6th Cir. OKs Civil RICO Class Suit Against Edwards Wildman, Client Insurer re Tax-Shelter Marketing

6th Cir. OKs Civil RICO Class Suit Against Edwards Wildman, Client Insurer re Tax-Shelter Marketing
ABA Journal Law News Now
By Martha Neil
September 20, 2012

Reversing a lower court's dismissal of a civil racketeering class action against a law firm and a client insurer, a federal appeals court in Cincinnati on Wednesday gave the lawsuit a green light.

The suit was filed because of the defendants' marketing of a tax shelter later determined by the Internal Revenue Service to be abusive. It alleges that Edwards Angell Palmer & Dodge, a law firm now known as Edwards Wildman Palmer following a merger, and its client, John Hancock Life Insurance Co., violated the federal Racketeer Influenced and Corrupt Organizations Act, reports Reuters.

Several state-law claims are also included in the suit, which contends that the plaintiffs, who own a family company, Stoney Creek Fisheries and Equipment Inc., in Michigan, relied on legal opinions from the law firm concerning the tax they would owe as a result of participating in the Benistar 419 Plan promoted by the defendants. It asserts a state-law negligent misrepresentation claim against all defendants and additional state-law claims against the insurer only.

While the plaintiffs have not yet proven their case, U.S. District Judge Janet Neff erred by granting a defense motion to dismiss in 2010 rather than allowing the plaintiffs a chance to obtain potential evidence in discovery, the 6th U.S. Circuit Court of Appeals said in a written opinion (PDF) on Wednesday.

The judge found that the plaintiffs had not adequately pleaded "conduct" and "enterprise" elements on the RICO claim. However, an amended complaint "delineates the specific roles and relationships of the Defendants, alleges the enterprise functioned at least five years, and alleges it functioned for the common purpose of promoting a fraudulent welfare benefit plan to generate commissions and related fees. That pattern of activity is sufficient to permit a jury to infer the existence of an enterprise," the 6th Circuit writes. Read more here