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KOPLIN v. LABE FED. S&L ASSN.

October 31, 1990

ALFRED N. KOPLIN, Plaintiff,
v.
LABE FEDERAL SAVINGS AND LOAN ASSOCIATION, DONALD E. KLEIN, MARY JANE KLEIN, ROBERT E. KLEIN, LOWELL STAHL, WILLIAM CAHILL, JR., JAMES R. SNEIDER, SAM HUSKA, THOMAS EDWARDS, AND VINCENT A. FIELD, Defendants



The opinion of the court was delivered by: BUA

 NICHOLAS J. BUA, UNITED STATES DISTRICT JUDGE

 Plaintiff's complaint speaks of securities law and state law violations in connection with purchases of stock in a savings and loan association. Defendants move to dismiss the complaint in its entirety. With respect to Count I, defendants' motion is granted in part and denied in part. With respect to Count II, defendants' motion is granted. Defendants' motion is denied as to Counts III-VII.

 FACTS

 Plaintiff Alfred N. Koplin brings a seven count complaint against defendants Labe Federal Savings and Loan Association ("Labe"), Donald E. Klein ("Klein"), Mary Jane Klein, Robert E. Klein, Lowell Stahl, William Cahill, Jr., James R. Sneider, Sam Huska, Thomas Edwards, and Vincent A. Field. Labe is a federal savings and loan association located in Chicago, Illinois. The remaining defendants are directors and/or officers of Labe.

 For purposes of a motion to dismiss, all well-pleaded facts in the complaint must be accepted as true and all reasonable inferences must be drawn in the light most favorable to the plaintiff. Powe v. City of Chicago, 664 F.2d 639, 642 (7th Cir. 1981). In late October 1988 or early November 1988, Koplin expressed his interest in acquiring equity in a savings and loan association to representatives of Harris Bank and Trust Company. Those representatives indicated that Labe might be available for purchase and agreed to put Koplin in contact with Labe. On November 4, 1988, Klein, the president of Labe, telephoned Koplin. Klein told Koplin that he wanted to sell Labe stock for $ 11.00 per share. Either during that same conversation or during further discussions at a meeting on November 8, 1988, Klein told Koplin that Labe was having difficulties with a dissident shareholder; Labe was seeking an investor to purchase the shareholder's 10% interest in Labe; and the stock price was $ 11.00 per share. Koplin told Klein that he was not interested in becoming a minority shareholder in Labe; rather, he wanted a controlling interest. Klein responded by offering to arrange a sale of 80% of Labe stock for $ 11.00 per share. Two days later, Klein explained to Koplin that the price per share would be $ 11.20 if an 80% interest were to be purchased. Klein represented that Labe could cause the sale of 80% of its stock for $ 11.20 a share. Koplin accepted the offer. Koplin sent Klein a letter on November 11, 1988 formally stating his intention to purchase 80% of Labe stock contingent on approval from appropriate federal and state agencies, approval from Labe shareholders and directors, and an acceptable contract between both parties. Koplin also sent an application to the Federal Home Loan Bank Board ("FHLBB") to solicit approval for acquisition of more than 10% of Labe stock.

 Koplin began to buy Labe stock on the open market. During a period extending from December 1, 1988 to February 23, 1989, Koplin purchased shares equaling a 9.98% interest in Labe for approximately $ 8.85 per share. Koplin's inquiries seeking approval for purchase of an 80% interest, though, were repeatedly ignored. He was prevented by the directors from presenting his purchase proposal at the shareholder meeting on March 22, 1989. Around May 15, 1989, Labe and its board of directors sent a letter to the FHLBB opposing Koplin's bid to obtain more than 10% of Labe stock. Koplin subsequently withdrew his application from the FHLBB.

 Koplin alleges numerous material omissions and misrepresentations by Labe, Labe's board of directors, and Klein. He asserts that Klein and Labe failed to disclose that the dissident shareholder had filed suit against Labe and certain of its officers and directors alleging securities violations ("Greenblatt litigation"). Additionally, Klein failed to disclose that Labe had agreed to settle the action by purchasing the shareholder's stock and paying a portion of the shareholder's attorney's fees ("Greenblatt settlement"). Koplin claims that Labe, through Klein, misrepresented its willingness to arrange and support Koplin's acquisition of 80% of Labe stock. Labe did not disclose that it was actively pursuing other purchasers for the dissident shareholder's stock. Nor did Labe disclose that its charter prohibited any person from acquiring more than 10% of Labe stock.

 Koplin alleges that he acted in reliance on the facts as he believed them. He asserts loss in an amount equal to the difference between the present market value of the stock comprising his 9.98% interest in Labe and its value on the date of purchase; the potential profits from his investment; and the costs and expenses associated with the preparation and submission of his FHLBB application.

 Defendants seek to dismiss the whole of Koplin's complaint. Defendants argue that Counts I, II, and IV should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim and Counts III, V, VI, and VII should be dismissed under Fed. R. Civ. P. 12(b)(1) for lack of jurisdiction.

 ANALYSIS

 I. Securities Law Violations

 In Counts I and IV, Koplin alleges violations of § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), *fn1" and of Rule 10b-5, 17 C.F.R. § 240.10b-5. *fn2" To establish § 10(b) or Rule 10b-5 claims, Koplin must show that defendants "(1) made an untrue statement of material fact or omitted a material fact that rendered the statements made misleading, (2) in connection with a securities transaction, (3) with the intent to mislead, and (4) which caused plaintiff's loss." Schlifke v. Seafirst Corp., 866 F.2d 935, 943 (7th Cir. 1989).

 Both transaction and loss causation must be shown in order to satisfy the causation element of § 10(b) or 10b-5 claims. Transaction causation examines whether plaintiff would have engaged in the transaction but for defendants' misrepresentations or omissions. To establish transaction causation, a plaintiff must show that defendants' misrepresentations or omissions caused plaintiff to make the investment at issue. Kayne v. PaineWebber Inc., 703 F. Supp. 1334, 1342 (N.D. Ill. 1989). Loss causation looks at whether plaintiff would have incurred the harm or loss of which he complains but for defendants' wrongdoing. Bastian v. Petren Resources Corp., 892 F.2d 680, 685 (7th Cir.), cert. denied, 496 U.S. 906, 110 L. Ed. 2d 270, 110 S. Ct. 2590 (1990). "Loss causation means that the investor would not have suffered a loss if the facts were what he believed them to be." LHLC Corp. v. Cluett, Peabody & Co. Inc., 842 F.2d ...


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