Two investors have filed suit against Katten Muchin Rosenman charging its predecessor firm promoted a fraudulent tax scheme. Brian and Joelle Kelly claim Rosenman & Colin played a central role in the design, promotion and implementation of a tax structure that “was nothing more than a fee generating scheme.” The Kellys filed a similar complaint against Katten and others in 2008, which was dismissed in 2011 for defects involving the summons and statute of limitations. They re-filed their claims against Katten on Aug. 31.

The Kellys, represented by Jenice Malecki of Malecki Law, argue that Rosenman & Colin drafted a legal opinion purporting to support the legitimacy of the tax structure, called Coastal Trading Common Trust Fund Program Series III, or CTF. Rosenman’s legal opinion was then referenced in an opinion letter by Raymond Ruble, a former tax partner at Sidley Austin, according to the complaint in Kelly v. Katten Muchin Rosenman, 653067/2012, filed in Manhattan Supreme Court. The Kellys had hired Brown & Wood, Sidley’s predecessor firm, to draft a legal opinion on whether the CTF scheme could withstand an IRS challenge.

The Kellys said they closed on their investments in the CTF program on Dec. 3, 2001. They later paid taxes on the losses they had initially claimed against income but were disallowed by the IRS. Their suit, claiming fraud and misrepresentation and conspiracy to commit fraud, seeks more than $4 million.

The IRS issued an opinion on the CTF scheme in 2003 stating the “claimed tax benefits purportedly generated by these transactions are not allowable for federal income tax purposes,” the Kellys’ complaint says. Four years later, the IRS announced a $39.4 million settlement with Sidley Austin, stemming “from the firm’s promotion of abusive tax shelters and a failure to comply with tax shelter registration requirements.” Ruble, at the center of the KMPG tax shelter scandal, was sentenced in 2009 to more than six years in prison.

Katten partner and deputy general counsel Michael Verde said the IRS never pursued Rosenman or Katten for any involvement in the CTF scheme. In a statement, Katten’s outside counsel, Ted Poretz, a member of Ellenoff Grossman & Schole, said, “We think this complaint has no merit. It’s unfair to Rosenman. It was dismissed once, and it will be dismissed again.”