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Shailja Gandhi, Revocable v. Sitara Capital Management

February 25, 2011


The opinion of the court was delivered by: Judge Joan B. Gottschall


Plaintiffs Shailja Gandhi Revocable Trust (November 6, 2002) ("Gandhi Trust"), Amit Vyas, M.D., and Trupti Vyas, ("the Vyases"), Mihir "Mick" Majmundar, M.D., and Mita Majmundar ("the Majmundars") (collectively, the "plaintiffs") brought this action pursuant to the Securities Exchange Act of 1934, the Employee Retirement Income Security Act of 1974 ("ERISA"), and various state causes of action after they lost their investment in Sitara Partners,

L.P. ("Sitara Partners") which, they allege, was managed by defendants Rajiv Patel and Sitara Capital Management, LLC ("Sitara LLC") (collectively, the "defendants"). Presently before the court is the defendants' motion to dismiss the plaintiffs' amended complaint.*fn2 For the reasons stated herein, the motion is granted.


As the court explained in an earlier opinion: On a Rule 12(b)(6) motion, the court must accept as true the allegations of the complaint and draw all reasonable inferences in favor of plaintiff. Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (internal citation omitted). Legal conclusions, however, are not entitled to any assumption of truth. Ashcroft v. Iqbal, --- U.S. ----, 129 S. Ct. 1937, 1940, 173 L. Ed. 2d 868 (2009).

The Federal Rules of Civil Procedure distinguish between general claimsand those asserting fraud or mistake. Generally, to survive a Rule 12(b)(6) motion, "the complaint need only contain a 'short and plain statement of the claim showing that the pleader is entitled to relief.'" EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Fed. R. Civ. P. 8(a)(2)). The allegations must provide the defendant with "fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (citing Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). Under Federal Rule of Civil Procedure 8(a)(2), the plaintiff bringing a general claim need not plead particularized facts, but the factual allegations in the complaint must be sufficient to "state a claim to relief that is plausible on its face[.]" Id. at 570, 127 S. Ct. 1955. "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." Iqbal, 129 S. Ct. at 1940 (citing Twombly, 550 U.S. at 556, 127 S. Ct. 1955).

Plaintiffs pleading fraud or mistake must plead with particularity the facts constituting that fraud or mistake. See Fed. R. Civ. P. 9(b). "This means the who, what, when, where, and how: the first paragraph of any newspaper story." See DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). The "who" in a multi-defendant fraud case such as this must itself be pled with particularity: "the complaint should inform each defendant of the nature of his alleged participation in the fraud," to the extent that such information is not uniquely within defendants' possession. Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 777-78 & n.5 (7th Cir. 1994) (quoting DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987)).

Defendants assert that each plaintiff must allege his reliance on particular statements, an argument that finds support in a strong hint from the Seventh Circuit. See Ackerman v. Nw. Mut. Life Ins. Co., 172 F.3d 467, 470-71 (7th Cir. 1999) (noting that "compliance with Rule 9(b) is burdensome" with hundreds of plaintiffs, "[b]ut you cannot get around the requirements of the rule just by joining a lot of separate cases into one."). The Ackerman court's guidance is consistent with its "who, what, when" guidance and with a straightforward reading of Rule 9(b), and so the court will analyze plaintiffs' complaint in this case for specific allegations by each plaintiff in those counts where Rule 9(b) applies.

Finally, plaintiffs have appended multiple exhibits to their complaint. While a Rule 12(b)(6) motion normally tests only the complaint itself, the court properly considers these attachments as well. Forrest v. Universal Savings Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2007).

Shailja Gandhi Revocable Trust v. Sitara Capital Mgmt., LLC, 689 F. Supp. 2d 1004, 1007-08 (N.D. Ill. 2010).


A. Counts III-VIII, X, XV, and XVI*fn3

The defendants argue that Counts III-VIII and X must be dismissed because plaintiffs do not allege reliance. In Counts III-VIII and X, the plaintiffs allege fraud in connection with the sale of securities in violation of § 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78j,Rule 10b-5, codified at 17 C.F.R. § 240.10b-5, and subsections (A), (F), (G), (I) and (J) of § 12 of the Illinois Securities Law of 1953, 815 Ill. Comp. Stat. 5/12. To state a claim sounding in fraud under these laws, the plaintiffs must allege reliance. Stoneridge Inv. Partners, LLC v. Scientific Atlanta, Inc., 552 U.S. 148, 159, 128 S. Ct. 761, 169 L. Ed. 2d 627 (2008) (holding that reliance is an "essential element of the § 10(b) private cause of action"); In re HealthCare Compare Corp. Secs. Litig., 75 F.3d 276, 280 (7th Cir. 1996) ("To state a valid Rule 10b-5 claim, a plaintiff must allege that the defendant (1) made a misstatement or omission, (2) of material fact, (3) with scienter, (4) in connection with the purchase or sale of securities, (5) upon which the plaintiff relied, and (6) that reliance proximately caused plaintiff's injuries." (citation omitted)); Tirapelli v. Advanced Equities, Inc., 813 N.E.2d 1138, 1142 (Ill. App. Ct. 2004) ("Reasonable reliance is an element of sections 12(F), 12(G), and 12(I) of the Illinois Securities Law . . . and Illinois common law fraud." (citations omitted)); Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007) ("A claim that 'sounds in fraud' -- in other words, one that is premised upon a course of fraudulent conduct -- can implicate Rule 9(b)'s heightened pleading requirements."); Shailja Gandhi Revocable Trust, 689 F. Supp. 2d at 1013 ("Reasonable reliance is an element of fraud claims arising under the Illinois Securities Law.") (citation omitted).

In addition, in counts XV and XVI, the plaintiffs bring an Illinois common law fraud in the inducement claim and a fraudulent misrepresentation claim, respectively. Previously, after explaining that these claims were subject to Rule 9(b)'s heightened pleading standards, the court dismissed counts XV and XVI because the plaintiffs failed to plead with the requisite particularity. Shailja Gandhi Revocable Trust, 689 F. Supp. 2d at 1016-17. The court instructed that if the plaintiffs were to replead, the complaint must include, specifically as to each defendant and each plaintiff, ...

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