


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