United States District Court, D. Kansas
MEMORANDUM AND ORDER
D. Crabtree United States District Judge
matter is before the court on defendant Thomas B.
Cahill's Motion to Dismiss (Doc. 45). This case
originally involved seven plaintiffs and two defendants. But
now, only the claims that plaintiff Christian Ablah has
asserted against defendant Cahill remain. The other litigants
have settled their claims and memorialized those outcomes in
appropriate dismissal filings. See Docs. 78 &
85. Plaintiff Ablah, along with other plaintiffs who since
have settled their claims, filed a Memorandum in Opposition
to defendant's Motion (Doc. 63). Defendant has not filed
a reply. For reasons explained below, the court denies
considering a motion to dismiss, the court accepts facts
asserted by the Amended Complaint (Doc. 30) as true and views
them in the light most favorable to plaintiff. Burnett v.
Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231,
1235 (10th Cir. 2013) (citing Smith v. United
States, 561 F.3d 1090, 1098 (10th Cir. 2009)). Given
this requirement, the court provides the following factual
Ablah was a shareholder of Plaza Speedway Development, Inc.
(“PSDI”). Defendant Cahill is a practicing
attorney in Naperville, Illinois. Their dispute with each
other emerges from a maze of limited liability companies and
convoluted business relationships. They produce a sizable
collection of acronyms and other abbreviations which,
regrettably, are needed to recite the facts governing this
2005, two groups of investors and real estate
professionals-one group from Chicago (“the Chicago
Group”) and one from Kansas City (“the KC
Group”)-agreed to form an entity to acquire land in
Wyandotte County, Kansas (“the Plaza Speedway
Property”), and develop that land (“the Speedway
Project”) by using tax increment financing
(“TIF”). In 2005, a corporation known as Midwest
Acquisitions, Inc., which the Chicago Group owned, contracted
with landowners to buy the land that ultimately became the
Speedway Project. The project depended on TIF and
Transportation Development District (“TDD”)
proceeds to defer costs.
Chicago Group, the Amended Complaint alleges, was responsible
for designing the transaction structure and drafting
documents for the Chicago and KC Groups' development of
the Speedway Project. Defendant Cahill was one of the legal
professionals tasked with designing and structuring the
Speedway Project transactions so that TIF and TDD proceeds
would be excluded from taxation under Internal Revenue Code
11, 2006, the Chicago Group created Plaza Speedway, LLC: an
Illinois limited liability company that registered to do
business in Kansas in November 2008. Midstates Investments,
LLC-another Illinois limited liability company owned by the
Chicago Group- owned 85% of Plaza Speedway, LLC. BCD
Speedway, LLC-a Missouri limited liability company owned by
the KC Group-owned the remaining 15% of Plaza Speedway, LLC.
The Complaint alleges, on information and belief, that
defendant Cahill partially was responsible for structuring
the transaction in a fashion that made Plaza Speedway, LLC,
the developer and owner of the Plaza Speedway Property.
Christos Komissopoulos-a former defendant who since has
settled with all plaintiffs-prepared the original operating
agreement for Plaza Speedway, LLC, the Complaint alleges on
information and belief.
December 21, 2006, the Unified Government of Wyandotte County
(“the UG”) adopted the Speedway Development Plan
that named Plaza Speedway, LLC, as the developer. The
Complaint alleges that defendant reviewed and approved the
agreement between the UG and Plaza Speedway, LLC.
on July 31, 2007, the Chicago Group, acting in part through
defendant Cahill, created PSDI, a Kansas corporation also
owned by Midstates Investments, LLC, and BCD Speedway, LLC.
In September 2007, Midwest Acquisitions, Inc., assigned its
contract rights with the landowners of the development site
to Plaza Speedway, LLC. That same month, Plaza Speedway, LLC,
assigned its rights in its agreement with the UG to PSDI.
This assignment made PSDI the developer of the project. Plaza
Speedway, LLC, also changed its ownership structure in
September 2007. After the change, Midstates Investments, LLC,
owned 60% of Plaza Speedway, LLC, and BCD Speedway, LLC,
owned 40%. Plaza Speedway, LLC, purchased real estate
comprising the development property and secured a mortgage
for that property by executing a promissory note with VT,
Inc., a lender.
November 2007, plaintiffs David Block and Becky Barber-both
have settled their claims against all defendants-sent an
email to Komissopoulos. They expressed concern that a
corporation needed to control the entire project for the TIF
and TDD proceeds to qualify as non-taxable. Komissopoulos
responded that he was aware of the issue and that he had
worked with defendant Cahill and others to structure the
property ownership so that the TIF and TDD proceeds would
qualify as exclusions from taxable income.
April 2008, Plaza Speedway, LLC, and PSDI entered into
several agreements. They included: (1) an agreement where
PSDI assumed Plaza Speedway, LLC's debt to VT, Inc.; (2)
a “Development Agreement” between PSDI and Plaza
Speedway, LLC; (3) Plaza Speedway, LLC, conveyed the Plaza
Speedway Property to PSDI; (4) PSDI conveyed the property
back to Plaza Speedway, LLC; (5) PSDI, as the project's
developer, assigned the TIF and TDD proceeds to Mission Bank
as a lender; (6) Mission Bank paid off the debt owed to VT,
Inc., and VT, Inc., assigned the mortgage it held to Mission
Bank; and (7) Plaza Speedway, LLC, signed a special warranty
deed to Wal-Mart as a buyer of part of the property. The
Amended Complaint alleges that defendant Cahill and
Komissopoulos made the decision to convey the Plaza Speedway
Property from PSDI to Plaza Speedway, LLC.
2008 and 2010, parts of the Plaza Speedway Property were
sold, and the sales were reported on Plaza Speedway,
LLC's tax returns. And the proceeds of these sales were
used to pay the loan owed to Mission Bank. In 2008, Plaza
Speedway, LLC, and PSDI began spending substantial amounts of
money to improve the property. PSDI submitted certificates of
expenditure to the UG. These certificates certified expenses
eligible for reimbursement. TIF and TDD proceeds from 2009 to
2012 were paid to Mission Bank to apply to its outstanding
loan. Between 2010 and 2012, PSDI received $9, 252, 233 in
TIF and TDD proceeds, which were excluded from taxable
Speedway, LLC, liquidated in January 2013, and the LLC's
members contributed the entity's assets-including the
title to property-to PSDI. While defendant Cahill and
Komissopoulos acted as counsel, PSDI elected Subchapter S
status. Electing Subchapter S status meant that the
shareholders of PSDI (and not PSDI itself) would be taxed on
the corporation's income. When PSDI elected Subchapter S
status, plaintiff Ablah-along with the other plaintiffs who
since have settled their claims-and members of Midstates
Investments, LLC, owned all of PSDI's shares.
January 31, 2013, PSDI received $36, 416, 197 in TIF and TDD
proceeds from the UG. The entire amount was excluded from
taxable income on PSDI's 2013 tax return. But sometime
after 2013, the Internal Revenue Service (“IRS”)
audited Plaza Speedway, LLC, and PSDI. Based on this audit,
the IRS concluded that the TIF and TDD proceeds were taxable
because PSDI was not the property's owner or developer.
In 2016, the IRS issued a notice of proposed adjustment that
included the following: (1) $9, 252, 233 would be added to
PSDI's taxable income for the years 2010 to 2012; and (2)
$36, 416, 197 would be added to the taxable income of
PSDI's shareholders for 2013. Given PSDI's Subchapter
S status, more than $36 million in additional taxable income
was assessed on a pro-rata basis to PSDI's shareholders-
i.e., proportionally to each shareholder's
ownership percentage in PSDI.
Amended Complaint alleges that the KC Group asked for and
received legal advice from defendant Cahill and Komissopoulos
frequently during the Speedway Project's development.
Komissopoulos corresponded with the KC Group and third
parties, representing that defendant Cahill was the lawyer
for the project. Defendant billed and collected at least
$650, 000 in attorney's fees between 2006 and 2013 for
legal services provided to Plaza Speedway, LLC, and PSDI.
Defendant's billing statements reflect time devoted to a
number of client conferences with the KC Group and other
legal services. The Amended Complaint also alleges that a
member of the KC Group complained ...