United States District Court, N.D. Illinois, Eastern Division
CARPENTERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA and CARPENTERS ANNUITY TRUST FUND FOR NORTHERN CALIFORNIA, individually and on behalf of all others similarly situated, Plaintiff,
THE ALLSTATE CORPORATION, THOMAS J. WILSON, and MATTHEW E. WINTER, Defendants.
MEMORANDUM OPINION AND ORDER
W. Gettleman United States District Judge
Carpenters Pension Trust Fund for Northern California and
Carpenters Annuity Trust Fund for Northern California,
individually and on behalf of others similarly situated, have
brought a two count putative class action amended complaint
against defendant Allstate Corporation
(“Allstate”), its Chief Executive Officer
(“CEO”), Chairman, and President from 2005 to
2015 Thomas Wilson, and the CEO and President of Allstate
Financial Matthew Winter, who also took over for Wilson as
President in 2015 (collectively “defendants”).
Count I alleges that defendants violated Section 10(b) of the
Securities Exchange Act (“Exchange Act”), 15
U.S.C. § 78j(b), and Securities and Exchange Commission
(“SEC”) Rule 10b-5 promulgated thereunder, 17
C.F.R. ' 240.10b-5. Count II, brought only against Wilson
and Winter, alleges control person liability under Section
20(a) of the Exchange Act. 15 U.S.C. § 78t(a).
Defendants have moved to dismiss the complaint for failure to
state a claim under Fed.R.Civ.P. 12(b)(6), and failure to
meet the heightened pleading requirements of the Private
Securities Litigation Reform Act (“PSLRA”), 15
U.S.C. § 78u-4(b). For the reasons discussed below, the
court denies defendants' motion to dismiss.
Plaintiffs bring this complaint on behalf of a class of
investors that purchased Allstate common stock between
October 29, 2014, and August 3, 2015
(“plaintiffs”). Plaintiffs claim that defendants
are liable under Sections 10(b) and 20(a) for material false
statements and omissions regarding the cause of an alleged
spike in auto insurance claims frequency. According to
plaintiffs, Allstate implemented a plan to attract more auto
insurance customers starting in 2013. Plaintiffs further
allege that an undisclosed element of that plan was to
greatly reduce Allstate's underwriting standards to
attract customers who would have previously been considered
too risky, and would not have been approved for an Allstate
auto insurance policy. Plaintiffs claim that this undisclosed
strategy to attract more customers worked, and resulted in a
significant increase in auto insurance claims frequency
starting in October 2014.
further allege that, when asked about the increase in auto
insurance claims frequency, defendants made several
materially false statements attributing the increase to
external factors rather than Allstate's undisclosed
reduction in underwriting standards. According to plaintiffs,
these misstatements convinced initially skeptical securities
analysts to view Allstate's financial outlook favorably
despite the fact that its competitors were not experiencing
similar increases in auto insurance claims frequency.
misstatements, according to plaintiffs, were revealed in part
when Allstate partially disclosed the negative impact of its
reduced underwriting standards on February 4 and May 5, 2015.
Plaintiffs claim that Allstate's stock remained
artificially inflated until August 3, 2015, when Allstate
issued a press release reporting its financial results for
the second quarter of 2015, fully disclosing the negative
impact of its reduced underwriting standards. Investors were
allegedly shocked when the press release reported a claims
frequency increase for the third consecutive quarter, an
operating income drop of 57% from the previous quarter, and
an operating earnings per share of 35% below analysts'
consensus. Allstate's stock fell more than 10% that same
day. Plaintiffs further allege that Winter connected the
claims frequency to Allstate's reduced underwriting
standards for the first time in that press release, and
admitted that the impact was expected during an earnings call
the following day.
plaintiffs allege that Wilson engaged in suspicious insider
selling when he liquidated $33 million worth of Allstate
stock, which represented 85% of his direct holdings, in
November 2014. Then, in May 2015 Wilson allegedly sold
another $6.2 million worth of his stock.
motion to dismiss under Fed.R.Civ.P. 12(b)(6) challenges the
sufficiency of the complaint, not its merits. Gibson v.
City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990).
When evaluating a Rule 12(b)(6) motion, the court accepts as
true all well-pleaded factual allegations and draws all
reasonable inferences in plaintiff's favor. Sprint
Spectrum L.P. v. City of Carmel, Indiana, 361 F.3d 998,
1001 (7th Cir. 2004). The complaint must allege sufficient
facts that, if true, would raise a right to relief above the
speculative level, showing that the claim is plausible on its
face. Bell Atlantic Corp. v. Twombly, 550 U.S. 549,
555 (2007). To be plausible on its face, the complaint must
plead facts sufficient for the court to draw the reasonable
inference that the defendant is liable for the alleged
misconduct. Ashcroft v. Iqbal, 556 U.S. 662, 678
plaintiffs' Section 10(b) claims sound in fraud, they are
also subject to the heightened pleading requirements of
Fed.R.Civ.P. 9(b). Rule 9(b) provides that in “alleging
fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” The
complaint must provide “the who, what, when, where and
how” of the alleged fraud. DiLeo v. Ernst &
Young, 901 F.2d 624, 627 (7th Cir. 1990).
addition to Rule 9(b), to check against pleading abuses in
private securities fraud suits, the PSLRA has further
heightened the pleading requirements. Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 314-15
(2007). Under the PSLRA, the plaintiff must “specify
each statement alleged to have been misleading, the reason or
reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on
information and belief, the complaint shall state with
particularity all facts on which that belief is
formed.” 15 U.S.C. § 78u-4(b)(1).
PSLRA also imposes a substantially higher standard of
pleading scienter. The complaint must “with respect to
each act or omission . . . state with particularity facts
giving rise to a strong inference that the defendant acted
with the required state of mind.” 15 U.S.C. §
78u-4(b)(2). The required state of mind is an “intent
to deceive, manipulate or defraud.” Higginbotham v.
Baxter Int.=l Inc., 495 F.3d 753, 756 (7th Cir. 2007).
For an inference to be ‘strong, ” it must be
“cogent and at least as compelling as any opposing
inference one could draw from the facts alleged.”
Tellabs, 551 U.S. at 324.
I - Section 10(b) and Rule 10b-5
alleges that defendants violated Section 10(b) of the
Exchange Act and SEC Rule 10b-5. Section 10b, 15 U.S.C.
§ 78j(b), makes it unlawful:
To use or employ, in connection with the purchase or sale of
any security registered as on a national securities exchange
. . . any manipulative or deceptive device or contrivance in