Monday, November 13, 2017

Birkenfeld Loses Malicious Prosecution Suit and Appeal Against His Partner in Crime, Olenicoff (11/13/17)

In my periodic sweep for new cases for my blogs and publications, I came across Birkenfeld v. Olenicoff, 2017 Cal. App. Unpub. LEXIS 7675 (Cal. Ct. App. 4th Dist. Div. 3 2017), here.  The names are probably familiar with many, perhaps most, readers of this blog.  Birkenfeld was the guy who spilled the beans on UBS and broke the information logjam that permitted the U.S. juggernaut against UBS and other Swiss banks.  Olenicoff was a very wealthy U.S. taxpayer who was convicted for his unreported offshore bank activities.  As I understand it, Olenicoff put Birkenfeld on the U.S. radar screen and Birkenfeld extrapolated a form of success ($104 million in whistleblower award) as well as the punishment for some of his tax crimes with a prosecution, conviction and 40 month sentence.

At any case, when people suffer misfortunes of public disgrace and punishment, they often look for scapegoats.  Olenicoff started the ball rolling.  Olenicoff sued UBS AG, Birkenfeld and an assorted cast of characters related to the offshore account activity for which Olenicoff was convicted.  Olenicoff lost that gambit.  Olenicoff v. UBS AG, 2012 U.S. Dist. LEXIS 57360 (CD Cal. 2012), here.  Basically, in that case Olenicoff sued his co-conspirators in crime alleging all sorts of skullduggery on their parts and seeking to whitewash his own conduct.  The flavor of the court's reaction in dismissing the case can be appreciated from this single comment:  "Like a bad foundation undermining a building's structure, Olenicoff's Plea Agreement places nearly every room of his legal house of cards into jeopardy."  Of course, any time there is a legal proceeding, the prevailing parties incur fees which are often substantial in defending a case that should not have been brought in the first instance.

That leads us to the next and, hopefully, final steps in this drama.

UBS and Birkenfeld then, in separate actions, sued Olenicoff for malicious prosecution and related claims from Olenicoff's earlier failed suit against them.  UBS and Birkenfeld's suits failed for variations on the theme of unclean hands. As to UBS, see Janet Novack, UBS Too Dirty To Sue Billionaire Offshore Tax Cheat, Judge Rules (Forbes Personal Finance 7/28/15), here.  The case cited at the beginning of the blog relates to Birkenfeld's case.  Birkenfeld claimed to have spent $350,000 to $400,000 defending the case Olenicoff brought.  The court of appeals sustained the trial court's holding that Birkenfeld's suit was barred by the unclean hands defense.  At the start of its analysis, the court of appeals projects it holding:
The conduct engaged in by Birkenfeld is, without question, bad and satisfies the unconscionable, bad faith, or inequitable conduct requirement of the unclean hands doctrine. Birkenfeld does not contend otherwise and candidly acknowledges that he and Olenicoff were "partners in crime."
Birkenfeld tried to distinguish the unclean hands doctrine by urging that it should not cover the damages from a suit by one of the conspirators after the underlying events where the court dismissed for unclean hands.  That suit, Birkenfeld argued, was brought in bad faith and, while Birkenfeld should not be able to recover for damages from the underlying conduct, he should be able to recover for the plainly inappropriate suit that Olenicoff brought.  The court rejected the argument with the following concluding paragraph:
Both Birkenfeld and Olenicoff deserved to lose their respective lawsuits. In drawing this conclusion we find both guidance and solace in the famed Highwayman's Case, Everet v. Williams (1725) reported in 1893 at 9 L.Q. Rev. 197, which the parties cited and argued before the trial court here. Dean Prosser described that the Highwayman's Case in his characteristically dry style: "This was a suit by one highwayman against another for an accounting of their plunder. The bill was dismissed with costs to be paid by the defendant; the plaintiff's solicitors were attached and fined fifty pounds each for contempt. Both plaintiff and defendant were subsequently hanged. In short, contribution was not allowed." (Prosser, Law of Torts (4th ed. 1971) § 50, pp. 305-306, fn. 40.)
JAT Note:  In reading this case, I decided to revisit the issue of Birkenfeld's prosecution and sentence and will post a separate blog on that later

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