### In the



# United States Court of Appeals

For the Seventh Circuit

____________________

No. 17

‐ 2583

K URT V. C ORNIELSEN

, et al.

, Plaintiffs

‐ Appellants

,

v.

I NFINIUM C APITAL

M ANAGEMENT

, LLC, et al.

, Defendants

‐ Appellees

.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 14

‐ cv

‐ 00098

— Andrea R. Wood

, Judge

.

____________________

A RGUED F EBRUARY 13, 2018

— D ECIDED F EBRUARY 13, 2019

____________________

Before S YKES and B ARRETT

, Circuit Judges

, and G RIESBACH

, Chief District Judge

. *

* Of the Eastern District of Wisconsin, sitting by designation.2 No. 17

‐ 2583

G RIESBACH

, District Judge

. Plaintiffs

‐ appellants, 39 former

employees of Infinium Capital Management, LLC, voluntar

‐ ily converted loans they had made to their employer under

the company’s Employee Capital Pool program into equity in

the company. A year later their redemption rights were sus

‐ pended, and six months after that, they were told their invest

‐

ments were worthless. Plaintiffs filed suit against their em

‐ ployer, the holding company that owned their employer, and

several members of the senior management, asserting claims

for federal securities fraud and state law claims for breach of

fiduciary duty and fraud. This appeal is from the district

court’s order dismissing with prejudice their fifth amended

complaint for failure to state a claim. For the reasons that fol

‐

low, we affirm.

I. Background

Infinium is a diversified alternative asset and risk manage

‐

ment firm with offices in Chicago, Houston, New York, and

London. It trades exchange

‐ traded and centrally cleared fi

‐

nancial instruments offering fundamental arbitrage strate

‐ gies. Infinium Capital Holdings is a holding company that

owned Infinium. To simplify and for clarity, we refer to both

as Infinium.

Prior to 2012, Infinium created the Employee Capital Pool,

through which Plaintiffs collectively loaned the company just

over $5 million. After a profitable year in 2011, Infinium in

‐

vited capital pool participants to convert their loans into eq

‐ uity as Class B

‐ 2 shareholders in Infinium through an “Equity

Conversion” program. Capital pool participants received no

‐

tice of the Equity Conversion opportunity by e

‐ mail on Feb

‐

ruary 14, 2012. Members of Infinium’s senior management—

Charles Whitman, Gregory Eickbush, Brian Johnson, andNo. 17

‐ 2583 3

Scott Rose (collectively, the Individual Defendants)—subse

‐ quently conducted three “town hall” meetings about the pro

‐ posal. Those meetings occurred on February 16, 17, and 22,

2012, and each Plaintiff attended at least one meeting.

Plaintiffs claim that the Individual Defendants made sev

‐

eral misrepresentations and omissions at the three town hall

meetings that induced them to participate in the Equity Con

‐

version. Plaintiffs allege the Individual Defendants stated

there would be a single class of equity in Infinium and that all

current and future equity holders would receive equal treat

‐

ment; whereas in fact, Infinium was seeking the infusion of

new funds from third

‐ party investors and offered those inves

‐

tors superior rights to all other equity holders in Infinium and

guaranteed the equity of those investors from certain losses.

Plaintiffs also allege the Individual Defendants stated that In

‐

finium had access to an untapped $20 million line of credit

that it could use to pay down debt owed to George Hanley

and Nathan Laurell, two members of Infinium’s advisory

board who were in the process of redeeming their equity in

Infinium. Finally, the Individual Defendants allegedly also

told meeting attendees that those who participated in the Eq

‐ uity Conversion would receive two free months of profit for

January and February 2012, when in fact, Infinium had lost

$4.3 million during that period and there was no profit for

those months as a result. In addition, in the course of soliciting

the conversion of their loans to equity, Infinium wrote to

Plaintiffs and explained that Plaintiffs would be able to re

‐

deem 50% any monies converted from debt to equity or oth

‐

erwise invested by Plaintiffs in the first year (2013) and 50%

in the following year (2014), with the ability to withdraw all

of their equity investments in just two years.4 No. 17

‐ 2583

Participants in the capital pool also received a Private

Placement Memorandum (PPM) on February 14, 2012, detail

‐ ing the risks of the Equity Conversion. The PPM made exten

‐

sive disclosures about the risks to Plaintiffs’ investments and

the nature of the interests in Infinium they would obtain if

they chose to participate in the Equity Conversion. It dis

‐

closed that Equity Conversion participants would “not have

voting rights,” meaning their interests would not permit them

“to elect or remove members of the Board” and they would

not “have any ability to affect the management of the com

‐ pany.” The PPM also contradicted certain statements Plain

‐

tiffs allege the Individual Defendants made during the town

hall meetings. For instance, with regard to Infinium’s debts,

the PPM disclosed that Plaintiffs’ equity interests would be

“junior in right of payment” to Infinium’s “secured and unse

‐

cured debts, including commercial lines of credit” and “any

other debt securities [Infinium] may issue in the future.” The

disclosures were particularly forthright about risks from a

$53 million debt related to the redemption of equity interests

in Infinium held by George Hanley and Nathan Laurell: “This

will cause a significant change in the capital structure of In

‐

finium, and could constrain or even eliminate Infinium’s abil

‐ ity to obtain financing for its business pursuits. The servicing

of this debt will constrain Infinium’s available capital and

could have a material adverse effect on Infinium’s business.”

Also disclosed in the PPM were limitations on the partici

‐ pants’ redemption of capital, only 50% of which would be

available for redemption after one year, with the remainder

available after a second. The PPM explicitly stated that those

redemption rights could be limited or suspended by the

board under certain circumstances, such as if redemptionNo. 17

‐ 2583 5

would prevent the company from complying with regula

‐

tions requiring it to hold a particular amount of capital. In ad

‐

dition, the company would have “broad discretion in using

the proceeds” from the Equity Conversion and, indeed, might

“not use them in a manner Investors would prefer.”

The PPM also referred to the LLC Agreement for Infinium

as well as a Subscription Agreement, both of which were at

‐

tached as exhibits. The LLC Agreement provided details

about the structure of Infinium, including information de

‐

scribed in the PPM, such as capital redemption rules and the

nature of participants’ equity interests. The Subscription

Agreement set forth several representations and warranties,

including that the Equity Conversion participant could “bear

the economic risk of losing the

... entire investment.” The

Agreement confirmed that each Equity Conversion partici

‐

pant was furnished with the LLC Agreement, the Joinder, the

PPM, and other documents, materials, and information as he

or she deemed necessary for evaluating whether to invest in

the company. The Subscription Agreement also contained a

non

‐ reliance clause which stated: “[I]n entering into this

transaction the undersigned is not relying upon any infor

‐

mation other than that contained in the LLC Agreement, the

Joinder and the results of the undersigned’s own independent

investigation.” All Equity Conversion participants were re

‐ quired to sign the Subscription Agreement.

Plaintiffs allege they were told that, if they did not elect to

participate in the Equity Conversion by March 2, 2012, then

their loans would be repaid during 2012. Thereafter, Plaintiffs

allege, those who opted against taking part in the Equity Con

‐

version would no longer be able to participate in a permanent,

structured vehicle to share in the company’s growth. Prior to6 No. 17

‐ 2583

the March 2nd deadline, Plaintiffs allege that the Individual

Defendants represented to some Plaintiffs that Infinium

would still have nearly $50 million in equity after Hanley and

Laurell redeemed their own equity interests. Ultimately,

every Plaintiff elected to participate in the Equity Conversion

and, collectively, converted more than $5 million from capital

pool loans into equity in Infinium. Some Plaintiffs chose to

invest additional funds in excess of loans already made

through the capital pool.

According to Plaintiffs, Infinium’s financial position was

far worse than represented to them when they agreed to par

‐ ticipate in the Equity Conversion. During an April 2015 dep

‐

osition conducted by the Securities and Exchange Commis

‐

sion (SEC), Plaintiff Gordon Wallace allegedly saw certain

confidential documents authored or received by the Individ

‐

ual Defendants pertaining to Infinium’s financial situation in

the weeks before the Equity Conversion. According to Plain

‐

tiffs, the documents showed that Infinium was insolvent and

on the verge of bankruptcy at that time and had already

drawn down $6 million on the $20 million line of credit men

‐

tioned at the town hall meetings. Infinium’s management

team thus feared that its lender would require immediate re

‐

payment of the line of credit, an impossibility due to the com

‐ pany’s insolvency. Moreover, Plaintiffs allege that the docu

‐

ments showed that Infinium had already incurred losses of

$4.3 million during January and February 2012. The docu

‐

ments also allegedly demonstrated that, before the Equity

Conversion, Infinium lacked the resources to repay the capital

pool loans, to allow Hanley and Laurell to redeem their eq

‐ uity, or even to sustain the trading activities necessary to gen

‐

erate profits. As further indication of Infinium’s poor finan

‐

cial circumstances during early 2012, Plaintiffs allege that inNo. 17

‐ 2583 7

late 2011 two of the Individual Defendants, Charles Whitman

and Brian Johnson, privately made undisclosed redemptions

of their own equity in Infinium.

Infinium’s financial difficulties continued throughout

2012, culminating in losses for the year in excess of $6.5 mil

‐

lion. On March 8, 2013, Infinium suspended Plaintiffs’ rights

to redeem their capital on the ground that the company was

in default of its debt service obligations to Hanley and Laurell.

During an “investor call” with Plaintiffs on September 1, 2013,

Infinium’s acting CEO revealed that the money invested by

the Equity Conversion participants had become “worthless,”

with a value of negative $18 million. At that time, Plaintiffs

also learned that, to prevent a hostile takeover by Hanley, In

‐

finium had not only converted a portion of the debt owed to

Hanley and Laurell into equity but also agreed to eliminate

Plaintiffs’ right to redeem their investments. Additionally,

Plaintiffs learned during the call about a class of equity con

‐ sisting of money invested by third

‐ parties that was superior

to Plaintiffs’ equity and protected from certain losses. Infin

‐

ium sought additional outside investment during February

2013.

Plaintiffs filed this action in the Northern District of Illi

‐

nois in January 2014. Their complaint alleged claims for fed

‐

eral securities fraud under Section 10(b) of the Securities Ex

‐ change Act of 1934 and SEC Rule 10b

‐ 5. See 15 U.S.C. § 78j; 17

C.F.R. § 240.10b

‐ 5. The complaint also included common law

claims for fraud and breach of fiduciary duty. Essentially,

Plaintiffs alleged that during the three February 2012 town

hall meetings Infinium, through its management, made vari

‐

ous misrepresentations and omissions regarding the Equity

Conversion proposal and Infinium’s financial condition that8 No. 17

‐ 2583

had a material effect on Plaintiffs’ decisions to convert their

loans into equity.

Although Plaintiffs amended their complaint several

times (once as a matter of right and subsequently with leave

of the court), the district court granted motions dismissing the

second and fourth amended complaints. Both dismissals were

without prejudice. After Plaintiffs filed a fifth amended com

‐ plaint, the district court issued an order in July 2017 granting

yet another motion to dismiss, this time with prejudice.

In dismissing the fifth amended complaint, the district

court explained that Plaintiffs’ most recent amendments

failed to correct deficiencies that the court had previously

identified. The court noted that it dismissed the second and

fourth amended complaints because Plaintiffs “insufficiently

pleaded scienter, failed to identify the speakers of the alleged

misrepresentations with particularity, and failed to plead a

duty to speak with respect to the alleged material omissions.”

Yet the fifth amended complaint made no changes in the

pleading of scienter, made only conclusory allegations that

the defendants had a duty to speak with regard to the alleged

omissions, and made only cosmetic rather than substantive

changes in an attempt to identify with particularity which In

‐

dividual Defendants made the alleged misrepresentations.

Plaintiffs now appeal the dismissal with prejudice of the fifth

amended complaint.

II. Analysis

We review de novo a district court’s grant of a motion to

dismiss for failure to state a claim. Calderon

‐ Ramirez v. McCa

‐

ment

, 877 F.3d 272, 275 (7th Cir. 2017). Before addressing the

arguments raised by Plaintiffs, we turn first to the argumentNo. 17

‐ 2583 9

by Infinium and the Individual Defendants that the non

‐ reli

‐

ance clause in the Subscription Agreement requires dismissal

regardless of whether the fifth amended complaint ade

‐ quately stated a claim for relief.

A. The Non

‐ Reliance Clause

In support of their motions to dismiss the second, fourth,

and fifth amended complaints, Infinium and the Individual

Defendants argued that, even if Plaintiffs stated a claim, the

non

‐ reliance clause contained in the Subscription Agreement

requires dismissal. The district court did not address this ar

‐

gument when dismissing any of the complaints. Citing Riss

‐

man v. Rissman

, 213 F.3d 381 (7th Cir. 2000), the defendants

argue that, as a matter of law, Plaintiffs’ claimed reliance on

oral statements made at the town hall meetings was unrea

‐

sonable in light of the Subscription Agreement’s non

‐ reliance

clause, through which each Plaintiff indicated he or she was

not relying upon any information other than that contained in

the LLC Agreement, the Joinder, and the results of his or her

own independent investigation.

In Rissman

, this court concluded that several non

‐ reliance

clauses in a private stock sale agreement prevented a plaintiff

from bringing a federal securities fraud claim alleging that he

sold his shares in a family company based on his brother’s

deceitful assurances that he would never take the company

public or sell it to a third party. Id. at 382–83. The court held

that “non

‐ reliance clauses in written stock

‐ purchase agree

‐

ments preclude any possibility of damages under the federal

securities laws for prior oral statements.” Id. at 383–84 (first

citing Jackvony v. RIHT Fin. Corp.

, 873 F.2d 411 (1st Cir. 1989)

(Breyer, J.); then citing One

‐ O

‐ One Enters., Inc. v. Caruso

, 848

F.2d 1282 (D.C. Cir. 1988) (Ginsburg, J.)). Emphasizing that10 No. 17

‐ 2583

non

‐ reliance clauses are the product of any bargain negoti

‐

ated between the parties, the court observed that they “en

‐

sure[] that both the transaction and any subsequent litigation

proceed on the basis of the parties’ writings, which are less

subject to the vagaries of memory and the risks of fabrica

‐

tion.” Id. at 384; see also Cerabio LLC v. Wright Med. Tech., Inc.

,

410 F.3d 981, 992 (7th Cir. 2005) (noting that enforcement of a

non

‐ reliance clause was particularly appropriate because “the

parties were sophisticated commercial entities assisted by

counsel”); Vigortone AG Prods., Inc. v. PM AG Prods., Inc.

, 316

F.3d 641, 644–45 (7th Cir. 2002) (“[P]arties to contracts who do

want to head off the possibility of a fraud suit will sometimes

insert a ‘no

‐ reliance’ clause into their contract, stating that nei

‐

ther party has relied on any representations made by the

other. Since reliance is an element of fraud, the clause, if up

‐

held—and why should it not be upheld, at least when the con

‐

tract is between sophisticated commercial enterprises—pre

‐

cludes a fraud suit

... .” (internal citations omitted)).

Each Plaintiff in this case entered into a written agreement

that contained ample cautionary language about the risks as

‐

sociated with the investment. In particular, the Subscription

Agreement recognizes that Infinium is a highly speculative

venture involving a high degree of financial risk and, as a re

‐

sult, each Equity Conversion participant must be able to bear

the economic risk of losing his or her entire investment. Each

Plaintiff signed the Subscription Agreement and represented

that he or she was “not relying upon any information other

than that contained in the LLC Agreement, the Joinder and

the results of the undersigned’s own independent investiga

‐

tion.” Plaintiffs had every opportunity to read the agreement

and investigate the company as he or she deemed appropriate

to evaluate the merits and risks of the investment. Based onNo. 17

‐ 2583 11

this court’s decision in Rissman

, the written representations in

the Subscription Agreement preclude Plaintiffs from now

claiming that they chose to participate in the Equity Conver

‐

sion because they reasonably relied on the Individual Defend

‐

ants’ oral statements made during the town hall meetings.

Although the district court’s dismissal of the fifth amended

complaint could be affirmed in large part on this basis alone,

the court will address Plaintiffs’ challenges to the merits of the

district court’s decision that the complaint failed to state a

claim for relief.

B. Failure to State a Claim for Federal Securities Fraud

“A motion under Rule 12(b)(6) tests whether the com

‐ plaint states a claim on which relief may be granted.” Richards

v. Mitcheff

, 696 F.3d 635, 637 (7th Cir. 2012). “To survive a Rule

12(b)(6) motion to dismiss, a complaint must (1) describe the

claim in sufficient detail to give the defendant fair notice of

the claim and grounds on which it rests, Dura Pharmaceuticals,

Inc. v. Broudo

, 544 U.S. 336, 346 (2005), and (2) contain suffi

‐

cient factual matter, accepted as true, to ‘state a claim to relief

that is plausible on its face.’” Ashcroft v. Iqbal

, 556 U.S. 662, 672

(2009) (quoting Bell Atl. Corp. v. Twombly

, 550 U.S. 544, 570

(2007)). The complaint’s “[f]actual allegations must be enough

to raise a right to relief above the speculative level.” Twombly

,

550 U.S. at 555.

Heightened pleading requirements apply to complaints

alleging fraud. Federal Rule of Civil Procedure 9(b) provides

that a party alleging fraud or mistake “must state with partic

‐ ularity the circumstances constituting fraud or mistake,” alt

‐ hough “[m]alice, intent, knowledge, and other conditions of a

person’s mind may be alleged generally.” This generally

means “describing the ‘who, what, when, where, and how’ of12 No. 17

‐ 2583

the fraud.” AnchorBank, FSB v. Hofer

, 649 F.3d 610, 615 (7th Cir

2011). The purpose of this particularity requirement is “to dis

‐

courage a ‘sue first, ask questions later’ philosophy.” Pirelli

Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co.

,

631 F.3d 436, 441 (7th Cir. 2011). “Greater precomplaint inves

‐ tigation is warranted in fraud cases,” we have explained, “be

‐

cause public charges of fraud can do great harm to the repu

‐

tation of a business firm or other enterprise (or individual),

... because fraud is frequently charged irresponsibly by people

who have suffered a loss and want to find someone to blame

for it,

... and because charges of fraud (and also mistake, the

other charge that Rule 9(b) requires be pleaded with particu

‐ larity) frequently ask courts in effect to rewrite the parties’

contract or otherwise disrupt established relationships.”

Ackerman v. Northwestern Mut. Life Ins. Co.

, 172 F.3d 467, 469

(7th Cir. 1999) (internal citations omitted).

To state a claim for federal securities fraud, a complaint

must allege “(1) a material misrepresentation or omission by

the defendant; (2) scienter; (3) a connection between the mis

‐ representation or omission and the purchase or sale of a secu

‐ rity; (4) reliance upon the misrepresentation or omission; (5)

economic loss; and (6) loss causation.” Pugh v. Tribune Co.

, 521

F.3d 686, 693 (7th Cir. 2008) (citing Stoneridge Inv. Partners,

LLC v. Scientific–Atlanta, Inc.

, 552 U.S. 148, 157 (2008)). Even

before the enactment of the Private Securities Litigation Re

‐

form Act of 1995 (PSLRA), this court had held that securities

fraud claims must satisfy Rule 9(b)’s particularity standard.

See Sears v. Likens

, 912 F.2d 889, 893 (7th Cir. 1990). Sec

‐

tion 21D(b)(2) of the PSLRA added the requirement that com

‐ plaints alleging securities fraud “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)(A). AnyNo. 17

‐ 2583 13

complaint alleging a material misstatement or omission must

also “specify each statement alleged to have been misleading”

and the “reason or reasons why the statement is misleading.”

Id. § 78u

‐ 4(b)(1).

These are the standards the district court applied in find

‐ ing Plaintiffs’ fifth amended complaint insufficient. Plaintiffs

contend that the district court erred in three respects by dis

‐ missing their complaint with prejudice. First, they maintain

that they identified with adequate particularity the alleged

fraudulent statements and omissions by the Individual De

‐

fendants. Second, they assert that the complaint creates a

strong inference that the Individual Defendants acted with

the required state of mind. Finally, they assert that the facts

alleged in the complaint show that Infinium and the Individ

‐

ual Defendants had a duty to disclose various pieces of infor

‐

mation to them. We will address each argument in turn.

1. Plainti ff

s Failed to Identify the Speakers of Alleged

Misrepresentations with Adequate Particularity.

To satisfy Rule 9(b)’s particularity standard, a complaint

must “state ‘the identity of the person who made the misrep

‐

resentation, the time, place and content of the misrepresenta

‐

tion, and the method by which the misrepresentation was

communicated to the plaintiff.’” Vicom, Inc. v. Harbridge

Merch. Servs., Inc.

, 20 F.3d 771, 777 (7th Cir. 1994) (internal

quotation marks omitted) (quoting Uni*Quality, Inc. v. Info

‐

tronx, Inc.

, 974 F.2d 918, 923 (7th Cir. 1992)). As a result, “[a]

complaint that attributes misrepresentations to all defend

‐

ants, lumped together for pleading purposes, generally is in

‐

sufficient.” Sears

, 912 F.2d at 893 (quoting Design Inc. v. Syn

‐

thetic Diamond Tech., Inc.

, 674 F. Supp. 1564, 1569 (N.D. Ill.

1987)).14 No. 17

‐ 2583

The district court dismissed Plaintiffs’ second amended

complaint in part because it set forth only general allegations

that “the Defendants” made various representations at the

town hall meetings. Those allegations failed to establish the

identity of the individuals who made the alleged representa

‐

tions and therefore clearly lacked Rule 9(b)’s required partic

‐ ularity. Likewise, the district court dismissed the fourth

amended complaint because it merely replaced general alle

‐ gations against “the Defendants” or “Infinium” with lists of

the Individual Defendants’ names—“Whitman, Eickbush,

Rose, and Johnson”—and thus provided no greater detail re

‐ garding which individuals made which representations. It

was against this backdrop that the district court determined

that the fifth amended complaint involved a change in form

rather than substance by replacing three counts against “all

defendants” and “all Individual Defendants” with thirteen

counts that repeated the same general allegations against each

defendant individually, while at the same time conceding that

they did not know which Individual Defendant said what.

Plaintiffs argue, however, that the “group pleading” doctrine

permits them to make collective allegations here because the

Individual Defendants made three group presentations to

Plaintiffs as potential investors.

Prior to enactment of the PSLRA, some circuits adopted

the group pleading doctrine to “allow[] plaintiffs to link cer

‐

tain defendants to alleged misrepresentations simply by

pleading that the defendants were part of the ‘group’ that

likely put the challenged documents together.” Southland Sec.

Corp. v. INSpire Ins. Solutions, Inc.

, 365 F.3d 353, 363 (5th Cir.

2004). The Ninth Circuit first formulated the doctrine in Wool

v. Tandem Computers Inc. :No. 17

‐ 2583 15

In cases of corporate fraud where the false or mislead

‐ ing information is conveyed in prospectuses, registra

‐

tion statements, annual reports, press releases, or other

“group

‐ published information,” it is reasonable to pre

‐

sume that these are the collective actions of the o ffi cers.

Under such circumstances, a plainti ff ful fi lls the partic

‐ ularity requirement of Rule 9(b) by pleading the mis

‐ representations with particularity and where possible

the roles of the individual defendants in the misrepre

‐

sentations.

818 F.2d 1433, 1440 (9th Cir. 1987) (citation omitted). Since the

enactment of the PSLRA, however, some courts have deter

‐

mined that the judicially

‐ created group pleading doctrine

“cannot withstand” the PSLRA’s clear statutory prerequisites

“that the untrue statements or omissions be set forth with par

‐ ticularity as to ‘the defendant’ and that scienter be pleaded

with regard to ‘each fact or omission’ sufficient to give ‘rise to

a strong inference that the defendant acted with the required

state of mind.’” Southland

, 365 F.3d at 364 (citing 15 U.S.C.

§ 78u

‐ 4(b)). This court has embraced that reasoning and de

‐

clined to permit group pleading in this context. See Makor Is

‐

sues & Rights, Ltd. v. Tellabs, Inc.

, 437 F.3d 588, 603 (7th Cir.

2006), rev’d on other grounds

, 551 U.S. 308 (2007) ( Makor I ).

Plaintiffs argue that, although this court has expressly

rejected the group pleading doctrine with regard to group

‐ published documents, it has not gone so far as to preclude the

invocation of the group pleading doctrine to oral statements.

But nothing in the PSLRA indicates that its particularity

requirements distinguish between oral and written

statements. Indeed, extending the group pleading doctrine to

encompass oral representations would be inconsistent with16 No. 17

‐ 2583

the reasoning that originally led some courts to create an

exception to Rule 9(b). As the Ninth Circuit explained in Wool

, the court deemed it reasonable to presume that information

in promulgated written documents reflected “the collective

actions of the officers.” 818 F.2d at 1440. The doctrine sought

to account for the opaque nature of modern business entities

and “the fact that an individual’s actual role in drafting and

approving particular documents and statements cannot, in

many cases, be reliably deduced from their title.” Southland

,

365 F.3d at 363 n.5. Oral statements, by contrast, involve no

such ambiguity; they emanate from a single person against

whom purportedly defrauded listeners can bring a claim

directly. See, e.g.

, In re Interactive Network, Inc. Sec. Litig.

, 948

F. Supp. 917, 922–23 (N.D. Cal. 1996) (“The purpose of the

doctrine is to relieve plaintiffs the burden of proving the

authorship of a writing. This problem of authorship does not

arise with oral statements.”); see also William O. Fisher, Don’t

Call Me a Securities Law Groupie: The Rise and Possible Demise of

the “Group Pleading” Protocol in 10b

‐ 5 Cases

, 56 B US

. L AW

. 991,

1008 n.48 (2001) (discussing courts’ refusal to apply Wool to

oral statements). This court’s determination that the group

pleading doctrine is inconsistent with the PSLRA’s

particularity requirements thus applies with equal weight

regardless of the form of the alleged misrepresentation or

omission.

Here, all Plaintiffs attended at least one town hall meeting,

at which they allege that they each heard oral presentations

about the Equity Conversion from the Individual Defendants.

Plaintiffs’ claims are premised upon their reliance on the oral

statements made at the town hall meetings, despite those

statements being clearly contrary to the written materials

Plaintiffs received, and yet, Plaintiffs have no recollection ofNo. 17

‐ 2583 17

who said what, even though each Plaintiff personally ob

‐

served which representations Whitman, Eickbush, Rose, and

Johnson made on particular days. Plaintiffs concede that they

cannot sufficiently plead the relationship between the partic

‐

ular representations made at the town hall meetings and the

identity of the Individual Defendant who spoke them without

taking discovery. Plaintiffs contend that they repeatedly re

‐ quested that the district court allow discovery to commence

in order to obtain the transcripts of the town hall meetings,

but the district court denied their motions to lift the discovery

stay that was put into effect pursuant to the requirements of

the PSLRA.

The PSLRA imposes an automatic stay on discovery while

a motion to dismiss is pending, absent exceptional circum

‐

stances. 15 U.S.C. § 78u

‐ 4(b)(3)(B). The purpose of the provi

‐

sion is to curtail abusive litigation—it allows the court to eval

‐

uate the plaintiffs’ claims before imposing any unreasonable

burden on the defendant and it prevents a plaintiff from

bringing an action without first possessing the information

necessary to satisfy the heightened pleading requirements of

the PSLRA and using discovery to obtain that information

and resuscitate a complaint that would otherwise be dis

‐

missed. See Tellabs, Inc. v. Makor Issues & Rights, Ltd.

, 551 U.S.

308, 313 (2007); In re Comdisco Sec. Litig.

, 166 F. Supp. 2d 1260,

1263 (N.D. Ill. 2001). Plaintiffs have not argued that the district

court abused its discretion in denying its motions and have

not addressed the court’s reasons for so ruling. Those argu

‐

ments are now waived as a result. See Hentosh v. Herman M.

Finch Univ. of Health Sci./The Chi. Med. Sch.

, 167 F.3d 1170, 1173

(7th Cir. 1999). In short, the district court reasonably deter

‐

mined that the fifth amended complaint’s new gambit of al

‐18 No. 17

‐ 2583

leging in separate but identical counts that all Individual De

‐

fendants made all misrepresentations or omissions lacked the

particularity required by Rule 9(b) and the PSLRA.

2. Plainti ff

s Failed to Adequately Plead Scienter.

As noted above, a federal securities fraud complaint must

“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)(A). The “required state of mind” refers to

the element of scienter, which means “an intent to deceive,

demonstrated by knowledge of the statement’s falsity or reck

‐

less disregard of a substantial risk that the statement is false.”

Higginbotham v. Baxter Int’l, Inc.

, 495 F.3d 753, 756 (7th Cir.

2007). Under the PSLRA’s “strong inference” standard, “[a]

complaint will survive

... only if a reasonable person would

deem the inference of scienter cogent and at least as compel

‐ ling as any opposing inference one could draw from the facts

alleged.” Tellabs

, 551 U.S. at 324. When determining whether

a complaint creates a strong inference of scienter, “the court

must take into account plausible opposing inferences.” Id. at

323.

This circuit’s rejection of the group pleading doctrine, dis

‐

cussed above, has particular relevance for the pleading of sci

‐

enter in securities fraud cases. The PSLRA requires that the

complaint “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)(A) (emphasis added). Agree

‐ ing with the Fifth Circuit, this court has observed that

“PSLRA references to ‘the defendant’ may only reasonably be

understood to mean ‘each defendant’ in multiple defendant

cases.” Makor I

, 437 F.3d at 602 (quoting Southland

, 365 F.3d at

365–66). As a result, “plaintiffs must create a strong inferenceNo. 17

‐ 2583 19

of scienter with respect to each individual defendant .” Pugh

, 521

F.3d at 693–94 (emphasis added) (citing Makor Issues & Rights,

Ltd. v. Tellabs, Inc.

, 513 F.3d 702, 710 (7th Cir. 2008) ( Makor II )).

The fifth amended complaint’s shortcomings in stating its

claims with particularity as to each Individual Defendant

carry over into its pleading of scienter. As the district court

noted in dismissing both the fourth and fifth amended com

‐ plaints, the allegation that the Individual Defendants acted

with an intent to deceive hinged on a single paragraph detail

‐ ing the information that Plaintiff Gordon Wallace allegedly

obtained during his April 2015 deposition by the SEC. That

paragraph alleges that attorneys for the SEC “showed him

documents authored, and/or received, by Whitman, Eick

‐

bush, Rose, and Johnson” demonstrating that the Individual

Defendants knew various pieces of information about Infin

‐

ium’s true financial situation in January and February 2012.

Nothing about that paragraph, however, associates

knowledge of particular information about Infinium with any

particular Individual Defendant, making it impossible to as

‐

sess the statements any Individual Defendant made at the

town hall meetings against the information he allegedly pos

‐

sessed at the time he made them. Instead, it suggests that one

plaintiff saw documents indicating that one or more Individ

‐

ual Defendants may have possessed information that im

‐ pugned the truth of the representations made at the town hall

meetings. This court has determined, however, that a com

‐ plaint fails to satisfy the PSLRA’s particularity requirements

by making conclusory allegations of scienter derived from a

defendant’s mere access to information. See Pugh

, 521 F.3d at

694 (“[T]here is a big difference between knowing about

... reports from [a subsidiary] and knowing that the reports are20 No. 17

‐ 2583

false.” (third alteration in original) (quoting Higginbotham

, 495

F.3d at 758)).

Analogizing to Matrixx Initiatives, Inc. v. Siracusano

, 563

U.S. 27 (2011), Plaintiffs argue that they have pleaded ample

facts to create a strong inference that the Individual Defend

‐

ants acted with an intent to deceive when soliciting participa

‐

tion in the Equity Conversion. Specifically, they contend that

during January and February 2012 the Individual Defendants

all had significant equity interests in Infinium, knew that In

‐

finium faced significant financial pressures, knew that pres

‐

sure on Infinium threatened their personal investments in it,

and made knowingly false statements at the three town hall

meetings to secure an infusion of equity from Plaintiffs that

would permit the Individual Defendants to redeem a portion

of their own investments. But Infinium and the Individual

Defendants counter that the complaint merely shows that, af

‐

ter several years of growth, Infinium presented an investment

opportunity to its employees—sophisticated financial profes

‐

sionals—who chose to participate and then suffered the con

‐

sequences of unfavorable market conditions arising shortly

thereafter. Because Plaintiffs’ fifth amended complaint failed

to make adequately individualized allegations against each

Individual Defendant, however, we need not determine

whether the inference of scienter propounded by Plaintiffs is

cogent and at least as compelling as the proposed alternative.

3. Plainti ff

s Failed to Plead a Duty to Speak.

As their final basis for reversal, Plaintiffs contend that the

district court erred in concluding that they failed to establish

that Infinium and the Individual Defendants had a duty to

disclose certain information to them. Plaintiffs contend that

the facts alleged support their assertion that the IndividualNo. 17

‐ 2583 21

Defendants had a “duty to speak” regarding Infinium’s finan

‐

cial condition.

The district court’s decision dismissing the fifth amended

complaint summarized Plaintiffs’ efforts to plead a duty to

speak. Compared to the fourth amended complaint, the fifth

amended complaint added two paragraphs alleging a duty to

speak:

65. By voluntarily disclosing material facts in connec

‐

tion with securities transactions, Defendants In

‐

fi nium, Whitman, Eickbush, Rose, and Johnson

assumed a duty to speak fully and truthfully on

those subjects.

66. A duty to disclose the true fi nancial state of In fi n

‐

ium arose because secret information rendered

the public statements materially misleading.

The fi fth amended complaint also alleged that each of the In

‐

dividual Defendants owed Plainti ff s “ fi duciary duties

... fi rst

to Plainti ff s as creditors of an insolvent corporation and then

as shareholders after the conversion.” In dismissing the fi fth

amended complaint, the district court observed that these al

‐ legations did nothing to remedy the fourth amended com

‐ plaint’s failure to state with particularity how the alleged

omissions rendered any a ffi rmative disclosure misleading.

On appeal, Plaintiffs’ duty to speak argument cites no law

and is largely undeveloped. Plaintiffs discuss Infinium’s line

of credit as an example of an affirmative statement rendered

misleading by the omission of pertinent information. They

note that the fifth amended complaint alleges, on the one

hand, that the Individual Defendants represented at the town

hall meetings that Infinium had access to an untapped22 No. 17

‐ 2583

$20 million line of credit and, on the other hand, that Plaintiff

Wallace saw documents during his April 2015 SEC deposition

indicating that Infinium had already drawn down $6 million

on that line of credit by the time of the town hall meetings.

According to Plaintiffs, they adequately pleaded facts sug

‐ gesting an omission by alleging this discrepancy between the

representations at the town hall meetings and the information

the Individual Defendants actually possessed at that time.

Plaintiffs’ duty to speak argument falls short for at least

two reasons. First, Plaintiffs’ allegations that the Individual

Defendants “assumed a duty to speak” and “owed Plaintiffs

fiduciary duties” are mere legal conclusions that the court

need not accept as true. Iqbal

, 556 U.S. at 678 (“[T]he tenet that

a court must accept as true all of the allegations contained in

a complaint is inapplicable to legal conclusions.”). In their

briefing to this court, Plaintiffs have presented no legal argu

‐

ment that the facts pled in the complaint gave rise to a legal

duty to speak.

Second, Plaintiffs’ factual allegations regarding purported

omission suffer from the same absence of particularity that

plagues the rest of their claims. Taking as an example the al

‐ legations surrounding the $20 million line of credit, as Plain

‐

tiffs argue in their brief, nothing in the fifth amended com

‐ plaint associates particular knowledge with particular Indi

‐

vidual Defendants. As already discussed above, the allegation

pertaining to information learned during Plaintiff Wallace’s

April 2015 SEC deposition claims that Wallace saw “docu

‐

ments authored, and/or received, by Whitman, Eickbush,

Rose, and Johnson” showing that they possessed several

pieces of information about Infinium’s financial position at

the time they made the town hall presentations. Nothing inNo. 17

‐ 2583 23

that allegation indicates which of the Individual Defendants

possessed particular pieces of information that could have

rendered his statements at the town hall meetings misleading.

In other words, Plaintiffs failed to link any of the alleged

omissions to any of the statements made by the Individual

Defendants. Consequently, the district court properly con

‐

cluded that the fifth amended complaint failed to allege with

the requisite particularity facts indicating that the Individual

Defendants possessed knowledge rendering their affirmative

representations misleading at the town hall meetings.

C. Failure to State a Claim for Breach of Fiduciary Duty and

Common Law Fraud

The district court also dismissed Plaintiffs’ state law

claims for breach of fiduciary duty and fraud. Because Plain

‐

tiffs’ briefs did not challenge the district court’s dismissal of

these claims, Plaintiffs have forfeited any opportunity to do

so. In any event, we find that the district court did not err in

dismissing Plaintiffs’ breach of fiduciary duty and common

law fraud claims. To state a claim for breach of fiduciary duty

under Delaware law, a plaintiff must allege that a fiduciary

duty existed and that the defendant breached that duty. See

Stewart v. Wilmington Trust SP Servs., Inc.

, 112 A.3d 271, 297

(Del. Ch. 2015) (citation omitted). A plaintiff must plead the

following elements to state a common law fraud claim: “(1) a

false representation, usually one of fact, made by the defend

‐

ant; (2) the defendant’s knowledge or belief that the represen

‐

tation was false, or was made with reckless disregard of the

truth; (3) an intent to induce the plaintiff to act or to refrain

from acting; (4) the plaintiff’s action or inaction taken in justi

‐

fiable reliance upon the representation; and (5) damage to the

plaintiff as a result of such reliance.” Johnson v. Preferred Prof’l24 No. 17

‐ 2583

Ins. Co.

, 91 A.3d 994, 1017 (Del. Super. Ct. 2014) (citation omit

‐ ted). Both claims are subject to Rule 9(b)’s heightened plead

‐ ing requirements, as they are premised on allegations that the

defendants knowingly misled Plaintiffs. Plaintiffs’ claims for

breach of fiduciary duty and common law fraud fail for the

same reasons as their security fraud claim—Plaintiffs have

neither pled the required elements of scienter nor alleged the

facts underlying these claims with the particularity required

by Rule 9(b). The district court therefore correctly concluded

that Plaintiffs failed to state a claim for breach of fiduciary

duty and common law fraud.

III. Conclusion

We agree with the district court that Plaintiffs failed to

state a claim upon which relief can be granted and find that

the district court did not abuse its discretion in denying leave

to further amend the complaint, since such leave was never

sought. Plaintiffs have not proposed how they might be able

to amend their pleading to cure the deficiencies contained in

the fifth amended complaint. Under these circumstances, dis

‐

missal with prejudice is appropriate. See Leavell v. Ill. Dep’t of

Nat. Res.

, 600 F.3d 798, 808 (7th Cir. 2010).

For the foregoing reasons, the district court’s decision dis

‐ missing the fifth amended complaint with prejudice is

A FFIRMED

.