Wells Fargo & Company v. United States of America

Filing 373

ORDER - Plaintiff's objection 342 is OVERRULED. The special master's order and report 337 , 338 are AFFIRMED and ADOPTED. (Written Opinion). Signed by Judge Patrick J. Schiltz on 09/11/13. (BJS) cc: Special Master. Modified on 9/11/2013 (GMW).

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
WELLS FARGO & COMPANY, on behalf
of itself and the members of its affiliated
group filing a consolidated return,

Case No. 09-CV-2764 (PJS/TNL)

Plaintiff,
ORDER
v.
UNITED STATES OF AMERICA,
Defendant.
B. John Williams, Jr., Julia M. Kazaks, Alan Swirski, and Cary Pugh, SKADDEN,
ARPS, SLATE, MEAGHER & FLOM LLP; Walter A. Pickhardt and Martin S. Chester,
FAEGRE BAKER DANIELS LLP; Jeffrey A. Sloan, WELLS FARGO & COMPANY,
for plaintiff.
Dennis M. Donohue, John L. Schoenecker, Kari M. Larson, William E. Farrior, and Alan
S. Kline, UNITED STATES DEPARTMENT OF JUSTICE, for defendant.
This matter is before the Court on the objection of plaintiff Wells Fargo & Company
(“Wells Fargo”) to the special master’s June 14, 2013 order and report denying Wells Fargo’s
motion to exclude the testimony of Dr. David LaRue under Fed. R. Evid. 702 and Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The Court has conducted a de novo
review pursuant to ¶ 8 of the Court’s order appointing a special master. See ECF No. 102.
The Court agrees with the special master’s analysis and with much of the government’s
defense of the special master’s report. Indeed, the Court finds Wells Fargo’s objection to be
somewhat puzzling. At times, Wells Fargo seems to object that LaRue failed to take into account
the fact that the STARS transaction complied with the literal terms of all applicable statutes and
regulations. But this fact is undisputed and is the focus of neither the trial nor LaRue’s
testimony. Instead, the question for trial (and the question addressed by LaRue) is whether,

under the economic-substance doctrine, the STARS transaction should be disregarded despite the
fact that it complied with all technical tax rules.
At other times, Wells Fargo seems to argue that the nature of the particular tax rules that
apply to foreign-tax credits reflects an intent by Congress or by the Department of the Treasury to
preclude certain types of evidence from being considered by a jury asked to apply the economicsubstance doctrine. Indeed, it appears to the Court that the practical impact of accepting Wells
Fargo’s arguments would be to largely insulate the STARS transaction from the economicsubstance doctrine, although Wells Fargo repeatedly denies that it is taking such a position. In
any event, the Court finds nothing in the statutes or regulations that apply to the STARS
transaction that would preclude the jury from considering all of the relevant evidence, including
every aspect of the flow of the cash and the nature of every burden and benefit experienced by
every participant in the transaction.
Take, for example, Wells Fargo’s argument about the technical-taxpayer rule: There
seems to be no dispute that Wells Fargo complied with the technical-taxpayer rule. But
understanding the economic reality of the STARS transaction is a foundational step in
determining whether the transaction lacked economic substance. A full understanding of the
economic reality of the transaction requires an analysis of the nature of the potential profit from
the transaction. That analysis, in turn, requires (among other things) an understanding of who
bore the economic burden of the foreign tax. The fact that Wells Fargo is legally considered the
taxpayer under the technical-taxpayer rule does not render irrelevant the financial impact (or lack
thereof) of the tax on Wells Fargo. That financial impact remains part of the overall economic
reality of the transaction and thus the jury will need to hear about it if the jury is to fully
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understand the transaction’s purpose and substance. Accordingly, the Court overrules the
objection, affirms the order, and adopts the report.
ORDER
Based on all of the files, records, and proceedings herein, IT IS HEREBY ORDERED
THAT:
1.

Plaintiff’s objection [ECF No. 342] is OVERRULED.

2.

The special master’s order and report [ECF Nos. 337, 338] are AFFIRMED and
ADOPTED.

Dated: September 11, 2013

s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge

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