SKAT Wins Second Circuit Appeal Affirming $476M Victory

Court upholds more than $476 million judgment arising from fraudulent Danish tax refund claims.

Highlights

Second Circuit affirms more than $476 million judgment in favor of SKAT arising from fraudulent Danish dividend tax refund claims.
Court rejects defendants’ revenue rule defense, holding that SKAT sought to recover funds obtained through fraud, not enforce Danish tax laws.
Latest victory in Hughes Hubbard’s multiyear representation of SKAT in one of the largest tax fraud recovery efforts in U.S. courts.

Hughes Hubbard secured a significant victory on behalf of the Customs and Tax Administration of the Kingdom of Denmark, or Skatteforvaltningen (SKAT), with the U.S. Court of Appeals for the Second Circuit affirming a judgment exceeding $476 million and rejecting the defendants’ challenge to SKAT’s fraud claims.

In a unanimous opinion issued Aug. 31, the Second Circuit affirmed a jury verdict finding that Richard and Jocelyn Markowitz, John and Elizabeth van Merkensteijn, and pension plans they controlled fraudulently obtained Danish dividend tax refunds through false refund claims.

The decision upholds a judgment by the U.S. District Court for the Southern District of New York in the first bellwether trial in SKAT’s U.S. litigation.

The court rejected the defendants’ principal argument that SKAT’s claims were barred by the common law revenue rule. The defendants argued that SKAT was attempting to enforce Danish tax laws, but the Second Circuit held that SKAT was seeking to recover funds obtained through fraud, not collect taxes.

The court emphasized that the defendants conceded they never owned Danish shares, never received dividends and never paid Danish withholding taxes. As a result, the case did not involve the enforcement of Danish tax law. Instead, the court concluded that the conduct at issue was “more akin to ‘garden variety commercial fraud’ than tax evasion.”

The Second Circuit also upheld the district court’s evidentiary rulings and affirmed the fraud judgments against Jocelyn Markowitz and Elizabeth van Merkensteijn, finding sufficient evidence to support liability under an agency theory.

The victory is the latest in Hughes Hubbard’s representation of SKAT in its efforts to recover losses stemming from a fraudulent dividend tax refund scheme, which has included nearly 200 actions filed across 12 U.S. jurisdictions, the consolidation of the litigation in the Southern District of New York, an additional trial victory, as well as settlements exceeding $450 million.

Bloomberg Law and Law360 reported on the decision.

Marc Weinstein, Bill Maguire, Neil Oxford and Dustin Smith lead the Hughes Hubbard team representing SKAT, with key assistance from John McGoey, Greg Farrell, Kiran Rosenkilde, Elizabeth Zhou, J. Scott Sanders, Jessica Lagnado and Richard Bosch.