Zuhovitzky v. UBS AG Che 101.329.562

Background

Esther Zuhovitzky maintained an account with UBS AG in Zurich from 1988 to 2014. Jonathan Zuhovitzky held power of attorney and signatory authority over the account. The plaintiffs alleged that in 2005 a UBS employee changed the account’s address to Israel without authorization and initiated a UBS exemption form without informing or asking them to sign it.

The plaintiffs alleged that UBS later sent information about the account to the Swiss Federal Tax Authority, which shared it with the Internal Revenue Service. They said UBS sent required notices to the unauthorized address and did not make further efforts after one notice was returned undelivered. The IRS later audited Jonathan Zuhovitzky regarding his failure to report his signatory authority over the account on a foreign-bank-account report. The plaintiffs alleged that the resulting tax proceedings and related expenses were caused by UBS’s conduct.

The plaintiffs relied in part on UBS AG’s 2009 deferred prosecution agreement, in which UBS AG admitted participating in a scheme that helped certain clients evade U.S. taxes. They alleged that UBS’s conduct toward their account formed part of that broader scheme. They asserted civil claims under sections 1962(a), (b), and (d) of the Racketeer Influenced and Corrupt Organizations Act, as well as related state-law claims.

Defendants’ Motion to Dismiss

UBS moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. UBS also raised personal-jurisdiction arguments against some defendants and alternative arguments based on a forum-selection clause and the doctrine requiring litigation in a more appropriate foreign forum. The court chose not to reach those alternative issues because it concluded that the complaint failed to state viable RICO claims.

RICO Causation

The court held that the plaintiffs did not adequately plead proximate cause, meaning a sufficiently direct connection between the alleged wrongful conduct and the claimed injury. The court identified several intervening events, including the information-sharing agreement between the United States and Switzerland, UBS’s disclosure to the Swiss authority rather than directly to the IRS, the Swiss authority’s report to the IRS, and the IRS’s independent audit and proceedings.

The court also emphasized that Jonathan Zuhovitzky acknowledged having signatory authority over the account and not filing the required report. It stated that the plaintiffs’ alleged injuries resulted from multiple independent actions and that the civil RICO claims could not be used to avoid the consequences of their own alleged failure to comply with U.S. tax law merely because UBS may also have acted unlawfully.

RICO Violations and Predicate Acts

The court separately held that the plaintiffs failed to plead a substantive violation of sections 1962(a) and (b). Those provisions require, respectively, injury caused by the use or investment of racketeering proceeds or by acquiring or maintaining an interest in an enterprise through racketeering activity. The court found that the plaintiffs alleged only that UBS reinvested proceeds in the same cross-border business that allegedly served as the vehicle for the misconduct. Under the precedent cited by the court, that theory did not show a separate injury caused by the investment or acquisition.

Because the plaintiffs did not adequately plead a substantive violation under sections 1962(a) or (b), the court also dismissed their section 1962(d) conspiracy claim.

The court further held that the alleged mail, wire, and bank fraud predicate acts were not pleaded with the particularity required by Federal Rule of Civil Procedure 9(b). The complaint generally referred to “UBS” or “Defendants” rather than identifying which defendant took which action. It also did not adequately identify the alleged misrepresentations, explain why they were fraudulent, or plead facts supporting an inference that the defendants intended to defraud. The court found that the 2009 deferred prosecution agreement did not describe misconduct directed at the plaintiffs or establish the specific connection required for their allegations.

State-Law Claims

After dismissing the federal RICO claims, the court declined to exercise supplemental jurisdiction, meaning its authority to hear related state-law claims, over the remaining state-law claims. The court dismissed those claims without prejudice to refiling in state court.

Leave to Amend and Disposition

The plaintiffs requested permission to file another amended complaint. The court denied that request because the plaintiffs had not explained how another amendment would cure the identified deficiencies, and the court found that amendment would be futile.

The court granted Defendants’ motion to dismiss, dismissed the civil RICO claims with prejudice, dismissed the state-law claims without prejudice to their refiling in state court, and denied Plaintiffs’ request for leave to amend. The Clerk was directed to terminate the pending motions, adjourn the remaining deadlines, and close the case.