U.S. v. Northern Trust Co., No. 04-1148.

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtEasterbrook
Citation372 F.3d 886
PartiesUNITED STATES of America, Plaintiff-Appellant, v. NORTHERN TRUST COMPANY, as trustee of the Caterpillar Incorporated Master Trust and the Inland Steel Industries Pension Trust, Defendant-Appellee.
Docket NumberNo. 04-1148.,No. 04-1150.
Decision Date22 June 2004

Page 886

372 F.3d 886
UNITED STATES of America, Plaintiff-Appellant,
v.
NORTHERN TRUST COMPANY, as trustee of the Caterpillar Incorporated Master Trust and the Inland Steel Industries Pension Trust, Defendant-Appellee.
No. 04-1148.
No. 04-1150.
United States Court of Appeals, Seventh Circuit.
Argued June 8, 2004.
Decided June 22, 2004.

Page 887

Charles Bricken (argued), Department of Justice, Tax Division, Appellate Section, Washington, DC, Thomas P. Walsh, Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellant.

Jeffrey E. Stone (argued), McDermott, Will & Emery, Chicago, IL, for Defendant-Appellee.

Before EASTERBROOK, KANNE, and DIANE P. WOOD, Circuit Judges.

EASTERBROOK, Circuit Judge.


Closed-end mutual funds pay federal income tax on income and capital gains, then notify their investors, to which the tax burden passes through. A shareholder that is tax exempt (such as a pension trust or a university endowment) can claim a refund of the taxes that the mutual fund paid on account of its proportionate investment. Taxable investors get income coupled with a credit for tax the mutual fund has paid. Two pension trusts (for employees of Inland Steel and Caterpillar) were shareholders of record in Quest for Value Dual Purpose Fund, a closed-end mutual fund. Quest reported to Northern Trust Co., as trustee of these pension trusts, the gains and taxes attributable to these shares. Northern Trust then filed tax returns and claimed refunds on behalf of the pension funds. During 1991 through 1995, the tax years at issue in this litigation, Northern Trust received more than $6 million in refunds for the benefit of these pension plans.

The United States wants the money back. It contends that, with the permission of the two pension funds, Northern Trust "lent" the Quest shares to "borrowers" that held all economic incidents of ownership — the right to any dividends on the shares, the right to vote the shares, even the entitlement to sell them and keep the profits. If a borrower elected to return the shares at the end of the term, it retained any capital gain or loss. For this set of rights, it paid the pension funds 102% of the market price of the Quest shares on the date the "loans" were made. As the United States sees things, these transactions were sales carrying a misleading label designed to allow the pension funds to reap tax benefits on shares that they no longer owned — while the "borrowers," though taxable entities, avoided the economic incidence of taxes on the mutual fund's undistributed income and capital gains.

These suits (one for each pension fund) were filed late in 1998, less than two years from the date the refund of 1995 taxes had been paid, but more than two after the refunds for the other tax years had been disbursed. Section 6532(b) of the Internal Revenue Code, 26 U.S.C. § 6532(b), gives the United States only two years to commence proceedings to recover erroneously paid refunds, "except that such suit may be brought at any time within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact." The complaint alleged that the five-year period applies because Northern Trust misrepresented that the two pension trusts were Quest's "shareholders" and thus eligible for refunds. On Northern Trust's motion under Fed.R.Civ.P. 12(b)(6), the district court dismissed the complaint (with respect to tax years 1991 through 1994) for failure to state a claim on which relief may be granted. 93 F.Supp.2d 903 (N.D.Ill.2000). As the court saw things, status as a shareholder is a mixed question of law and fact, and thus not a "fact" as § 6532(b) uses that term; and a "misrepresentation" occurs only if the taxpayer acts with a deceptive state of mind, which the complaint did not allege. Four years later the parties settled the United States' claim with respect to the 1995 tax year — Northern Trust eventually paid 100¢ on the dollar — and the district

Page 888

court entered a final judgment, from which the United States appealed.

Dismissal under Rule 12(b)(6) was irregular, for the statute of limitations is an affirmative defense. See Fed.R.Civ.P. 8(c). A complaint states a claim on which relief may be granted whether or not some defense is potentially available. This is why complaints need not anticipate and attempt to plead around defenses. See, e.g., Gomez v. Toledo, 446 U.S. 635, 100 S.Ct. 1920, 64 L.Ed.2d 572 (1980); United States Gypsum Co. v. Indiana Gas Co., 350 F.3d 623 (7th Cir.2003). So it is irrelevant that the complaint did not...

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187 practice notes
  • Jones v. Int'l Ass'n of Bridge Structural Ornamental & Reinforcing Iron Workers, Case No. 10–C–560.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Eastern District of Wisconsin
    • March 28, 2012
    ...defenses, dismissal under Rule 12(b)(6) on statute of limitations grounds is “irregular.” See United States v. Northern Trust Co., 372 F.3d 886, 888 (7th Cir.2004). A motion to dismiss may raise the statute of limitations if “the allegations of the complaint itself set forth everything nece......
  • In re Rust-Oleum Restore Mktg., Sales Practices & Prods. Liab. Litig., No. 15 C 1364
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • January 7, 2016
    ...jury, provided of course that there was some evidence to support the defense ”) (emphasis added); see also United States v. N. Trust Co., 372 F.3d 886, 888 (7th Cir.2004) ( “[C]omplaints need not anticipate and attempt to plead around defenses”). Even if Plaintiffs were required to plead ar......
  • Hale v. State Farm Mut. Auto. Ins. Co., No. 12-0660-DRH
    • United States
    • U.S. District Court — Southern District of Illinois
    • March 28, 2013
    ...their complaint. See U.S. Gypsum Co. v. Indiana Gas Co., Inc., 350 F.3d 623, 626 (7th Cir. 2003); see also United States v. N. Trust Co., 372 F.3d 886, 888 (7th Cir. 2004) ("[A] complaint states a claim on which relief may be granted whether or not some defense is potentially available."). ......
  • Bembenek v. Donohoo, No. 04C0002.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Eastern District of Wisconsin
    • January 28, 2005
    ...an affirmative defense, and a complaint states a claim whether or not a defense is potentially available. United States v. N. Trust Co., 372 F.3d 886, 888 (7th Cir.2004). For this reason, complaints need not contain any information about defenses and may not be dismissed based on such an om......
  • Request a trial to view additional results
188 cases
  • Jones v. Int'l Ass'n of Bridge Structural Ornamental & Reinforcing Iron Workers, Case No. 10–C–560.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Eastern District of Wisconsin
    • March 28, 2012
    ...defenses, dismissal under Rule 12(b)(6) on statute of limitations grounds is “irregular.” See United States v. Northern Trust Co., 372 F.3d 886, 888 (7th Cir.2004). A motion to dismiss may raise the statute of limitations if “the allegations of the complaint itself set forth everything nece......
  • In re Rust-Oleum Restore Mktg., Sales Practices & Prods. Liab. Litig., No. 15 C 1364
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • January 7, 2016
    ...jury, provided of course that there was some evidence to support the defense ”) (emphasis added); see also United States v. N. Trust Co., 372 F.3d 886, 888 (7th Cir.2004) ( “[C]omplaints need not anticipate and attempt to plead around defenses”). Even if Plaintiffs were required to plead ar......
  • Hale v. State Farm Mut. Auto. Ins. Co., No. 12-0660-DRH
    • United States
    • U.S. District Court — Southern District of Illinois
    • March 28, 2013
    ...their complaint. See U.S. Gypsum Co. v. Indiana Gas Co., Inc., 350 F.3d 623, 626 (7th Cir. 2003); see also United States v. N. Trust Co., 372 F.3d 886, 888 (7th Cir. 2004) ("[A] complaint states a claim on which relief may be granted whether or not some defense is potentially available."). ......
  • Bembenek v. Donohoo, No. 04C0002.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Eastern District of Wisconsin
    • January 28, 2005
    ...an affirmative defense, and a complaint states a claim whether or not a defense is potentially available. United States v. N. Trust Co., 372 F.3d 886, 888 (7th Cir.2004). For this reason, complaints need not contain any information about defenses and may not be dismissed based on such an om......
  • Request a trial to view additional results

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