Indep. Trust Corp. v. Stewart Info. Servs. Corp.

• Decision Date: 06 January 2012
• Docket Number: No. 11–2108.,11–2108.
• Parties: INDEPENDENT TRUST CORPORATION, an Illinois corporation now in receivership, Plaintiff–Appellant, v. STEWART INFORMATION SERVICES CORPORATION, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

665 F.3d 930

INDEPENDENT TRUST CORPORATION, an Illinois corporation now in receivership, Plaintiff–Appellant,

v.STEWART INFORMATION SERVICES CORPORATION, et al., Defendants–Appellees.

No. 11–2108.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 27, 2011.Decided Jan. 6, 2012.

Adam P. Merrill (argued), Attorney, Sperling & Slater, P.C., Chicago, IL, for Plaintiff–Appellant.

Gerard D. Kelly (argued), Attorney, Sidley Austin LLP, Chicago, IL, for Defendants–Appellees.

Before FLAUM, KANNE, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This appeal arises from a series of business dealings that ended in 1995. We conclude that the district court properly dismissed the complaint as barred by the statute of limitations. The Illinois doctrine of adverse domination does not apply to the claims against the defendants here and therefore did not toll the statute of limitations.

In the 1980s and 1990s, Intercounty Title Insurance Co. of Illinois was in the business of issuing title insurance policies and providing real estate closing services. From 1984 through 1995, it served as the exclusive Chicago-area agent for defendants Stewart Information Services Corporation, Stewart Title Guaranty Company, and Stewart Title Company (collectively, “Stewart”). Intercounty eventually grew to become Stewart's largest independent agent. As part of its business, Intercounty created and managed an escrow account. Stewart contractually agreed to insure the escrow funds that Intercounty managed as Stewart's agent. But Intercounty was not profitable. The company was run and controlled by Laurence Capriotti and Jack Hargrove, who decided to invest the real estate escrow funds with which Intercounty was entrusted in various investment schemes. While waiting for the payoff on their “investments”—we use the term loosely—Capriotti and Hargrove used incoming escrow funds to pay off old escrow obligations. In other words, they ran the Intercounty escrow account as a Ponzi scheme.

Their investments failed. By the end of 1989, there was a $26 million shortfall in the Intercounty escrow account. When Stewart learned of the shortfall, it pressured Intercounty to bring the account into balance. Stewart also allowed Intercounty to fire its auditors.

Capriotti and Hargrove were also directors of the plaintiff in this case, Independent Trust Corporation (known here as “InTrust”). InTrust was the trustee for nearly 20,000 trust accounts, primarily individual retirement accounts, collectively valued at over $1 billion. To fill the hole in the Intercounty escrow account, Capriotti and Hargrove began looting InTrust. They transferred tens of millions of dollars in InTrust account holder funds to Intercounty, which used the transferred funds to pay amounts owed from its escrow account. Some of this money went to pay Stewart policyholders, and some of it went to pay Stewart directly.

Stewart therefore was a direct and indirect beneficiary of the Intercounty/InTrust arrangement. If Intercounty had not been able to make its escrow payments, Stewart, as the insurer of the escrow funds, would have had to cover the losses. But between December 1990 and the end of 1995, when Intercounty terminated its relationship with Stewart, $40.9 million of InTrust account holder funds had been transferred to the Intercounty escrow account to cover Stewart's insureds. As much as $27 million of InTrust account-holder funds were transferred directly to Stewart or to third parties for Stewart's benefit.

The Illinois Commissioner of the Office of Banks and Real Estate (“OBRE”) began investigating InTrust's relationship with Intercounty in 1994, but it was not until February 2000 that the OBRE learned that the funds InTrust had transferred to Intercounty were missing. A few months after that, on April 14, 2000, the OBRE took control of InTrust and placed it in receivership. PricewaterhouseCoopers LLP was appointed receiver, and on behalf of InTrust, pursued civil suits against Capriotti, Hargrove, Intercounty, and ITI Enterprises, Inc. (another Capriotti and Hargrove company). The Receiver obtained judgments against these defendants in the amount of $68 million. The judgment against Hargrove was overturned on appeal, but the Receiver settled its claims against Hargrove for $50 million.¹

This background brings us to this case, and this appeal. On July 15, 2010, the Receiver filed a five-count complaint against Stewart on behalf of InTrust. Its claims included money had and received (Count I), unjust enrichment (Count II), vicarious liability for Intercounty's tortious conduct (Count III), aiding and abetting breach of fiduciary duty (Count IV), and conspiracy (Count V). Stewart moved to dismiss for failure to state a claim under Rule 12(b)(6), arguing that the Receiver's claims were barred by the applicable statute of limitations. The Receiver relied on the doctrine of adverse domination to argue that the statute of limitations was tolled at all times before April 2000. Under Illinois law, this doctrine is defined as “an equitable doctrine that tolls the statute of limitations for claims by a corporation against its officers and directors while the corporation is controlled by those wrongdoing officers or directors.” Lease Resolution Corp. v. Larney, 308 Ill.App.3d 80, 241 Ill.Dec. 304, 719 N.E.2d 165, 170 (1999). The doctrine also applies to claims against other parties who are co-conspirators of the wrong-doing directors. See id. at 172. The district court granted Stewart's motion and dismissed the Receiver's claims on the statute of limitations defense. The Receiver moved to alter or amend the judgment under Rule 59(e), and the district court denied its motion.

The Receiver appeals. On the merits, it argues first that the district court erred by holding that the adverse domination doctrine does not apply to non-conspirators of wrongdoing directors, and second that even if the district court's holding is correct, the complaint sufficiently alleges that Stewart was a co-conspirator in Capriotti's and Hargrove's looting of InTrust. The Receiver also argues that, in ruling on Stewart's motion to dismiss, the district court improperly took judicial notice of adjudicative facts and erred by granting the motion to dismiss with prejudice without first permitting the Receiver to file an amended complaint. We affirm.²

I. Standard of Review

We review de novo a district court's order granting a Rule 12(b)(6) motion to dismiss based on the statute of limitations. See Middleton v. City of Chicago, 578 F.3d 655, 657 (7th Cir.2009). In doing so, we take “all well-pleaded allegations of the complaint as true and view [ ] them in the light most favorable to the plaintiff.” Santiago v. Walls, 599 F.3d 749, 756 (7th Cir.2010). To satisfy the notice-pleading standard of the Federal Rules of Civil Procedure, a complaint must provide a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). In other words, the plaintiff's complaint must be sufficient to provide the defendant with “fair notice” of the plaintiff's claim and its basis. Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007), quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

The Supreme Court also instructs us to examine whether the allegations in the complaint state a “plausible” claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). To survive a motion to dismiss, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face’.... A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id., quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955. The complaint “must actually suggest that the plaintiff has a right to relief, by providing allegations that raise a right to relief above the speculative level.” Windy City Metal Fabricators & Supply, Inc. v. CIT Technology Financing Services, 536 F.3d 663, 668 (7th Cir.2008) (emphasis in original), quoting Tamayo v. Blagojevich, 526 F.3d 1074, 1084 (7th Cir.2008). But a plaintiff's claim need not be probable, only plausible: “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” Twombly, 550 U.S. at 556, 127 S.Ct. 1955 (internal quotation omitted). To meet this plausibility standard, the complaint must supply “enough fact to raise a reasonable expectation that discovery will reveal evidence” supporting the plaintiff's allegations. Id.

Here, the district court dismissed the Receiver's claims upon finding that the applicable statute of limitations had run. A statute of limitations provides an affirmative defense, and a plaintiff is not required to plead facts in the complaint to anticipate and defeat affirmative defenses. But when a plaintiff's complaint nonetheless sets out all of the elements of an affirmative defense, dismissal under Rule 12(b)(6) is appropriate. See Brooks v. Ross, 578 F.3d 574, 579 (7th Cir.2009). When reviewing a Rule 12(b)(6) dismissal of state law claims based on a statute of limitations, we apply state law regarding the statute of limitations and “any rules that are an integral part of the statute of limitations, such as tolling and equitable estoppel.” Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir.2010).

II. Adverse Domination Doctrine under Illinois Law

The parties do not contest the district court's finding that the acts giving rise to the Receiver's claims occurred no later than August 1996. Under Illinois law, a five-year statute of limitations governs the Receiver's claims. 735 ILCS 5/13–205. Thus, the statute of limitations on the Receiver's claims...