Shailja Gandhi Revocable Trust v. Sitara Capital Management, LLC
2013 U.S. App. LEXIS 13794
7th Cir.2013Background
- Patel formed Sitara Partners and Sitara Capital to manage a hedge fund and served as managing director.
- Sitara Partners invested $6.8 million in Freddie Mac stock in September 2008, just after subprime crisis effects began, causing substantial losses.
- Plaintiffs, as Sitara Partners LP limited partners, filed an 18-count complaint alleging securities and common-law fraud and other claims.
- District court dismissed most counts, then granted leave to amend; plaintiffs filed multiple amended complaints with evolving theories.
- Plaintiffs sought a fourth amended complaint on the eve of dispositive motions to add new fraud theories based on alleged newly discovered misrepresentations.
- District court granted summary judgment and denied leave to file a third amended complaint, finding futility; appellate court affirms.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether denial of leave to amend was proper. | Plaintiffs contended district court abused discretion by denying amendment. | Defendants argued amendments would be futile and previously known deficiencies persisted. | Yes; amendment denied for futility; district court acted within discretion. |
| Whether the new fraud claims based on the offering memo were viable. | Plaintiffs claimed false statements in the offering memorandum supported fraud claims. | Statements were true or insufficiently pled as fraudulent. | Property failed; offering-memorandum claims futile. |
| Whether oral misrepresentation claims complied with Rule 9(b) pleading. | Plaintiffs argued they could plead with sufficient specificity after discovery. | Claims lacked the required particularity of misstatement timing, place, and content. | Denied; proposed claims failed Rule 9(b) specificity and would be dismissed. |
Key Cases Cited
- Schleicher v. Wendt, 618 F.3d 679 (7th Cir. 2010) (canonical elements of securities fraud; falsehood in connection with purchase or sale)
- Siegel v. Levy Org. Dev. Co., Inc., 607 N.E.2d 194 (Ill. 1992) (false statement of material fact required for fraud)
- Foster v. Alex, 572 N.E.2d 1242 (Ill. App. Ct. 1991) (untrue statement of a material fact required for securities fraud)
- Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663 (7th Cir. 2008) (must plead who, when, and how of the fraud)
- Brunt v. SEIU, 284 F.3d 715 (7th Cir. 2002) (amendment may be denied for futility under Rule 15(a)(2))
- AnchorBank, FSB v. Hofer, 649 F.3d 610 (7th Cir. 2011) (futility and pleadings standards for amendments)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (pleading requires facts showing scienter; motive to deceive)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (intent required for securities fraud claims)
- Lachmund v. ADM Investor Servs., 191 F.3d 777 (7th Cir. 1999) (requires specific references to times or places of misrepresentations)
- Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663 (7th Cir. 2008) (pleading fraud with particularity)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (scienter standard for securities fraud)