Opinion ID: 620389
Heading Depth: 1
Heading Rank: 1

Heading: standard of review

Text: We review de novo a district court’s order granting a Rule 12(b)(6) motion to dismiss based on the statute of 2 Because we affirm the district court on the statute of limitations, we need not discuss Stewart’s arguments on the merits of the Receiver’s claims. Stewart Br. 43-49. We also do not address Stewart’s argument in a footnote that the Receiver’s allegations fail to establish for purposes of the Illinois adverse domination doctrine that a majority of InTrust’s board members were wrongdoers. 6 No. 11-2108 limitations. See Middleton v. City of Chicago, 578 F.3d 655, 657 (7th Cir. 2009). In doing so, we take “all well-pleaded allegations of the complaint as true and view[ ] them in the light most favorable to the plaintiff.” Santiago v. Walls, 599 F.3d 749, 756 (7th Cir. 2010). To satisfy the notice-pleading standard of the Federal Rules of Civil Procedure, a complaint must provide a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). In other words, the plaintiff’s complaint must be sufficient to provide the defendant with “fair notice” of the plaintiff’s claim and its basis. Erickson v. Pardus, 551 U.S. 89, 93 (2007), quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The Supreme Court also instructs us to examine whether the allegations in the complaint state a “plausible” claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009). To survive a motion to dismiss, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face’. . . . A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id., quoting Twombly, 550 U.S. at 570. The complaint “must actually suggest that the plaintiff has a right to relief, by providing allegations that raise a right to relief above the speculative level.” Windy City Metal Fabricators & Supply, Inc. v. CIT Technology Financing Services, 536 F.3d 663, 668 (7th Cir. 2008) (emphasis in original), quoting Tamayo v. Blagojevich, 526 F.3d 1074, 1084 (7th Cir. 2008). No. 11-2108 7 But a plaintiff’s claim need not be probable, only plausible: “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” Twombly, 550 U.S. at 556 (internal quotation omitted). To meet this plausibility standard, the complaint must supply “enough fact to raise a reasonable expectation that discovery will reveal evidence” supporting the plaintiff’s allegations. Id. Here, the district court dismissed the Receiver’s claims upon finding that the applicable statute of limitations had run. A statute of limitations provides an affirmative defense, and a plaintiff is not required to plead facts in the complaint to anticipate and defeat affirmative defenses. But when a plaintiff’s complaint nonetheless sets out all of the elements of an affirmative defense, dismissal under Rule 12(b)(6) is appropriate. See Brooks v. Ross, 578 F.3d 574, 579 (7th Cir. 2009). When reviewing a Rule 12(b)(6) dismissal of state law claims based on a statute of limitations, we apply state law regarding the statute of limitations and “any rules that are an integral part of the statute of limitations, such as tolling and equitable estoppel.” Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir. 2010). II. Adverse Domination Doctrine under Illinois Law The parties do not contest the district court’s finding that the acts giving rise to the Receiver’s claims occurred no later than August 1996. Under Illinois law, a fiveyear statute of limitations governs the Receiver’s claims. 8 No. 11-2108 735 ILCS 5/13-205. Thus, the statute of limitations on the Receiver’s claims ran, at the latest, in August 2001. The parties signed a tolling agreement on October 12, 2001. The question is whether the tolling agreement came too late to save the Receiver’s claims. On April 14, 2000, the OBRE took control of InTrust and placed it in receivership. Prior to April 14, 2000, Capriotti and Hargrove controlled InTrust, and the Receiver argues that the statute of limitations was tolled until that date by the doctrine of adverse domination, which “tolls the statute of limitations for claims by a corporation against its officers and directors while the corporation is controlled by those wrongdoing officers or directors.” Larney, 719 N.E.2d at 170. The doctrine is an extension of the Illinois discovery rule, which tolls the statute of limitations until a plaintiff knows or should know that he has been injured and that his injury was wrongful. Because a plaintiff-corporation can learn that it has been injured only through the knowledge of its agents, if the agents’ interests are adverse to the corporation, the agents’ knowledge is not imputed to the corporation. “The rationale behind this doctrine is ‘that control of the board by wrongdoers precludes the possibility for filing suit since these individuals cannot be expected to sue themselves or initiate action contrary to their own interests.’ ” Larney, 719 N.E.2d at 170, quoting Federal Deposit Insurance Corp. v. Greenwood, 739 F. Supp. 450, 453 (C.D. Ill. 1989). The key to this case is that, in Illinois, the doctrine applies to causes of action against the wrongdoing directors, but also to causes of action against co-conspirators of the wrongdoers. Id. No. 11-2108 9 at 172. Here, the district court found that the adverse domination doctrine, as articulated in Larney, would not operate to save the Receiver’s claims against Stewart because the doctrine tolls a corporation’s claims only against wrongdoing directors and co-conspirators, and because Stewart fits in neither category. In seeking to overturn the dismissal, the Receiver first argues that a finding of conspiracy is not necessary to toll claims against Stewart under the adverse domination doctrine as articulated in Larney. Alternatively, if the doctrine will preserve claims only against directors and their co-conspirators, the Receiver argues that Stewart was a co-conspirator in Hargrove’s and Capriotti’s wrongdoing and that the adverse domination doctrine applies. We disagree with the Receiver on both points and affirm the district court. The Receiver first faults the district court for beginning and ending its analysis with Larney, a decision by the Appellate Court of Illinois, without making an attempt “to predict how the Illinois Supreme Court would rule on the scope of the adverse domination doctrine.” By analyzing and applying the Appellate Court’s reasoning in Larney, the district court did exactly what it should have. Where a state’s supreme court “has not yet passed on an issue, we examine decisions of the lower state courts to help formulate an answer.” Kaplan v. Shure Brothers, Inc., 153 F.3d 413, 420 (7th Cir. 1998). The Larney court was the first and is so far the only Illinois appellate court to discuss the adverse domination doctrine, and its holding has not been undermined by intervening 10 No. 11-2108 Illinois precedent. The district court was correct to give it persuasive weight. On the merits, the Receiver argues that a formal claim for civil conspiracy is not a prerequisite for adverse domination under Illinois law and that the district court misread Larney. The Receiver contends that its broader reading of Larney is appropriate and that the Illinois Supreme Court “would likely find that adverse domination tolls the statute of limitations for corporate claims against third parties if pursuit of such claims would bring to light the directors’ misconduct, regardless of whether plaintiff includes a claim for civil conspiracy against the third parties and regardless of whether a conspiracy existed to commit the wrongdoing.” We agree with the district court that, without a sufficient showing that Stewart was a co-conspirator in Capriotti’s and Hargrove’s looting of InTrust account funds, the Illinois adverse domination doctrine as defined in Larney will not save the Receiver’s claims against Stewart. The Receiver focuses first on the fact that, in spite of its language that the adverse domination doctrine “applies to toll the statute of limitations for a cause of action by a corporation against a nonboard-member coconspirator of the wrongdoing board members,” the Larney court permitted the plaintiffs’ claims to go forward even though they had not brought a formal conspiracy claim against the defendants. The Receiver quotes, in full, the “relevant portion” of Larney. The added emphasis is ours: No. 11-2108 11 We believe that the fact that two of the defendants in this case were not members of the Board does not automatically render the adverse domination doctrine inapplicable. Both [defendants] Larney and Midland were alleged co-conspirators of [wrongdoing board members] Lopinski and Lipinski. Just as a board comprised of a majority of wrongdoers could not be expected to file suit against itself, such a board could not be expected to file suit against a nonboard-member co-conspirator because such action would necessarily bring to light its own wrongdoing and would be adverse to its own interests. The rationale behind the adverse domination doctrine applies equally to causes of action against co-conspirators. We find that the adverse domination doctrine applies to toll the statute of limitations for a cause of action by a corporation against a nonboard-member co-conspirator of the wrongdoing board members. Larney, 719 N.E.2d at 172 (emphasis added). Larney did not hold that a formal conspiracy claim is necessary for the adverse domination doctrine to apply.3 But, clearly, the 3 Neither did the district court. The Receiver quotes the relevant portion of Larney, and then states, incorrectly, that “[t]he district court interpreted this language to mean that properly stating a claim for civil conspiracy was a prerequisite for adverse domination tolling with respect to claims against non board members . . . . The district court concluded that it was the formal inclusion of a conspiracy count that mattered.” The district court did no such thing. It stated instead, “Thought (continued...) 12 No. 11-2108 Larney court found that even without a formal claim, the plaintiffs had sufficiently alleged that the Larney defendants were co-conspirators of the controlling, wrongdoing board members. See id. A formal claim of conspiracy is not necessary. But in articulating the doctrine in Illinois, the Larney court made clear that a plaintiff’s allegations must establish that the defendant was complicit in the wrongdoing of the directors for the adverse domination doctrine to toll the statute of limitations.4 3 (...continued) [sic] [the Receiver] applies the label of coconspirator to Stewart, [the Receiver’s] brief contains no reference to specific allegations in the Complaint in support of that Conclusion. The cited paragraphs of the Complaint contain no allegations of conspiracy between InTrust’s board and Stewart to support this conclusion.” Independent Trust Corp. v. Stewart Information Services Corp., 2011 WL 529390, at  (N.D. Ill. Feb. 7, 2011) (emphasis added). 4 And not just any directors, but the directors of the corporate plaintiff. This case is muddied because Hargrove and Capriotti each wore two hats based on their roles with both Intercounty and InTrust. At Intercounty and as Intercounty officers, Hargrove and Capriotti misused escrow funds. At InTrust and as InTrust directors, they pilfered account funds. The Receiver, representing InTrust, is attempting to bring claims against Stewart. For the adverse domination doctrine to apply to preserve InTrust’s claims, the Receiver’s allegations must demonstrate that Stewart conspired with Hargrove and Capriotti in their role as InTrust directors, so the Receiver must show that Stewart conspired in the scheme to siphon money out of InTrust accounts. No. 11-2108 13 The Receiver argues that Larney used the word con- spirator “loosely,” and that instead of looking at the identity of the defendant, courts applying Illinois law should examine the nature of the proposed cause of action. If the cause of action necessarily would have exposed the underlying wrongdoing of the controlling officers or directors, the Receiver argues, the rationale of the adverse domination doctrine as expressed by the Larney court should extend to that cause of action. Receiver Br. 21 (“The Illinois Appellate Court allowed the plaintiffs to proceed against third-parties without a conspiracy count because their cause of action implicated the directors and, thus, was something the directors would never have permitted to be filed while they controlled the company.”). We appreciate the Receiver’s reasoning and acknowledge that it suggests a plausible extension of the adverse domination doctrine. But we are not persuaded that we should extend Illinois law beyond the clear bounds of Larney, in which the court stated explicitly: “We find that the adverse domination doctrine applies to toll the statute of limitations for a cause of action by a corporation against a nonboardmember co-conspirator of the wrongdoing board members.” Id. at 172 (emphasis added). The Receiver’s interpretation would require a significant extension of the adverse domination doctrine under Illinois state law, with consequences that we cannot foresee clearly. Unless and until the Illinois courts address this question, we rely on the boundaries of the doctrine as stated in Larney, and we refrain from extending the doctrine of adverse domination beyond wrongdoing directors and their co-conspirators. 14 No. 11-2108 Finally, the Receiver argues that Illinois cases applying the discovery rule and adverse domination cases from other jurisdictions support its contention that the Illinois Supreme Court would extend the adverse domination doctrine to preserve the Receiver’s claims against Stewart. The Illinois discovery rule operates to preserve a claim until the plaintiff knows or reasonably should know that he or she has been wrongfully injured. See Larney, 719 N.E.2d at 170, citing Hermitage Corp. v. Contractors Adjustment Co., 651 N.E.2d 1132, 1135 (Ill. 1995); Jackson Jordan, Inc. v. Leydig, Voit & Mayer, 633 N.E.2d 627, 630-31 (Ill. 1994). And as the Receiver points out, the Illinois discovery rule “has been applied across a broad spectrum of litigation to alleviate what has been viewed as harsh results resulting from the literal application of the statute.” Receiver Br. 23, quoting Knox College v. Celotex Corp., 430 N.E.2d 976, 979 (Ill. 1981). But the Larney court had the discovery rule and its supporting policy at its fingertips. It clearly considered the Illinois discovery rule and its implications for corporate plaintiffs. It recognized that the adverse domination doctrine was a logical extension of the discovery rule and related agency principles, Larney, 719 N.E.2d at 170, but, once again, it drew the boundary at wrongdoing directors of the plaintiff corporation and their co-conspirators, and no further. Id. at 172. We are not persuaded we should predict the extension of the doctrine beyond the boundary set thus far by the Appellate Court of Illinois. The Receiver also cites adverse domination cases from other jurisdictions and asks us to extend the rationales expressed in those cases to Illinois. But where an Illinois No. 11-2108 15 appellate court has spoken clearly on the issue, we have no reason to look beyond Illinois for guidance. Here, Illinois law seems sufficiently clear. Accordingly, we affirm the district court concerning the boundaries of the Illinois adverse domination doctrine. The doctrine can help the Receiver here only if it can show (or for now at least allege) that Stewart conspired with InTrust’s directors to steal from InTrust account holders.