Hassebrock v. Bernhoft
| Decision Date | 25 February 2013 |
| Docket Number | No. 10-CV-00679-WDS,10-CV-00679-WDS |
| Parties | ORVIL DUANE HASSEBROCK, Plaintiff, v. ROBERT G. BERNHOFT and THE BERNHOFT LAW FIRM, S.C., Defendants. |
| Court | U.S. District Court — Southern District of Illinois |
ORVIL DUANE HASSEBROCK, Plaintiff,
v.
ROBERT G. BERNHOFT and
THE BERNHOFT LAW FIRM, S.C., Defendants.
No. 10-CV-00679-WDS
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS
DATED: February 25, 2013
STIEHL, District Judge:
In this action, plaintiff Orvil Duane Hassebrock brings claims of fraud, legal malpractice, and violations of the Racketeer Influenced and Corrupt Organizations Act against defendants Robert G. Bernhoft and the Bernhoft Law Firm, S.C., arising primarily from defendants' handling of plaintiff's back income taxes. Now before the Court is defendants' motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) (Doc. 22), plaintiff's re-sponse (Doc. 24), and defendants' reply (Doc. 25).
This Court has diversity jurisdiction in this case.1 The matter in controversy exceeds $75,000, and it is a civil action between citizens from different states. See 28 U.S.C. § 1332(a)(1); Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 758 (7th Cir. 2009).
Plaintiff Orvil Duane Hassebrock has a long history of tax problems. The IRS raided his home on May 6, 2005, and took all his financial records from 1996 through 2005.
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Plaintiff retained defendant Robert G. Bernhoft, an attorney, and the Bernhoft Law Firm on August 25, 2005, to file his 2004 income taxes and for other services. He met with Bernhoft and two others, a Jeffrey Dickstein and Mr. Barnes, in St. Louis, Missouri. By that time he had already paid them a $100,000 retainer. At this meeting, Bernhoft told plaintiff that the Bernhoft Law Firm was a "top professional firm specializing in taxes" and that "he could quote the tax codes." Bernhoft promised to file plaintiff's taxes.
Bernhoft hired an accountant named John Noggle to prepare plaintiff's tax returns. Noggle did so, and sent the returns to plaintiff, but plaintiff found they were "missing all kinds of deductions." He and his wife sent the returns back to have them corrected. Bernhoft then sent them to another accountant, Tim Brewer. After Brewer finished them, plaintiff and his wife reviewed them and still found missing deductions; the returns were "grossly wrong," and plaintiff had to return them again. Sometime later Bernhoft mistakenly filed the returns in O'Fallon, Illinois, instead of in Kansas City. Further, plaintiff and his wife signed the returns, but Noggle did not. And plaintiff did not know which set of returns Bernhoft filed with the IRS until the summer of 2010, during plaintiff's criminal trial.
Plaintiff fired Bernhoft in December 2008. About six months later, on June 17, 2009, plaintiff was indicted in this Court for willfully attempting to evade and defeat the payment of taxes, see 26 U.S.C. § 7201, and willfully failing to file an income-tax return for the year 2004, see 26 U.S.C. § 7203. According to plaintiff's complaint, the prosecutor called the tax return prepared by Noggle fraudulent because Noggle had not signed it. Plaintiff also believes Noggle misclassified an oil-field settlement as a land settlement. Consequently, plaintiff hired a new firm to complete his tax returns, but that firm was unable to finish them before plaintiff's trial.2
On April 29, 2010, a jury convicted Hassebrock on both counts (Docs. 27, 29, 31,
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No. 09-CR-30080-MJR). He was sentenced to three years in prison, three years of supervised release, fined $74,000, and ordered to pay $997,582.19 in restitution to the IRS (id., Doc. 67). Plaintiff's convictions were affirmed on appeal. See United States v. Hassebrock, 663 F.3d 906 (7th Cir. 2011), cert. denied, 132 S.Ct. 2377 (2012).
In all, plaintiff had paid defendants $181,330. Plaintiff has since discovered that, in 1997, Bernhoft was sued by the United States for his involvement in a company called Morningstar Consultants. See United States v. Raymond, 228 F.3d 804 (7th Cir. 2000). Between January and June of 1996, Morningstar advertised and sold "The De-Taxing America Program," which incited people to evade their federal income taxes. Plaintiff believes he was convicted as a direct result of defendants' actions and that they purposely tried to get him indicted as a way of driving up his legal fees.
A motion under Rule 12(b)(6) allows for dismissal for the "failure to state a claim upon which relief can be granted." To state a claim, a pleading need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Detailed factual allegations are not required, but the pleading must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader is entitled to relief." Id. at 679 (internal citations and
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quotations omitted).
Moreover, a "pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.; accord Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009).
The court reviews a motion to dismiss in the light most favorable to the plaintiff, accepts as true all well-pleaded facts alleged, and draws all possible inferences in the plaintiff's favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
Claim I: Fraud
Plaintiff first alleges that Bernhoft committed fraud when he represented himself as a tax expert.3 Bernhoft did not disclose that he had been sued for his involvement with Morningstar Consultants and "The De-Taxing America Program." Plaintiff therefore believes Bernhoft lied about what he would do for plaintiff. He asserts that Bernhoft has been enjoined from "conduct nearly identical" to what plaintiff is alleging, and that plaintiff is now serving a federal prison sentence for relying on defendant's representations.4
A plaintiff alleging fraud "must state with particularity the circumstances constituting fraud ... ." Fed. R. Civ. P. 9(b); accord AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011). This generally requires describing the "'who, what, when, where, and how' of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case." AnchorBank, 649 F.3d at 615 (quoting Pirelli Arm-
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strong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2011)); United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 854 (7th Cir. 2009)). A cause of action for fraud in Illinois requires the plaintiff to prove (1) the existence of a false statement of material fact, (2) that the defendant knew or believed to be false, (3) made with the intent to induce the plaintiff to act, (4) that caused the plaintiff to act in reasonable reliance on the statement's truth, and (5) that caused the plaintiff injury. Krilich v. Am. Nat'l Bank and Trust Co. of Chi., 778 N.E.2d 1153, 1160 (Ill. App. Ct. 2002).
Before proceeding with defendants' arguments, the Court, in the interest of judicial economy, will raise the matter of collateral estoppel and plaintiff's criminal trial and convictions before District Judge Michael J. Reagan. See Ariz. v. Cal., 530 U.S. 392, 412 (2000) (noting that a court may dismiss an action sua sponte when it is on notice that it has previously decided an issue presented); Muhammad v. Oliver, 547 F.3d 874, 878 (7th Cir. 2008); Studio Art Theatre of Evansville, Inc. v. City of Evansville, Ind., 76 F.3d 128, 130 (7th Cir. 1996) ("The benefits of precluding relitigation of issues finally decided run not only to the litigants, but also to the judicial system."). Moreover, plaintiff bases his claims on the fact of his criminal convictions, so he raises the issue himself. See Jones v. Bock, 549 U.S. 199, 215 (2007); Muhammad, 547 F.3d at 878. The Court may take judicial notice of plaintiff's criminal case and appeal. See, e.g., Palay v. United States, 349 F.3d 418, 425 n.5 (7th Cir. 2003) (matters of public record).
In plaintiff's criminal case, a jury found that he had willfully evaded his taxes and willfully failed to file a return for the year 2004. The Seventh Circuit found sufficient evidence to support both convictions, and affirmed. See United States v. Hassebrock, 663
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F.3d 906, 918-20 (7th Cir. 2011). According to one of plaintiff's attorneys, Dan Goggin, plaintiff set up trust accounts in other individuals' names and funded...
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