united states district court eastern …taxprof.typepad.com/files/us-reply.pdfdavid a. weisbach page...

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS

SHERMAN DIVISION

BEMONT INVESTMENTS, LLC, by and through its Tax Matters Partner, and BPB INVESTMENTS, LC, by and through its Tax Matters Partner, Plaintiffs, vs. UNITED STATES OF AMERICA, Defendant.

§ § § § § § § § § § § § § § §

Case Nos. 4:07-cv-00009-MHS-DDB; 4:07-cv-00010-MHS-DDB (consolidated) Hon. Michael H. Schneider Hon. Don D. Bush, M.J.

UNITED STATES’ REPLY BRIEF IN SUPPORT OF ITS

MOTION TO EXCLUDE EXPERT TESTIMONY OF PLAINTIFFS’ TAX LAWYER “EXPERTS” DAVID WEISBACH AND ETHAN YALE

The United States files this Reply Brief in Support of its Motion to exclude expert

testimony of Plaintiffs’ tax lawyer “experts” David Weisbach and Ethan Yale, and would show

the Court that Plaintiffs’ alleged tax law experts should be excluded from testifying at trial.

Plaintiffs attempt to defend their tax lawyer expert witnesses David Weisbach and Ethan

Yale by claiming that they will offer factual analysis, not legal argument. Neither of these

witnesses is qualified to give any such analysis because neither has any expertise except as a tax

lawyer.

According to Plaintiffs, Weisbach will testify as to the “industry standards of care” that

apply to the Coscia tax opinion. Coscia is an accountant and is subject to the standards that

apply to accountants, including the standards published by the American Institute of Certified

Public Accountants and the Texas State Board of Public Accountancy. Not only is Weisbach not

an accountant, but he admits that he did not even look at the standards that govern the accounting

industry. Exhibit A, Weisbach Dep. 204:22-207:10. To the contrary, Weisbach’s only

qualification as an expert is as a “tax lawyer.” Exhibit A, Weisbach Dep. 222:4-223:11. The so-

called standards Weisbach uses are nothing more than legal argument regarding the IRS

regulations on reasonable cause. Contra Diversified Graphics, Ltd. v. Groves, 868 F.2d 293,

296-97 (8th Cir. 1989) (expert on accounting standards is an accountant and applies AICPA

standards).

Plaintiffs likewise claim that Yale will testify about the “complex transactions that

underlie this case” and compare them to the “complex transactions that underlie Notice 2000-

44.” But Yale cannot opine on the economic substance or structure of any transaction, as he is

neither an economist nor a forensic accountant. Exhibit B, Yale Dep. 143:5-25; 144:12-14.

Yale’s only expertise is “as a tax lawyer” and the only expert testimony he proposes to offer

regards the “tax consequences” of the transactions in this case. Exhibit B, Yale Dep. 36:15-25.

Thus, unlike the United States’ experts (an economist and a forensic accountant), Yale’s

testimony can be nothing more than a regurgitation of Plaintiffs’ spin on the tax law.

Conclusion

Neither Weisbach nor Yale offers any expertise except as tax lawyers. The only possible

“expert” testimony they can give is argument on the tax law. This Court should not permit such

advocacy to masquerade as “expert” testimony, and should therefore grant the United States’

motion to exclude Plaintiffs’ tax lawyer expert testimony.

Date: November 30, 2009 Respectfully submitted, JOHN M. BALES ACTING UNITED STATES ATTORNEY /s/ Robert J. Kovacev ROBERT J. KOVACEV Trial Attorney

D.C. Bar No. 47525 Tax Division, U.S. Department of Justice Post Office Box 55, Ben Franklin Station Washington, D.C. 20044 Phone: (202) 307-6541 [email protected]

DAVID G. ADAMS Trial Attorney State Bar No. 00793227 HOLLY M. CHURCH Trial Attorney State Bar No. 24040691 Tax Division, U.S. Department of Justice 717 N. Harwood St., Suite 400 Dallas, Texas 75201 Phone: (214) 880-9737 Fax: (214) 880-9741 [email protected] [email protected]

ATTORNEYS FOR THE UNITED STATES

CERTIFICATE OF SERVICE

I certify that on November 30, 2009, I electronically filed the foregoing document with

the Clerk of the Court using the ECF system, which will send notification of such filing to the

following:

M. Todd Welty Sonnenschein Nath & Rosenthal LLP 2000 McKinney Ave., Suite 1900 Dallas, Texas 75201

/s/ Robert J. Kovacev ROBERT J. KOVACEV

DAVID A. WEISBACH

Page i

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ILLINOIS

SHERM DIVISION

BEMONT INVESTMENTS, L. L . C. ,

by and through its Tax

Matters Partner

and 4: 07-cv-00009-MHS-DDB;

BPB INVESTMENTS, LC, by and 4: 07 -cv- 00010 -MHS-DDB

through its Tax Matters ( consolidated)

Partner,

Plaintiffs,vs.

UNITED STATES OF AMERICA,

Defendant.

The deposition of DAVID ANDREW

WEISBACH, called as a witness for examination,

taken pursuant to the Federal Rules of Civil

Procedure of the United States District Courts

pertaining to the taking of depositions, taken

before KELLY M. FITZGERALD, a Certified

Shorthand Reporter of said state, at Suite

7800, 233 South Wacker Drive, Chicago,

Illinois, on the 11th day of June, A.D. 2008,

at 8:57 a.m.

HG LITIGATION SERVICESHGLITIGATION. COM

l?)f

rpike

Government Exhibit

DAVID A. WEISBACH

Page 2

1 PRESENT:

2

3 SONNENSCHEIN NATH & ROSENTHAL, LLP, by:

4 MS. LAURA GAVIOLI

5 MR. M. TODD WELTY

6 1717 Main Street, Suite 3400

7 Dallas, Texas 75201

8 214-259-0953

9 appeared on behalf of the Plaintiff;

10

11 UNITED STATES DEPARTMENT OF JUSTICE,

12 TAX DIVISION, by:

13 MR. RICHARD G. JACOBUS

14 P.O. Box 403, Ben Franklin Station

15 Washington DC 20044

16 214-880-9721

17 appeared on behalf of the Defendant.

18

19

20 REPORTED BY: KELLY M. FITZGERALD, CSR, RMR, CRR

21 CSR No. 84-4318.

22

23

24

25


DAVID A. WEISBACH

Page 3

1 INDEX2 WITNESS EXAINATION

3 DAVID ANDREW WEISBACH

4 By Mr. Jacobus 4

5

6

7

8 EXHIBITS9 NUMBER MARKED FOR ID

10 Government Exhibit

11

12 No. 122 7

13 No. 125 10

14 No. 123 45

15 No. 124 51

16 No. 126 69

17

18

19

20

21

22

23

24

25


DAVID A. WEISBACH

Page 204

1 hundred pages long. I don't remember how many

2 hours I spent on it. It's very hard to read

3 every word of a several hundred page

4 deposition.

5 Q. Let me represent to you that when he

6 gave that deposition, we captured Mr. Beal on

7 videotape. Have you ever watched the video of

8 Mr. Beal' s deposition?

9 A. No.

10 Q. When I took Mr. Beal' s deposition,

11 he and I had a dialogue about profit potential

12 on the swaps. Did you read that portion of his13 deposi tion?

14 A. I did. You would have to refresh my

15 memory as to exactly what it says. It's been

16 more than a month and it was several hundred

17 pages.

18 Q. But you did look at that part of his

19 deposi tion?

20 A. Absolutely. I read through every

21 page of the deposition.

22 Q. Okay. Now, it i S your understanding

23 that Matt Coscia is a Certified Public

24 Accoun tan t?

25 A. Yes.

HG LITIGATION SERVICESHGLITIGATION . COM

DAVID A. WEISBACH

Page 205

1 Q. Do you know whether the American

2 Institute of Certified Public Accountants

3 published any standards that govern tax

4 services that are rendered by CPAs to their

5 clients?

6 A. I believe they do. I'm not

7 intimately familiar with their content.8 Q. So you dido i t consider the AICPA

9 standards for tax services in your work on this

10 case?

11 A. No, this is not a malpractice case

12 which is where those standards would apply.

13 Q. So in your view, the standards of

14 the profession in which Mr. Coscia earns his

15 living are not relevant standards of tax16 practice for purposes of your analysis of this17 case?

18 MS. GAVIOLI: Obj ection.

19 BY THE WITNESS:

20 A. That's not what I said. The

21 relevance standards are the profession of22 giving tax advice overall. It can come from a

23 lawyer or from an accountant. It can come from

24 community practice and knowledge of the area.

25 The AICPA standards to the extent I know


DAVID A. WEISBACH

Page 206

1 anything about them are specific about

2 malpractice.

3 BY MR. JACOBUS:

4 Q. And do you hold a degree in

5 accoun ting?

6 A. No.

7 Q. Are you a Certified Public

8 Accoun tan t?

9 A. No.

10 Q. What's the basis of your assertion

11 that the AICPA standards of practice relate to

12 malpractice claims?

13 A. Like I said, that's my belief. It14 could be wrong.

15 Q. Are you aware of a state agency

16 known as the Texas State Board of Public

1 7 Accoun tancy?

18 A. No, but I'm sure it exists.

19 Q. Let me represent to you that the

20 Texas State Board of Public Accountancy

21 licenses and regulates CPAs who practice in

22 Texas. Do you understand my representation?

23 A. Yes.24 Q. They licensed and regulated me for

25 some 25 years. Did you consider whether the


DAVID A. WEISBACH

Page 207

1 Texas State Board of Public Accountancy has

2 promulgated any standards of tax practice that

3 would be relevant to the sufficiency of

4 Mr. Coscia's tax opinion?

5 No. Gi ven that he met the normalA.

6 standards of tax practice for high level

7 practitioners in his field, standards that I8 see top level New York firms meet all the time,

9 I didn't consider that it was remotely feasible

10 that he wouldn't meet those type of standards.

11 Q. But if I understand your testimony

12 from earlier this morning, if I were to ask you

13 specific questions about specific tax opinions

14 by top level New York firms that you have

15 reviewed in your work at McKee Nelson,

16 privilege concerns would preclude you from

17 answering; is that correct?

18 MS. GAVIOLI: Objection.

19 BY THE WITNESS:

20 With respect to specific clients orA.

21 specific transactions. I can describe overall

22 the type of work I do and the type of opinions

23 I can't give you specificthat I've seen.

24 cl ient names.25


DAVID A. WEISBACH

Page 222

1 the opinion. Ei ther way there was money paid

2 to Matt Coscia for his opinion on this

3 transaction.

4 Q. Is there any expertise or

5 specialized knowledge that is reflected in your

6 report that is beyond the expertise or

7 specialized knowledge that any tax lawyer

8 possesses?

9 A. Well, I wouldn't say any tax lawyer.

10 I think you would - - if you want someone who is

11 going to give an opinion like this, someone who

12 is very familiar with what the practices are in

13 a very top level community in the tax part.

14 But there are a modest size group of people who

15 can do that.16 Q. So is what differentiates the top

17 level tax attorney to provide tax opinions of

18 the sort you've described from all the

19 remaining tax lawyers in the country, is the

20 distinction there level of experience in tax21 practice?22 A. Level of experience and also areas

23 of expertise. So if someone just specializes

24 in 482 transfer pricing or some other area,

25 they wouldn't know what an opinion of this sort


DAVID A. WEISBACH

Page 223

1 would tend to look like. So it would be

2 experience in seeing these types of complex

3 transactions involving derivatives and

4 partnerships and tender offers and things like

5 that.6 Q. So it would be -- the distinguishing

7 factor between a suitably qualified expert such

8 as yourself and ordinary tax lawyers would be

9 one, length of time practicing tax law and two,

10 subject matter expertise, right?11 A. Right.

12 MR. JACOBUS: I don't think I have

13 anything further for the witness.

14 MS. GAVIOLI: I think we're done, as

15 well.

16 MR. JACOBUS: Okay. Professor

17 Weisbach I take it will want to read his

18 deposition?19 MR. WELTY: Yes.

20 MR. JACOBUS: Okay. And I guess

21 we're all done.

22 MR. WELTY: You can send it to us.

23 We'll circulate it to Professor Weisbach

24 for review and the errata sheet.25 FURTHER DEPONENT SAITH NOT.


DAVID A. WEISBACH

Page 224

1

2 I, DAVID ANDREW WEISBACH, the witness

3 herein, do hereby certify that the foregoing

4 testimony of the pages of this deposition to be

5 a true and correct transcript, subj ect to the6 corrections, if any, shown on the attached

7 page.

8

9

10

11 DAVID ANDREW WEISBACH

12

13

14

15 SUBSCRIBED AND SWORN TO before me

day of 2008.16 this17

18 NOTARY PUBLIC

19

20

21

22

23

24

25


DAVID A. WEISBACH

Page 227

1 CERTIFICATE OF OFFICER

2

3 I, KELLY M. FITZGERALD, a Certified

4 Shorthand Reporter, CSR No. 84-4318, of the

5 State of Illinois, do hereby certify:

6 That previous to the commencement of

7 the examination of the witness herein, the

8 wi tness was duly sworn to testify the whole

9 truth concerning the matters herein;

10 That the foregoing deposition11 transcript was reported stenographically by me,

12 was thereafter transcribed under my personal

13 direction and constitutes a true, complete and

14 correct record of the testimony given and the

15 proceedings had;

16 That the said deposition was taken17 before me at the time and place specified;18 That the reading and signing by the19 witness of the deposition transcript was agreed20 upon as stated herein;21 That I am not a relative or employee22 or attorney or counsel, nor a relative or23 employee of such attorney or counsel for any of

24 the parties hereto, nor interested directly or25 indirectly in the outcome of this action.


DAVID A. WEISBACH

Page 228

1 IN WITNESS WHEREOF, I do hereunto

2 set my hand at Chicago, Illinois, this 2~th day

3 of June 2008.

4

6 KELLY ~GE~D: hCSR No. 84-4318.

5

7

8

9Ht"'!u':!;Tt'\\! ~7~n~/~ V ~J'Q'l v v

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


ETHA YALE

Page i

UNITED STATES DISTRICT COURTEASTERN DISTRICT OF TEXAS

SHERM DIVISION

BEMONT INVESTMENTS, LLC, by andthrough its tax matters partner,andBPB INVESTMENTS, LC, by andthrough its Tax Matters Partner,

Plaintiffs; Case Nos.

vs4: 07cv09 &4: 07cv10(consolidated)

United States of America,

Defendant.

Wednesday, 9: 20 A. M.June 25, 2 008

Deposition of:ETHAN YALE

called as a witness by The Government, at theOffices of SONNENSCHEIN NATH & ROSENTHAL, LLP, 1301K Street, NW, Suite 600/East Tower, Washington, DC20005, before Texas S. Eckstone, Notary Public,when were present on behalf of the respectiveparties:


rpike

Government Exhibit

ETHA YALE

Page 2

1 APPEARACES:

2

ON BEHALF OF THE PLAINTIFFS:3

5

SONNENSCHEIN NATH & ROSENTHAL, LLPBY: M. TODD WELTY, ESQUIRE

LAURA L. GAVIOLI, ESQUIRE1717 Main Street, Suite 3400Dallas, TZ 75201-7395(214) 259-0953

4

6

7

8 ON BEHALF OF THE DEFENDANT:

9 U. S. Department of JUSTICETax DivisionBY: DAVID G. ADAMS, ESQUIRE717 North Harwood StreetSuite 400Dallas, TX 75201(214) 880-9737

10

11

12

13 RICHARD G. JACOBUS, ESQUIRESenior Litigation CounselTax Division555 4th Street, NW, Suite 7207Washington, DC 20001(202) 616-0553

14

15

16

17

18

19

20

21

22

23

24

25


ETHA YALE

Page 3

1 wi tness Index

2 Examination by: Page

3 David G. Adams 6

4 Laura L. Gavioli 218

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


ETHA YALE

Page 36

1 A.

2 Q.

No.

Okay. What is it that's your

3 understanding as far as the financial instrument

4 used?

5 A. I think it's a set of four digital

6 foreign currency swaps.

7 Q. Did my question leave you the

8 impression that I was asking if there was one?

9 A.

10 Q.

11 A.

12 Q.

13 Deutsche Bank?

14 A.

15 Q.

You asked in the singular, swap.

Who was the counter party to the swaps?

Deutsche Bank.

Have you ever done any work for

No.

Do you have any special knowledge

16 regarding digital foreign currency swaps?

17 A.

18 Q.

19 A.

Yes.

What is that specialized knowledge?

I'm knowledgeable as a tax lawyer

20 regarding the tax consequences of their execution21 and how the parties to the swap are taxed, and I22 think that that tax expertise is specialized.23 Q. Are you considered an expert in the

24 field of digital foreign currency swaps?

25 A. No.


ETHA YALE

Page 143

1

2

3 correct, yes.4 BY MR. ADAMS:

5 Q.

6

MS. GAVIOLI: Obj ection.

THE WITNESS: I think that's

This morning I think you asked you if

you were an economist and you said you're not;

7 right?8 A.

9 Q.

10 right?11 A.

12 Q.

13 transactions?14 A.

That's correct.

You're not an expert in economics;

I'm not.

Are you an expert in financial

I would say that I'm an expert in the

15 tax consequences of financial transactions.

16 Q. Is that from the perspective of the tax

17 lawyer or a financial professional?

18 A.

19 Q.

20 A.

21 Q.

22 A.

Tax lawyer.

But not a financial professional?

Correct.

Are you an expert in accounting?

I have expertise in tax accounting but

23 not financial accounting or managerial accounting.

24 Q.

25 A.

Are you a CPA?

I am not.


ETHA YALE

Page 144

1 Q. Do you have any -- have you taken any

2 accounting classes?

3 A.

4 Q.

5 A.

I have.

How many hours?

I don't recall. I took accounting

6 classes while I was in college, and I graduated in

7 1993 which was approximately 15 years ago, so I

8 don't remember how many credi t hours I took.

9 Q. Do you rememer how many accounting

10 classes you took?11 A.

12 Q.

No.

Do you rememer if you took -- do you

13 have any expertise in forensic accounting?

14 A.

15 Q.

16 or attestation?17 A.

18 Q.

No.

Do you have any expertise in auditing

No.

Why do you say you believe you have

19 experti se in tax accounting?20 A. While I was a professor at New York

21 Uni versi ty Law School , I taught a class called

22 tiny instances in the income tax a substantial

23 portion of which was devoted to the subj ect. Since

24 that time I've written at least two publications

25 related to important issues in tax accounting.


ETHA YALE

0

1 CERTIFICATE OF SHORTHAD REPORTER-NOTARY PUBLIC

2 I, Texas S. Eckstone, Professional ShorthandReporter/Notary Public, the officer before whom the

3 foregoing deposition was taken, do hereby certify that thewitness was by me duly sworn; that the testimony of said

4 witness was taken by me stenographically and thereafterreduced to typewriting under my supervision; that said

5 transcript is a true record of the testimony given; that Iam neither counsel for, related to, nor employed by any of

6 the parties to this case and have no interest, financial orotherwise, in its outcome.

7

8

IN WITNESS WHEREOF, I have hereunto set my hand andaffixed my notarial seal this th day of July 2008.

9 1~(1)=') ~. (~j~?~Te~s S. Ecks toneNotary Public

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25


ETHA YALE

Page 221

1 INSTRUCTIONS TO THE WITNESS

2 Read your deposition over carefully. Itls your right to read your deposition and make any

3 changes in form or substance. You should assign areason in the appropriate column on the errata

4 sheet for any change made. After making any changein form or substance which has been noted on the

5 following errata sheet along with the reason forany change, sign your name on the errata sheet and

6 date it. Then sign your deposition at the end ofyour testimony in the space provided. You are

7 signing it subj ect to the changes you have made inthe errata sheet, which will be attached to the

8 deposition before filing. You must sign in thespace provided. The witness need not be a notary

9 public. Any competent adult may witness yoursignature.10 Return the original errata sheet andtranscript to the deposing attorney (attorney

11 asking questions) promptly! Court rules requirefiling within 30 days after you receive the

12 deposition.Thank you

13

14

15

16

17

18

19

20

21

22

23

24

25


ETHAN YALE

10

1 i

12

13

i 4

15

i 6

i 7

i 8

19

20

2 i

22

23

24

25

i

2 PAGE

.5

4

5

6

7

8

9

DATE:

Page 222

ERRATA SHEET

LINE CHANGE REASON THEREFOR

ArT"&¡ 0f7

DEPONENT SIGNATURE

HG LITIGAT ION SERVICESHGLITIGATION. COM

united states district court eastern …taxprof.typepad.com/files/us-reply.pdfdavid a. weisbach page...

Documents