UBS Too Dirty To Sue Billionaire Offshore Tax Cheat, Judge Rules
Billionaire offshore tax cheat Igor Olenicoff has won a big one in his long running court battle with his former Swiss bank, UBS AG, and his former UBS banker turned whistleblower, Bradley Birkenfeld.
In a ruling from the bench Thursday, Orange County Superior Court Judge Kim G. Dunning shot down a malicious prosecution suit UBS and Birkenfeld had brought against real estate developer Olenicoff, Olen Properties, and an Olen lawyer, on the grounds that they themselves are too dirty to sue. The big bank and Birkenfeld both sued Olenicoff in state court in 2012 after he lost a federal court suit claiming they had duped him into breaking the tax law and then secretly ratted him out to U.S. authorities, while also mismanaging the $200 million plus he had hidden offshore.
Dunning’s ruling, based on the “unclean hands doctrine,” headed off what was expected to be a six week long jury trial. “When does this stop between UBS and Mr. Birkenfeld and Mr. Olenicoff? It stops right now,’’ Dunning said. “Frankly,’’ she added, “it should have stopped before Mr. Olenicoff filed the underlying action, but it didn’t.’’ She described UBS, Olenicoff and Birkenfeld as “all bad actors” who formed this “perfect triumvirate where everybody agrees they’re going to help each other facilitate breaking the law,” according to a transcript of her ruling provided by Olenicoff lawyer Christian Counts, from the Irvine, Cal. law firm of Wesierski & Zurek. A statement emailed by Counts described Olenicoff and the other defendants as “quite pleased with the result and outcome.”
In a deal with the U.S. Department of Justice that his own defense lawyer later described in a deposition as “the gift of the century,’’ Olenicoff pleaded guilty in December 2007 to a single felony count of lying on his tax return about his offshore stash. He was sentenced to probation after ponying up $52 million in back taxes, interest and civil fraud penalties. Olenicoff’s gentle treatment helped set the stage for a series of lenient sentences for offshore cheats, including for Beanie Babies billionaire Ty Warner, whose probationary sentence was upheld by an appeals court earlier this month.
UBS, for its part, entered into a deferred prosecution deal with the U.S. government in February 2009, in which it agreed to pay $780 million in fines, penalties and forfeited profits and turn over the names of some Americans with undisclosed accounts. As for Birkenfeld, he helped the government nail UBS, but was sentenced in 2009 to a 40 month jail term, because, prosecutors say, while fingering top UBS brass, he didn’t come clean about mega-client Olenicoff. (Birkenfeld says he told a Senate subcommittee about Olenicoff after it subpoenaed him, and would have done the same for prosecutors if they had issued a subpoena giving him protection from being charged with violating Swiss banking secrecy laws.) After he was released from prison, Birkenfeld won a record $104 million informant’s award from the Internal Revenue Service for blowing the whistle on UBS.
In a 2012 decision dismissing Olenicoff’s federal suit against UBS and Birkenfeld, U.S. District Court Judge Andrew J. Guilford found that the billionaire’s claims of having been misled about the tax law were contradicted and barred by the admissions he made in his own plea deal and that there was no basis for his money mismanagement claims. “Olenicoff may not avoid the consequences of his own plea by getting UBS to indemnify him for his criminal acts,” wrote Guilford, who sits in the Central District of California. In fact, the largest tax deficiency Olenicoff admitted to was for 1998, before he was even a UBS client.
Malicious prosecution suits are rare and tough to win. But UBS and Birkenfed claimed in their state court suits (which were consolidated) that Olenicoff knew he had no basis for bringing his federal action, acted with malice and made false statements during the federal case, and should therefore have to pay their legal fees. UBS, which is represented by the top dollar law firm of Gibson, Dunn & Crutcher, spent $4.5 million on the federal case alone.
Olenicoff raised 30 different defenses in the state court case, including that UBS and Birkenfeld couldn’t win because they came to the court with unclean hands. The unclean hands doctrine generally holds that plaintiffs (in the state case, UBS and Birkenfeld) aren’t entitled to a judgment from a court if they have done something unethical relating to the party they’re suing (in this case, Olenicoff). UBS’ lawyers argued in a brief that unclean hands shouldn’t be a defense here because “UBS and Mr. Birkenfeld never admitted to `cheating’ Mr. Olenicoff; they admitted to conspiring with Mr. Olenicoff and others to assist them in evading taxes.” Since that unethical conduct wasn’t directed at Olenicoff or Olen Properties, they wrote, it couldn’t support an unclean hands defense.
But Dunning wasn’t persuaded. The doctrine “protects judicial integrity and promotes justice’’ she said, adding, “there doesn’t seem to be any justice in allowing Mr. Birkenfeld and UBS to proceed with the malicious prosecution action.” UBS and Birkenfeld have 60 days after the formal entry of a judgment to lodge an appeal. No indication yet on whether they’ll do so.
