Denney v. BDO Seidman
In Denney v. BDO Seidman, 412 F.3d 58, 60-64 (2d Cir. 2005) the plaintiffs claimed that they were recruited by two accounting firms to participate in a fraudulent tax scheme, Currency Options Bring Reward Alternatives (COBRA).
The plaintiffs consulting agreements with the firms contained broad arbitration clauses. The firms, along with Deutsche Bank, advised and executed an illegal plan where plaintiffs manufactured losses from partnerships engaged in foreign currency option transactions.
The plaintiffs sued; defendants sought to compel arbitration. The district court held that the consulting agreements were mutually fraudulent and unenforceable, and denied a motion to compel arbitration. The Second Circuit reversed and remanded for consideration whether Deutsche Bank, a nonsignatory, could enforce the arbitration provision. The court noted, having alleged . . . that the Deutsche Bank and BDO defendants acted in concert to defraud plaintiffs . . . plaintiffs cannot now escape the consequence of those allegations . . . . Id. at 70.
In particular, the court noted that the complaint alleged that the Defendants knowingly acted in concert to market and implement the fraudulent and illegal COBRA tax shelter transaction. Id.