September 19, 2012 / 6:33 PM / 5 years ago

John Hancock, law firm face tax shelter racketeering lawsuit

(Reuters) - John Hancock Life Insurance Co and its law firm, Edwards Wildman Palmer, must face a class action accusing them of violating racketeering laws by marketing a tax shelter, a federal appeals court ruled on Wednesday.

The 6th U.S. Circuit Court of Appeals in Cincinnati in reversing a lower court’s ruling, found that the insurer’s customers had sufficient grounds to pursue a claim under the Racketeer Influenced and Corrupt Organization Act (RICO).

Federal prosecutors first used RICO to go after mobsters and organized crime, but later used its powers to pursue white collar crime on Wall Street. Victims of an alleged fraud can use RICO to file civil suits and recover triple the amount of damages they suffered.

Judge Jane Stranch, writing for a three-judge panel, said the appellate court recognized that John Hancock, Edwards Wildman and various individuals named as defendants may ultimately be found to have not participated in a RICO enterprise.

“But that is a matter to be fleshed out in discovery and to be resolved through motion practice or by the jury,” she wrote

Ralph Canada, a lawyer for the plaintiffs, welcomed the decision.

“We’re obviously delighted to go back to do discovery and go forward with our case,” he said.

Representatives for John Hancock, the U.S. unit of Canada’s Manulife Financial Corp (MFC.TO), did not respond to requests for comment.

John Tuerck, a spokesman for Edwards Wildman, said the law firm looks “forward to the opportunity to show...that there is no basis for the plaintiffs’ claims against the firm.”

The lawsuit, filed in 2009 in the U.S. District Court in Grand Rapids, Mich., stemmed from a purported tax-deductible welfare benefit plan called Benistar 419 Plan.

    The plaintiffs, family owners of Newaygo County, Mich.-based Stoney Creek Fisheries and Equipment Inc, alleged that starting in 2001, agents with John Hancock approached them about buying financial products, including the Benistar plan, which was intended to provide death benefits funded by life insurance policies.

    Stoney Creek’s owners signed up for Benistar in 2001 following meetings with John Hancock, which also furnished a letter from the law firm Edwards Angell Palmer & Dodge attesting to the plan’s legality. The law firm is now called Edwards Wildman following a merger last year.

    When Stoney Creek’s chose to end their participation in the Benistar plans in 2006, John Hancock allegedly told them there would not be any tax consequence, the complaint said.

    But in 2008, the Internal Revenue Service declared the Benistar plan an “abusive tax shelter” and assessed back taxes and penalties on the plaintiffs, the complaint said.

    The lawsuit seeks an unknown amount of compensatory and punitive damages. The 6th Circuit’s ruling sends the case back to U.S. District Judge Janet Neff, who had dismissed the lawsuit in October 2010.

    The case is Ouwinga, et al., v. Benistar 419 Plan Services, Inc., 6th U.S. Circuit Court of Appeals, 10-2531.

    Reporting By Nate Raymond in New York; Editing by Eileen Daspin and Leslie Gevirtz

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