Menzies v. Seyfarth Shaw LLP, No. 18-3232 (7th Cir. 2019)Annotate this Case
Insurance executive Menzies sold over $64 million in his company’s stock but did not report any capital gains on his 2006 federal income tax return. He alleges that his underpayment of capital gains taxes (and related penalties and interest imposed by the IRS) was because of a fraudulent tax shelter peddled to him and others by a lawyer, law firm, and financial services firms. Menzies brought claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and Illinois law. The district court dismissed all claims. The Seventh Circuit affirmed in part. Menzies’s RICO claim falls short on the statute’s pattern-of-racketeering element. Menzies failed to plead not only the particulars of how the defendants marketed the same or a similar tax shelter to other taxpayers, but also facts to support a finding that the alleged racketeering activity would continue. A fraudulent tax shelter scheme can violate RICO; the shortcoming here is one of pleading and it occurred after the district court authorized discovery to allow Menzies to develop his claims. Menzies’s Illinois state law claims were untimely as to the lawyer and law firm defendants. The claims against the remaining financial services defendants can proceed.