Tuesday, July 11, 2006

A Whole Lot of No Fraud

OK, here’s a hint for all you ’33 Act groupies. If you allege that your Section 11 claim “is the stuff of a quintessential fraud claim” then, um, you’re probably not going to win an argument that your claim doesn’t, well, sound in fraud. I mean try and imagine being slated to do the oral argument in that one? No, Your Honor, quintessential fraud means so much fraud that there actually isn’t any fraud -- I mean, that’s a lot of no fraud Judge.

But, believe it or not, that seems to be exactly what Plaintiffs in the Capital Bancorp action did (at least in writing, and we’re sure not on purpose), and it brought a swift ruling from Judge Phyllis J. Hamilton (N.D. Cal.) (Clinton Class of ‘00) who noted that -- are you ready for the cliffhanger ending -- “plaintiffs' complaint "sounds in fraud.”

Result? Complaint dismissed with partial leave to amend.

You can read Rubke v. Capital Bancorp, issued June 16, 2006, at 2006 U.S. Dist. LEXIS 43745.

Nugget: “Where the complaint makes a wholesale adoption of the securities fraud allegations for purposes of the 1933 § 11 claim, the Ninth Circuit has held that the district court is not required to sift through allegations of fraud in search of some 'lesser included' claim of strict liability. It may dismiss. If it does so, it should ordinarily accept a proffered amendment that either pleads with the requisite particularity or drops the defective allegations and still states a claim.”

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