Free Response to Proposed Findings of Uncontroverted Fact - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ______________ No. 05-1223 T (Judge Allegra) CLEARMEADOW INVESTMENTS, LLC, CLEARMEADOW CAPITAL CORP., Tax Matters Partner, v. THE UNITED STATES, ______________ Defendant. Plaintiff,

DEFENDANT'S RESPONSES TO PLAINTIFF'S PROPOSED ADDITIONAL FINDINGS OF UNCONTROVERTED FACT AND PLAINTIFF'S PROPOSED FINDINGS OF UNCONTROVERTED FACT ______________ Pursuant to RCFC 56(h)(2), the defendant, the United States, responds to the plaintiff's proposed additional findings of uncontroverted fact (PPAFUF) and proposed findings of uncontroverted fact (PPFUF). The defendant relies upon the Declaration of Robert Stoddart (Stoddart Decl.) and its exhibits,1 and the Declaration of Martha TenEyck (TenEyck Decl.) and its exhibits. The Stoddart and TenEyck Declarations were filed in appendix B of the brief in support of the defendant's motion for summary judgment (Def. App. B). The defendant also relies upon the declaration of Thomas C. Pliske and its exhibits (Pliske Decl.), filed in appendix B to the brief in support of plaintiff's cross-motion for summary judgment (Pl. App. B).

Attached to this document is another Declaration of Robert Stoddart, with two exhibits. It supports the defendant's response to PPAFUF No. 40. -1-

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PLAINTIFF'S PROPOSED ADDITIONAL FINDINGS OF UNCONTROVERTED FACTS NOT RAISED IN DEFENDANT'S PROPOSED FINDINGS OF UNCONTROVERTED FACTS: 1. In response to DPFUF No. 3, Plaintiff proposes the following: PPAFUF No. 1: During 2001, Hutton noticed that his income showed kind of the same systematic growth in profit that he had experienced over prior years. (Pliske Decl. Ex. 1 at 63, App. B. at 19) Defendant's Response: During 2001, Hutton noticed that "[t]here was an increase, but not a spike" in his income. (Pliske Decl. Ex. 1 at 63, line 15, Pl. App. B at 19.)

2. In response to DPFUF No. 5, Plaintiff proposes the following: PPAFUF No. 2: In 2001, Bryan Hanning approached Mark E. Hutton and informed Mark E. Hutton of an investment strategy offered through the law firm of Cantley & Sedacca, LLP that Bryan Hanning thought would be a potential investment opportunity for Mark E. Hutton. (Pliske Decl. Ex. 2, Hanning Deposition Exhibit 1, App. B. at 65) Defendant's Response: The defendant does not object to the proposed finding as far as it goes, but the defendant adds the following: "The investment strategy was comprised of certain foreign currency transactions." (Stoddart Decl. Ex. 32A, Def. App. B at 217.)

3. In response to DPFUF No. 13, Plaintiff proposes the following: PPAFUF No. 3: While the MLD transaction may have been functionally different from the prior investment transactions proposed by Hanning, the same analysis regarding investment potential and tax benefit potential are present in the MLD transaction, just as they were present in -2-

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the prior investment opportunities Hanning presented to Hutton. (Pliske Decl. Ex. 2 at 25-26, App. B at 60-61.) Defendant's Response: Nothing in the cited testimony supports the proposed finding. In fact, at pages 25-26 of the cited deposition, Hutton's lawyer asked Hanning, "Is this 2001 transaction, the MLD transaction, is it similar or quite a bit different than other opportunities you may have approached him with?" Hanning answered, "Well, it's very different from the things I work with Mark [Hutton] on." The MLD transaction was so different that no one could reasonably have expected Hanning to offer a useful "analysis regarding investment potential and tax benefit potential." Hanning is an employee of the Massachusetts Mutual Life Insurance Company. (Stoddart Decl. Ex. 32 at 4, Def. App. B at 194.) Before 2001, Hanning had sold Hutton and his entities only insurance-related products, and all but one of them were products of Massachusetts Mutual. (Id. at 12-13, Def. App. B at 201-02.) Hanning admits that he lacked the knowledge and experience needed to evaluate Hutton's MLD transaction (id. at 16, Def. App. B at 205), and he never gave Hutton any reason to think otherwise (id. at 16-17, App. B at 205-06). The analysis of an insurance policy is not the same as the analysis of a foreign-currency options trade­and Hanning was not involved in Hutton's analysis of the MLD transaction. (Pliske Dec. Ex. 1 at 89, Pl. App. B at 25.)

4. In response to DPFUF No. 18, Plaintiff proposes the following: PPAFUF No. 4: In the October 4, 2001 letter Cantley and Sedacca stated that they were to provide legal services regarding tax planning and were engaged to "review the tax ramifications of a market link deposit investment strategy...and to research and review the law supporting the -3-

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issuance of a legal opinion for" the MLD transaction. (Pliske Decl. Ex. 2, Hanning Deposition Exhibit 3, App. B at 69.) Cantley & Sedacca also stated that it is a law firm, that it is not an investment advisor and does not express an opinion on the investment itself. (Pliske Decl. Ex. 2, Hanning Deposition Exhibit 3, App. B at 69, 71-72.) Defendant's Response: The defendant agrees with the proposed finding.

5. In response to DPFUF No. 20, Plaintiff proposes the following: PPAFUF No. 5: Hanning participated in the first conference call with Cantley & Sedacca, LLP, so that he could assist Hutton in understanding the MLD transaction. (Pliske Decl. Ex. 2 at 27-29, App. B. at 61; Pliske Decl. Ex. 2, Hanning Deposition Exhibit 1, App. B. at 65) If Hanning did not have the knowledge and experience to properly evaluate the merits of the transaction then it was unknown to Hutton. (Pliske Decl. Ex. 2, Hanning Deposition Exhibit 1, App. B. at 65) Defendant's Response: The defendant agrees with the first sentence of the proposed finding, but the second sentence makes an unsupported assertion about Hutton's knowledge . The cited document fails to state or even to imply what "was unknown to Hutton," and its author (Hanning) could have had no first-hand knowledge of what was unknown to Hutton. The second sentence was therefore improperly proposed as a finding under RCFC 56(e) & (h)(1).

6. In response to DPFUF No. 21, Plaintiff proposes the following: PPAFUF No. 6: By participating in the conference call so he could assist Hutton in understanding the MLD transaction, Hanning implicitly represented to Hutton that he had the -4-

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knowledge and experience to properly evaluate the MLD transaction. (Pliske Decl. Ex. 2, Hanning Deposition Exhibit 1, App. B. at 65) Defendant's Response: Nothing in the cited document supports the assertion that Hanning made an implicit representation of "knowledge and experience [needed] to properly evaluate the MLD transaction." If he had made such an implicit representation, he would have implied a falsehood. The defendant's attorney asked Hanning if he had the knowledge and experience needed to evaluate the MLD transaction. Hanning answered under oath, "I did not." (Stoddart Decl. Ex. 32 at 16, App. B at 205.) The defendant's attorney also asked him, "Did you represent to Mr. Hutton that you had the knowledge and experience to evaluate the merits and risks of the transaction?" Hanning again answered, "I did not." Id. at 16-17, Def. App. B at 20506 (emphasis added). If Hutton had wished to assert that Hanning's conduct somehow impressed him as an implicit representation of Hanning's unclaimed and nonexistent knowledge and experience in evaluating foreign-currency option trades, Hutton should have supported his assertion with a declaration of fact made under penalty of perjury. See RCFC 56(e) & (h)(1). Instead, he offers inferences from silence and arguments by his attorney, which cannot support a proposed finding.

7. In response to DPFUF No. 22, Plaintiff proposes the following: PPAFUF No. 7: Although Hutton, alone, may not have the knowledge and experience in financial and business matters that would permit him to evaluate the merits and risks of trading options on foreign currency, he relies on others like Scott Hewitt , his CPA and tax advisor. (Pliske Decl. Ex. 1 at 15, App. B. 7.) -5-

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Defendant's Response: The proposed finding is misleading. It implies that Hutton reasonably relied upon "others like Scott Hewitt" to evaluate the merits and risks of trading options on foreign currency­even though Scott Hewitt never evaluated the financial side of the transaction, never told Hutton that he had a reasonable opportunity of making a profit, and admitted, "I have no expertise in that area." (Stoddart Decl Ex. 33 at 9, App. B at 232.) As Hutton himself admitted, "I guess I took his silence as an acquiescence, if you will, that yeah, it's an okay deal, but I did not ask him specifically as it relates to that." (Stoddart Decl. Ex. 31 at 1718, Def. App. B at 162-63 (emphasis added); see also id. at 23-24, App. B at 168-69.) Hutton, however, can remember no occasion on which Hewitt­his tax advisor­gave him an implicit opinion that a transaction would be profitable by failing to state that it would not be profitable. (Stoddart Decl. Ex. 31 at 20, App. B at 165.) Under these circumstances, it is a genuine issue of fact whether Hutton could reasonably have relied upon Hewitt's evaluation of the merits and risks of trading options on foreign currency. Hewitt never made such an evaluation, could not have made one, and never claimed to have made one.

8. In response to DPFUF No. 24, Plaintiff proposes the following: PPAFUF No. 8: Hewitt was Hutton's CPA and tax advisor and assisted Hutton in making his business successful through the years. (Pliske Decl. Ex. 3 at 5, App. B. at 74) Hewitt never gave Hutton any reason not to think that he had the financial and business knowledge needed to evaluate the merits of trading options on foreign currencies. (See Pliske Decl. Ex. 1 at 15-16, App. B at 7) In fact, Hewitt participated in phone calls with Cantley & Sedacca, LLP (See -6-

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Pliske Decl. Ex. 3 at 6-9, App. B at 75); and following the telephone call, Hewitt went back to his office doing research before advising Hutton that the investment looked good. (See Pliske Decl. Ex. 1 at 92, App. B at 26; Pliske Decl. Ex. 3, App. B at 81) Defendant's Response: The defendant agrees with the first sentence of the proposed finding. The rest of the proposed finding, however, suggests Hutton properly inferred that Hewitt­his tax advisor­could evaluate the merits of a foreign-currency option trade simply because Hewitt never said he could not. The facts do not support the suggestion. In the phone calls with Cantley & Sedacca, Hewitt asked no questions about the financial aspects of the MLD transaction; he asked only about the tax aspects. That was "pretty much [his] involvement in that." (Stoddart Decl. Ex. 33 at 8, Def. App. B at 231.) Hewitt may have done some research at some time about tax questions, but he took the possibility of profit "on faith." (Id. at 9-10, Def. App. B at 232-33.) Hewitt never gave Hutton any assurance that he had a reasonable opportunity to make a non-tax profit from the MLD transaction. (See id. at 9, Def. App. B at 232.) Under these circumstances, there is a genuine issue of fact whether Hutton could reasonably have taken an assurance that Hewitt never gave and could not have given.

9. In response to DPFUF No. 25, Plaintiff proposes the following: PPAFUF No. 9: The relationship between Hutton and his business advisor, Hewitt, is such that if Hewitt, after research and investigation, did not believe that the MLD investment, or any other investment, was a viable investment, he would have relayed this to Hutton. Hewitt never told Hutton that based on his research and understanding of the MLD transaction, the MLD transaction was not a viable investment. (See Pliske Decl. Ex. 1 at 15-17, 23-24, App. B at 7, 9) -7-

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Defendant's Response: The cited pages are from Hutton's deposition; nothing in them supports the proposed finding about what Hewitt would have done, and Hutton offers no testimony on the subject from Hewitt. At most, the testimony shows that Hutton considered Hewitt to be honest, and that Hutton "felt" Hewitt would have raised a concern if he had one. Whether that feeling was reasonable under the circumstances is a genuine issue of fact: As Hutton knew, Hewitt had asked Cantley & Sedacca only about the tax aspects of the transaction. (See, e.g., Stoddart Decl. Ex. 33 at 8, Def. App. B at 231.) Hewitt lacked the expertise to determine if the MLD was a viable investment. (See id. at 9, App. B at 232.)

10. In response to DPFUF No. 26, Plaintiff proposes the following: PPAFUF No. 10: Because Hewitt found no problems in the profitability or the tax benefits of other investment transactions, Hutton can remember no occasion which Hewitt expressed an opposing opinion that the profitability or tax benefits of other investment transactions would not be profitable or would not produce the tax benefits claimed. (Pliske Decl. Ex. 1 at 20-21, App. B at 8.) Defendant's Response: Nothing in the cited document supports the following language in the proposed finding: "Because Hewitt found no problems in the profitability or the tax benefits of other investment transactions."

11. In response to DPFUF No. 28, Plaintiff proposes the following: PPAFUF No. 11: After reviewing the investment potential with Hutton, Hanning, and Cantley and Sedacca, Hewitt believed there was a potential for a return, even though risky, the -8-

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MLD transaction had a possibility of having a return. (Pliske Decl. Ex. 3 at 10, App. B. at 76) Defendant's Response: The proposed finding is misleading. Although the cited testimony does support a finding that Hewitt "believed" there was a potential for return, Hewitt's belief was grounded in faith alone, not independent thought. On the cited page, the defendant's attorney asked Hewitt, "Did you yourself independently from your knowledge of finance believe . . . that it had a potential of a return or were you taking the possibility of return on faith, so to speak, from what Cantley & Sedacca was saying?" Hewitt answered, "No real knowledge of that. Probably more on faith, I would say." (Pliske Decl. Ex. 3 at 9-10, Pl. App. B at 75-76.)

12. In response to DPFUF No. 28, Plaintiff proposes the following: PPAFUF No. 12: Hewitt was on the initial conference call not to provide financial analysis of the MLD transaction; but to provide advice regarding the tax aspects of the transaction. (Pliske Decl. Ex. 3 at 6-9, App. B. at 75) Hewitt's expertise in dispensing advice regarding the MLD transaction was limited to dispensing advice regarding tax benefits of the MLD transaction. (Pliske Decl. Ex. 3 at 5-6, App. B. at 74-75) Defendant's Response: The defendant agrees with the proposed finding.

13. In response to DPFUF No. 29, Plaintiff proposes the following: PPAFUF No. 13: Hewitt's understanding of the MLD transaction was that "there was a potential for a return" and even acknowledged that "even though risky, it had a possibility of having a return". (See Pliske Decl. Ex. 3 at 10, App. B at 76)

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Defendant's Response: Hewitt had no independent understanding of the MLD transaction's profit potential. He took his "understanding" on faith­that is, he assumed the transaction had a profit potential because he believed Cantley & Sedacca had said so. (See Pliske Decl. Ex. 3 at 10, Pl. App. B at 76.) He relied upon Edward Sedacca's assertions even though he knew that Cantley & Sedacca were promoters of the scheme. (Id. at 66, Pl. App. B at 90.) Cantley & Sedacca, however, had refused to offer an opinion about the MLD transaction's profit potential. See PPAFUF No. 4, supra.

14. In response to DPFUF No. 30, Plaintiff proposes the following: PPAFUF No. 14: Hutton did not believe that he asked anyone the specific question as to whether "the [MLD] transaction had a reasonable probability of producing an economic profit in excess of taxes and out-of-pockets costs." Hutton also had discussions and asked the general question whether the MLD investment was a high risk/high reward type of investment. Hutton also relied on his advisors with respect to such conclusions. (See Pliske Decl. Ex. 1 at 26, App. B at 10.) Defendant's Response: The defendant agrees with the first two sentences of the proposed finding; but the third sentence suggests that Hutton reasonably relied on his advisors, and it is a genuine issue of fact whether such reliance was reasonable for the reasons set out in the defendant's responses to PPAFUF nos. 3, 6, 7, 8, and 9, supra, which are incorporated by this reference.

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15. In response to DPFUF Nos. 31 and 32, Plaintiff proposes the following: PPAFUF No. 15: Hutton relied on the attorneys, Cantley and Sedacca, and upon his own advisors, Hewitt, his CPA and business advisor, and Hanning, his investment advisor. (See Pliske Decl. Ex. 1 at 108, App. B at 30; and Pliske Decl. Ex. 1 at 26, App. B at 10.) Defendant's Response: The proposed finding is misleading because it suggests that Hutton's reliance was reasonable. If Hutton relied upon Cantley & Sedacca to give him advice about the profit potential of the MLD transaction, even Cantley & Sedacca would call his reliance unreasonable. As Hutton himself admits in PPAFUF No. 4, supra, "Cantley & Sedacca . . . stated that it is a law firm, that it is not an investment advisor and does not express an opinion on the investment itself." As to Hutton's reliance upon Hewitt and Hanning, it is a genuine issue of fact whether such reliance was reasonable for the reasons set out in the defendant's responses to PPAFUF nos. 3, 6, 7, 8, and 9, supra, which are incorporated by this reference.

16. In response to DPFUF No. 43, Plaintiff proposes the following: PPAFUF No. 16: Because the transaction was a non-taxable transaction which did [sic] Hutton was not required to report on his 2001 tax return, Hutton did not report the $2,472,500 "premium received" on his personal federal income tax return for 2001. (See Stoddard Decl. Ex. 29, App. B at 126-34.) Defendant's Response: (1) Objection. The proposed finding makes a legal assertion ("the transaction [the sale of a written option] was a non-taxable transaction"), and the legal assertion is incorrect. The transaction was a taxable transaction, but the transaction remained open until the option closed. See Rev. Rul. 58-234, 1958-2 C.B. 279; see also Cantley & - 11 -

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Sedacca's opinion letter, Pliske Decl. Ex. 5 at 47 (emphasis added) ("[W]e understand, and assume for purposes of our opinions herein, that receipt of the short MLD premium from SG did not constitute an income recognition event at the time of receipt and that no income recognition event in respect of this premium would arise until the Short Maturity Date"). Hutton's accountant, Scott Hewitt, also agrees that income from the sale of an option is recognized when the option closes. (See Pliske Decl. Ex. 3 at 21-22, Pl. App. B at 78-79.) (2) Response: The defendant agrees that Hutton did not report the $2,472,500 "premium received" on his personal federal income tax return for 2001.

17. In response to DPFUF No. 74, Plaintiff proposes the following: PPAFUF No. 17: Although Hewitt didn't assure Hutton that he independently tested the conclusion in the Cantley and Sedacca letter, Hewitt did perform independent tests to confirm the legal conclusions and may have informed Hutton of the results. (Pliske Decl. Ex. 3 at 33; App. B at 81) Furthermore, Hewitt performed independent research regarding the conclusions stated in the Cantley and Sedacca October 4, 2001 letter. (See Pliske Decl. Ex. 1 at 92, App. B. at 26; Pliske Decl. Ex. 3 at 31; App. B at 81) Defendant's Response: Hewitt never told Hutton that he had independently tested the conclusions in Cantley & Sedacca's legal opinion (their letter of January 22, 2002). (Pliske Decl. Ex. 3 at 33, line 12, Pl. App. B at 81.) Hewitt never gave Hutton his opinion of the advice in Cantley & Sedacca's opinion letter. (Id. at 70, Pl. App. B at 91.) The Cantley & Sedacca legal opinion is the first legal opinion Hewitt had ever read. (Id. at 65, Pl. App. B at 89.) Hewitt cannot recall looking independently or "very deep[ly]" at any of the authorities cited in the - 12 -

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Cantley & Sedacca letter. (Id. at 30, Pl. App. B at 81.) When Hewitt looked through the Cantley & Sedacca letter at his deposition, he could not recall having read any of the cited authorities in order to prepare the tax return that reported Hutton's MLD transaction. (Id. at 31, Pl. App. B at 81.) Hewitt cannot say that he agreed with the entire Cantley & Sedacca letter, but he also cannot say which parts he disagreed with. (Id. at 32, Pl. App. B at 81.) Hewitt cannot recall what efforts he made to test the letter's conclusions; he made no notes of his efforts; and he told no one about his efforts. (Ibid.) At first Hewitt thought that his assistant, Amy Clupny, may have done some research (though not at his request), but he was merely speculating that she did the research. (Id. at 25-26, Pl. App. B at 79-80.)

18. In response to DPFUF No. 75, Plaintiff proposes the following: PPAFUF No. 18: While the MLD transaction way [sic] have been functionally different from the prior investment transactions reviewed by Hanning and Hewitt, the same analysis regarding investment potential and tax benefit potential are present in the MLD transaction, just as they were present in the prior investment opportunities Hanning and Hewitt presented to Hutton. (See Pliske Decl. Ex. 2 at 25-26, App. B at 61.) Defendant's Response: This proposed finding substantially repeats PPAFUF No. 3, supra. Therefore the defendant incorporates its response to that proposed finding by this reference. The only difference between the two proposed findings is the assertion here that Hewitt (as well as Hanning) reviewed "[unspecified] prior investment transactions," and that Hewitt presented "[unspecified] prior investment opportunities" to Hutton. The cited pages

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never mention Hewitt, and they cannot support the assertion that Hewitt played the role the proposed finding attributes to him.

19. In response to DPFUF No. 96, Plaintiff proposes the following: PPAFUF No. 19: Hewitt and his assistant Amy Clupny prepared an independent return for Clearmeadow Investments LLC prior to requesting the sample return, and the sample return matched the independent figures determined by Hewitt, except for one figure. (Pliske Decl. Ex. 3 at 14-15, App. B at 77; Pliske Decl. Ex. 3, Hewitt Deposition Exhibit 2, App. B at 95.) Defendant's Response: The proposed finding is misleading. It suggests that Hewitt's firm reported the MLD transaction on various tax returns with no guidance from Cantley & Sedacca, using only their independent understanding of tax law. The suggestion is false. Hewitt's assistant Amy Clupny drafted the 2001 tax returns for Hutton and his entities; she also made notes of her communications with Cantley & Sedacca about those returns. (Pliske Decl. Ex. 3 at 20, Pl. App. B at 78; id. Depo. Ex. 5, Pl. App. B at 114-16.) See, in particular, Pl. App. B at 116 (Clupny's typewritten memo stating, in part, "Discussed treatment of attorney fees with Ed Sedacca. He suggested two possible ways to report the fees. . . . 1. On the S-corporation. . . . 2. On the 1040. . . ."). Hewitt himself admits that he called Edward Sedacca while his firm was preparing the 2001 returns for "clarification on reporting." (Pliske Decl. Ex. 3 at 7, Pl. App. B at 75.)

20. PPAFUF No. 20: Hanning was always compensated for the sale of any products that were sold by him. (Pliske Decl. Exh. No. 1 at 94, App. B. at 27) - 14 -

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Defendant's Response: The defendant agrees with the proposed finding.

21. PPAFUF No. 21: Hutton had known Hanning for 8+ years prior to the MLD investment in and trusted him to bring him only reputable investment products. (Pliske Decl. Exh. No. 1 at 62, App. B. at 19) Defendant's Response: The proposed finding improperly suggests that Hutton's trust in Hanning was reasonable under the circumstances; it was not. Before the transaction at issue, Hanning had sold Hewitt only the products of insurance companies. The MLD transaction was much different from any of the other investments Hanning had earlier proposed. With this reference, the defendant incorporates its response to PPAFUF No. 3, supra.

22. PPAFUF No. 22: Hutton believed that Hanning would never bring him an investment opportunity that did not make sense, or would not otherwise be a valid investment despite the risks involved. (Pliske Decl. Exh. No. 1 at 63-64, App. B. at 19) Defendant's Rersponse: (1) Objection: The phrase "invalid investment" conveys no clear meaning. (2) Response: The cited pages do not support the proposed finding. At most, they show that Hutton was "comfortable" with Hanning's advice even though Hanning "could go over [his] head really quickly." (Pliske Decl. Ex. 2 at 64, Pl. App. B at 19.)

23. PPAFUF No. 23: The law firm of Cantley & Sedacca presented the MLD investment to Hanning and later to Hutton. (Pliske Decl. Exh. No. 2 at 8, 10, App. B. at 56, 57)

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Defendant's Response: The defendant agrees with the proposed finding, with the addition that Hanning found Cantley & Sedacca listed in binder under the heading "resources for investment opportunities and tax planning strategies." (Pliske Decl. Ex. 2 at 5-6, Pl. App. B at 55-56.)

24. PPAFUF No. 24: This law firm provided Hutton a legal opinion with respect to the MLD transaction and assisted Hutton with the transactions necessary to implement the transaction. (Pliske Decl. Exh. No. 1 at 88, App. B. at 25) Defendant's Response: The defendant agrees with the proposed finding.

25. PPAFUF No. 25: Hutton was not aware, nor was it necessary that he be aware, of any role other parties may have taken with respect to the MLD transactions or perhaps their relationship with Cantley & Sedacca. (Pliske Decl. Exh. No. 1 at 88, App. B. at 25) Defendant's Response: The cited testimony provides no support for the proposed finding, which is in any event more a legal conclusion than a factual statement.

26. PPAFUF No. 26: Hutton simply recognized that the MLD investment was a high risk investment for which he was receiving expert assistance from a law firm with expertise in foreign-currency transactions. (Pliske Decl. Exh. No. 1 at 26, App. B. at 10) Defendant's Response: Nothing in the cited testimony states or implies that Hutton received "expert assistance from a law firm with expertise in foreign-currency transactions." Nothing in the cited testimony states or implies that Hutton "realized" anything about the MLD - 16 -

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transaction. At most, the document would support a finding that Hutton "discussed" the risk and possible return of the transaction.

27. PPAFUF No. 27: Hutton recognized that if certain conditions ultimately existed that there could be tax benefits, (i.e. a tax loss), or tax detriments (i.e. a taxable gain). (Pliske Decl. Exh. No. 1 at 26, App. B. at 10) Defendant's Response: Nothing in the cited testimony supports the proposed finding that Hutton realized that there could be tax benefits or tax detriments. All of the questions and answers on the cited page concern economic profit.

28. PPAFUF No. 28: Hutton had invested in oil wells and other high risks [sic] investments and had obtained tax benefits from such investments as intangible drilling costs. (Pliske Decl. Exh. No. 1 at 69, App. B. at 20) Defendant's Response: The cited testimony mentions only oil wells and a rental building and describes only the oil wells as "a high risk investment." It provides no support for the assertions that Hutton invested in "other high risk investments" and that the oil wells had generated "intangible drilling expenses." Even if the proposed finding were supported, however, it does not follow that Hutton could reasonably have expected tax benefits from the MLD transaction simply because he was able to report intangible drilling costs from oil wells. Hutton actually paid for his oil-well investments and for the rental building. (Pliske Decl. Ex. 1 at 106, Pl. App. B at 30.) He did not pay the amounts recited in the MLD-transaction documents. (Id. at 36-37, Pl. App. B at 12.) Even Hutton is now willing to admit­in the abstract­that a potential $2 - 17 -

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million tax loss in return for a $250,000 out-of-pocket expense is too good to be true. (Pliske Decl. Ex. 1 at 59, Pl. App. B at 18.) He also admits that the MLD transaction was different from the transactions concerning which he had earlier consulted Hewitt and Hanning. (Id. at 114, Pl. App. B at 32.)

29. PPAFUF No. 29: His trusted advisors, Brian Hanning, an investment advisor, presented Hutton with investment opportunities in the past; and Hutton's personal and business certified public accountant (CPA) Scott Hewitt were involved in the review and analysis of those transactions, as well as the MLD investment. (Pliske Decl. Exh. No. 1 at 63-64, App. B. at 19; Pliske Decl. Exh. No. 1 at 15, App. B. at 7) Defendant's Response: The cited testimony does not support a finding that Hewitt was "involved in the review and analysis of those transactions," i.e., the "investment opportunities" presented by Hanning. In fact, with the exception of some advice about Hutton's construction company, Hewitt had never expressed an opinion that any transaction Hutton entered had a reasonable possibility of profit apart from its tax consequences. (Pliske Decl. Ex. 1 at 18, Pl. App. B at 8.)

30. PPAFUF No. 30: Neither of these trusted advisors advised Hutton that the MLD transaction was not a good investment or that the represented tax consequences, good or bad, were being improperly represented. (Pliske Decl. Exh. No. 1 at 26, App. B. at 10; Pliske Decl. Ex. 1 at 16-17, 23-24, App. B at 7, 9.)

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Defendant's Response: The defendant admits that neither Hewitt nor Hanning told Hutton that the MLD transaction was not a good investment. The defendant repeats, however, that both of these "trusted advisors" have denied they had the expertise necessary to render an opinion about the financial aspects of the investment. (Pliske Decl. Ex. 2 at 16, Pl. App. B at 58 (Hanning); Pliske Decl. Ex. 3 at 9, Pl. App. B at 75 (Hewitt)). Neither man had ever given Hutton any reason to believe he had such expertise. (Pliske Decl. Ex. 2 at 16-17, Pl. App. B at 58 (Hanning); Pliske Decl. Ex. 1 at 15-16, Pl. App. B at 7 (Hewitt)). And Hutton admits that the MLD transaction was different from any other transaction concerning which he had earlier consulted Hanning and Hewitt. (Pliske Decl. Ex. 1 at 114, Pl. App. B at 32.) Hutton never asked his tax advisor whether the MLD transaction stood a reasonable chance of producing an economic profit independent of tax benefits. (Pliske Decl. Ex. 1 at 16-17, Pl. App. B at 7.) Under the circumstances, it is a genuine issue of fact whether Hutton could reasonably have relied upon Hanning and Hewitt's failure to object to the MLD transaction as an endorsement of the transaction.

31. PPAFUF No. 31: Both of these individuals are experienced financial advisors and have worked with Hutton many years prior to 2001 and are still working with him through today. (Pliske Decl. Ex. 2 at 4, App. B at 55; Pliske Decl. Ex. 3 at 5, App. B at 74; Pliske Decl. Ex. 1 at 15, App. B at 7) Defendant's Response: Hewitt is not a financial advisor: he has no expertise in that area. (Pliske Decl. Ex. 3 at 9, Pl. App. B at 75.) And before Hanning suggested the MLD transaction, he had brought Hutton only the products of insurance companies. (Pliske Decl. Ex. 2 at 12-13, - 19 -

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Pl. App. B at 57.) Hanning does not consider himself to be Hutton's investment advisor. (Id. at 11, Pl. App. B at 57.)

32. PPAFUF No. 32: They continue to provide him with both financial and tax advice as might be applicable with respect to certain investments. (Pliske Decl. Ex. 2 at 24, App. B at 60; Pliske Decl. Ex. 3 at 46-47, App. B at 85) Defendant's Response: By this reference, the defendant incorporates its response to PPAFUF No. 31.

33. PPAFUF No. 33: They participated in the initial conferences with the law firm, Cantley and Sedacca, which originally introduced the MLD transaction to Hanning; they participated in subsequent follow up conferences with Cantley and Sedacca and they did their own independent research. (Pliske Decl. Ex. 3 at 6-8, App. B at 75; Pliske Decl. Ex. 1 at 92, App. B at 26; Pliske Decl. Ex. 3 at 31, App. B at 81) Defendant's Response: The defendant agrees that Hewitt and Hanning participated in conference calls with Cantley & Sedacca, though Hewitt did not participate in the first call (see Pliske Decl. Ex. 1 at 50, Pl. App. B at 16), but nothing in the cited testimony supports the assertion that Hanning did independent research of any sort about the MLD transaction; and the documents prove that Hewitt did no research into the financial aspects of the transaction. (See Pliske Decl. Ex. 3 at 9, Pl. App. B at 75.) To illustrate the thoroughness and independence of Hewitt's tax research, the defendant incorporates its responses to PPAFUF Nos. 17 and 19, supra. - 20 -

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34. PPAFUF No. 34: Hutton had every reason to believe, based on the facts, that his financial advisors properly evaluated the merits and risks of the MLD transactions. (Pliske Decl. Ex. 2 at 17-18, App. B at 58-59; Pliske Decl. Ex. 1 at 16-17, App. B at 7) Defendant's Response: (1) Objections: The proposed finding repeats the substance of several earlier proposed findings; the phrase "every reason" is vague; and the proposed finding suggests no specific reason why Hutton should have believed that his advisors exercised expertise that they lacked and performed an evaluation he never requested. (2) Response: With this reference the defendant incorporates its responses to PPFAUF Nos. 3, 6, 7, 8, 9, 11, and 15. Furthermore, Hutton himself has admitted he merely "speculated" that Hewitt had done research. (Pliske Decl. Ex. 1 at 108-09, Pl. App. B at 30.) Hutton's speculations do not constitute reason to believe that Hewitt had properly evaluated the merits and risks of the transaction. Hutton has also admitted that Cantley & Sedacca are the only parties who led him to believe there was a reasonable opportunity to make a profit in the MLD transaction. (Ibid.) Hutton's reliance on Cantley & Sedacca was unreasonable, because he knew that Cantley & Sedacca were expressing no opinion on the profitability of the investment. See PPAFUF No. 4, supra.

35. PPAFUF No. 35: The mere fact that Hanning brought the MLD investment to Hutton, led Hutton to believe it had merit. (Pliske Decl. Ex. 1 at 26, App. B at 10) Defendant's Response: The proposed finding is misleading because it suggests that Hutton could reasonably have believed the MLD transaction had merit merely because Hanning brought it to him. The facts suggest otherwise. The MLD transaction offered a chance of a staggering 14,446% profit based on a Black/Scholes analysis, but Hutton did not believe that - 21 -

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Hanning had the ability to verify that analysis. (Pliske Decl. Ex. 1 at 24-25, Pl. App. B at 9.) And Hutton himself doubted the possibility of 14,446% return despite what the MLD's promotional documents stated. In his words, "I get investment stuff all the time that purports to be these great deals, and they're all full of lies and inflation and everything else. I didn't trust that aspect that closely, quite frankly." (Pliske Decl. Ex. 1 at 103, Pl. App. B at 29.) Despite his personal doubts about the promoters' promises, he never troubled to ask Hanning (or anyone else) if there was a reasonable probability the MLD transaction would produce an economic profit in excess of tax benefits and economic costs. (Id. at 26, Pl. App. B at 10.) Even if Hutton had asked the question, Hanning could not have answered it because he lacked the knowledge and experience needed to evaluate the MLD transaction. (Pliske Decl. Ex. 2 at 16, Pl. App. B at 58.) Hanning never gave Hutton any reason to think otherwise. (Id. at 16-17, Pl. App. B at 58.) Under the circumstances, there is a genuine issue of fact whether Hutton could reasonably have relied on Hanning's mere suggestion of the MLD investment as evidence of its merit.

36. PPAFUF No. 36: Hanning never brought an investment to Hutton that did not have merit. (Pliske Decl. Ex. 1 at 26, App. B at 10) Defendant's Response: The cited testimony does not support the proposed finding. Furthermore, before suggesting the MLD transaction, Hanning had brought Hutton only the products of insurance companies­and all but one of them were products of Massachusetts Mutual Life Insurance Company. (Pliske Decl. Ex. 2 at 12-13, Pl. App. B at 57.) The MLD transaction was very different from all of the other­perhaps meritorious­investments Hanning had proposed to Hutton. (Id. at 25-26, Pl. App. B at 60-61.) - 22 -

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37. PPAFUF No. 37: Hewitt was involved in all conferences with Hutton and did his own independent research. (Pliske Decl. Ex. 3 at 6-8, App. B at 75; Pliske Decl. Ex. 1 at 92, App. B at 26; Pliske Decl. Ex. 3 at 31, App. B at 81) Defendant's Response: The proposed finding repeats the substance of PPAFUF No. 33, supra. Accordingly, by this reference the defendant incorporates its response to PPAFUF No. 33.

38. PPAFUF No. 38: Hewitt never told Hutton that the investment did not have merit and their working relationship was such that if the investment did not have merit, or if he was unable to properly analyze the investment, he would have told Hutton such. (Pliske Decl. Ex. 1 at 16-17, App. B at 7) Defendant's Response: The proposed finding repeats the substance of PPAFUF No. 9, supra. Accordingly, by this reference the defendant incorporates its response to PPAFUF No. 9.

39. PPAFUF No. 39: It wasn't until Hutton received the letter dated May 20, 2004 that he and his advisors became aware that the IRS was taking the position that the MLD investment was a tax shelter being challenged by the IRS. (Pliske Decl. Ex. 1 at 98, App. B at 28) Defendant's Response: The proposed finding seems to refer to a letter from the IRS to Mark E. and Mary S. Hutton that appears as Exhibit 1 of the TenEyck Declaration, Def. App. B at 374. But Hutton states that he filed a reportable transaction disclosure statement with his 2003 return and that the disclosure statement was his first notice that the MLD transaction was a listed

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transaction.2 (Pliske Decl. Ex. 1 at 83-84, Pl. App. B at 24.) When Hutton first learned of the IRS's position about the MLD transaction is therefore a genuine issue of fact. Furthermore, if Hutton's advisors did learn of the IRS's position on the Son of Boss tax shelter for the first time on May 20, 2004, then his advisors were ignorant of Notice 2000-44, 2000-2 C.B. 255 (published on August 13, 2000), and of Temp. Treas. Reg. § 1.752-6T (published on June 24, 2003 as T.D. 9062, 68 FR 37414-01). There is a genuine issue of fact whether Hutton, who purchased a Son of Boss tax shelter, could justifiably have relied upon advisors who were so uninformed about the IRS's published positions and about tax law.

40. PPAFUF No. 40: Hutton immediately paid the tax that was associated with any benefits he received from the MLD transactions. (Pliske Decl. Ex. 1 at 84-87, App. B at 2425) Defendant's Response: Hutton claims to have made a $175,870 deposit "associated with any benefits he received from the MLD transactions" (Compl. ¶ 10), but he did not make the deposit immediately after May 20, 2004. A "designated payment" (Code 670) of $175,870.63 was credited to Hutton's 2001 account on October 25, 2004­more than five months after May 24, 2004. See Exhibits 1 and 2 of the Declaration of Robert Stoddart, attached to this document at pages 52-55, infra.

See also Compl. ¶ 10 (On September 11, 2003, Hutton deposited $175,870, which he believes to be the increase in his tax liability that would result from the adjustments made in the FPAA.) The defendant believes the complaint is simply wrong. - 24 -

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41. PPAFUF No. 41: Hutton, upon the advice of his new attorney, signed a Notice of Election to participate in the settlement initiative that was being offered by the IRS. (Pliske Decl. Ex. 1 at 38-39, App. B at 13) Defendant's Response: The defendant agrees with the proposed finding.

42. PPAFUF No. 42: Later the IRS sought additional information and Hutton provided such information to his attorney to forward to the IRS. (Pliske Decl. Ex. 1 at 39, App. B at 13) Defendant's Response: The cited page shows only that Hutton handed the IRS's requests for information to his attorney and "relied upon him to . . . work all that out . . . ." (Pliske Decl. Ex. 1 at 39, Pl. App. B at 13.) The IRS sought additional information in a summons that it served upon Hutton personally. (See TenEyck Decl. ¶ 13, Def. App. B at 372.) Hutton neither provided the information nor appeared as the summons required. The information he had earlier provided was insufficient. (Id. ¶ 14, Def. App. B at 372.)

43. PPAFUF No. 43: The IRS claims that they never received a response to their request for additional information. (Pliske Decl. Ex. 1 at 39, App. B at 13) Defendant's Response: The cited testimony fails to support the proposed finding. The IRS did receive a response to its request for information: It received a FAX from Hutton's attorney refusing to produce the information. (TenEyck Decl. Ex. 15, Def. App. B at 399-401.) But the IRS never received the information. (TenEyck Decl. ¶¶ 14-15, Def. App. B at 372-73.)

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44. PPAFUF No. 44: In his capacity as both an investor and partner, he immediately sought the advice and counsel of his CPA, Scott Hewitt. (Pliske Decl. Ex. 1 at 15, App. B. at 7) Defendant's Response: The proposed finding is unclear: the word "immediately" refers to no particular time, and the cited testimony does not refer to Hutton's dealings with the IRS­the subject of the previous proposed findings. The defendant assumes the proposed finding means to assert that Hutton consulted Hewitt "immediately" after he heard of the MLD investment, which is the time discussed in and around the cited page. Furthermore, nothing in the cited testimony supports the assertion that Hutton consulted Hewitt "[i]n his capacity as both an investor and partner." On the cited page, Hutton states that he consulted Hewitt "when we analyzed this particular opportunity"­i.e., the MLD transaction. (Pliske Decl. Ex. 1 at 15, Pl. App. B at 7.) Hutton entered the MLD deal on October 5, 2001. (See Defendant's Proposed Finding of Uncontroverted Fact (DPF) 31.) He must have analyzed the opportunity before he accepted it. But Hutton's S-corporation, Clearmeadow Capital Corp., did not enter its partnership with CF Advisors and Daniel J. Brooks until October 19, 2001. (DPF 55.) Hutton could hardly have consulted Hewitt in his capacity as a partner two weeks before the partnership existed.

45. PPAFUF No. 45: Hewitt testified that he did his own independent research and saw nothing adverse with the MLD investment to advise his client, Hutton, not to invest in the MLD transaction. (Pliske Decl. Ex. 1 at 92, App. B at 26; Pliske Decl. Ex. 3 at 31, App. B at 81) Defendant's Response: The cited testimony does not support the proposed finding. It concerns Hewitt's preparation of the tax returns, not his advice about whether "to invest in the - 26 -

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MLD transaction." Hewitt has admitted his lack of expertise in that area. (See Pliske Decl. Ex. 3 at 9, Pl. App. B at 75.) And there is little support even for the assertion that Hewitt did "independent research" about the tax aspects of the transaction. At Pliske Decl. Ex. 1 at 92, Pl. App. B at 26, Hutton answers a question from his attorney: Q. A. And you believe he [Hewitt] went back home and did some research? I had no reason to believe he didn't. I mean, again, I trusted him that he did.

But at Pliske Decl. Ex. 1 at 108-09, Pl. App. B at 30, Hutton clarified what he knew about Hewitt's "independent research": Q. A. Q. A. Q. A. Q. A. You say that Mr. Hewitt told you that he wanted to check some things out about the Cantley & Sedacca opinion letter? Um-hum. What did he do to check it out? I don't know. So when you said that you assumed he did some research, were you only speculating that he did research? I think that's what assume means, yeah, I assumed he did research. You don't know that he did? I don't know that he did.

And Hewitt himself claimed little credit for "independent research." At Pliske Decl. Ex. 3 at 31, Pl. App. B at 81, Hewitt answered questions from the defendant's attorney: Q. A. Did you look independently into any of [the authorities cited by Cantley & Sedacca]? Not that I can remember specific ones, no. I just don't remember. - 27 -

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On the same page Hewitt nevertheless asserted that he did do some research at some time before working on Hutton's return, stating: "I remember reading cases, but I can't tell you which ones off the top of my head." The defendant's attorney then asked the following question: Q. A. You read them when? In order to prepare this return or just in your general education as a CPA? Mostly in general education.

The defendant also incorporates its response to PPAFUF No. 17, supra. It is a genuine issue of fact whether (and when) Hewitt "did his own independent research."

46. PPAFUF No. 46: Hewitt independently completed the tax return, making only one small adjustment when confirming with Cantley and Sedacca, how such tax consequences were to be reflected on the tax return. (Pliske Decl. Ex. 3 at 14, App. B at 77) Defendant's Response: By this reference the defendant incorporates its response to PPAFUF No. 19, supra.

47. PPAFUF No. 47: Hutton provided all the advice provided to him from Cantley & Sedacca to Scott Hewitt. (Pliske Decl. Ex. 1 at 89, App. B at 25; Pliske Decl. Ex. 3 at 11, App. B at 76) Defendant's Response: The defendant agrees with the proposed finding.

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48. PPAFUF No. 48: Hutton completed the Cantley & Sedacca client intake form with the help of his business advisor, Bryan Hanning. (Pliske Decl. Ex. 2 at 14, App B at 58; Pliske Decl. Ex. 2, Hanning Deposition Exhibit 2, App. B at 66-68.) Defendant's Response: Nothing in the cited testimony supports the assertion that Bryan Hanning was Hutton's "business advisor." With that exception, the defendant agrees with the proposed finding.

49. PPAFUF No. 49: The written opinion by Cantley & Sedacca that was ultimately issued on January 23, 2002 and was issued after the fact, but reflected the facts as they existed at or near the time that plaintiff entered into the transaction. (Pliske Decl. Ex. 1 at 27-28, App. B at 10) Defendant's Response: Nothing in the cited testimony supports the proposed finding. Furthermore, the Cantley & Sedacca opinion expressly relies upon Hutton's representation that he "intends to continue his Investment for a period of time to enable [him] to earn a reasonable profit from the Transactions, in excess of all fees and transactions [sic] and without regard to tax benefits." Pliske Decl. Ex. 5 at 7. Hutton has offered no evidence that he made this representation "at or near the time that plaintiff entered into the transaction." In fact, the record shows that Hutton made this representation for the first time on March 11, 2002, three months after the Clearmeadow partnership liquidated. (See DPF 68-69.) Hutton cannot pretend that Cantley & Sedacca were relying on the representation in October of 2001­five months before he made it.

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50. PPAFUF No. 50: Hewitt was involved in telephone conversations, examined promotional materials, asked questions, and sought the advice of the law firm Cantley and Sedacca at the time of the preparation of the firm [sic]. (Pliske Decl. Ex. 3 at 6-9, App. B at 75) Defendant's Response: The defendant agrees with the proposed finding if it is meant to assert that Hewitt sought Cantley & Sedacca's advice concerning how to report items generated by the MLD tax shelter when Hewitt prepared the 2001 federal tax forms for Hutton and his entities.

PLAINTIFF'S PROPOSED FINDINGS OF UNCONTROVERED FACTS IN SUPPORT OF PLAINTIFF'S CROSS MOTION FOR SUMMARY JUDGMENT: PPFUF No. 1. Mark E. Hutton (hereinafter "Hutton"), a resident of Wichita, Kansas (Pliske Decl. Ex. 1 at 4, App. B at 4), has been a licensed general contractor since 1992; he received his license while doing business through Hutton Construction Corporation. (Id. at 44, App. B at 14) For the last 15 years he has been president of the Hutton Construction Corporation. (Id. at 45, App. B at 14) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 2. Hutton has invested in oil wells and other high risk investments and has obtained tax benefits from such investments as intangible drilling costs. (Pliske Decl. Ex. 1 at 69, App. B at 20) Defendant's Response: By this reference, the defendant incorporates its response to PPAFUF No. 28, supra. - 30 -

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PPFUF No. 3. Bryan Scott Hanning (hereinafter "Hanning") has known Hutton since 1975, and has been an advisor of some sort to Hutton and his related entities since 1992. Hanning is a representative member and agent of AGH Wealth Advisors and employed with Massachusetts Mutual Life. (Pliske Decl. Ex. 2 at 4, App. B at 55; Pliske Decl. Ex. 1 at 62, App. B at 19) Defendant's Response: The defendant agrees with the second sentence of the proposed finding, but the cited testimony offers little support for the first sentence. Hutton "[r]eally didn't get to know Bryan [Hanning] until about 1992, `93." (Pliske Dec. Ex. 1 at 62, Pl. App. B at 19.) And nothing in the cited testimony3 supports the assertion that Hanning was ever an "advisor" of any sort to Hutton or to his entities. At most, the testimony suggests that Hutton had a "business relationship" with Hanning. Ibid. Hanning himself denies that he was ever Hutton's investment advisor. (Pliske Decl. Ex. 2 at 11, Pl. App. B at 57.)

PPFUF No. 4. Hanning has brought to Hutton's attention different investments that he believes will be beneficial to Hutton. (Pliske Decl. Ex. 2 at 23-24, App. B at 60; Pliske Decl. Ex. 1 at 62-63, App. B at 19) Hanning, in the past and currently, advises Hutton regarding investment opportunities including tax planning (split dollar life insurance, 401K investment plans, deferred compensation arrangements, etc.), equity investments, and insurance investment

At Pliske Decl. Ex. 2 at 23-24, Pl. App. B at 60 (emphasis added), Hutton's attorney asks Hanning, "How long have you worked with Mr. Hutton and his companies in a position of advisor of some type?" The words are the attorney's­not Hanning's­and nothing in the previous answers justifies the attempt to insert them into Hanning's testimony. Hanning's response is more careful: "I believe it was 1992 or three that we first began, had a relationship." - 31 -

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products. (Pliske Decl. Ex. 2 at 23-24, App. B at 60.) Hanning never brought an investment to Hutton that did not have merit. (Pliske Decl. Ex. 1 at 63-64, App. B at 19.) Defendant's Response: The defendant agrees with the first sentence of the proposed finding, but nothing in the cited testimony supports assertion in the second sentence that Hanning "advises Hutton regarding investment opportunities including tax planning." In fact, Hanning denies that he is Hutton's investment advisor. (Pliske Decl. Ex. 2 at 11, Pl. App. B at 57.) As to the third sentence, the defendant incorporates its response to PPAFUF No. 36; furthermore, the cited testimony shows only that Hutton was "comfortable" with Hanning's advice, not that Hanning's suggestions had "merit."

PPFUF No. 5. Hutton trusts Hanning because his background and because of their long term relationship. (Pliske Decl. Ex. 1 at 64, 110, App. B at 19, 31) Defendant's Response: The cited testimony shows that Hutton can recall no investment Hanning ever brought to him that was not an insurance product. (Pliske Decl. Ex. 1 at 64, Pl. App. B at 19.) Hutton does insist that he would not have considered investing in the MLD transaction if Hanning had not brought it to him (Pliske Decl. Ex. 1 at 110, App. B at 31); but the MLD transaction was "very different from the things [Hanning] work[s] with Mark [Hutton] on" (Pliske Decl. Ex. 2 at 25-26, Pl. App. B at 60-61). And Hanning admits that he lacked the knowledge and experience needed to evaluate the MLD transaction. (Id. at 16, Pl. App. B at 58.) Hanning never gave Hutton any reason to believe that he had the knowledge and experience needed to evaluate the transaction. (Id. at 17, Pl. App. B at 58.)

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Under the circumstances, it is a genuine issue of fact whether Hutton could reasonably have relied upon Hanning to evaluate the MLD transaction.

PPFUF No. 6. Hanning is employed with Massachusetts Mutual Life Insurance Company and is a member of AGH Wealth Advisors in Wichita, Kansas. (Pliske Decl. Ex. 2 at 4, App. B at 194.) Hanning receives compensation if Hutton takes advantages of the investment opportunity being offered. (Pliske Decl. Ex. 1 at 94, App. B at 27) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 7. In 2001, Hanning approached Hutton and informed Hutton of an investment strategy offered through the law firm of Cantley & Sedacca, LLP that Hanning thought would be a potential investment opportunity for Hutton. (Pliske Decl. Ex. 2, Hanning Deposition Exhibit 1, App. B at 65.) Hanning approached Hutton in 2001 with respect to the MLD investment opportunity because Hutton was interested in different investment opportunities. (Pliske Decl. Ex. 2 at 10, App. B at 57) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 8. Hanning found Cantley & Sedacca listed under the caption "resources for investment opportunities and tax strategies" in a binder of information issued by the National Association for Family Wealth Counselors, an organization to which Hanning belongs. (Pliske Decl. Ex. 2 at 5-6, App. B at 55-56) Hanning called Cantley & Sedacca to learn about their investment choices and operations. (Pliske Decl. Ex. 2 at 8, App. B at 56) - 33 -

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Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 9. During this initial call, Mr. Sedacca (hereinafter referred to as "Sedacca"), from Cantley & Sedacca, explained the mechanics of the MLD investment opportunity, the risks involved, and the reward scenarios. (Pliske Decl. Ex. 3 at 6-8, App. B at 75) Following Mr. Sedacca's presentation, Hutton posed questions requested the transaction, followed by Hanning's and Hutton's questions. (Pliske Decl. Ex. 3 at 8-9, App. B at 75) Defendant's Response: The proposed finding suggests that Hanning and Hutton both participated in Hanning's "initial call" to Cantley & Sedacca; but the evidence shows that Hanning approached Hutton only after speaking to Cantley & Sedacca. (See Pliske Decl. Ex. 2 at 8, Pl. App. B at 56.) Otherwise the defendant agrees with the proposed finding.

PPFUF No. 10. A subsequent teleconference was held with Hutton, Hanning, Scott Hewitt (hereinafter "Hewitt"), Sedacca, and Mark Kaplan (hereinafter referred to as "Kaplan"). (Pliske Decl. Ex. 3 at 7, App. B at 75) Because of the complications of this sophisticated investment (i.e. MLD investment) Hanning also had another CPA that he works with, Marc Kaplan, accompany him to explain the MLD investment transaction to Hutton. (Pliske Decl. Ex. 2 at 29,33, App. B at 61-62) The second call was to clarify the information Hutton, Hanning and Hewitt received from Sedacca. (Pliske Decl. Ex. 3 at 7, App. B at 75) Defendant's Response: The cited testimony shows that Mark Kaplan provided "clarification as to partnership rules" (Pliske Decl. Ex. 2 at 29, Pl. App. B at 61)­not that he

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"explain[ed] the MLD transaction to Hutton." The cited testimony never refers to the MLD transaction as "sophisticated."

PPFUF No. 11. Prior to investing in the MLD transaction, Hutton insisted on a conference call with his CPA, Hewitt, who participated and asked questions to satisfy himself as to the representations being made by Cantley and Sedacca. (Pliske Decl. Ex. 1 at 50, App. B. at 16 ) Defendant's Response: Nothing in the cited testimony supports the assertion that Hewitt asked questions "to satisfy himself as to the representations being made by Cantley and Sedacca." At most the testimony shows that Hewitt asked questions about the tax consequences of the deal. In fact, the cited testimony shows that neither Hewitt nor Hanning challenged the most startling of Cantley & Sedacca's representations even though Hutton recognized at the time how startling it was: "I remember really more about the mechanics of the process, and I remember specifically joking around about the money it could make. Wow, that'd be a great return." (Pliske Decl. Ex. 1 at 50, Pl. App. B at 16.) Despite Hutton's doubts about the represented potential return (see id. at 103, Pl. App. B at 29), neither he nor Hewitt asked Cantley & Sedacca about the probability of such a return during the telephone conference (id. at 51, Pl. App. B at 16).

PPFUF No. 12. Mr. Hutton did not invest in the transaction until his independent CPA gave him the approval several days after the phone conference with Cantley and Sedacca. (Pliske Decl. Ex. 1 at 92, App. B. at 26) - 35 -

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Defendant's Response: The defendant agrees that Hutton bought into the MLD transaction after seeking Hewitt's opinion, but the proposed finding suggests that Hutton bought into the deal in reasonable reliance on that opinion. Such reliance would not have been reasonable under the circumstances. See Defendant's response to PPAFAF No. 7, supra, which is incorporated by this reference.

PPFUF No. 13. Cantley & Sedacca sent Hanning a form captioned "Intake Summary," which Hanning helped Hutton to complete. Hanning then returned the form to Cantley & Sedacca. (Pliske Decl. Ex. 2 at 14, App B at 58; Pliske Decl. Ex. 2, Hanning Deposition Ex. 2, App. B at 66-68.) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 14. Before 2001, Hanning had sold only one investment product to Hutton as an individual: a split-dollar variable life contract that contained mutual funds. (Pliske Decl. Ex. 2 at 11, App. B at 57) Hanning had also sold Hutton's business entities key-person life insurance policies and a 401(k) plan. (Id. at 12, App. B at 57) Except for one life insurance policy, all of the products Hanning had sold to Hutton and his entities were products of Massachusetts Mutual Life Insurance Company. (Id. at 12-13, App. B at 57) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 15. So that Hutton could understand the nature of the MLD transaction, Hanning arranged conference calls among himself, Hutton, Cantley & Sedacca, Marc Kaplan, - 36 -

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and Scott Hewitt. (Pliske Decl. Ex. 2 at 27-29, App. B at 61) Edward Sedacca represented Cantley & Sedacca. (Pliske Decl. Ex. 3 at 49, App. B at 85) Marc Kaplan was a CPA employed by AGH Wealth Management Solutions. (Pliske Decl. Ex. 2 at 33, App. B at 62) Scott Hewitt is a CPA (Pliske Decl. Ex. 3 at 45, App. B at 84) who performs accounting and tax services for Hutton and his entities (Pliske Decl. Ex. 3 at 46-47, App. B at 85). Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 16. Because Hanning recommended Hutton as a purchaser of the MLD transaction, Cantley & Sedacca paid a referral fee to AGH Wealth Management Solutions, an entity in which Hanning had an ownership interest. (Pliske Decl. Ex. 2 at 14-15, App. B at 58) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 17. Hanning disclosed to Hutton that Cantley & Sedacca had paid him a referral fee for recommending Hutton as a purchaser of the MLD transaction. (Pliske Decl. Ex. 2 at 15, App. B at 58) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 18. On October 4, 2001, Cantley & Sedacca sent Hutton (through Hanning) a document captioned "Agreement for Your Legal Services." Hanning gave the document to Hutton. (Pliske Decl. Ex. 2 at 15-16, App. B at 58; Pliske Decl. Ex. 2, Hanning Deposition Exhibit 3, App. B at 69, 71-72) Defendant's Response: The defendant agrees with the proposed finding. - 37 -

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PPFUF No. 19. The October 4, 2001, Agreement required Hutton to represent: (1) that he had relied solely upon his (and his financial advisor's) independent investigation of all matters or concerns regarding the MLD transaction; and (2) that he (or his financial advisor) possessed knowledge and experience in financial and business matters sufficient to ensure his (or his financial advisor's) capability to evaluate the merits and risks of the MLD transaction. Cantley & Sedacca is a law firm and simply stated that it is not an investment advisor and does not express an opinion on the investment itself. (Pliske Decl. Ex.2, Hanning Deposition Exhibit 3, App. B at 69, 71-72) Defendant's Response: The defendant agrees with the proposed finding.

PPFUF No. 20. Hanning does not consider himself to be Hutton's investment advisor, yet Hanning approached Hutton regarding the MLD transaction and suggested that the MLD transaction would be a potential investment opportunity for Hutton. (Pliske Decl. Ex. 2 at 11, App. B at 57; Pliske Decl. Ex. 2, Hanning Deposition Exhibit 1, App. B at 65) Defendant's Response: The defendant agrees with the proposed finding, except that the word "yet" implies that a salesman who sells an investment must necessarily be an "investment advisor" despite his sworn statement to the contrary. The cited testimony does not support the implication.

PPFUFNo. 21. Hanning participated in the first conference call with Cantley & Sedacca, LLP, so that he could assist Hutton in understanding the MLD transaction. If Hanning did not have the knowledge and experience to properly evaluate the merits of the transaction then - 38 -

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it was unknown to Hutton. (Pliske Decl. Ex. 2 at 27-29, App. B. 61; Pliske Decl. Ex. 2, Hanning Deposition Ex. 1, App. B. at 65) Defendant's Response: By this reference the defendant incorporates its response to PPAFUF No. 5, supra.

PPFUF No. 22. By participating in the conference call so he could assist Hutton in understanding the MLD transaction, Hanning implicitly represented to Hutton that he had the knowledge and experience to properly evaluate the MLD transaction. (Pliske Decl. Ex. 2, Haning Deposition Exhibit 1, App. B. at 65) Defendant's Response: By this reference the defendant incorporates its response to PPAFUF No. 6, supra.

PPFUF No. 23. Hutton, alone, may not have the knowledge and experience in financial and business matters that would permit him to evaluate the merits and risks of trading options on foreign currency, how