Milwaukee, 123 F.3d 586, 597 (7" Cir, 1997); Petri v. Gatlin, 997 F. Supp. 956, 977 (N.D. Ill.

1997).
E. Fraud (Count V)

BAS and Williams contend that Count V, alleging fraud, is fatally deficient under Rule
9(b) because it does not specify the content of the alleged failure to disclose material facts or
misrepresentation. The court disagrees. Rule 9(b)’s particularity requirement means supplying
the “who, what, when, where, and how: the first paragraph of any newspaper story.” DiLeo v.
Emst & Young, 901 F.2d 624, 627 (7" Cir. 1990). Essentially, a plaintiff must specify which
defendant “said what to whom and when.” Ackerman v. Northwestern Mut. Life Ins. Co., 172
F.3d 467, 471 (7" Cir. 1999). ‘The second amended complaint alleges that in recommending that
plaintiffs purchase PG&E commercial paper, Williams failed to inform plaintiffs that BAC’s
credit facility formed the primary reason for the commercial paper’s A1/P1 rating, a fact that
plaintiffs claim would have been material to an assessment of whether the commercial paper was

creditworthy. This allegation adequately supplies the “what,” as required by Rule 9(b).

BAS and Williams also argue that Count V fails to allege the elements of a common law
fraud claim. To establish common law fraud under Illinois law, a plaintiff must show that: qd)
the defendant made a false statement of material fact, (2) the defendant knew that the statement
was false, (3) the defendant made the statement intending to induce the plaintiff to act, (4) the
plaintiff relied on the truth of the statement, and (5) the plaintiffs damages resulted from that
reliance. Connick v. Suzuki Motor Co., 675 N.E.2d 584, 591 (Ill. 1996). BAS and Williams

contend that the second amended complaint does not allege facts that Williams knew to be false

13


This lawsuit followed. Plaintiffs’ second amended complaint alleges claims under
Section 10(b) of the Securities Exchange Act of 1934 against all defendants, and alleges claims
under Section 12(1) of the Securities Act of 1933, the Illinois Securities Law, and claims of
fraud, negligence, and breach of contract against BAS and Williams.

II. Discussion

When ruling on a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the court must
consider “whether relief is possible under any set of facts consistent with the allegations of the

plaintiff's complaint.” Pokuta v. Trans World Airlines, Inc., 191 F.3d 834, 839 (7" Cir. 1999),

That is, if it is possible to hypothesize a set of facts that would entitle the plaintiff to relief,
consistent with the allegations in the complaint, dismissal under Rule 12(b)(6) is inappropriate.
See Graehling v. Village of Lombard, IIL, 58 F.3d 295, 297 (7" Cir. 1995). “[A]lthough
plaintiffs can plead conclusions, the conclusions must provide the defendant with at least
minimal notice of the claim.” Jackson v. Marion County, 66 F.3d 151, 154 (7"" Cir. 1995). A
plaintiff can “plead himself out of court by alleging facts which show that he has no claim.” Id,

A. Existence of a Duty

Plaintiffs seek to hold defendants liable for failing to disclose that BAC provided a credit
facility to PG&E, that BAC was the underwriter dealer of the PG&E commercial paper, and that
BAC would profit from sales of PG&E commercial paper. According to plaintiffs, these
omissions led plaintiffs to believe that PG&E was in sound financial condition when it was not.
BAS and Williams argue that all claims against them should be dismissed because the second
amended complaint does not allege that they had a duty to disclose the information. BAC also

argues that it had neither a direct duty to disclose the information to plaintiffs, nor a duty to


2d 815, 823 (N.D. Ill. 2000). Plaintiffs contend that Williams and BAS were motivated to
conceal material facts by the profits they and BAC would earn in selling PG&E commercial
paper. However, a plaintiff cannot allege scienter based merely on motivating factors that would
be true for nearly all companies; it is presumed that defendants act in their economic self-interest.
Rehm, 954 F, Supp. at 1253; see also, e.g., Phillips v. LCI Int’l, Inc., 190 F.3d 609, 621-23 (4""
Cir. 1999) (desire to retain position on corporation’s board and obtain higher stock price
constituted insufficient motive); In re Brightpoint, Inc. Secs. Litig., No. IP99-0870-C-H/G, 2001
WL 395752, at *14 (S.D. Ind. Mar. 29, 2001 (desire to gain reputational and monetary benefits
from positive public perception of company constituted insufficient motive); In re Next Level
Sys., Inc., No. 97 C 7362, 1999 WL 387446, at *9 (N.D. Ill. Mar. 31, 1999) (desire to maintain

reputation in capital markets and retain access to financing constituted insufficient motive).

Plaintiffs also argue that Williams and BAS were motivated to defraud by their desire to
avoid financial exposure caused by PG&E’s deteriorating financial condition. A subsidiary’s
desire to benefit its parent could constitute a valid motivation. See Copperweld Corp, v.
Independence Tube Corp., 467 U.S. 752, 771-72 (1984) (“the subsidiary acts for the benefit of
the parent...[I]n reality a parent and a wholly owned subsidiary always have a ‘unity of purpose
or a common design.””). However, plaintiffs’ argument on this point requires the court to
assume the very fact that plaintiffs are trying to establish: plaintiffs seek to show that BAS and
Williams knew of PG&E’s financial instability by arguing that BAS and Williams were trying to
help BAC avoid financial exposure due to PG&E’s financial instability. Although BAS and
Williams undoubtedly had the opportunity to defraud plaintiffs, given the longstanding

investment relationship that plaintiffs allege, the motives plaintiffs allege do not rise to the level


disagrees with plaintiffs’ claim that BAC owed them a direct duty to disclose information
regarding its role as underwriter and dealer of the PG&E commercial paper, and PG&E’s
financial problems. While plaintiffs may have maintained a banking and investment relationship
with BAC dating from 1940, they do not allege that they had any contact with BAC relating to
the transaction at issue, other than that payment for the commercial paper was made from
plaintiffs’ BAC bank accounts and that the commercial paper then was “delivered to Bank of
America safekeeping.”! Plaintiffs do not allege that BAC solicited them to buy the PG&E
commercial paper, or that plaintiffs sought BAC’s advice on the transaction. The court is not
aware of any duty of a bank to monitor how its customers use funds on deposit with the bank, or
to monitor the types of instruments it stores for customers. Plaintiffs’ use of BAC’s banking
services in processing their purchase of PG&E commercial paper is not a contact sufficient to
impose on BAC a duty to review plaintiffs’ investment decision and make disclosures relating to
that decision.

Nor did BAC have a duty to ensure that its subsidiary, BAS, disclosed information to

plaintiffs. As a general rule, a parent corporation is not liable for the acts or omissions of its
subsidiary. See United States v. Bestfoods, 524 U.S. 51, 61 (1998). Although a parent

corporation has the power to control its subsidiary, see Esmark, Inc. v. N.L.R.B., 887 F.2d 739,

757 (7 Cir. 1989), that power does not translate into a duty to control. The second amended
complaint does not allege, and plaintiffs do not argue, that corporate formalities should be
disregarded in this case, Because Count VIE does not allege an omission of a material fact that

BAC was obligated to disclose, it does not state a claim against BAC under Section 10(b) and

' This information is contained in confirmation documents attached as exhibits to the
second amended complaint, and is therefore part of the complaint. See Fed. R. Civ. P. 10(c).

6


ensure that BAS disclosed the information.

Several of plaintiffs’ claims in the second amended complaint require proof of a duty. An
omission of a material fact is actionable under Section 10(b) and Rule 10b-5 only if the
defendant has a duty to disclose that fact. Chiarella v. United States, 445 U.S. 222, 230 (1980);
Congregation of the Passion v. Kidder Peabody & Co., 800 F.2d 177, 182 (7" Cir. 1986). In
addition, a common law fraud claim based on an omission or concealment of a material fact
requires there to have been a duty to speak. Lidecker v. Kendall College, 550 N.E.2d 1121, 1124
(Ul. App. Ct. 1990); Warner v. Lucas, 541 N.E.2d 705, 706 (Ill. App. Ct. 1989). Finally, duty is
an element of any negligence claim. See Advincula v. United Blood Servs., 678 N.E.2d 1009,
1015 (Ill. 1996).

A fiduciary duty arises between a broker and a customer only when the dealings between
them “presuppose a special trust or confidence.” Congregation of the Passion, 800 F.2d at 182.
Thus, a broker generally is not the fiduciary of his customer unless the customer entrusts the

broker with discretion to select the customer’s investments. Carr v. CIGNA Securities, Inc., 95

F.3d 544, 547 (7" Cir. 1996). The second amended complaint alleges that Abbeli had been
investing in commercial paper through BAS or its predecessor since 1984, and that Abbell relied
upon BAS and the BAS representative exclusively for information and recommendations relating
to investments in commercial paper. At this stage in the proceedings, the court cannot say that it
appears beyond doubt that plaintiffs can prove no set of facts in support of their claims against
BAS and Williams that would entitle them to relief. These allegations are sufficient to withstand
a motion to dismiss based on a lack of duty as to the claims against BAS and Williams.

The court’s conclusion is different as to plaintiffs’ claim against BAC. The court


fraud; or (2) constituting strong circumstantial evidence of conscious misbehavior or

recklessness. See, e.g., In re Westell Techs., Inc., No. 00 C 6735, 2001 WL 1313785, at *10

(N.D. Ill. Oct. 26, 2001); Danis v. USN Communications, Inc., 73 F. Supp. 2d 923, 937 (N.D. Ill.

1999); Rehm v. Eagle Fin. Corp., 954 F. Supp. 1246, 1253 (N.D. Ill. 1997).

To show strong circumstantial evidence of recklessness, a plaintiff must point to “highly
unreasonable” conduct: “an extreme departure from the standards of ordinary care...to the extent
that the danger was either known to the defendant or so obvious that the defendant must have
been aware of it.” Rehm, 954 F, Supp. at 1255. Plaintiffs argue that the complaint alleges strong
circumstantial evidence of recklessness against BAS and Williams in that PG&E’s financial
instability was an objectively obvious danger that BAS and Williams knew about or should have
known about through their close relationship with PG&E. The second amended complaint also
alleges that BAS knew or should have known about PG&E’s financial instability “[b]ased on
Bank of America’s position as the lead underwriter dealer of the commercial paper program and
BAS’s position as seller of the commercial paper.” These allegations are insufficient to establish
strong circumstantial evidence of recklessness on the part of Williams and BAS. Contrary to
plaintiffs’ argument, the second amended complaint does not allege that BAS and Williams had
any relationship with PG&E. More importantly, the second amended complaint imputes BAC’s

knowledge to its subsidiary without providing any concrete factual basis for doing so.

Nor do plaintiffs sufficiently allege scienter by showing that BAS and Williams had a
motive and opportunity to defraud. Simply alleging a motive and opportunity is not enough to
satisfy the scienter requirement of the PSLRA; the facts alleged still must give rise to a strong

inference of scienter. See 15 U.S.C. § 78u-4(b)(2); see also Chu v. Sabratek Corp., 100 F. Supp.

8


A

Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge
or Magistrate Judge

George W. Lindberg

Sitting Judge if Other
than Assigned Judge

CASE NUMBER 01 C 2227 DATE 2/28/2002
CASE Abbell Credit Corporation vs. Bank of America Corporation
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
(1) im Filed motion of [ use listing in “Motion” box above.]
(2) i} Brief in support of motion due.
(3) oO Answer brief to motion due . Reply to answer brief due.
(4) im) Ruling/Hearing on set for at
(5) Oo Status hearing[held/continued to] [set for/re-set for] on. set for at
(6) im) Pretrial conference[held/continued to] [set for/re-set for] on set for at .
(7) aq Trial[set for/re-set for] on at
(8) im) {Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
OOFRCP4(m) General Rule 21 CFRCP41(a)(1) [FRCP41(a)(2).

ao) 4 (Other docket entry] Defendants’ motions to dismiss the second amended complaint (33-1 and 35-

1) is granted in part and denied in part. Defendant Williams’ motion for judgment on the pleadings (33-3)

is denied. Defendants’ motion to strike (33-2 and 35-2) is granted in part and denied in part. Enter

memorandum opinion and order.
(1) ff {For further detail see order attached to the original minute order.]

No notices required, advised in open court. Document.

No notices required,
qt number of notices

umber:

Notices mailed by judge’s staff.

Notified counsel by telephone.

HAR 0.1 2002

te docketed

Docketing to mail notices.
Mail AO 450 form.

Copy to judge/magistrate judge.

date mailed notice
courtroom

SLB deputy's
initials

mailing deputy initials

central Clerk’s Office



68 F, Supp. 2d 998, 1000 (N.D. Ill. 1999), In addition, Federal Rule of Civil Procedure 8(e)(2)
allows plaintiffs to pursue inconsistent theories of recovery in the same lawsuit. Thus, a claim
made early in a lawsuit that is later superceded by an inconsistent one is not a judicial admission.
Moriarty v. Larry G. Lewis Funeral Dirs., Ltd., 150 F.3d 773, 777-78 (7" Cir. 1998). Plaintiffs’
argument supporting their claim of a violation of Section 12(2) of the Securities Act of 1933 does

not prevent them from now claiming a violation of Section 12(1).

BAS and Williams also argue that the second amended complaint does not contain
allegations that the PG&E commercial paper was required to be registered, and argue that
plaintiffs must rebut a presumption that commercial paper with a maturity under nine months is
exempt from the registration requirements. Section 3(a)(3) of the 1933 Securities Act exempts
from registration “[a]ny note...which arises out of a current transaction or the proceeds of which
have been or are to be used for current transactions, and which has a maturity at the time of
issuance of not exceeding nine months...” 15 U.S.C. § 77c(a)(3). This exemption has been
interpreted to apply only to short-term, prime quality negotiable commercial paper that is of a

type not ordinarily purchased by the general public. See Sanders v. John Nuveen & Co., 463

F.2d 1075, 1079-80 (7" Cir. 1972). The burden of establishing an exemption is on the party that

claims it. Securities and Exch, Comm’n v. Ralston Purina Co., 346 U.S. 119, 126 (1953).

At this stage, reading the second amended complaint in the generous light that it must, the
court finds that the allegations in the second amended complaint could support plaintiffs’
position that the PG&E commercial paper was subject to the registration requirement. Plaintiffs
allege that BAS and Williams sold PG&E commercial paper, an unregistered security, and that
that sale violated the prohibition against sales of unregistered securities. Since a security with a

lt


that permits a strong inference of scienter. Therefore, Count II must be dismissed.
Cc. Securities Act of 1933, Section 12(1) (Count III)

BAS and Williams next seek the dismissal of Count III of the second amended complaint,
which alleges that BAS and Williams offered and sold unregistered securities in violation of
Section 12(1) of the Securities Act of 1933, 15 U.S.C. § 77I(a)(1). BAS and Williams argue that
plaintiffs’ earlier statements in this case that the commercial paper was exempt from the
registration requirement constitute a judicial admission on the issue, and that in any event, the
PG&E commercial paper was not required to be registered. BAS and Williams contend that the
following of plaintiffs’ statements, made in plaintiffs’ motion to reconsider this court’s order
dismissing a portion of their first amended complaint, constitute judicial admissions: “The PG&E
Commercial Paper was exempt from the registration requirements under Section3(a)(3) and
therefore exempt from the prospectus requirement,” and “The reason why a formal prospectus
was not issued is because the commercial paper was and is exempt from the registration
requirements of the statute under Section 3(a)(3).” BAS and Williams argue that these
statements prevent plaintiffs from now claiming that the PG&E commercial paper was subject to

the registration requirements.

The court disagrees that plaintiffs’ statements constitute judicial admissions. Counsel’s

legal conclusions do not constitute judicial admissions. See Dabertin v. HCR Manor Care, Inc.,

? BAS and Williams also take issue with the allegation in Count III that they offered and
sold unregistered securities by offering to “prepay” the PG&E commercial paper on January 15,
2001. Plaintiffs appear to have abandoned this portion of their claim, since they do not respond
to defendants’ argument that defendants’ offer to buy the commercial paper from plaintiffs prior
to maturity would make defendants purchasers in that transaction, rather than sellers.

10


Rule 10b-5 that could be granted. Accordingly, Count VII is dismissed.
B. Section 10(b) and Rule 10b-5 (Counts Hf and VIM)

BAS and Williams contend that Count II should be dismissed because plaintiffs fail to
satisfactorily explain why Williams’ statement that the PG&E commercial paper had an Al/P1
rating was misleading, as required by the Private Securities Litigation Reform Act (“PSLRA”).
See 15 U.S.C. § 78u-4(b)(1). Plaintiffs respond that the second amended complaint alleges that
Williams’ representation that the PG&E commercial paper was rated A1/P1 was misleading
because Williams failed to disclose that this rating was based on BAC’s credit facility rather than
on PG&E’s financial stability, that BAC was the underwriter and dealer of the PG&E
commercial paper, and that BAC would profit from sales of PG&E commercial paper. This
explanation is sufficient to withstand a motion to dismiss. BAS and Williams may find
plaintiffs’ explanation unconvincing, but the issue of whether a statement or omission is material
requires a “highly fact-dependent analysis” that in this case is unsuitable for decision at this early

stage of litigation. See Searls v. Glasser, 64 F.3d 1061, 1066 (7" Cir. 1995).

BAS and Williams also challenge Count II on the basis that plaintiffs fail to sufficiently
allege that defendants acted with scienter. The PSLRA requires plaintiffs in securities fraud
cases to “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 Seventh Circuit has yet to
address just how rigorous this pleading standard is. Cases in the Northern District of Illinois
have generally followed the Second Circuit’s pleading standard, which requires plaintiffs to

allege facts either (1) showing that the defendant had both motive and opportunity to commit


Abbell purchase PG&E commercial paper for Merle Hay and Westgate. Williams stated that
PG&E offered a sixty-day commercial paper at a discount rate of 6.4%, with a maturity date of
January 29, 2001. Williams further stated that “the PG&E commercial paper was rated Al/P1,
that PG&E just basically supplies the West Coast with electricity and that California would never
turn out the lights on PG&E.”

Based on the information provided by Williams, and his recommendation, Abbell
purchased two pieces of PG&E commercial paper on behalf of Merle Hay and Westgate, for a
total of approximately $1.95 million. Following the purchase, BAS did not send Abbell a
commercial paper memorandum, which would have confirmed the terms of the agreement and
included a general description of financial credit available to the issuer. Abbell would typically
receive such a commercial paper memorandum seven to ten days after a purchase of commercial
paper.

PG&E’s financial condition deteriorated in December 2000 and early January 2001. On
December 14, 2000, BAS’s energy analysts stopped recommending PG&E commercial paper as
creditworthy. In early January 2001, Abbell learned of BAC’s $1 billion credit facility, and that
that credit facility formed the primary reason for PG&E’s commercial paper’s Al/P1 rating.
Between January 8 and January 12, 2001, Abbell sought the prepayment of the PG&E
commercial paper from Williams, who declined. On January 15, 2001, Williams advised Abbell
that the commercial paper could not be prepaid, and that the market price was $0.75 per purchase
dollar. On January 17, 2001, the PG&E commercial paper was downgraded to junk status, and
PG&E defaulted on the commercial paper set to mature on that date. Eventually, on January 22,

2001, Abbell sold the PG&E commercial paper to BAS for $0.50 per purchase dollar.


or that he intended to induce plaintiffs to act on his false statement. The second amended
complaint alleges that Williams called Abbell’s controller to solicit Abbell’s business, and in

making his recommendation that Abbell purchase PG&E commercial paper:

knowingly failed to inform [Abbell’s controller] of material facts and
misrepresented the material facts regarding Bank of America and BAS’s due
diligence investigation of PG&E, PG&E’s creditworthiness and the basis for the
A1/P1 rating assigned to PG&E’s Commercial Paper.

These allegations are sufficient to withstand a motion to dismiss.
F. Breach of Contract (Count VII)

Finally, BAS and Williams argue that Count VI, alleging breach of contract, should be
dismissed because plaintiffs fail to allege that they performed their obligations under the contract.
Defendants presented this argument in their initial motion to dismiss, albeit obliquely, in the
context of arguing that plaintiffs had not alleged the existence of a contract. As this court
previously ruled, under liberal federal notice pleading rules, plaintiffs have sufficiently alleged
the elements of a breach of contract claim at this stage. See Petri, 997 F. Supp. at 965-66
(finding that hypothesis that plaintiffs had fulfilled their contractual obligations was consistent

with allegations in complaint). The motion to dismiss Count VII is denied.

14


partner of Merle Hay and Westgate, and is the chairman of Abbell’s board of directors.
Defendant Banc of America Securities (“BAS”) is a securities brokerage enterprise, and a
wholly-owned subsidiary of defendant Bank of America Corporation (“BAC”). Matt Williams is
a registered securities broker employed by BAS.

Since 1940, Abbell has maintained a banking and investment relationship with BAC and
its predecessors. Merle Hay and Westgate maintain a banking relationship and accounts with
BAC and BAS. Among its other duties, Abbell is responsible for investing excess cash balances
generated by Merle Hay and Westgate. Abbell effectuated these investments through BAS or its
predecessor entity. Since 1984, Abbell has invested the excess cash balances by purchasing
commercial paper with a maturity date of less than sixty days. For each such transaction, Abbell
only purchased short-term commercial paper recommended by BAS as creditworthy and having
the highest quality rating of Al/P1. Plaintiffs’ investment criteria and strategies have not varied
since 1984.

On at least one occasion, Abbell has requested that BAS prepay a piece of commercial
paper prior to maturity. At that time, BAS prepaid to Abbell the principal amount of its
investment at the discount rate available on the trade date for the number of days from the date of
purchase to the refund date. BAS charged Abbell a nominal fee for the prepayment.

BAC has been the dealer of Pacific Gas & Electric (“PG&E”) commercial paper since
1985. In October 2000, BAC provided a $1 billion credit facility to underwrite PG&E’s
commercial paper program. In November 2000, PG&E authorized the public issuance of
commercial paper in the total amount of $1.85 billion.

On November 28, 2000, Williams telephoned Abbell’s controller, and recommended that


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

pocset

MAR gt N\A

ABBELL CREDIT CORP.,

an Illinois corporation, MERLE HAY MALL,
an Iowa limited partnership, WESTGATE
VILLAGE SHOPPING CENTER, an Illinois
limited partnership, and J. WILLIAM
HOLLAND, an individual,

Plaintiffs,
01 C 2227
v.

} Judge George W. Lindberg
BANK OF AMERICA CORPORATION,
a Delaware corporation, BANC OF AMERICA
SECURITIES, L.L.C., a Delaware corporation,
and MATT WILLIAMS, an individual,

NS SS SS SH SS SH SS ES SS

Defendants.
MEMORANDUM OPINION AND ORDER

Defendants Bank of America Corporation, Banc of America Securities, and Matt
Williams have moved to dismiss plaintiffs’ second amended complaint. For the reasons stated
below, Bank of America Corporation’s motion is granted, and Banc of America Securities’ and
Williams’ motion is granted in part and denied in part.

I. Factual Background

In considering a motion to dismiss, the court must accept as true all well-pleaded facts
and must draw all reasonable inferences from those allegations in plaintiffs favor. MCM
Partners, Inc. v. Andrews-Bartlett & Assoc., Inc., 62 F.3d 967, 972 (7" Cir. 1995). According to
the allegations in the second amended complaint, plaintiff Abbell Credit Corporation (““Abbell”)
is the managing agent for plaintiffs Merle Hay Mall (“Merle Hay”) and Westgate Village

Shopping Center (“Westgate”). Plaintiff J. William Holland (“Holland”) is the managing general

\


maturity of less than nine months is not necessarily exempt from the registration requirement,
plaintiffs do not plead themselves out of court by alleging the short-term nature of the PG&E

commercial paper. BAS’ and Williams’ motion to dismiss Count III is denied.
D. ILlinois Securities Act (Count IV)

BAS and Williams next argue that plaintiffs’ claim under the Illinois Securities Law
should be dismissed because it is not pled with particularity, as required by Federal Rule of Civil
Procedure 9(b). The allegation in the second amended complaint that defendants “engaged in
deceptive practices” in violation of the Illinois Securities Law is identical to plaintiffs’ claim in
their first amended complaint, a claim that BAS and Williams did not challenge in their first
motion to dismiss. BAS and Williams nevertheless contend in their reply brief that they have not
waived this challenge. According to BAS and Williams, the second amended complaint removes
an allegation that Williams represented the PG&E commercial paper to be creditworthy from the
factual background section of the first amended complaint, a change which in turn impacts the

deceptive practice allegation in the Illinois Securities Law claim.

In their motion to dismiss the second amended complaint, however, BAS and Williams
did not challenge plaintiffs’ new characterization of Williams’ statements as applied to the
Illinois Securities Law claim, but rather confined their challenge to the vagueness of the
allegation of “deceptive practice.” This argument should have been brought in the motion to
dismiss the first amended complaint; since it was not, it is waived. See Fed. R. Civ. P. 12(g).
BAS’ and Williams’ argument regarding the effect of the changed factual background section,

appearing for the first time in their reply brief, is also waived. See Estate of Phillips v. City of

12


ORDERED: BAS’ and Williams’ motion to dismiss is granted in part and denied in part:
the motion is granted as to Count Il, and denied as to Counts III through VII. BAS’ and
Williams’ motion for judgment on the pleadings is denied, as the pleadings are not yet closed.
See Fed. R. Civ. P. 12(c). BAS’ and Williams’ motion to strike Count I is granted. BAC’s

motion to dismiss is granted. BAC’s motion to strike is denied as moot.

ENTER:

George W. Lindberg

Senior United States District Judge

patep. FEB 28 2002

15