Sidley Austin Tax Shelter Suit Can Proceed, Judge Rules

by Glen Shapiro, LawAndTax-News.com, New York

23 June 2005

US law firm Sidley Austin Brown & Wood learned earlier this week that a civil suit brought against it over its involvement in the COBRA (Currency Options Bring Reward Alternatives) tax sheltering arrangement, which was developed by Jenkens & Gilchrist in conjunction with Brown & Wood, prior to the latter's merger with Sidley & Austin in 2001, will be permitted to continue.

The case of Seippel v. Sidley Austin Brown & Wood centres on William Seippel, who participated in the arrangement in question.

Following an Internal Revenue Service investigation into the shelter which led to Mr Seippel and his wife paying more than $5 million in taxes, penalties and fees, the couple sued the law firms in question alleging fraud, infringement of the Racketeer Influenced and Corrupt Organizations (RICO) Act, legal malpractice, breach of contract, negligent misrepresentation, and breach of fiduciary duty.

In 2004, Southern District Judge Shira Scheindlin dismissed the RICO, malpractice, breach of contract, negligent misrepresentation and breach of fiduciary duty claims, but allowed the fraud and recission of fees actions to continue, observing that: "The fact that the Seippels may not ultimately owe the tax authorities additional taxes does not mean that their action is not ripe. The Seippels allege that they have been damaged, and continue to be damaged, as a result of the defendants' conduct."

Rejecting motions to dismiss submitted by the defendants, Scheindlin argued this week that the fraud claim was submitted with sufficient particularity under the Private Securities Litigation Reform Act to be allowed to go forward.

She also stated that the claims regarding the disputed transaction were not time barred.

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