Independent Trust Corp. v. Stewart Information Services Corp.

In the

United States Court of Appeals

For the Seventh Circuit

No. 11-2108

INDEPENDENT T RUST C ORPORATION,

an Illinois corporation now in receivership,

Plaintiff-Appellant,

v.

S TEWART INFORMATION S ERVICES C ORPORATION, et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 1:10-cv-04430—John W. Darrah, Judge.

A RGUED S EPTEMBER 27, 2011—D ECIDED JANUARY 6, 2012

Before F LAUM, K ANNE, and H AMILTON, Circuit Judges.

H AMILTON, Circuit Judge. This appeal arises from a

series of business dealings that ended in 1995. We

conclude that the district court properly dismissed the

complaint as barred by the statute of limitations. The

Illinois doctrine of adverse domination does not apply

to the claims against the defendants here and therefore

did not toll the statute of limitations.

2 No. 11-2108

In the 1980s and 1990s, Intercounty Title Insurance Co.

of Illinois was in the business of issuing title insurance

policies and providing real estate closing services. From

1984 through 1995, it served as the exclusive Chicago-

area agent for defendants Stewart Information Services

Corporation, Stewart Title Guaranty Company, and

Stewart Title Company (collectively, “Stewart”).

Intercounty eventually grew to become Stewart’s

largest independent agent. As part of its business,

Intercounty created and managed an escrow account.

Stewart contractually agreed to insure the escrow

funds that Intercounty managed as Stewart’s agent.

But Intercounty was not profitable. The company was

run and controlled by Laurence Capriotti and Jack

Hargrove, who decided to invest the real estate escrow

funds with which Intercounty was entrusted in various

investment schemes. While waiting for the payoff on their

“investments” — we use the term loosely — Capriotti and

Hargrove used incoming escrow funds to pay off old

escrow obligations. In other words, they ran the

Intercounty escrow account as a Ponzi scheme.

Their investments failed. By the end of 1989, there was

a $26 million shortfall in the Intercounty escrow ac-

count. When Stewart learned of the shortfall, it pres-

sured Intercounty to bring the account into balance.

Stewart also allowed Intercounty to fire its auditors.

Capriotti and Hargrove were also directors of the

plaintiff in this case, Independent Trust Corporation

(known here as “InTrust”). InTrust was the trustee for

nearly 20,000 trust accounts, primarily individual retire-

No. 11-2108 3

ment accounts, collectively valued at over $1 billion. To

fill the hole in the Intercounty escrow account, Capriotti

and Hargrove began looting InTrust. They transferred

tens of millions of dollars in InTrust account holder

funds to Intercounty, which used the transferred funds

to pay amounts owed from its escrow account. Some of

this money went to pay Stewart policyholders, and

some of it went to pay Stewart directly.

Stewart therefore was a direct and indirect beneficiary

of the Intercounty/InTrust arrangement. If Intercounty

had not been able to make its escrow payments, Stewart,

as the insurer of the escrow funds, would have had to

cover the losses. But between December 1990 and the

end of 1995, when Intercounty terminated its relation-

ship with Stewart, $40.9 million of InTrust account

holder funds had been transferred to the Intercounty

escrow account to cover Stewart’s insureds. As much as

$27 million of InTrust account-holder funds were trans-

ferred directly to Stewart or to third parties for

Stewart’s benefit.

The Illinois Commissioner of the Office of Banks and

Real Estate (“OBRE”) began investigating InTrust’s rela-

tionship with Intercounty in 1994, but it was not until

February 2000 that the OBRE learned that the funds

InTrust had transferred to Intercounty were missing. A

few months after that, on April 14, 2000, the OBRE took

control of InTrust and placed it in receivership.

PricewaterhouseCoopers LLP was appointed receiver,

and on behalf of InTrust, pursued civil suits against

Capriotti, Hargrove, Intercounty, and ITI Enterprises, Inc.

4 No. 11-2108

(another Capriotti and Hargrove company). The Receiver

obtained judgments against these defendants in the

amount of $68 million. The judgment against Hargrove

was overturned on appeal, but the Receiver settled its

claims against Hargrove for $50 million.1

This background brings us to this case, and this ap-

peal. On July 15, 2010, the Receiver filed a five-count

complaint against Stewart on behalf of InTrust. Its claims

included money had and received (Count I), unjust enrich-

ment (Count II), vicarious liability for Intercounty’s

tortious conduct (Count III), aiding and abetting breach

of fiduciary duty (Count IV), and conspiracy (Count V).

Stewart moved to dismiss for failure to state a claim

under Rule 12(b)(6), arguing that the Receiver’s claims

were barred by the applicable statute of limitations.

The Receiver relied on the doctrine of adverse domina-

tion to argue that the statute of limitations was tolled at

all times before April 2000. Under Illinois law, this

doctrine is defined as “an equitable doctrine that 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.”

Lease Resolution Corp. v. Larney, 719 N.E.2d 165, 170 (Ill.

App. 1999). The doctrine also applies to claims against

other parties who are co-conspirators of the wrong-

1

Capriotti and Hargrove were also indicted on federal crim-

inal charges. Capriotti pled guilty in June 2005, admitting that

he and Hargrove had participated in a scheme to defraud

InTrust. Hargrove went to trial and was convicted on ten

counts of the indictment, which included allegations that he

had participated in a scheme to defraud InTrust.

No. 11-2108 5

doing directors. See id. at 172. The district court granted

Stewart’s motion and dismissed the Receiver’s claims

on the statute of limitations defense. The Receiver

moved to alter or amend the judgment under Rule 59(e),

and the district court denied its motion.

The Receiver appeals. On the merits, it argues first

that the district court erred by holding that the adverse

domination doctrine does not apply to non-conspirators

of wrongdoing directors, and second that even if the

district court’s holding is correct, the complaint suf-

ficiently alleges that Stewart was a co-conspirator in

Capriotti’s and Hargrove’s looting of InTrust. The

Receiver also argues that, in ruling on Stewart’s

motion to dismiss, the district court improperly took

judicial notice of adjudicative facts and erred by

granting the motion to dismiss with prejudice without

first permitting the Receiver to file an amended com-

plaint. We affirm.2

I. Standard of Review

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 limita-

tions, 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 “plausi-

ble” 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 de-

fendant 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 com-

plaint must supply “enough fact to raise a reasonable

expectation that discovery will reveal evidence” sup-

porting 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 affirma-

tive 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 five-

year 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 Re-

ceiver 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 domina-

tion 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 domina-

tion 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 appel-

late 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 domina-

tion 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 co-

conspirator 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 doc-

trine 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-con-

spirator 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 domi-

nation doctrine applies to toll the statute of limita-

tions 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 defen-

dants 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 domina-

tion 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 conclu-

sion.” Independent Trust Corp. v. Stewart Information Services

Corp., 2011 WL 529390, at *5 (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 Re-

ceiver, 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 im-

plicated the directors and, thus, was something the direc-

tors 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 nonboard-

member co-conspirator of the wrongdoing board mem-

bers.” Id. at 172 (emphasis added). The Receiver’s inter-

pretation 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 Stew-

art. 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. Con-

tractors 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 plain-

tiffs. 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.

III. Conspiracy

The Receiver contends that it has satisfied the require-

ments of the adverse domination doctrine by alleging

that Stewart conspired with Capriotti and Hargrove to

take InTrust funds for the benefit of Intercounty. In

Illinois, a civil conspiracy is defined as “ ‘a combination

of two or more persons for the purpose of accomplishing

by concerted action either an unlawful purpose or a

lawful purpose by unlawful means.’ ” McClure v. Owens

Corning Fiberglas Corp., 720 N.E.2d 242, 258 (Ill. 1999),

quoting Buckner v. Atlantic Plant Maintenance, Inc., 694

N.E.2d 565, 571 (Ill. 1998). A plaintiff must allege facts

establishing both (1) an agreement to accomplish such

a goal and (2) a tortious act committed in furtherance

of that agreement. McClure, 720 N.E.2d at 258. Thus, for

the Illinois adverse domination doctrine to apply, the

allegations in the Receiver’s complaint, read in its

favor, must suggest plausibly that Stewart “knowingly

and voluntarily participate[d] in a common scheme to

commit an unlawful act or a lawful act in an unlawful

manner.” Adcock v. Brakegate, Ltd., 645 N.E.2d 888, 894 (Ill.

16 No. 11-2108

1994).5 Stated differently, “[t]here is no such thing as

accidental, inadvertent or negligent participation in a

conspiracy.” Id. Stewart must have “under[stood] the

general objectives of the conspiratorial scheme, ac-

cept[ed] them, and agree[d], either explicitly or

implicitly to do its part to further those objectives.” Id.

The district court found that the Receiver’s allegations

do not amount to a conspiracy between Stewart and

the InTrust directors under Illinois law, and we agree.

The Receiver argues that its complaint incorporates

factual allegations supporting all the elements of con-

spiracy under Illinois law. Like the district court, we

narrow our focus to only one of those elements: an agree-

ment between Stewart and InTrust to misappropriate

InTrust funds. The Receiver’s complaint consists of

90 pages and 214 paragraphs and is flush with detail

regarding Hargrove’s and Capriotti’s various misdeeds.

But it fails to link Stewart to the InTrust fraud

by plausibly suggesting that Stewart participated in

that fraud as a co-conspirator. Simply stated, the

Receiver’s allegations do not plausibly support the in-

ference that Stewart agreed, either explicitly or im-

plicitly, that Hargrove and Capriotti should raid the

funds of InTrust account holders.

We begin by taking a careful look at the Receiver’s

allegations concerning what Stewart did, what it did not

5

Again, not just any “unlawful act,” but Hargrove’s and

Capriotti’s scheme, as InTrust’s directors, to raid the funds

of InTrust account holders.

No. 11-2108 17

do, what it knew, and what it did not know regarding

Intercounty and InTrust. The Receiver’s complaint

alleges that in November 1984, Stewart appointed

Intercounty as its exclusive Chicagoland agent. The

underwriting agreement gave Stewart the right to

audit Intercounty’s escrow accounts and other finan-

cial statements and to terminate the agreement if

Intercounty did not manage its escrow funds appropri-

ately. Compl. ¶¶ 30-31. Until February 1991, Stewart

owned stock in Intercounty, which gave it the right to

receive monthly financial statements and annual

audited financial statements from Intercounty. Compl.

¶ 26. The Receiver alleges that the financial state-

ments that Stewart received and reviewed showed that

Hargrove and Capriotti were using the Intercounty escrow

account improperly to fund various schemes, including

a mortgage defeasance program and junk bonds. Compl.

¶¶ 42-43. Stewart became aware of these schemes. It

directed Intercounty not to enter into any more

defeasance transactions and to sell its junk bonds. But

Stewart did not force Intercounty to limit its exposure

and did not terminate its agreement with Intercounty.

Compl. ¶¶ 50-54.

When Intercounty’s escrow “investments” failed,

leaving a multi-million dollar shortfall in the escrow

account, Intercounty disclosed the shortfall to Stewart

via Intercounty’s audited and reviewed financial state-

ments. Compl. ¶¶ 80-83, 87. InTrust alleges that Stewart

knew that there was no way Intercounty’s business opera-

tions could cover the shortfall, and it also knew that it was

liable for the shortfall as the title insurer. Compl. ¶¶ 88-93,

18 No. 11-2108

96-97. Again, instead of terminating the agreement,

Stewart allowed Intercounty to continue running the

escrow account “on the float” and left it to Capriotti and

Hargrove to find a solution for the shortfall. Compl. ¶ 98.

Continuing to give the Receiver the benefit of all its

allegations, Stewart knew by this point that Intercounty

was willing to misuse escrow funds, it knew that Capriotti

and Hargrove had purchased InTrust, and “it also knew

that the only untapped escrow account controlled by

Intercounty was the one containing the funds of

InTrust’s clients.” Compl. ¶¶ 111-12, 134-36, 138. Even

though it had this knowledge, Stewart waived

Intercounty’s contractual obligation to submit to an

annual audit. Compl. ¶ 102. It also “pressured” and

“demanded” that Intercounty find a source of funds to

fill the escrow gap. Compl. ¶¶ 4, 105, 108, 110. By the

end of 1996, Capriotti and Hargrove had caused InTrust

to deposit over $45 million of InTrust account funds

into the Intercounty escrow account. Compl. ¶¶ 114, 116.

Without Stewart’s financial oversight, Intercounty was

able to “steal tens of millions of dollars from InTrust

and pay much of the InTrust money to or for the benefit

of Stewart.” Compl. ¶ 102.

Fundamentally, the Receiver’s argument is that the

pressure Stewart exerted on Intercounty to fill the

escrow gap, combined with its failure to prevent the

fraud by either demanding an audit or terminating its

underwriting agreement, amounts to Stewart’s implicit

agreement that Hargrove and Capriotti, in their role

as InTrust directors, should fraudulently siphon money

No. 11-2108 19

from InTrust accounts to fill the Intercounty escrow

shortage. We do not agree that these ingredients amount

to a Stewart-InTrust conspiracy. The Receiver has

simply failed to allege an agreement. Urging Intercounty

to resolve its escrow shortage, no matter how

strenuously, was not an implicit or explicit agreement

that Intercounty should resolve its escrow shortage by

embezzling funds from InTrust. See, e.g., Bosak v.

McDonough, 549 N.E.2d 643, 646 (Ill. App. 1989) (attorney

who advised realtor to cover shortage in his escrow

account, but did not agree to perpetrate fraud against

investor, could not be held liable for civil conspiracy).

And the Receiver points to no authority supporting its

assertion that Stewart’s failure to do more to prevent

the fraud makes it a co-conspirator in the fraud. To the

contrary, our precedent holds that, in the absence of

any evidence of an explicit or implicit agreement, a de-

fendant’s failure to prevent harm to a plaintiff does

not amount to a conspiracy. See Tierney v. Vahle, 304

F.3d 734, 739-40 (7th Cir. 2002).

Finally, relying on Hartford Accident and Indemnity Co.

v. Sullivan, 846 F.2d 377 (7th Cir. 1988), the Receiver

argues that because Stewart directly and indirectly bene-

fitted from the fraud, it should be held liable as a co-

conspirator. But Sullivan is easily distinguishable. In

Sullivan, we reversed a trial court’s finding that a

lawyer could not be held liable as a co-conspirator in a

scheme to defraud a bank of millions of dollars when

the lawyer had acted as a direct participant in only one

loan underlying the larger scheme. We relied in part on

the fact that the lawyer had benefitted from the larger

20 No. 11-2108

scheme. We recognized that as the larger scheme grew,

the conspirators’ demands for the lawyer’s legal work

increased, and proceeds from other fraudulent loans

were used to pay the interest due on the loan in which

he was a participant. Sullivan, 846 F.2d at 384. But the

evidence at trial also established that the lawyer was a

knowing participant in the fraud. He had assisted in

launching the scheme and knew that it was continuing.

The only issue was whether the lawyer could be held

liable for the entire scope of the fraud, or only the

smaller fraudulent transaction in which he participated.

Id. at 385 (“We hold that under Illinois law one who

participates actively in launching a conspiracy with

limited aims, who knows that the aims have been ex-

ceeded, and who knowingly obtains direct monetary

benefits from the expanded conspiracy, is a participant

in that conspiracy as well as in the narrower one from

which it grew.”). Here, although Stewart may have been

a beneficiary of Hargrove’s and Capriotti’s misdeeds,

the allegations in the complaint do not plausibly suggest

that Stewart launched the Intercounty escrow shortage

or that it knew of or was complicit in the underlying

fraud against InTrust.

Moreover, as the district court noted, the Receiver’s

speculative and conclusory assertion of a Stewart-

InTrust conspiracy is belied by other allegations in the

Receiver’s complaint that Stewart was entirely ignorant

of InTrust’s wrongdoing. For instance, the Receiver

alleges: “Stewart didn’t know the details of how

Intercounty had stayed in business.” Compl. ¶ 141; see

also Compl. ¶ 144 (on March 14, 1995, after Intercounty

sent Stewart copies of checks deposited into the escrow

No. 11-2108 21

account, Stewart asked to confirm the source of the pay-

ments because “there is no way of knowing, for

instance, where Intercounty got the money to fund the

escrow account recently.”). How could Stewart “act in

concert” with Hargrove and Capriotti to steal InTrust

money, as the Receiver speculates, if Stewart did not

know the details of how Intercounty had stayed in

business or how it was replenishing the depleted escrow

account? The Receiver does not meaningfully answer

that question. Without plausible allegations that Stewart

had knowledge of Hargrove’s and Capriotti’s fraud

against the InTrust account holders and acted to help

them succeed, the Receiver has failed to allege a con-

spiracy that included Stewart.

Along these same lines, the Receiver also alleges that

in 1995, Stewart “pressured for an audit and a ‘restruc-

turing’ of its relationship with Intercounty, and . . .

told Capriotti that if Intercounty did not restore the

shortages in its escrow account, [it] would be obligated

to contact the Illinois Department of Financial Institu-

tions.” Compl. ¶ 142. Stewart sent its internal auditors to

Intercounty several times, “but Intercounty never would

give them enough information or time to finish their

work.” Finally, in December 1995, Intercounty terminated

its association with Stewart. Compl. ¶ 147. Stewart’s

only possible inroad to obtain knowledge of the means

by which Intercounty’s operation was being funded

(the InTrust fraud) was shut down by Intercounty. Not

only is it implausible that alleged co-conspirators

would behave and communicate in this manner, but

these allegations show that Intercounty was actively

22 No. 11-2108

trying to prevent Stewart from uncovering the truth

about the InTrust fraud. Without knowledge of the

scheme, Stewart could not have agreed to it.

In sum, none of the allegations cited by the Receiver

support an inference that Stewart knew of, let alone

agreed to, any unlawful activity involving misappro-

priation of InTrust funds. Without a knowing agree-

ment, there can be no conspiracy, and without a conspir-

acy, the Illinois adverse domination doctrine cannot

apply to a non-director. Because the adverse domination

doctrine does not apply, the Receiver’s claims are barred

by the applicable statute of limitations, and the Receiver

has pled itself out of court. See Atkins v. City of Chicago,

631 F.3d 823, 832 (7th Cir. 2011) (a plaintiff can plead

himself out of court by pleading facts that show he has

no legal claim); see also Xechem, Inc. v. Bristol-Myers Squibb

Co., 372 F.3d 899, 901 (7th Cir. 2004) (“Only when the

plaintiff pleads itself out of court — that is, admits all the

ingredients of an impenetrable defense — may a com-

plaint that otherwise states a claim be dismissed under

Rule 12(b)(6).”). Accordingly, we affirm the district

court’s dismissal of the Receiver’s claims, all of which

are governed by a five-year statute of limitations.

IV. “Judicial Notice” and Opportunity to Amend

Finally, the Receiver contends that the district court erred

in two other respects, neither of which is persuasive. It

asserts that in ruling on Stewart’s motion to dismiss,

the district court erred by taking judicial notice of

adjudicative facts, particularly the Hargrove indict-

No. 11-2108 23

ment, the Capriotti plea agreement, and the court’s

opinion in Fidelity Nat’l Title Ins. Co. of New York v.

Intercounty Nat’l Title Ins. Co., 2008 WL 4348594 (N.D. Ill.

Mar. 26, 2008). Before addressing the Receiver’s argu-

ment, we must reframe it. We do so primarily by quoting

the passage on which the Receiver’s argument is based,

which largely speaks for itself.

After the district court ruled in favor of Stewart and

dismissed the Receiver’s claims, the Receiver moved to

alter or amend the judgment pursuant to Rule 59(e). The

district court denied the motion. On page five of the

district court’s eleven-page opinion denying the

Receiver’s motion to alter or amend, the district court

said in a footnote:

That InTrust has filed a Rule 59(e) motion that more

or less regurgitates its arguments from the motion

to dismiss briefing is not surprising. InTrust’s Com-

plaint is essentially its last gasp in a marathon of

civil litigation. A brief summary of the criminal and civil

litigation that relates to this case is as follows. In June

2005, Capriotti pled guilty to participating with

Hargrove in a scheme to defraud, among others,

InTrust, [Stewart], and Fidelity, and misusing Inter-

county escrow funds. Capriotti’s plea agree-

ment refers to multiple instances in which the

former InTrust and Intercounty principals delib-

erately manipulated records to conceal escrow defi-

ciencies from [Stewart]. In September 2005, a jury

convicted Hargrove on ten counts, including a

finding that Hargrove participated in a scheme to

24 No. 11-2108

defraud, among others, InTrust, [Stewart], and Fidel-

ity. Around the time InTrust and Intercounty collapsed

in 2000, Fidelity filed Fidelity Nat. Title Ins. Co. of New

York v. Intercounty Nat. Title Ins. Co., No. 00-cv-5658,

2008 WL 4348594, at *1 (N.D. Ill. Mar. 26, 2008) (Fidel-

ity), against Intercounty, Capriotti, Hargrove, INTIC

and numerous others, including [Stewart], making

similar allegations as InTrust makes in its Complaint

here. In 2008, Judge Norgle granted [Stewart’s] motion

for summary judgment on all remaining claims,

finding: “Intercounty and its executives did whatever

they could to keep Stewart in the dark regarding any

escrow account deficiencies at . . . Intercounty.” Id. at

*6. In 2005, the Receiver filed Independent Trust Corp. v.

Fidelity Nat. Title Ins. Co. of New York, 577 F. Supp. 2d

1023 (N.D. Ill. 2008), seeking $68 million based on

Fidelity’s relationship from 1995 through 2000 with

Intercounty, Capriotti, and Hargrove, making claims

that were similar to those made against Stewart in

the instant Complaint. On August 26, 2008, Judge

Pallmeyer granted summary judgment for Fidelity on

InTrust’s remaining claims. Id. at 1037-52.

Independent Trust Corp. v. Stewart Information Services

Corp., 2011 WL 1831586, at *3, n.1 (N.D. Ill. May 11, 2011)

(emphasis added and internal record citations omitted).

When the “adjudicative facts” are read in the proper

context, it is apparent that the Receiver’s argument is

specious. The district court was reciting the long proce-

dural history of this case. The Hargrove indictment, the

Capriotti plea agreement, and Fidelity v. Intercounty are

documents in the public domain that further that proce-

No. 11-2108 25

dural narrative. The district court took judicial notice of

the indisputable facts that those documents exist, they

say what they say, and they have had legal conse-

quences. The district court did not rely on the documents

as proof of disputed facts in any other sense.

Finally, the Receiver argues that the district court

abused its discretion by dismissing the initial complaint

with prejudice without allowing an opportunity to

amend. Rule 15 ordinarily requires that leave to amend

be granted at least once when there is a potentially

curable problem with the complaint or other pleading.

A plaintiff is entitled to amend the complaint once as a

matter of right if it acts quickly enough, see Fed. R. Civ.

P. 15(a), and even after that time has expired, a court

“should “freely give leave [to amend] when justice so

requires.” Fed. R. Civ. P. 15(a)(2); see also Bausch v.

Stryker Corp., 630 F.3d 546, 562 (7th Cir. 2010), citing

Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499

F.3d 663, 666 (7th Cir. 2007). In applying Rule 15(a), the

uncertainty in pleading standards resulting from the

Supreme Court’s decisions in Iqbal and Twombly also

provides powerful reasons to give parties a reasonable

opportunity to cure defects identified by a district

court. Here, however, the Receiver did not request the

opportunity to amend until its motion to amend or

alter and, most important, did not offer any meaningful

indication of how it would plead differently. See Hecker v.

Deere & Co., 556 F.3d 575, 590-91 (7th Cir. 2009) (“Once

judgment has been entered, there is a presumption that

the case is finished, and the burden is on the party

who wants to upset that judgment to show the court

26 No. 11-2108

that there is good reason to set it aside.”), citing Vicom, Inc.

v. Harbridge Merchant Services, 20 F.3d 771, 785 (7th Cir.

1994) (faulting plaintiff for not attaching a proposed

complaint or specifically informing the court of how it

would cure deficiencies in the earlier complaint); Twohy

v. First National Bank, 758 F.2d 1185, 1189, 1197 (7th Cir.

1985) (same). Instead, the Receiver put it to the district

court to identify what it needed to plead to succeed,

telling that court: “[T]he Court should specifically

address the conspiracy allegations and explain why

they are deficient. And instead of dismissing the com-

plaint with prejudice, the Receiver should be given leave

to replead its conspiracy allegations to correct whatever

deficiencies the Court identifies.”

In support of its argument on appeal, the Receiver

contends only that when its complaint was dismissed,

it had filed only one complaint on behalf of InTrust. (It

does not try to assign us the task of re-pleading for it, as

it did the district court.) The Receiver offers no argu-

ment at all against futility, and it is well settled that a

district court may refuse leave to amend where amend-

ment would be futile. See Foster v. DeLuca, 545 F.3d 582,

584 (7th Cir. 2008), citing Airborne Beepers, 499 F.3d at 666.

Nothing the Receiver has brought forward so far, either

in its complaint allegations, its arguments in favor of its

motion to alter or amend, or its arguments on appeal,

sufficiently supports its theory that Stewart knowingly

and intentionally conspired with InTrust. Based on the

Receiver’s own allegations, Stewart did not know of

Hargrove’s and Capriotti’s InTrust malfeasance. Without

knowledge of Hargrove’s and Capriotti’s activities and

No. 11-2108 27

purpose, Stewart could not have conspired in their

fraud. In the absence of any suggestion of how the

Receiver might overcome these self-created hurdles if

it were to replead, the district court did not abuse its

discretion in denying the Receiver that opportunity.

A FFIRMED.

1-6-12