Ex-investors in abusive tax shelter scheme say lawyers' missteps waylaid lawsuits vs scheme's mastermind

By Jonathan Bilyk | Apr 13, 2016

Two groups of investors, collectively numbering 56, who all said they were victims of an abusive tax avoidance scheme masterminded by former Seyfarth Shaw LLP partner John Rogers, have sued a western Pennsylvania-based law firm for allegedly waiting too long to bring their court actions against Rogers and Seyfarth, and making other unforced errors which they said cost them the chance to win settlements or court awarded damages.

On April 8, the investors filed two lawsuits in Cook County Circuit Court against Minto Law Group LLC, of Pittsburgh, and Minto attorneys Ralph Minto, John A. Cochran and Jeffrey G. Brooks, alleging counts of negligence and legal malpractice.

The lawsuits center on the fallout from the federal government’s prosecution of Rogers in connection with the purported tax avoidance schemes he created. According to the court documents, the plot involved the use of a sham company to draw in investors looking to reduce their income tax burdens. The company purportedly would work to collect debts owed on “distressed assets” in Brazil. However, according to the court documents, that work was only performed as “window dressing” to disguise the company “had no economic purpose other than claiming large losses to reduce taxable income.”

After the federal government took action against Rogers in 2010, plaintiffs lined up to sue him and the Seyfarth firm as the federal government moved to collect from those who had participated in Rogers’ scheme. The plaintiffs in the lawsuits against Minto asserted those legal claims were essentially slam dunks, as the evidence was “overwhelming” in favor of those who purported to have been victimized by Rogers.

After hearing of at least one successful settlement deal between purported scheme victims and Seyfarth, the plaintiffs in the Minto lawsuits said they agreed in 2012 to form a collective client group to hire Minto to press similar claims against Rogers and Seyfarth. According to the complaints, Minto lawyers allegedly told them their claims were worth $35 million to $50 million collectively.

However, the complaints alleged the Minto law firm opted to wait to bring the lawsuits, even though they were “aware that the tax shelter defendants’ only likely defense was the statute of limitations.” According to the complaints, the plaintiffs alleged the Minto lawyers were aware of Illinois’ statute of limitations, and seemingly had everything they needed to bring the lawsuit, including “model complaints” on which to base their legal actions.

But the complaints asserted the Minto lawyers waited until 2013 to begin filing lawsuits, and did not secure tolling agreements to put the statute of limitations on hold. And when they did file suit, the lawsuits said the lawyers opted to bring individual complaints, rather than a collective action. Further, they alleged the lawyers never filed some complaints on behalf of some investors.

The lawsuits alleged the purported delay in filing meant, by 2014, 16 of 34 lawsuits had already been dismissed.

Further, the lawsuits asserted some of the lawsuits were further hampered by the inclusion of incorrect or false allegations. They particularly noted the lawsuits suffered from confusion and misinformation concerning notices of tax deficiency investors had received from the Internal Revenue Service, with some lawsuits asserting some investors had never received such notices, when, in fact, they had.

The plaintiffs ultimately obtained new legal counsel, who succeeded where Minto “had failed” – persuading judges to reconsider some of the dismissed complaints, consolidating the cases, amending complaints to address issues, and “successfully mediating a confidential settlement of all of the client group’s claims … against Rogers, Seyfarth and related entities and individuals – albeit on terms substantially less favorable to the plaintiffs (and the rest of the client group) than could and would have been obtained absent defendants’ (Minto lawyers’) misfeasance and nonfeasance.”

The plaintiffs, who are from several states, including Illinois, Pennsylvania and Florida, have asked the court to award damages of more than $50,000, “consequential and incidental damages” and punitive damages, should the law of a different state permit it, as well as attorney fees.

They are represented in the action by attorney Michael G. Dickler, of the firm of Sperling & Slater, of Chicago.

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Organizations in this Story

Minto Law Group Seyfarth Shaw, LLP Sperling and Slater, P.C.

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