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21-909-cv

Town of Davie v. National General

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A 

SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY 

FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. 

WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST 

CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION 

“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON 

ANY PARTY NOT REPRESENTED BY COUNSEL. 

At a stated term of the United States Court of Appeals for the Second Circuit, held 

at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, 

on the 5th day of November, two thousand twenty-one.

Present:

DEBRA ANN LIVINGSTON,

Chief Judge,

REENA RAGGI

Circuit Judge,

ERIC VITALIANO,

District Judge.

*

_____________________________________

TOWN OF DAVIE POLICE OFFICERS RETIREMENT 

SYSTEM, MASSACHUSETTS LABORERS’ PENSION 

FUND,

Movants-Appellants,

v. 21-909-cv

CITY OF NORTH MIAMI BEACH POLICE OFFICERS’

AND FIREFIGHTERS’ RETIREMENT PLAN, individually 

and on behalf of all others similarly situated,

Plaintiff,

NATIONAL GENERAL HOLDINGS CORP., BARRY 

* Judge Vitaliano, of the United States District Court for the Eastern District of New York, sitting by 

designation.
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KARFUNKEL, MICHAEL WEINER, ARTHUR CASTNER,

Defendants-Appellees.

_____________________________________

For Movants-Appellants: JOSEPH D. DALEY (Arthur C. Leahy, Joseph D. Daley, 

Ashley M. Price, on the brief), Robbins Geller Rudman 

& Dowd LLP, San Diego, CA.

David A. Rosenfeld, on the brief, Robbins Geller 

Rudman & Dowd LLP, Melville, NY.

For Defendants-Appellees: DEREK SHAFFER (Michael B. Carlinsky, Corey 

Worcester, Ellyde R. Thompson, Renita N. Sharma, on 

the brief), Quinn Emanuel Urquhart & Sullivan, LLP, 

New York, NY.

Appeal from a judgment of the United States District Court for the Southern District of 

New York (Oetken, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND 

DECREED that the judgment of the district court is AFFIRMED.

In this putative class action, Town of Davie Police Officers Retirement System and

Massachusetts Laborers’ Pension Fund (“Plaintiffs-Appellants”) appeal from the district court’s 

judgment of March 15, 2021, which followed an opinion and order of January 21, 2021, granting 

Defendants-Appellees’ motion to dismiss Plaintiffs-Appellants’ Amended Complaint for failure 

to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).

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 The Amended Complaint 

was brought under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange 

Act”), 15 U.S.C. §§ 78j(b) and 78t, and Exchange Act Rule 10b-5, 17 C.F.R. § 240.10b-5, and 

1 Defendants-Appellees are: (1) National General Holdings Corporation (“National General” or the 

“Company”); (2) Barry Karfunkel (“Karfunkel”), the Company’s Chief Executive Officer; (3) Michael 

Weiner (“Weiner”), its Chief Financial Officer; and (4) Arthur Castner (together with Karfunkel and 

Weiner, the “Individual Defendants”), the President of National General Lender Services, Inc., a wholly 

owned subsidiary of National General. 
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centers on National General’s lender-placed insurance (“LPI”) business, which commenced in or 

around October 2015 when National General acquired QBE Insurance Group Limited’s (“QBE”) 

LPI business, which became National General Lender Services. As part of that LPI business, 

National General underwrote a type of auto insurance known as collateral protection insurance 

(“CPI”) for Wells Fargo Bank, N.A. and Wells Fargo & Company (collectively, “Wells Fargo”). 

The Amended Complaint alleges that CPI was unnecessarily added to Wells Fargo’s auto loan 

customers’ accounts without their consent, and that during the Class Period (between July 15, 2015 

and August 9, 2017, inclusive) Defendants-Appellees conspired with Wells Fargo to conceal the 

CPI scheme from investors. The district court dismissed the complaint, principally concluding 

that Plaintiffs-Appellants had failed adequately to allege scienter. 2 We assume the parties’ 

familiarity with the underlying facts and procedural history of this case, which we reference here 

only as necessary to explain our decision to affirm.

* * *

“We review the dismissal of a complaint de novo, accepting all factual allegations in the 

complaint as true and drawing all reasonable inferences in favor of the plaintiff.” Caro v. 

Weintraub, 618 F.3d 94, 97 (2d Cir. 2010) (citations omitted). An action under section 10(b) of 

the Exchange Act has the following basic elements: “(1) a misstatement or omission of material 

fact; (2) scienter; (3) a connection with the purchase or sale of securities; (4) reliance; (5) economic 

loss; and (6) loss causation.” Plumber & Steamfitters Loc. 773 Pension Fund v. Danske Bank 

A/S, 11 F.4th 90, 98 (2d Cir. 2021) (citations omitted). While Federal Rule of Civil Procedure 

9(b) provides that “conditions of a person’s mind may be alleged generally,” under the Private 

2 In its January 21 opinion and order, the district court granted Plaintiffs-Appellants’ request for leave to

further amend their complaint, but they declined to do so.
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Securities Litigation Reform Act of 1995 (“PSLRA”), a securities plaintiff must nevertheless 

allege facts that suggest a “strong inference” of scienter. See 15 U.S.C. § 78u-4(b)(2)(A). The 

Supreme Court has characterized a “strong inference” of scienter as one that is “at least as 

compelling as any opposing inference one could draw from the facts alleged.” Tellabs, Inc. v. 

Makor Issues & Rts., Ltd., 551 U.S. 308, 324 (2007). The requisite scienter can be established 

by alleging facts to show either (1) that defendants had the motive and opportunity to commit 

fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness. Set Cap. 

LLC v. Credit Suisse Grp. AG, 996 F.3d 64, 78 (2d Cir. 2021). Nevertheless, “where the plaintiffs 

do not allege facts supporting a motive,” “their circumstantial evidence of actual knowledge must 

be correspondingly greater.” Slayton v. Am. Express Co., 604 F.3d 758, 776 (2d Cir. 2010). For 

the reasons set forth below, we agree with the district court that Plaintiffs-Appellants have not 

alleged facts amounting to a strong inference of scienter and thus affirm the court’s dismissal of 

Plaintiffs-Appellants’ section 10(b) claims.

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1. Motive and Opportunity

On appeal, Plaintiffs-Appellants first argue that, contrary to the district court’s analysis,

they adequately alleged a motive to conceal Wells Fargo’s CPI scheme from investors arising from 

“the concrete benefit secured by National General from underwriting the lucrative, albeit oftenunnecessary, CPI coverage.” Br. of Plaintiffs-Appellants at 44. We disagree. As we have 

said before, the “concrete benefits” that are the focus of the motive inquiry must be personal in 

nature. See ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co., 553 

3 Because our conclusion as to scienter is sufficient to resolve this case, we need not address DefendantsAppellees’ contention that Plaintiffs-Appellants also failed to allege any false or misleading statement or 

omission. In addition, Plaintiffs-Appellants’ section 20(a) claim was properly dismissed given their

failure adequately to plead a primary violation of section 10(b). 
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F.3d 187, 198 (2d Cir. 2009) (“In order to raise a strong inference of scienter through motive and 

opportunity to defraud, Plaintiffs must allege that [the defendant company] or its officers 

benefitted in some concrete and personal way from the purported fraud.” (citations and internal 

quotation marks omitted)). “Motives that are common to most corporate officers, such as the 

desire for the corporation to appear profitable and the desire to keep stock prices high to increase 

officer compensation, do not constitute ‘motive’ for purposes of this inquiry.” Id. (citations 

omitted). Here, even assuming that National General’s dealings with Wells Fargo in connection 

with the CPI scheme contributed to National General’s bottom line, the motive that PlaintiffsAppellants allege is little more than the general “desire for the corporation to appear profitable” 

that we have repeatedly rejected. Kalnit v. Eichler, 264 F.3d 131, 139 (2d Cir. 2001).

We likewise agree with the district court that the allegations in the Amended Complaint 

regarding the sale of National General common stock by AmTrust Financial Services, Inc. 

(“AmTrust”), another insurance company in which members of Karfunkel’s extended family 

owned a majority stake, are also insufficient. “[T]he ‘motive’ showing is generally met when 

corporate insiders allegedly make a misrepresentation in order to sell their own shares at a profit.” 

ECA, 553 F.3d at 198 (emphasis added). Here, Plaintiffs-Appellants do not allege that any of the 

Individual Defendants sold National General shares during the Class Period, nor even that Amtrust 

itself sold its shares at a profit. Cf. San Leandro Emergency Med. Grp. Profit Sharing Plan v. 

Philip Morris Cos., Inc., 75 F.3d 801, 814 (2d Cir. 1996) (“[W]e conclude that the sale of stock 

by one company executive does not give rise to a strong inference of the company’s fraudulent 

intent; the fact that other defendants did not sell their shares during the relevant class period 

sufficiently undermines plaintiffs’ claim regarding motive.” (citations omitted)); Acito v. IMCERA 

Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995) (“[Th]e sale of stock by one outside director does not give 
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rise to a strong inference of an intent to deceive . . . . The fact that the other defendants did not sell 

their shares . . . undermines plaintiffs’ claim . . . .’”). These allegations thus fall short of 

suggesting “the concrete benefits that could be realized from one or more of the allegedly 

misleading statements or nondisclosures. . . .” Employees’ Ret. Sys. of Gov’t of the Virgin Islands 

v. Blanford, 794 F.3d 297, 309 (2d Cir. 2015) (citations and internal quotation marks omitted). 

2. Circumstantial Evidence

Plaintiffs-Appellants next contend that they satisfied the scienter requirement by pleading 

facts “constituting strong circumstantial evidence of conscious misbehavior or recklessness.” 

ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007) (citations omitted). 

Under Plaintiffs-Appellants’ theory, Defendants-Appellees’ knowledge of the CPI scheme (and 

their conscious or reckless concealment of that scheme from investors) can be inferred from: (1) 

due diligence that National General conducted before acquiring QBE’s LPI business; (2) periodic 

review meetings that National General employees held with Wells Fargo and the materials that 

were circulated at those meetings; (3) a Wells-Fargo-commissioned investigation by Oliver 

Wyman, the management consulting firm, and Oliver Wyman’s February 2017 report regarding 

the CPI program; and (4) National General’s “flat” organizational structure. Again, we are not 

persuaded. 

After examining “all of the facts alleged, taken collectively,” we conclude that no 

“reasonable person” would “deem the inference of scienter cogent and at least as compelling as 

any opposing inference one could draw from the facts alleged.” Tellabs, 551 U.S. at 323–24

(emphasis omitted). Plaintiffs-Appellants rely on National General’s pre-acquisition due 

diligence, but “conditional allegations of the sort that [a defendant] ‘would’ have learned the truth 

about a company’s fraud” through due diligence are “generally insufficient” to plead scienter. In 
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re Advanced Battery Techs., Inc., 781 F.3d 638, 646 (2d Cir. 2015) (alteration in original) (citations 

and internal quotation marks omitted). And while Plaintiffs-Appellants rely on the review 

meetings National General held with Wells Fargo and the materials that were distributed at those 

meetings, they fail to “specifically identify the reports or statements” made in connection with 

those meetings that contained incriminating information about the CPI program. See Novak v. 

Kasaks, 216 F.3d 300, 309 (2d Cir. 2000). Plaintiffs-Appellants urge that the Oliver Wyman 

inquiry would have alerted Defendants-Appellees to the CPI-related misconduct because, as part 

of its investigation of Wells Fargo, Oliver Wyman interviewed National General employees. But 

the Amended Complaint identifies neither the employees who were interviewed nor their roles, 

nor does it plead that the Individual Defendants were aware of the purpose of the interviews. 

Finally, Plaintiffs-Appellants’ emphasis on the Individual Defendants’ positions within National 

General’s “flat” organizational structure is similarly misplaced because, as discussed above, the 

Amended Complaint does not allege that any specific individual at National General was 

confronted with information about the CPI-related misconduct. 

Considered as a whole, Plaintiffs-Appellants’ allegations do not suffice to plead scienter 

with respect to the Individual Defendants. Nor do these allegations suffice to plead corporate 

scienter, as they fail to “create a strong inference either (1) that someone whose intent could be 

imputed to the corporation acted with the requisite scienter or (2) that the [allegedly false or 

misleading statements identified in the Amended Complaint] would have been approved by 

corporate officials sufficiently knowledgeable about the company to know that those statements 

were misleading.” Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 177 

(2d Cir. 2015) (citations and internal quotation marks omitted).
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We have considered Plaintiffs-Appellants’ remaining arguments and find them to be 

without merit. Accordingly, we AFFIRM the judgment of the district court. 

FOR THE COURT:

Catherine O’Hagan Wolfe, Clerk of Court