7th Circuit: "Brobdingnagian" Complaint Fails on Reliance Grounds

Judge Richard Posner, writing for a 7th Circuit panel, found that a class action suit was properly dismissed on reliance grounds. The plaintiffs, two hedge funds who were minority shareholders of a company who sold their shares in a tender offer made by the majority shareholder. The funds were sophisticated investors and failed to show that that they were not induced by the majority holder's misrepresentations to tender their shares, concluded Judge Posner. They also did not sell any shares at a loss, which precluded any claims under Securities Act Section 11.

Judge Posner criticized the litigants, who had "parties have spent too much time in this court, as they did in the district court, arguing over whether the typically Brobdingnagian complaint...adequately alleges scienter." He finally concluded that "after 85 pages of huffing and puffing in the complaint, and another 83 pages of appellate briefs, sophisticated investors cannot make their case seem plausible, the litigation must end then and there."

Stark Trading v. Falconridge Ltd.