Mark Klopfenstein v. Deutsche Bank Securities, Inc. , 592 F. App'x 812 ( 2014 )

Case: 14-12611 Date Filed: 11/20/2014 Page: 1 of 8
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-12611
Non-Argument Calendar
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D.C. Docket No. 1:14-cv-00278-TCB
MARK KLOPFENSTEIN,
Plaintiff-Appellant,
versus
DEUTSCHE BANK SECURITIES, INC.,
d.b.a. Deutsche Bank,
DEUTSCHE BANK AG,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(November 20, 2014)
Before ED CARNES, Chief Judge, JORDAN and FAY, Circuit Judges.
PER CURIAM:
Mark Klopfenstein appeals the district court’s dismissal of his fraud, breach
of fiduciary duty, and Georgia RICO claims against Deutsche Bank Securities, Inc.
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and Deutsche Bank AG. 1 Klopfenstein contends that the district court erred in
dismissing those claims as time-barred and insufficiently pleaded.
I.
Between 1996 and 2000, Klopfenstein annually participated in five
structured securities transactions (aka tax shelters) with the Deutsche Bank entities.
As a result of those transactions, Klopfenstein claimed millions of dollars in tax
losses each year, which he used to offset unrelated taxable gains and thereby
reduce his taxable income.
As a tax advisor himself, Klopfenstein understood that the IRS was likely to
challenge the tax shelter transactions as lacking economic substance. To arm
himself against an eventual challenge, and because he was recommending similar
transactions to his own clients, Klopfenstein obtained opinion letters for four of the
five transactions. Those letters certified that the transactions had economic
substance and that “substantial authority” within the Internal Revenue Code and its
attendant regulations supported their legitimacy.
As expected, Klopfenstein received an IRS audit notice in January 2000 and
a related “Statutory Notice of Deficiency” that fall. Among other things, those
documents informed Klopfenstein that the IRS intended to disallow the deductions
he had taken in conjunction with the 1996 transaction because the transaction
1
We refer to the defendants collectively as the Deutsche Bank entities except where
context requires otherwise.
2
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lacked economic substance. Around the same time that Klopfenstein received the
notice of deficiency, the IRS released a bulletin describing the structured
transactions in which Klopfenstein had participated with the Deutsche Bank
entities and identifying them as improper.2
In January 2001, Klopfenstein filed a petition with the United States Tax
Court to contest the audit. On May 2, 2007, he entered into a stipulated decision
agreeing that his 1996 tax return was improper and that he would pay a deficiency
immediately. He ultimately paid taxes, interest, and penalties totaling over $1.4
million.
On December 21, 2010, Deutsche Bank AG entered into a non-prosecution
agreement with the Department of Justice. That agreement provided that the bank
would not face criminal prosecution for certain transactions, including the type of
structured transaction in which Klopfenstein had participated.
On August 30, 2012, Klopfenstein filed a statement of claim with the
Financial Industry Regulatory Authority, Inc. (FINRA). 3 His statement of claim
brought allegations against the Deutsche Bank entities that substantially mirrored
2
An Internal Revenue Bulletin is “the authoritative instrument for announcing official
rulings and procedures of the IRS and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of general interest.” Internal Revenue
Bulletins, available at http://apps.irs.gov/app/picklist/list/internalRevenueBulletins.html (last
visited October 23, 2014) (copy also available at this Court’s Clerk’s Office).
3
FINRA is a registered self-regulatory organization under the Securities Exchange Act of
1934. It has the authority to regulate its securities firm members by creating and enforcing rules.
See Citigroup Global Markets Inc. v. Abbar, 761 F.3d 268, 274 n.4 (2d Cir. 2014).
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the claims at issue here, except it did not include the Georgia RICO claim that is in
this lawsuit. Essentially, Klopfenstein alleged that the Deutsche Bank entities
knew that the tax shelters they recommended lacked economic substance but told
him the opposite. On June 3, 2013, the FINRA arbitration panel dismissed
Klopfenstein’s claims as time-barred under FINRA’s six-year eligibility rule but
told him that he was free to bring suit in a court of law.
Klopfenstein did just that. On December 23, 2013, he sued the Deutsche
Bank entities in Georgia state court, alleging fraud, breach of fiduciary duty, and a
violation of Georgia’s RICO statute. After removing the case to federal court, the
Deutsche Bank entities moved to dismiss under Federal Rule of Civil Procedure
12(b)(6), arguing that Klopfenstein’s claims were time-barred and that he had
failed to state a claim upon which relief could be granted. The district court
granted the defendants’ motion on both grounds. This is Klopfenstein’s appeal.
II.
We review de novo a district court’s grant of a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6), accepting the allegations in the
complaint as true and construing them in the light most favorable to the plaintiff.
Am. Dental Ass’n v. Cigna Corp., 605 F.3d 1283, 1288 (11th Cir. 2010).
Likewise, we review de novo a district court’s “interpretation and application of
4
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statutes of limitations.” Ctr. for Biological Diversity v. Hamilton, 453 F.3d 1331,
1334 (11th Cir. 2006) (quotation marks omitted).
Klopfenstein does not challenge the district court’s determination that, under
Georgia law, all of his claims had accrued by the fall of 2000, when the IRS
informed him that it intended to disallow the deductions he had taken in
conjunction with the 1996 tax shelter transaction. Klopfenstein filed his complaint
on December 23, 2013, long after the limitations periods governing his claims had
expired.4 As a result, the claims are time-barred unless he can invoke tolling. To
do so, he must plausibly allege the following three elements: “(1) actual fraud on
the part of the defendant[s] involving moral turpitude, (2) which conceal[ed] the
existence of the cause of action from the plaintiff, and (3) plaintiff’s reasonable
diligence in discovering his cause of action, despite his failure to do so within the
time of the applicable statute of limitations.” McClung Surveying, Inc. v. Worl,
541 S.E.2d 703, 706 (Ga. Ct. App. 2000); see Ga. Code. Ann. § 9-3-96. If
Klopfenstein can invoke tolling, the statutes of limitations are “tolled until [the
4
The parties agree that, under Georgia law, the statute of limitations for fraud claims is
four years. Ga. Code Ann. § 9-3-31; see Willis v. City of Atlanta, 595 S.E.2d 339, 343 (Ga. Ct.
App. 2004). The parties also agree that the statute of limitations for RICO claims is five years.
Ga. Code Ann. § 16-14-8; see Cochran Mill Assocs. v. Stephens, 648 S.E.2d 764, 770 (Ga. Ct.
App. 2007). The parties do not agree on the statute of limitations governing Klopfenstein’s
breach of fiduciary duty claim. Klopfenstein argues that the applicable time period is either four
years, Ga. Code Ann. § 9-3-31, or six years, Ga. Code Ann. § 9-3-24. Deutsche Bank argues that
the applicable time period is four years. Ga. Code Ann. § 9-3-31. We need not decide whether
the four- or six-year statute of limitations governs Klopfenstein’s breach of fiduciary duty claim
because that claim is untimely either way.
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defendants’] fraud is discovered, or could have been discovered by the exercise of
ordinary care and diligence.” Nash v. Ohio Nat’l Life Ins. Co., 597 S.E.2d 512,
515 (Ga. Ct. App. 2004) (quotation marks omitted).
Klopfenstein asserts in conclusory fashion that he was entitled to toll the
applicable limitations periods until December 21, 2010, when Deutsche Bank
AG’s non-prosecution agreement was made public. He alleges that “[t]he public
release of the [non-prosecution agreement] was the first time [he] was made aware
of any fraud in connection with the [tax shelter] transactions.” Compl. ¶ 70. But
“[m]ere ignorance of facts constituting a cause of action does not prevent the
running of a statute of limitations.” McClung Surveying, Inc., 541 S.E.2d at 706(alteration in original) (quotation marks omitted). And Klopfenstein offers no
account of the actions he took before December 2010 to explore whether he had
any claims against the Deutsche Bank entities.
Even if we assume that Klopfenstein has plausibly alleged the first two
essential elements of tolling, he has not plausibly alleged the third: that he
exercised reasonable diligence. Cf. McClung Surveying, Inc., 541 S.E.2d at 706(noting that, “[a]lthough questions of due diligence often must be resolved by the
trier of fact, . . . [a] party may fail to exercise due diligence as a matter of law”). In
the fall of 2000, Klopfenstein “received direct information that conflicted with [the
Deutsche Bank entities’] representation” that the tax shelter transactions at issue
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had economic substance. Nash, 597 S.E.2d at 516. At that time, he was on notice
that the Deutsche Bank entities’ representation may have been false. See id.;
McClung Surveying, Inc., 541 S.E.2d at 706–07. Klopfenstein does not explain
how he exercised reasonable diligence in light of that notice. Similarly, in 2004,
several of Klopfenstein’s former clients sued him — and the same defendants he is
now suing — alleging fraud, breach of fiduciary duty, and violations of the federal
RICO statute in connection with the same tax shelter transactions. See Pecan East
Antonio Investors, Inc. v. Deutsche Bank AG, 5:04-cv-677-FB-NSN (W.D. Tex.
July 30, 2004).5 Those plaintiffs’ claims were nearly identical to the claims that
Klopfenstein has brought here. Yet he does not identify any reasonably diligent
steps he took in light of that lawsuit to explore his own potential claims. He also
does not explain why he, like some of his former clients, could not have sued the
Deutsche Bank entities earlier. Klopfenstein has not plausibly alleged that he
exercised reasonable diligence in discovering his causes of action and thus cannot
5
In its order granting the Deutsche Bank entities’ motion to dismiss, the district court
pointed to the Pecan East Antonio Investors, Inc. complaint as proof that Klopfenstein could
have discovered the alleged fraud as early as 2004. Klopfenstein contends that, by considering
that complaint, the district court converted the Deutsche Bank entities’ motion to dismiss into a
motion for summary judgment in violation of Federal Rule of Civil Procedure 12(d). He is
wrong about that because the complaint is a public document, and a district court may take
judicial notice of matters of public record without converting a motion to dismiss into one for
summary judgment. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127
S.Ct. 2499, 2510 (2007); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1278 (11th Cir. 1999);
see also Fed. R. Evid. 201.
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invoke tolling. The district court did not err in dismissing Klopfenstein’s claims as
time-barred. 6
AFFIRMED.
6
Because we affirm the district court’s dismissal of Klopfenstein’s claims as time-barred,
we do not reach the district court’s alternative ground for dismissal, which is that Klopfenstein’s
claims were insufficiently pleaded.
8