Khan v. BDO Seidman, LLP (408 Ill. App. 3d 564, 2011)

JUSTICE APPLETON

delivered the judgment of the court, with opinion.

Justices McCullough and Myerscough concurred in the judgment and opinion.

OPINION

In these two consolidated appeals, the plaintiffs are Shahid R. Khan (Khan) and Ann C. Khan along with various business entities that Khan formed for the purpose of creating artificial losses, which he hoped would reduce his taxable income. Khan was not the one who came up with the tax-avoidance schemes. Rather, according to the complaint, he followed the advice of Paul Shanbrom at BDO Seidman, LLP, advice that was reinforced by a variety of co-conspirators, including the defendants in these two appeals.

In one of the appeals, case No. 4—10—0504, the defendants are Deutsche Bank AG (Deutsche Bank); Deutsche Bank Securities, Inc., d/b/a Deutsche Bank Alex. Brown (Brown); and David Parse, an employee of Deutsche Bank (collectively, Deutsche defendants). According to the complaint, Shanbrom and Parse advised Khan to engage in some “investment strategies” in 1999 and 2000 in order to create ordinary losses, and Deutsche Bank and Brown helped implement these strategies.

In the other appeal, case No. 4—10—0583, the defendant is Grant Thornton, LLP, which prepared the 2000 tax returns for one of the plaintiff corporations, Thermosphere EX Partners, LLC, claiming the fake losses. The Khans then used the information from this tax return in their own individual tax returns. The tax returns, however, were incorrect because, as the Internal Revenue Service (IRS) had warned in its publications, such contrived losses lacked economic substance and therefore were not allowable. Consequently, plaintiffs ended up losing a lot of money. Not only were the substantial fees they paid to defendants a total waste, but plaintiffs incurred liability to the IRS for back taxes, interest, and penalties. All this is according to the complaint.

The Deutsche defendants moved to dismiss the complaint pursuant to sections 2—615 and 2—619 of the Code of Civil Procedure (735 ILCS 5/2—615, 2—619 (West 2008)), asserting the legal insufficiency of the complaint and also invoking the statute of limitations in section 13—205 of the Code (735 ILCS 5/13—205 (West 2008)). Grant Thornton likewise moved to dismiss the complaint on the grounds that it was legally insufficient and time-barred. The trial court concluded that the statute of limitations in section 13—205 barred the actions against the Deutsche defendants and that the statute of limitations in section 13—214.2(a) (735 ILCS 5/13—214.2(a) (West 2008)) and the statute of repose in section 13—214.2(b) (735 ILCS 5/13—214.2(b) (West 2008)) barred the actions against Grant Thornton. Therefore, the court granted defendants’ motions for dismissal. The court also found, pursuant to Rule 304(a) (Ill. S. Ct. R. 304(a) (eff. Feb. 26, 2010)), that there was no just reason to delay either enforcement or appeal of these rulings.

In our de novo review in these two appeals, taking the well-pleaded facts of the complaint to be true and drawing reasonable inferences in plaintiffs’ favor, we hold that the trial court erred by concluding that the claims against defendants are time-barred. Therefore, we reverse the trial court’s judgments in the two cases, and we remand the cases for further proceedings.

I. BACKGROUND

A. The 1999 Digital Options Strategy

1. Shanbrom and Parse Pitch the Strategy to Khan

Beginning in approximately 1993, BDO performed auditing services for Chromecraft, a company of which Khan was part owner. Michael Collins, a partner at BDO, was in charge of auditing services for Chromecraft, and as of 1999, he had been one of Khan’s trusted accountants and advisors for some six years.

In 1999, Khan requested his own partner at Chromecraft to ask Collins if he knew anyone who could advise him on purchasing foreign currency. Khan needed Japanese yen because he was in negotiations to buy a Canadian company that manufactured plastic automobile bumpers and the Japanese owners of the company wanted to be paid in yen. Because Khan had no experience in foreign-currency trading, he needed guidance.

Collins referred Khan to Paul Shanbrom, who was a member of EDO’s Tax Solutions Group and reputedly an expert in foreign-currency trading, and in September 1999, Khan and one of his estate-planning advisors had a meeting with Collins and Shanbrom. The meeting went beyond the subject of simply purchasing the needed foreign currency. Shanbrom introduced Khan to an “investment strategy” involving the purchase and sale of digital options on foreign currency (the Digital Options Strategy), a strategy which, according to Shanbrom, not only gave Khan a chance to double his money but also allowed him to claim a tax loss if he happened to lose money on his investments in foreign currency. Shanbrom told Khan that BDO had designed the Digital Options Strategy in such a way that it had economic substance for tax purposes. It purportedly had economic substance because Khan had a good chance of making a substantial return. According to the complaint, “Khan did not understand the intricacies of the investments, the tax code or the mechanism that allowed him to receive the tax benefits; however, he trusted EDO’s expertise in this area and their representations.” In other words, Khan had only a vague idea of what the 1999 Digital Options Strategy was all about.

The “investment” part of the strategy involved the buying and selling of options in foreign currency. When someone buys an option, that person buys the right, but not the obligation, to buy or sell a given quantity of assets (in this case, foreign currency) at a fixed price, or “strike price,” within a specified time, regardless of the market price, or “spot price,” of the assets. (A “spot price” is the same thing as a “spot rate.”) An option is “digital,” or “binary,” if the investor stands to win or lose a predetermined amount in full: in other words, the payout will be all of the predetermined amount or nothing (1 or 0, in binary terms). Essentially, a digital option is an all-or-nothing wager that the spot price will be at or above a given price on a certain date. Or it can be an all-or-nothing wager that the spot price will be at or below the given price on that date.

If the investor is betting that the spot price will be at or above the given price on a certain date, the investor has a long option. On the other hand, if the investor is betting that the spot price will be at or below the given price on a certain date, the investor has a short option.

Shanbrom recommended hiring David Parse of Deutsche Bank to assist Khan in acquiring these long and short options. Shanbrom arranged a conference call between himself, Parse, and Khan. In this conference call, Parse told Khan many of the same things that Shanbrom had told him, including that the Digital Options Strategy was a good way to make money and, alternatively, a perfectly legal way to reduce taxable income. It was agreed that Deutsche Bank would handle the “investment” component of this strategy. Paragraph 63 of the complaint recounts the conference call as follows:

“During this conference call, Parse, along with Shanbrom, reiterated the ‘sales pitch’ and reassured Khan that the Digital Options Strategy was completely legal. Parse, along with Shanbrom, further discussed the steps of the Digital Options Strategy and informed Khan that Deutsche Bank would handle all aspects of the investments in foreign currencies. According to Parse, Deutsch [sic] Bank had internal procedures to determine the proper amounts and types of the foreign currency investments that would be appropriate for Khan’s circumstances. Parse told Khan that Parse would make all decisions with respect to the amounts and types of foreign currency investments since he was the expert. Parse again reiterated that Plaintiffs would have a good chance of making a profit on the foreign currency investments. Parse represented to Khan that the foreign currency options that Khan would be executing were actual investments. Shanbrom and Parse never informed Khan that the foreign currency digital options were simply private bets with Deutsche Bank on where the underlying currencies would be on a particular date and time and that Deutsche Bank controlled the outcome.”

According to the complaint, Deutsche Bank controlled the outcome in that, as the “calculation agent,” Deutsche Bank had the contractual right to accept or disregard any spot price. Presumably, Deutsche Bank’s role as calculation agent was stated in the form contracts between Deutsche Bank and Khan (who signed them in his capacity as partner or corporate officer of various plaintiffs). Khan, however, did not understand the import of this designation of Deutsche Bank as calculation agent. He did not understand that Deutsche Bank’s performance under the so-called “contract” amounted to little more than setting the dice on the table with Deutsche Bank’s winning number facing upward. Footnote 12 of the complaint says:

“[T]he FX Contracts [(another name for the digital options contracts)] were not something traded on any recognized exchange but were simply a matter of private contract between the participants. Finally, neither party had any right to take possession of the ‘underlying currency.’ As a result, the FX Contracts amounted, in actuality, to a contractual wager (i.e., a ‘bet’) based on movements in foreign currency prices, without any real possibility of foreign currency ever changing hands between the parties. Of course, the Plaintiffs were unaware of these aspects of the FX Contracts.”

It would seem, then, that these transactions were not “investments” at all but were merely rigged bets. Nevertheless, Parse referred to them as “investments.” The complaint alleges that after the initial conference, Khan “had several additional telephone conversations with Parse in which Parse reiterated his prior statements and further discussed the purported ‘investments.’ ”

2. The Legal Opinion From Jenkens on the 1999 Digital Options Strategy

According to the complaint, the Deutsche defendants were in a conspiracy with BDO to deceive clients such as Khan into paying large fees for the Digital Options Strategy, a strategy that was useless for tax purposes — indeed, worse than useless because the losses it generated were clearly illegitimate and claiming them was likely to result in some expensive liability to the IRS. Part of this conspiracy was to refer clients to an “independent law firm,” Jenkens & Gilchrist, P.C. (Jenkens), to confirm the legality of the 1999 Digital Options Strategy. But Jenkens really was not independent. Paragraph 70 of the complaint alleges as follows:

“As part of their pre-planned conspiracy, the 1999 Strategy Defendants [(defined as BDO and the Deutsche defendants)] advised Plaintiffs that in the unlikely event the Internal Revenue Service (‘the IRS’) audited their tax returns as a result of the 1999 Digital Options Strategy, the Jenkens ‘independent’ opinion letter would confirm the propriety of the 1999 Digital Options Strategy and of claiming the resulting losses on Plaintiffs’ tax returns. The 1999 Strategy Defendants and Jenkens—in furtherance of the conspiracy—further advised Plaintiffs that this ‘independent’ opinion letter would enable the Plaintiffs to satisfy the IRS auditors as to the propriety of the tax returns. Unfortunately and unbeknownst to Plaintiff, Jenkens—with full knowledge of BDO and Deutsche—had already prepared the ‘canned’ and ‘prefabricated’ opinion letter approving the 1999 Digital Options Strategy and needed only to fill in several blanks prior to issuing the opinion letter to Plaintiffs.”

In short, Jenkens was one of the co-conspirators, and its role in the conspiracy was to be the yes-man, issuing reassuring opinion letters that were not the product of an honest and conscientious legal analysis. The legal opinions by Jenkens were not specifically tailored to the client’s particular financial situation “but were merely ‘fill in the blank’ boilerplate opinions provided to Plaintiffs as part of a ‘prewired’ scheme.” Nevertheless, Jenkens collected a substantial fee from clients for these legal opinions. “In addition, Jenkens & BDO were involved in fee ‘kickbacks’ between themselves and with third parties who convinced clients to execute an Investment Strategy with Jenkens, Deutsche Bank, BDO, and others.”

On Shanbrom’s recommendation, Khan went to Jenkens, and on March 20, 2000, Jenkens issued to Khan an opinion letter confirming the legality of the 1999 Digital Options Strategy. Specifically, the letter opined that plaintiffs’ “ ‘basis in their interest in the Partnership after contribution of the Options [would] include the cost of the Long Option contributed, without adjustment for the Short Option.’ ” (The significance of this advice will soon be clear, when we explain how the 1999 Digital Options Strategy worked.) Jenkens further opined that “ ‘[t]he step transaction, sham transaction, and economic substance doctrines [would] not apply to disallow the results of the transactions described herein.’ ” Further, according to Jenkens, IRS Notice 1999-59 (I.R.S. Notice 1999-59, 1999-2 C.B. 761), which warned against transactions lacking economic substance and having no apparent purpose other than to generate a fake capital loss, was simply “ ‘inapplicable to the transactions described here.’ ”

3. Wanser’s Affidavit

In support of their combined motion for dismissal, Deutsche Bank and Brown submitted to the trial court an affidavit by one of their attorneys, Michael R. Wanser, and attached to that affidavit, as exhibits A through C, were copies of the form contracts Khan had signed with Deutsche Bank and Brown implementing the digital option trades. Exhibit A of Wanser’s affidavit is a foreign-exchange digital-option transaction confirmation, dated November 29, 1999, between Wilshire Investments, LLC, and Deutsche Bank, signed by representatives of both companies. Paragraph 3 of exhibit A disclaims an agency relationship, a fiduciary relationship, and any reliance by the parties on advice or representations by the other party. The paragraph reads as follows:

“3. Representations

Each party represents to the other party that it is entering into this Transaction as principal (and not as agent or in any other capacity, fiduciary or otherwise) and that

(i) It has sufficient knowledge and experience to be able to evaluate the appropriateness, merits and risks of entering into this Transaction and is acting in reliance upon its own judgment or upon professional advice it has obtained independently of the other party as to the appropriateness, merits and risks of so doing, including where relevant, upon its own judgement [sic] of the correct tax and accounting treatment of such Transaction;

(ii) It is not relying upon the views or advice of the other party (including, without limitation, any marketing materials or model data) with respect to this Transaction; and

(iii) It acknowledges that, with respect to this Transaction, the other party is acting solely in the capacity of an arm’s length contractual counterparty and not in the capacity of financial adviser or fiduciary.”

It would appear that insomuch as Parse, as an agent of Deutsche Bank, advised Khan that he could make a profit on the transaction, Parse gave “advice *** with respect to this Transaction.” It also would appear that insomuch as Parse advised Khan that in the event he lost money on the transaction, he could claim the loss in his tax returns, Parse likewise gave “advice *** with respect to this Transaction.” By signing exhibit A of Wanser’s affidavit, Khan represented to Deutsche Bank that he was not relying on any such advice from Deutsche Bank (or its agent, Parse).

4. Implementation of the 1999 Digital Options Strategy

The 1999 Digital Options Strategy worked as follows. The Khans entered into a private contract with Deutsche Bank whereby the Khans, through SRK Wilshire Investments (Wilshire Investments), bought from Deutsche Bank a long option on foreign currency and sold to Deutsche Bank a short option. Thus, there came into existence an opposing pair of options, one long and the other short. These options were designed to cancel each other out. The strike prices of the two options were only a fraction of a penny apart, and the premium that the Khans paid Deutsche Bank for the long option, though large, was almost entirely offset by the premium Deutsche Bank agreed to pay the Khans for the short option (almost but not quite: the Khans paid a net premium to Deutsche Bank of $350,000, the difference between the $35 million that the Khans paid for the long option and the $34,650,000 that Deutsche Bank agreed to pay them for the short option). Because the strike prices of the opposing options were so close together and because Deutsche Bank, as the calculation agent, had the right to select the applicable spot rate from a range of currency rates, it was a virtual certainty that the transaction would be close to a wash—Deutsche Bank would see to that.

So, pursuant to this scheme that was calculated to be a wash on the investment side (and, as we will explain, a loss on the tax side), the Khans formed the necessary business entities and transferred assets between them, all under the guidance of BDO. On November 17, 1999, the Khans formed Wilshire Investments and SRK Wilshire Partners (Wilshire Partners). On November 24, 1999, through Wilshire Investments, the Khans bought and sold the opposing options, which had expiration dates of December 23, 1999. On November 26, 1999, Wilshire Investments contributed its interest in the as-of-yet unexpired options to Wilshire Partners as a capital contribution. On December 10, 1999, Wilshire Partners purchased a quantity of Canadian dollars as an investment. On December 23, 1999, both the long option and the short option terminated “out of the money”: the options became worthless, based on the spot rate that Deutsche Bank chose. Of course, both the Khans and Deutsche Bank got to keep the premiums they had paid each other, but Deutsche Bank’s premium was $350,000 greater than the premium it had paid to the Khans (or Wilshire Investments). On December 27, 1999, the Khans contributed their interest in Wilshire Partners to Wilshire Investments, causing the dissolution and liquidation of Wilshire Partners. As a distribution in liquidation of Wilshire Partners, all of the investments in foreign currency were distributed to Wilshire Investments.

Consequently, for tax purposes, the Khans’ interest in Wilshire Investments had a basis equal to the amount they had paid to Deutsche Bank for the long option, but that amount supposedly was not offset as a result of the assumption by Wilshire Investments of the Khans’ obligation to Deutsche Bank on the short option, perhaps on the theory that the short option was only a contingent liability (see Stobie Creek Investments, LLC v. United States, 82 Fed. Cl. 636, 666 (2008)). In other words, the long option counted for purposes of the basis the Khans had in Wilshire Investments, but the short option, which greatly reduced the economic significance of the long option, supposedly did not count. Upon the disposition of the Khans’ partnership interest in Wilshire Investments, the expensive long option had expired “out of the money” and had lost all its value, so the Khans claimed a tax loss equal to the premium they had paid for the long option, even though (because of the offsetting short option) they had not really incurred an economic loss in that amount.

5. The Preparation and Filing of Plaintiffs’ 1999 Income Tax Returns

After the publication of IRS Notice 1999-59 on December 27, 1999, which warned against transactions lacking economic substance and having no apparent purpose other than to generate a fake capital loss, BDO prepared and signed plaintiffs’ 1999 federal and state income-tax returns. Specifically, on April 1, 2000, BDO signed the 1999 federal tax returns for Wilshire Investments and Wilshire Partners, and on April 1, 2000, BDO signed plaintiffs’ 1999 federal individual tax returns. These tax returns contained the losses supposedly generated by the 1999 Digital Options Strategy. Advising plaintiffs that the tax returns were “properly prepared in accordance with professional standards,” BDO recommended that plaintiffs add their signatures to the returns and file them with the IRS. Plaintiffs did so, relying on the representations and assurances that defendants had made to them during the promotion, sale, and implementation of the 1999 Digital Options Strategy and also relying on the opinion letter from Jenkens, which, Shanbrom had assured Khan, would provide “absolute penalty protection.” The filing of these returns was the final step of the 1999 Digital Options Strategy.

6. The Publication of IRS Notice 2000-44

On August 11, 2000, before plaintiffs filed their 1999 individual federal tax returns, the IRS published IRS Notice 2000-44 (I.R.S. Notice 2000-44, 2000-2 C.B. 255), entitled “Tax Avoidance Using Artificially High Basis” and describing transactions similar to those described in IRS Notice 1999-59, transactions that “ ‘purported] to generate tax losses for taxpayers.’ ” In fact, one of the examples that IRS Notice 2000-44 gave closely resembled the Digital Options Strategy: the taxpayer purchased call options and simultaneously wrote (or sold) offsetting call options, transferred the option positions to a partnership, and claimed that the taxpayer’s basis in the partnership interest was “ ‘increased by the cost of the purchased call options but [was] not reduced under [Internal Revenue Code] §752 as a result of the partnership’s assumption of the taxpayer’s obligation.’ ” IRS Notice 2000-44 warned that “ ‘[t]he purported losses from these transactions (and from any similar arrangements designed to produce non-economic tax losses by artificially overstating basis in partnership interest) [were] not allowable as deductions for Federal income tax purposes.’ ”

B. The 2000 COINS Strategy

1. Shanbrom and Parse Pitch the 2000 COINS Strategy

From his conversations with Khan, Shanbrom was aware of Khan’s unhappiness that he had made no money in the foreign-currency market through the 1999 Digital Options Strategy (Khan did not understand that the options had been specifically designed to expire “out of the money”). So, in approximately June 2000, Shanbrom told Khan that BDO had developed another investment strategy, one that offered a better chance of making a profit. He introduced Khan to the 2000 COINS Strategy (it is unclear what “COINS” stands for, if it stands for anything).

As with the 1999 Digital Options Strategy, Shanbrom referred Khan to Deutsche Bank to execute the investment component of the 2000 COINS Strategy, telling him that “Parse and Deutsche Bank were the experts in foreign currency investments and they worked closely with BDO to implement this and other tax-advantaged strategies for BDO clients.” Khan subsequently had several telephone conversations with Parse and Donna Guerin, a partner at Jenkens, and both of them “reiterated Shanbrom’s representation that the foreign currencies digital options were designed in a way to provide Khan with a good chance of making a profit and at the same time legally reducing his taxes.”

In reality, though, the 2000 COINS Strategy was not much different from the 1999 Digital Options Strategy. As the calculating party, Deutsche Bank still got to select the spot rate on expiration of the digital options. “The range of currency rates available to the calculating party [made] the selection of that spot rate subject to the pleasure of the calculating party.” Consequently, it was exclusively the calculating party, Deutsche Bank, who determined whether a digital option paid out. Khan did not understand any of this. Instead, Shanbrom and Parse led him to believe, erroneously, that he could make a profit in the 2000 COINS Strategy. On the advice of Shanbrom and Parse, Khan decided to use this new moneymaking and tax-reducing strategy.

2. Implementation of the 2000 COINS Strategy

The 2000 COINS Strategy was merely a variation on the 1999 Digital Options Strategy. Here is how it worked. On September 29, 2000, using Deutsche Bank as the counterparty, Wilshire Investments bought and sold offsetting pairs of options tied to foreign-currency exchange rates during specified periods in the future, with extremely close strike prices and a spot rate to be chosen by Deutsche Bank in its sole discretion. The cost of the long option, though large, was mostly (but not entirely) offset by the premium Wilshire received on the sale of the short option. On October 18, 2000, pursuant to EDO’s instructions, Wilshire Investments made a capital contribution of these option positions to a partnership formed specifically for purposes of the 2000 COINS Strategy, Thermosphere FX Partners, LLC (Thermosphere). Supposedly, the long option counted toward the basis, without any offset by the short option. On December 6 and 11, 2000, the strike prices on the opposing options were met, with the result that the gain on one option was, roughly speaking, matched by the loss on the other option. The options now were worthless, requiring an adjustment in plaintiffs’ basis in Thermosphere. On December 15, 2000, Thermosphere purchased foreign currency. Plaintiffs requested to be redeemed out of Thermosphere, and on December 18, 2000, plaintiffs’ entire capital balance was redeemed, and a portion of the foreign currency that Thermosphere had purchased was distributed to them. On December 27, 2000, plaintiffs sold the foreign currency and subsequently claimed an ordinary loss.

3. The Legal Opinion From Jenkens on the 2000 COINS Strategy

As with the 1999 Digital Options Strategy, Shanbrom told Khan that it would be necessary to obtain an “independent” legal opinion before actually implementing the 2000 COINS Strategy and using it in plaintiffs’ income tax returns. According to Shanbrom, only two law firms had the necessary expertise and experience with this type of investment strategy, either Sidley Austin LLP or Jenkens, and he advised Khan to select one of those two firms. Khan chose Jenkens because he had a prior relationship with Jenkens in connection with the 1999 Digital Options Strategy.

In January 2001, Shanbrom telephoned Khan and informed him that the legal opinion from Jenkens was ready. Shanbrom told Khan that he himself had reviewed the legal opinion and had made revisions to it (the complaint does not allege that Shanbrom is an attorney) and that with those revisions, the legal opinion was in final form and ready to go but that Khan would have to send Jenkens a check before Jenkens would release a copy of the legal opinion to Khan. Khan sent the check to Jenkens, and on January 12, 2001, Jenkens issued him an opinion letter confirming that the 2000 COINS Strategy was “a legal tax-advantaged investment strategy.”

According to the opinion letter from Jenkens (as revised by Shanbrom), plaintiffs’ basis in their interest in the partnership (Thermosphere), after their contribution of the options, would include the cost of the long option without adjustment for the short option. An adjustment to plaintiffs’ basis would be required as a result of the termination of the options, and their disposition of the foreign currency that they had received in redemption of their partnership interest would result in an ordinary loss. The opinion letter asserted that “ ‘the alleged limitations of [IRS] Notice 2000-44 are more likely than not legally inapplicable to the [2000 Coins Strategy].’ ”

4. The Preparation and Filing of Plaintiffs’ 2000 Income-Tax Returns

Grant Thornton, which allegedly was in the conspiracy with BDO and Deutsche Bank, prepared and signed the 2000 federal and state income tax returns for Thermosphere. These tax returns claimed the artificial losses created by the 2000 COINS Strategy. These losses “flowed through” to the partners, i.e., the Khans. See Adler & Drobny, Ltd. v. United States, 9 F.3d 627, 628 n.3 (7th Cir. 1993) (“A partnership return is a Form 1065. This form reports partnership gains and losses in a given taxable year. Form 1065 contains two additional documents that detail the partnership’s financial activity: a Schedule K that computes the partnership’s profit or loss and a Schedule K-1 that allocates the partnership’s profit or loss among the partners. Because a partnership is not a taxable entity for federal income tax purposes, its profits and losses flow through to the partners where they are recognized for tax purposes on an individual basis.”).

BDO prepared and signed the Khans’ 2000 individual tax returns, both the federal and state returns, as well as the 2000 federal tax return for Wilshire Investments. The Khans’ individual returns contained the losses from the 2000 COINS Strategy.

BDO and Grant Thornton assured Khan that the returns they had prepared were “properly prepared in accordance with professional standards” and that the losses generated by the 2000 COINS Strategy were legitimate and usable. On the basis of those assurances, the opinion letter from Jenkens, and defendants’ advice during the promotion, sale, and implementation of the 2000 COINS Strategy, plaintiffs signed and filed the returns.

5. The Tax Amnesty Program

In late 2001 and early 2002, the IRS offered the “Tax Amnesty Program,” a program in which taxpayers who had participated in illegal tax-avoidance schemes such as the 1999 Digital Options Strategy and 2000 COINS Strategy could voluntarily come forward, disclose their involvement, and thereby avoid any penalties for their underpayment of taxes. BDO advised plaintiffs, however, not to participate in the amnesty program.

According to the complaint, it was for EDO’s own benefit, rather than plaintiffs’ benefit, that BDO steered plaintiffs away from the amnesty program. BDO wanted to avoid attracting any suspicion toward its tax department. If plaintiffs had talked to the IRS, the IRS would have launched an investigation of BDO and would have required BDO to disclose the names of all its clients who had used the Digital Options Strategy or anything similar to it.

6. The IRS Audit

In 2003 and 2004, plaintiffs received notices of audit from the IRS for their 1999-2001 tax returns. In May 2003, they hired counsel to represent them in the audit.

7. The IRS Disallows the Losses Created by the 1999 Digital Options Strategy and the 2000 COINS Strategy

In 2008, the IRS disallowed the losses created by the 1999 Digital Options Strategy and the 2000 COINS Strategy, concluding that the transactions lacked economic substance. As a result, plaintiffs not only lost the benefit of the considerable fees and premiums they had paid to defendants in connection with the 1999 Digital Option Strategy and the 2000 COINS Strategy, but the IRS also determined that plaintiffs owed a large amount of back taxes, interest, and penalties as a consequence of plaintiffs’ claiming the invalid losses.

II. ANALYSIS

A. Case No. 4—10—0504 (the Deutsche Defendants)

1. The Trial Court’s Reason for Dismissing the Complaint

On September 28, 2009, pursuant to sections 2—615 and 2—619 of the Code (735 ILCS 5/2—615, 2—619 (West 2008)), Deutsche Bank and Brown filed a motion to dismiss the complaint. On October 2, 2009, Parse likewise filed a motion to dismiss the complaint pursuant to those two sections.

Section 2—619.1 of the Code (735 ILCS 5/2—619.1 (West 2008)) permits a combined motion for dismissal pursuant to sections 2—615 and 2—619 (735 ILCS 5/2—615, 2—619 (West 2008)), but section 2—619.1 says that “[a] combined motion *** shall be in parts” and that “[e]ach part shall be limited to and shall specify that it is made under one of [s]ections 2—615, 2—619, or 2—1005.” 735 ILCS 5/2—619.1 (West 2008). Defendants’ motions for dismissal are not divided into parts as section 2—619.1 requires. Nevertheless, the memorandum that Deutsche Bank and Brown filed in trial court in support of their motion for dismissal is divided into parts: the first part corresponding to section 2—619 and the second part corresponding to section 2—615. Under the heading of section 2—619, Deutsche Bank and Brown invoke the statute of limitations in section 13—205 (735 ILCS 5/13—205 (West 2008)), and under the heading of section 2—615, they challenge the claims for breach of fiduciary duty (count I), negligence (count II), negligent misrepresentation (count III), disgorgement (count IV), rescission (count V), declaratory judgment (count VI), breach of contract (count VII), fraud (count VIII), consumer fraud (count IX), and civil conspiracy (count XI). We assume that Parse intended his motion for dismissal to follow the same structure.

This structure was, as we have noted, a dual structure — one part corresponding to section 2—615 (735 ILCS 5/2—615 (West 2008)) and the other part corresponding to section 2—619(a)(5) (735 ILCS 5/2—619(a)(5) (West 2008))—and it appears, from the transcript of the hearing of December 3, 2009, that the trial court granted defendants’ motions for dismissal under section 2—619 instead of section 2—615. The court stated: “[U]nder section 2—619(a)9 [sic], the motions to dismiss for statute of limitations should be allowed.” Granting a combined motion for dismissal under section 2—619 rather than section 2—615 is a coherent ruling, considering that a statute of limitations is an affirmative defense (Wise v. Potomac National Bank, 393 Ill. 357, 366, 65 N.E.2d 767, 771 (1946)) and that by raising an affirmative defense, a party admits the legal sufficiency of the complaint while asserting affirmative matter that avoids or defeats the plaintiffs claim (Van Meter v. Darien Park District, 207 Ill. 2d 359, 367, 799 N.E.2d 273, 278 (2003)). Invoking a statute of limitations presupposes that the plaintiff has pleaded a cause of action, because there is no occasion for considering the staleness of the action unless a cause of action has been pleaded. Nonetheless, because we can affirm a judgment for any reason the record supports, even if the trial court never relied on that reason (Holtkamp Trucking Co. v. David J. Fletcher, M.D., L.L.C., 402 Ill. App. 3d 1109, 1115, 932 N.E.2d 34, 40 (2010)), we will assess the legal sufficiency of the complaint under section 2—615 as well as consider, under section 2—619(a)(5) (735 ILCS 5/2—619(a)(5) (West 2008)), whether the action was “commenced within the time limited by law.”

2. The Legal Sufficiency of Count I (Breach of Fiduciary Duty)

a. Our Standard of Review

In their brief, plaintiffs defend the legal sufficiency of count I (breach of fiduciary duty) and count III (negligent misrepresentation). Therefore, we will consider de novo whether plaintiffs pleaded a cause of action for breach of fiduciary duty and negligent misrepresentation. See Ford v. Walker, 377 Ill. App. 3d 1120, 1124, 888 N.E.2d 123, 127 (2007). A de novo review entails performing the same analysis a trial court would perform. That is, we accept all well-pleaded facts in the complaint as true while disregarding legal or factual conclusions unsupported by allegations of fact. Neurosurgery & Spine Surgery, S.C. v. Goldman, 339 Ill. App. 3d 177, 182, 790 N.E.2d 925, 929 (2003). From the well-pleaded facts, we draw inferences in the plaintiffs favor whenever it would be reasonably defensible to do so. Id.

Viewing the well-pleaded facts in a light most favorable to the plaintiff, we decide whether the plaintiff has pleaded sufficient facts to constitute a cause of action (Goldman, 339 Ill. App. 3d at 182, 790 N.E.2d at 929), and in answering that question, we confine ourselves to (1) the allegations in the complaint and (2) matters of which we may take judicial notice. Kirchner v. Greene, 294 Ill. App. 3d 672, 677, 691 N.E.2d 107, 112 (1998). For purposes of section 2—615 (735 ILCS 5/2—615 (West 2008)), it is improper to consider “ ‘affidavits, affirmative factual defenses or other supporting materials.’ ” Id. (quoting Oravek v. Community School District 146, 264 Ill. App. 3d 895, 898, 637 N.E.2d 554, 557 (1994)).

b. The Affidavit by Wanser

In the memorandum that Deutsche Bank and Brown submitted to the trial court in support of their combined motion for dismissal, one of the headings was, “Each of Plaintiffs’ Claims Fails as a Matter of Law and Should Be Dismissed Pursuant to 735 Ill. Comp. Stat. 5/2—615.” Under that heading—which challenged the legal sufficiency of plaintiffs’ claims—Deutsche Bank and Brown referred to an affidavit by one of their attorneys, Michael R. Wanser. The affidavit in turn referred to some contractual documents attached to the affidavit as exhibits A through C. This affidavit and its exhibits, however, were not attached to plaintiffs’ complaint. Rather, Deutsche Bank and Brown filed the affidavit, with its attached exhibits, at the same time they filed their motion for dismissal and supporting memorandum. In a footnote of their memorandum, Deutsche Bank and Brown argued: “The Court may consider these documents [(i.e., Wanser’s affidavit and exhibits)] on this motion to dismiss without converting the motion to one for summary judgment because they are explicitly referred to in the Complaint, see e.g., Comp. ¶¶ 82, 248. See Kirchner v. Greene, 294 Ill. App. 3d 672, 677 (1st Dist. 1998) (permitting defendants to raise arguments in their 5/2—615 motion related to documents discussed and quoted in plaintiffs’ complaint).”

It is true that paragraph 82 of the complaint referred to “a set of private contracts with Deutsche Bank involving foreign currency digital options on Japanese Yen” and that paragraph 248 of the complaint referred to “Engagement Agreements.” Nevertheless, the complaint did not quote or so much as mention the particular contractual provisions on which Deutsche Bank and Brown relied in support of their motion to dismiss the complaint for failure to state a cause of action. For that very reason, Kirchner actually afforded no authority for the consideration of Wanser’s affidavit. Cf Kirchner, 294 Ill. App. 3d at 678, 691 N.E.2d at 113 (“The record reveals that defendants’ section 2 — 615 motion to dismiss and memorandum in support of the motion directly linked their statements and arguments to the allegations in plaintiffs’ complaint, the five newspaper columns attached as exhibits to plaintiffs’ complaint and the Illinois Supreme Court decisions that are not only mentioned, but are discussed and quoted, in plaintiffs’ complaint. *** [T]he instant defendants, in their motion to dismiss, did not attach or rely upon any matters outside the pleadings ***.” (Emphasis added.)). Indeed, for purposes of a section 2—615 motion, Kirchner flatly forbade the consideration of “ ‘affidavits, affirmative factual defenses or other supporting materials.’ ” Kirchner, 294 Ill. App. 3d at 677, 691 N.E.2d at 112 (quoting Oravek, 264 Ill. App. 3d at 898, 637 N.E.2d at 557).

Nonetheless, on appeal, plaintiffs do not argue that the trial court’s consideration of Wanser’s affidavit and exhibits was procedurally improper. Instead of challenging the affidavit on procedural grounds, plaintiffs make substantive arguments against it. Therefore, any procedural objection to the affidavit and its exhibits would be forfeited. Ill. S. Ct. R. 341(h)(7) (eff. July 1, 2008) (“Points not argued are waived,” i.e., forfeited.).

That leaves the difficult question of how we should go about performing our analysis under section 2—615 (735 ILCS 5/2—615 (West 2008)). On the authority of Bryson v. News America Publications, Inc., 174 Ill. 2d 77, 86 (1996), plaintiffs insist that notwithstanding Wanser’s affidavit, we should “accept as true all well-pleaded facts in the complaint and all reasonable inferences which can be drawn therefrom” and that we should “interpret the allegations of the complaint in the light most favorable to the plaintiff[s].”

Plaintiffs are correct that under section 2—615, Wanser’s affidavit cannot negate the well-pleaded facts of the complaint. Even if the exhibits of Wanser’s affidavit were actually attached to the complaint as exhibits, they would not trump the factual allegations in the complaint, because an exhibit of a complaint trumps the allegations in the complaint only if the exhibit is an instrument upon which the claim is founded. See 735 ILCS 5/2—606 (West 2008). “ ‘When the exhibit is not an instrument upon which the claim or defense is founded but, rather, is merely evidence supporting the pleader’s allegations, the rule that the exhibit controls over conflicting averments in the pleading is inapplicable.’ ” Bajwa v. Metropolitan Life Insurance Co., 208 Ill. 2d 414, 432, 804 N.E.2d 519, 531-32 (2004) (quoting Garrison v. Choh, 308 Ill. App. 3d 48, 53, 719 N.E.2d 237, 241 (1999)). A claim is founded on an instrument only if the claim is “based on” the instrument or only if the plaintiff is “suing upon” the instrument. Garrison, 308 Ill. App. 3d at 53, 719 N.E.2d at 240-41.

Plaintiffs’ claim for breach of fiduciary duty is not founded on the contractual documents. We know that much from a case that defendants cite in their brief, Armstrong v. Guigler, 174 Ill. 2d 281, 673 N.E.2d 290 (1996). In Armstrong, 174 Ill. 2d at 293-94, 673 N.E.2d at 296, the supreme court said: “A breach of an implied fiduciary duty is not an action ex contractu simply because the duty arises by legal implication from the parties’ relationship under a written agreement. In fact, a fiduciary relationship is founded on the substantive principles of agency, contract and equity.” (Emphasis in original.) If, as the supreme court says, an action for breach of fiduciary duty does not arise out of the contract, plaintiffs’ action for breach of fiduciary duty is not founded on the contractual documents, and the contractual documents attached to Wanser’s affidavit would not override the factual allegations of the complaint even if the documents were attached to the complaint as exhibits. Therefore, we will take all of the well-pleaded facts of the complaint to be true even if the disclaimer in exhibit A of Wanser’s affidavit appears to contradict those facts by stating that there is no agency, no fiduciary relationship, and no reliance on Deutsche Bank’s advice.

c. Choosing Between Illinois Law and New York Law

The parties disagree on which state’s law applies to the determination of whether defendants owed plaintiffs a fiduciary duty: the law of Illinois or the law of New York. The contractual documents attached to Wanser’s affidavit choose New York law. Specifically, paragraph 4 of the confirmation agreement, dated November 29, 1999, between SRK Wilshire Investments, LLC, and Deutsche Bank (exhibit A of Wanser’s affidavit) provides that “the governing law is New York law.” Likewise, the account agreements dated November 18, 1999, between the Wilshire entities and BT Alex. Brown, Inc. (exhibit C of the affidavit), provide: “This Agreement shall be deemed to have been made in the State of New York and shall be construed, and the rights of the parties determined, in accordance with the laws of the State of New York and the United States, as amended, without giving effect to the choice of law or conflict-of-laws provisions thereof.” (We assume that BT Alex. Brown, Inc., is the same corporation as one of the named defendants in this case, Deutsche Bank Securities, Inc., doing business as Deutsche Bank Alex. Brown; none of the parties suggest otherwise.)

We should give effect to a choice-of-law provision in a contract (Hofeld v. Nationwide Life Insurance Co., 59 Ill. 2d 522, 529, 322 N.E.2d 454, 458 (1975)) unless the contract chooses a foreign law that is “ ‘dangerous, inconvenient, immoral, [or] contrary to the public policy of the local government’ ” (Potomac Leasing Co. v. Chuck’s Pub, Inc., 156 Ill. App. 3d 755, 757-58, 509 N.E.2d 751, 753 (1987) (quoting McAllister v. Smith, 17 Ill. 328, 334 (1856))). Because we are unaware that any of those objections could be made against New York law, we will give effect to the contractual choice of New York law insomuch as this case requires us to interpret and apply exhibits A through C of Wanser’s affidavit. See Reighley v. Continental Illinois National Bank & Trust Co. of Chicago, 390 Ill. 242, 249, 61 N.E.2d 29, 33 (1945).

This is not to say that we otherwise will ignore New York law, such as when evaluating the parties’ legal relationship that predated the execution of these contracts. Binding or not, New York case law provides useful guidance on the fiduciary duties of brokers and investment advisors.

d. The Fiduciary Duty of a Broker To Give Competent, Honest Advice Regarding the Purchase or Sale of Securities, Insomuch as the Broker Chooses To Give Such Advice

As plaintiffs argue, if we take the well-pleaded facts of the complaint to be true and draw reasonable inferences from those facts (Bryson, 174 Ill. 2d at 86, 672 N.E.2d at 1213), defendants had an understanding, a relationship, with Khan that predated the execution of exhibits A through C of Wanser’s affidavit. It appears that in 1999, before the parties signed any documents implementing any particular transactions, Shanbrom, Parse, and Khan had a conference, in which Shanbrom and Parse pitched the 1999 Digital Options Strategy to Khan. One could infer that in this conference, Shanbrom and Parse invited Khan to trust them in the realms of foreign-currency option trading and federal income taxation and that Khan gave them his trust, with the result that he was persuaded, repeatedly, to put large sums of money into their hands for investment. Again, paragraph 63 of the complaint alleges as follows:

“Shanbrom set up a conference call between himself, Parse, and Khan to discuss foreign currency trading. During this conference call, Parse, along with Shanbrom, reiterated the ‘sales pitch’ and reassured Khan that the Digital Options Strategy was completely legal. Parse, along with Shanbrom, further discussed the steps of the Digital Options Strategy and informed Khan that Deutsche Bank would handle all aspects of the investments in foreign currencies. According to Parse, Deutsche Bank had internal procedures to determine the proper amounts and types of the foreign currency investments that would be appropriate for Khan’s circumstances. Parse told Khan that Parse would make all decisions with respect to the amounts and types of foreign currency investments since he was the expert. Parse again reiterated that Plaintiffs would have a good chance of making a profit on the foreign currency investments.”

Thus, Shanbrom and Parse, who was an agent of Deutsche Bank, led Khan to believe that his trading in foreign currencies via Deutsche Bank would be an “investment.” An “investment,” of course, is the expenditure of money for the purpose of making a profit. New Oxford American Dictionary 893 (2001). Parse “reiterated that Plaintiffs would have a good chance of making a profit on the foreign currency investments.” Evidently, Deutsche Bank was to serve as Khan’s broker for purposes of trading in foreign currencies. And in the contemplation of the parties, Deutsche Bank’s role would not be the robotic execution of whatever instructions originated with Khan. Far from it, Parse, who was “the expert,” “would make all decisions with respect to the amounts and types of foreign currency investments,” using Deutsche Bank’s “internal procedures” for deciding such matters.

And Deutsche Bank’s advice to Khan went further than the amounts and types of foreign-currency investments. According to the complaint, the “1999 Strategy Defendants”—defined as BDO, Deutsche Bank, Brown, and Parse—also advised Khan on how the contemplated foreign-currency trading could be used to reduce plaintiffs’ federal income taxes through the creation of a large capital loss, should plaintiffs fail to make a profit on the foreign-currency investments. Paragraphs 68 and 69 of the complaint allege as follows:

“68. The 1999 Strategy Defendants advised Plaintiffs that the basis of Plaintiffs’ interest in the partnership [(SRK Wilshire Partners)] would be increased for tax purposes by the purchase cost of the long options, but not decreased by the premium earned by Plaintiffs on the short options. The 1999 Strategy Defendants further advised Plaintiffs that upon the contribution of the partnership interest to the S Corporation [(SRK Wilshire Investors, Inc.)] and the subsequent sale by the S Corporation of its assets, the S Corporation would realize a large capital loss that could be applied to substantially reduce or eliminate the large capital gains realized by Plaintiffs, thus substantially reducing or even eliminating the Plaintiffs’ tax liability.

69. The 1999 Strategy Defendants informed Plaintiffs that depending on the exchange rate between the U.S. dollar and the foreign currencies involved in the digital option transactions, there was a reasonable chance of realizing a pre-tax gain on the FX Contracts. The 1999 Strategy Defendants assured Plaintiffs that in the event Plaintiffs lost money on the FX Contracts, the tax benefits of the 1999 Digital Options Strategy as a whole, resulting from the creation of losses to offset gains and/or income, far outweighed any losses that might be incurred as a result of the FX Contracts.”

According to the complaint, this advice was misleading in two ways. First, the “investment” in foreign currencies was not really an investment at all. Rather, the transaction was designed as a sure-fire way for plaintiffs to lose money to Deutsche Bank. Unbeknownst to Khan, “the foreign currency digital options were simply private bets with Deutsche Bank on where the underlying foreign currencies would be on a particular date and time,” and “Deutsche Bank controlled the outcome” in these bets by choosing the spot rate (we are quoting paragraph 63 of the complaint). According to footnote 12 of the complaint, the “transactions” with Deutsche Bank were “[not] even transactions. *** [T]he FX [(foreign exchange)] Contracts were not something traded on any recognized exchange but were simply a matter of private contract between the participants. Finally, neither party had any rights to take possession of the ‘underlying currency.’ As a result, the FX Contracts amounted, in actuality, to a contractual wager (i.e., a ‘bet’) based on movements in foreign currency prices, without any real possibility of foreign currency ever changing hands between the parties.” In other words, instead of making an “investment,” as Parse and Shanbrom represented he would be doing, Khan would be the predestined loser in a rigged bet. Second, defendants’ advice to Khan was additionally misleading in that the capital loss they promised in the event that plaintiffs lost money in the foreign-currency “investments” would be indefensible under IRS Notice 1999-59.

This negligent or dishonest advice, which Parse allegedly gave Khan at the inception of their relationship, distinguishes the present case from a case on which the Deutsche defendants rely, de Kwiatkowski v. Bear, Stearns & Co., 306 F.3d 1293 (2d Cir. 2002), in which the Second Circuit held that a broker had no duty to give a nondiscretionary customer ongoing advice in between transactions (de Kwiatkowski, 306 F.3d at 1307). It is true that like the plaintiff in de Kwiatkowski, Khan had a “nondiscretionary” account in that Deutsche Bank and Brown executed only those trades specified in documents signed by the customer. It also is true that, absent other facts, the only fiduciary duty a broker owes a nondiscretionary customer is to faithfully and competently execute the requested trade and that once the broker does so, the fiduciary duty ends. Id. at 1302. “[A] broker ordinarily has no duty to monitor a nondiscretionary account, or to give advice to such a customer on an ongoing basis. The broker’s duties ordinarily end after each transaction is done, and thus do not include a duty to offer unsolicited information, advice, or warnings concerning the customer’s investments.” (Emphasis added.) Id. The Second Circuit was careful to add, however, that a broker was “obliged to give honest and complete information when recommending a purchase or sale.” Id. See also Restatement (Second) of Torts §552(1) (1977).

In short, although the broker’s provision of advice triggered no ongoing duty to give more advice after the transaction was accomplished (de Kwiatkowski, 306 F.3d at 1302), the advice that the broker gave in the first place had to be honest and competent (id. at 1306, 1308)—and that is an important qualification for purposes of the present case. See also Rasmussen v. A.C.T. Environmental Services Inc., 739 N.Y.S.2d 220, 222 (N.Y. App. Div. 2002) (as an investment advisor, the defendant was in a position of trust and owed the decedent a fiduciary duty); Ascot Fund Ltd. v. UBS PaineWebber, Inc., 814 N.Y.S.2d 36, 36 (N.Y. App. Div. 2006) (“PaineWebber, as a broker, owed no fiduciary duty to plaintiff purchaser of securities [citations]. There is no evidence that the simple broker-customer relationship here included any investment advice given by PaineWebber ***.” (emphasis added)); American Tissue, Inc. v. Donaldson, Lufkin & Jenrette Securities Corp., 351 F. Supp. 2d 79, 102 (S.D.N.Y. 2004) (“New York courts have found fiduciary relations between clients and investment banks where there is either a confidence reposed which invests the person trusted with an advantage in treating the person so confiding [citation], or an assumption of control and responsibility. [Citations.]” (internal quotation marks omitted)).

Granted, in addition to accusing the Deutsche defendants of giving bad initial advice, plaintiffs accuse them of failing to give further advice. Plaintiffs blame defendants not only for their initial advice to engage in the 1999 Digital Options Strategy and 2000 COINS Strategy but also for their subsequent failure to advise plaintiffs to participate in the amnesty program that the IRS offered in late 2001 and early 2002. But this further advice would have been corrective advice and in that respect would have been significantly different from the ongoing advice that the plaintiff in de Kwiatkowski unreasonably expected from his broker. The plaintiff in de Kwiatkowski contended that after the broker followed his instructions by executing the foreign-currency transactions, his broker had an ongoing duty to keep him apprised of geopolitical developments and other changing circumstances that might cause the value of the dollar to fall, de Kwiatkowski, 306 F.3d at 1300, 1301. As the Second Circuit explained, such a duty would have been unreasonably burdensome for a broker and virtually impossible to fulfill. Id. at 1303. In the present case, by contrast, when plaintiffs argue that defendants had a subsequent duty to advise them to participate in the amnesty program, plaintiffs are expressing the more reasonable proposition that defendants had a duty to come clean before plaintiffs suffered further financial harm from defendants’ earlier negligent or dishonest advice.

e. Confidence Reposed on One Side and Resulting Influence on the Other Side

A confidential or fiduciary relationship exists “where one party reposes special trust and confidence in another who accepts that trust and confidence and thereby gains superiority and influence over the subservient party.” Eldridge v. Eldridge, 246 Ill. App. 3d 883, 889, 617 N.E.2d 57, 62 (1993). See also Penato v. George, 383 N.Y.S.2d 900, 904 (N.Y. App. Div. 1976) (“Broadly stated, a fiduciary relationship is one founded upon trust or confidence reposed by one person in the integrity and fidelity of another. It is said that the relationship exists in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed.”). Deutsche Bank and Brown insist that such a relationship of trust and confidence cannot arise “in ordinary business relationships,” and they quote a federal decision to that effect: “[A] conventional business relationship, without more, does not become a fiduciary relationship by mere allegation. [Citation.] Indeed, New York Courts have rejected the proposition that a fiduciary relationship can arise between parties to a business transaction [citation], and have concluded that where parties deal at arms length in a commercial transaction, no relation of confidence or trust sufficient to find the existence of a fiduciary relationship will arise absent extraordinary circumstances.” (Emphasis added.) (Internal quotation marks omitted.) Compania Sud-Americana de Vapores, S.A. v. IBJ Schroder Bank & Trust Co., 785 F. Supp. 411, 426 (S.D.N.Y. 1992).

When the district court says, however, that no fiduciary relationship can arise between parties to a “business transaction,” the court evidently means, in this context, an “arm’s-length business transaction.” For, actually, it is quite common for a fiduciary relationship to arise in a business transaction—if the transaction creates an agency relationship, for example (see Restatement (Third) of Agency §1.01 (2006)), such as that between an attorney and client (Eldridge, 246 Ill. App. 3d at 889), employer and employee (Alpha School Bus Co. v. Wagner, 391 Ill. App. 3d 722, 737-38, 910 N.E.2d 1134, 1150 (2009)), or broker and client (Barry Mogul & Associates, Inc. v. Terrestris Development Co., 267 Ill. App. 3d 742, 749, 643 N.E.2d 245, 251 (1994)). The question really is not the presence or absence of commerce in the creation of the agency relationship. Rather, the question is, Did A repose a special trust and confidence in B, and did B accept that trust and confidence and thereby gain superiority and influence over A? Eldridge, 246 Ill. App. 3d at 889, 617 N.E.2d at 62.

Looking at the well-pleaded facts of the complaint in a light most favorable to plaintiffs, one could reasonably infer that Khan reposed special trust and confidence in defendants and that they thereby gained superiority and influence over him. After all, Deutsche Bank was a prestigious investment bank, highly sophisticated in its field and capable, by its very name, of inspiring confidence. It is true that Khan was wealthy, apparently, but he was not Deutsche Bank. As Parse told Khan, Deutsche Bank had “internal procedures” for determining the exact amounts and types of foreign currency that would be just right for him. Khan knew little about foreign-currency trading and federal income-taxation, whereas defendants were self-proclaimed experts in those subjects, each of which was a labyrinth in itself. Defendants promised to lead Khan by the hand through these forbidding labyrinths. Using his special expertise and Deutsche Bank’s internal procedures, Parse would decide the types and amounts of foreign currency in which plaintiffs would invest. One might infer, therefore, that the figures in the contracts came from Parse, not from Khan. All in all, one could get the impression that Khan was considerably out of his element and that he more or less was told where to sign. Considering that he thought he was making “investments,” he evidently understood little about the 1999 Digital Options Strategy and the 2000 COINS Strategy. Nevertheless, in blind or uncomprehending faith in the “experts,” he took the plunge more than once. Shanbrom and Parse must have had considerable influence over him, because even though he lost a substantial amount of money in the 1999 Digital Options Strategy, he was fully prepared, on their advice, to risk another drubbing in the 2000 COINS Strategy. But, then, as they assured him, it ultimately did not matter if he lost money in the transactions, because, in the end, he would come out ahead in tax losses.

f. The Contractual Disclaimers, Voidable Without Full Disclosure