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Green v. Beer

February 22, 2007

ALLAN GREEN, HANA GREEN, WHITE BUFFALO, LLC, DEAN JANSSEN, KATHLEEN JANSSEN, JAMES MICHAEL DUNIGAN, NENA M. DUNIGAN, ABILENE TRADING, LLC, CHRIS MALETIS, SUSAN E. MALETIS, JAMES D. INGSTAD, VICTORIA S. INGSTAD, THOMAS E. INGSTAD, FARGO TRADING, LLC, AND TEI TRADING, LLC, PLAINTIFFS,
v.
ANDREW D. BEER AND SAMYAK C. VEERA, DEFENDANTS.



The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.:

OPINION AND ORDER

Plaintiffs, thirteen individuals and four limited liability corporations, invested in a tax-shelter scheme promoted by Defendants Andrew D. Beer and Samyak C. Veera. Defendants allegedly advised Plaintiffs that the scheme would generate both real profits and lawful capital losses. The IRS disallowed Plaintiffs' claimed tax savings, however, and it forced Plaintiffs to pay a substantial settlement. Plaintiffs have now filed suit, alleging unjust enrichment, breach of fiduciary duty, fraud, negligent misrepresentation, and civil conspiracy.

Both Defendants have moved to dismiss all counts, pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), 12(b)(6), and 12(b)(7). For the following reasons, the motions are granted in part and denied in part.

BACKGROUND

The Court assumes the following facts, drawn from the Complaint, to be true for purposes of these motions to dismiss.

Plaintiffs are individuals and corporations residing in California, Delaware, Florida, North Dakota, Oregon, Texas, and Canada.*fn1 (Compl. ¶¶ 4-12.) In 2000, associates of Defendants (either Deutsche Bank or various accounting firms) approached Plaintiffs with an investment proposal known as the "COINS Strategy." (Id. ¶¶ 15 n.2, 36.) After Plaintiffs expressed initial interest, the firms arranged meetings between Plaintiffs and Defendants to explain the strategy in greater detail. (Id. ¶ 36.) Defendants described the COINS Strategy as a legitimate type of foreign currency transaction that bore little risk of loss but had the potential to generate large profits and significant tax advantages.*fn2 (Id. ¶¶ 36-37.) Defendants offered Plaintiffs an opinion letter from a tax law firm to confirm the legality of the transaction; Plaintiffs accepted, and paid the law firm a large fee. (Id. ¶ 41.) Relying on Defendants' assurances, Plaintiffs then agreed to engage in the strategy. (Id. ¶ 28.) The strategy, however, was designed principally to reap large fees from Plaintiffs. (Id. ¶¶ 30, 79.) Defendants knew or should have known that, in reality, the COINS Strategy was a transaction without economic substance that had no reasonable possibility of turning a genuine profit. (Id. ¶ 27.) They also knew or should have known that the IRS considered the COINS Strategy improper and would disallow Plaintiffs' claimed tax losses. (Id. ¶¶ 60-64.)

Plaintiffs engaged in the COINS Strategy between June and December 2000, executing various options contracts with Deutsche Bank and following the steps of the strategy with directions from Defendants and others. (Id. ¶¶ 42-59.) When the IRS reiterated its anti-COINS stance in an official notice in August 2000, an accounting firm working with Defendants wrote to some Plaintiffs, with Defendants' knowledge, to reassure them that the tax shelter would withstand IRS scrutiny. (Id. ¶ 65.) Two years later, Defendants and their associates failed to advise Plaintiffs to take advantage of an IRS amnesty program. (Id. ¶ 76.)

Plaintiffs were ultimately audited by the IRS. (Id. ¶ 74.) They settled with the Service in 2004 for the full amount of back taxes owed plus penalties. (Id. ¶ 88.)

STANDARD OF REVIEW

"A motion to dismiss should not be granted unless it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff[s] can prove no set of facts which would entitle [them] to relief." United States v. Baylor Univ. Med. Ctr., 469 F.3d 263, 267 (2d Cir. 2006) (internal quotation marks omitted). The Court must accept all allegations in the Complaint as true and draw any inferences in the light most favorable to Plaintiffs. Id.

DISCUSSION

I. Unjust Enrichment

The First Claim of the Complaint alleges that because Defendants recommended that Plaintiffs employ the COINS Strategy even though they knew it would not turn a profit or pass muster with the IRS, Defendants' receipt of fees from Plaintiffs constitutes unjust enrichment.*fn3

"To prevail on a claim of unjust enrichment, a party must show that (1) the other party was enriched, (2) at that party's expense, and (3) that 'it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered.'" Citibank, N.A. v. Walker, 787 N.Y.S.2d 48, 49 (App. Div. 2004) (quoting Paramount Film Distrib. Corp. v. State, 285 N.E.2d 695, 698 (N.Y. 1972)) (alteration in original). Unjust enrichment does not depend on performance of a wrongful act, however, and even innocent parties may be unjustly enriched. Cruz v. McAneney, 816 N.Y.S.2d 486, 491 (App. Div. 2006). Here, Plaintiffs have alleged that they paid fees to Defendants (Compl. ΒΆΒΆ 87, 94), satisfying the first two elements of unjust enrichment. They have also alleged that Defendants' sales pitch and subsequent advice to Plaintiffs contained misrepresentations and omissions intended to induce Plaintiffs to pursue the COINS ...


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