ANCHORBANK, FSB v. Hofer
649 F.3d 610
| 7th Cir. | 2011Background
- AnchorBank and AnchorBank Unitized Fund sue Clark Hofer for a collusive trading scheme in Fund units and AnchorBank stock, alleging violations of §§9(a) and 10(b) and related claims; two co-conspirators settled and were not named; district court initially dismissed the complaint and later dismissed the second amended complaint with prejudice; AnchorBank and Plumb Trust (Trustee) filed a second amended complaint adding Plumb as plaintiff and detailing a 36-trade scheme; the Trustee must maintain a 5-to-11% cash-to-stock ratio, driving trades in AnchorBank stock; Hofer allegedly coordinated buying and selling to inflate Fund unit values and deflate stock values, causing losses to the Fund and participants while Hofer and conspirators gained; AnchorBank and Plumb allege harm to the Fund and participants and seek damages, punitive damages, restitution, disgorgement, costs, and fees; the district court dismissed for failure to plead loss causation, and ruled that claims on behalf of other participants were improper, and declined supplemental jurisdiction over state-law claims; the Seventh Circuit reverses and remands.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the second amended complaint adequately pleads securities fraud claims | AnchorBank/Plumb argue complaint meets Rule 8/9(b) and PSLRA standards | Hofer contends pleading defects, especially loss causation and scienter, require dismissal | Yes; pleading meets 8(a), 9(b), PSLRA requirements and supports fraud claims |
| Whether the complaint plausibly alleges scienter and reliance | Plaintiffs allege deliberate manipulation and dependence of Trustee/others on manipulated values | Hofer asserts alternative explanations negate scienter/reliance | Yes; strong inference of scienter and reliance alleged sufficient to survive at this stage |
| Whether economic loss and loss causation are adequately alleged | Allegations link Hofer’s scheme to declines in AnchorBank stock and Fund losses | Loss causation not fully pled or causation uncertain due to market factors | Yes; economic loss and loss causation adequately pleaded under Tellabs/Dura standards |
| Whether the district court erred in dismissing state-law claims and exercising supplemental jurisdiction | State claims arising from the same facts; should not be dismissed outright | Court could properly dismiss or decline supplemental jurisdiction | Not decided on this appeal; focus remains on pleading sufficiency for federal claims |
| Whether the complaint states a plausible overall claim justifying trial | The detailed scheme allegations render a plausible fraud claim | Dismissal appropriate if pleading defects fatal | Yes; the complaint plausibly states a claim and should proceed to trial on remand |
Key Cases Cited
- Caremark, Inc. v. Coram Healthcare Corp., 113 F.3d 645 (7th Cir.1997) (pleading must show plausible claim to relief; not determined at dismissal stage)
- Bonte v. U.S. Bank, N.A., 624 F.3d 461 (7th Cir.2010) (plaintiff must plead enough facts to make claim plausible)
- Swanson v. Citibank, N.A., 614 F.3d 400 (7th Cir.2010) (heightened pleading standards for plausibility in complex cases)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. (2007)) (requirement of cogent and compelling inference of scienter)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (U.S. (2005)) (loss causation and economic loss pleading standards)
- Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179 (U.S. 2011) (loss causation and investor damages after misrepresentation)
- Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436 (7th Cir.2011) (pleading with particularity under Rule 9(b) in securities cases)
- Ray v. Citigroup Global Markets, Inc., 482 F.3d 991 (7th Cir.2007) (loss causation and market factors in price decline)
- Chemetron Corp. v. Business Funds, Inc., 682 F.2d 1149 (5th Cir.1982) (elements of §10(b) claim including misrepresentation and reliance)
- GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189 (3d Cir.2001) (comparison of §§ 9(a) and 10(b) pleading requirements)