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Brochures promoting investment plans sometime include an opinion letter of a lawyer concerning the tax consequences of implementing theplan The district court granted all defendants’ motions to dismiss, with respect to the RICO claims because plaintiffs “failed to sufficiently plead the ‘conduct’ and ‘enterprise’ elements for a valid RICO claim.” The district court dismissed all of the state law claims because of the disclaimers and disclosures contained in the various documents. A three judge panel of the Sixth Circuit reversed with respect to all counts.
The court found that, if the allegations of the complaint were true, a jury could find that the lawyer had engaged in actionable conduct under RICO. The lawyer had provided “incomplete and misleading legal opinions.” This notwithstanding the existence of “specific IRS rulings and notices” that the plan was not compliant under the Code, “which were allegedly ignored in favor of older rulings and notices that were more favorable.” Moreover, it was alleged that the lawyer knew that his opinion letters were being used “for the purpose of falsely promoting the plan as a tax-saving device to potential investors.”
The court found that this scheme, as alleged, constitutes an “enterprise,” another element under RICO. Moreover, based on the lawyer’s continued participation, the court found that “the Amended Complaint plausibly alleges” that he was a participant in the enterprise’s affairs, and not merely in his own affairs. The court also found that the issuance of four “incomplete and misleading” opinion letters can also satisfy the “pattern of racketeering” element.
In reversing the motions to dismiss with respect to the state law actions, the court found that the effectiveness of the disclaimers should not be determined at that early juncture of the lawsuit. Plaintiffs had argued that the district court inappropriately relied on the disclaimers within the context of a motion to dismiss because “they were presented and considered out of the context of the volume of documents in which they were contained.”
This case demonstrates that a lawyer can be liable under RICO for offering an opinion letter, notwithstanding a disclaimer that it is only to be relied upon by his client, if the evidence is compelling enough to show that he knew that the opinion was incorrect and that non-clients would be relying upon it.
Brochures promoting investment plans sometime include an opinion letter of a lawyer concerning the tax consequences of implementing theplan
ReplyDeleteThe district court granted all defendants’ motions to dismiss, with respect to the RICO claims because plaintiffs “failed to sufficiently plead the ‘conduct’ and ‘enterprise’ elements for a valid RICO claim.” The district court dismissed all of the state law claims because of the disclaimers and disclosures contained in the various documents. A three judge panel of the Sixth Circuit reversed with respect to all counts.
The court found that, if the allegations of the complaint were true, a jury could find that the lawyer had engaged in actionable conduct under RICO. The lawyer had provided “incomplete and misleading legal opinions.” This notwithstanding the existence of “specific IRS rulings and notices” that the plan was not compliant under the Code, “which were allegedly ignored in favor of older rulings and notices that were more favorable.” Moreover, it was alleged that the lawyer knew that his opinion letters were being used “for the purpose of falsely promoting the plan as a tax-saving device to potential investors.”
The court found that this scheme, as alleged, constitutes an “enterprise,” another element under RICO. Moreover, based on the lawyer’s continued participation, the court found that “the Amended Complaint plausibly alleges” that he was a participant in the enterprise’s affairs, and not merely in his own affairs. The court also found that the issuance of four “incomplete and misleading” opinion letters can also satisfy the “pattern of racketeering” element.
In reversing the motions to dismiss with respect to the state law actions, the court found that the effectiveness of the disclaimers should not be determined at that early juncture of the lawsuit. Plaintiffs had argued that the district court inappropriately relied on the disclaimers within the context of a motion to dismiss because “they were presented and considered out of the context of the volume of documents in which they were contained.”
This case demonstrates that a lawyer can be liable under RICO for offering an opinion letter, notwithstanding a disclaimer that it is only to be relied upon by his client, if the evidence is compelling enough to show that he knew that the opinion was incorrect and that non-clients would be relying upon it.