                    United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 04-2078
                                   ___________

In re: Acceptance Insurance Companies *
Securities Litigation                     *
                                          *
Lawrence I. Batt, P.C. Profit Sharing     *
Plan and Trust, Individually and on       *
Behalf of All Others Similarly Situated, *
                                          *
             Plaintiff,                   *
                                          *
Jerome S. Richman, Co-Trustee of the *
Joe Sonken Trust; Diana L. Kinder;        *
Barbara Winer Revocable Trust, on         *
Behalf of Themselves and a Class of All *
Others Similarly Situated,                *
                                          *
             Plaintiffs - Appellants,     *
                                          * Appeal from the United States
       v.                                 * District Court for the District of
                                          * Nebraska
Acceptance Insurance Companies, Inc.; *
Kenneth C. Coon; Georgia M. Mace;         *
AICI Capital Trust; John P. Nelson,       *
                                          *
             Defendants - Appellees,      *
                                          *
William J. Gerber; Jay A.Bielfield;       *
Edward W. Elliot, Jr.; Robert Lebuhn; *
Michael R. McCarthy; R. L. Richards; *
David L. Treadwell; Doug T. Valassis; *
Advest, Inc.; Everen Securities; Deloitte *
& Touche, LLP,                            *
                                          *
             Defendants.                  *
                                     ___________

                            Submitted: February 14, 2005
                                Filed: August 29, 2005
                                   ___________

Before MELLOY, HEANEY, and FAGG, Circuit Judges.
                           ___________

MELLOY, Circuit Judge.

        This is an appeal of a shareholder liability suit against Acceptance Insurance
Companies and some of its officers. The shareholder group appeals the district
court’s1 orders granting a motion to dismiss and a motion for summary judgment as
to all of their claims.

       The Appellants raise three major issues in this appeal. First, they argue that the
district court erred by granting the Appellees’ motion to dismiss their claims under
Sections 11 and 15 of the Securities Act. Second, the Appellants argue that the
district court erred by denying their motion to amend their complaint as to Section 11
claims. Third, the Appellants argue that the district court should not have granted the
motion for summary judgment on the Exchange Act Section 10(b) and SEC Rule 10b-
5 claims. We affirm.




      1
        The Honorable Thomas M. Shanahan, United States District Judge for the
District of Nebraska and The Honorable Laurie Camp Smith, United States District
Judge for the District of Nebraska both granted motions for the issues on appeal in
this case.

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                                          I.

       The shareholders of Acceptance Insurance Companies, Inc. (“Acceptance”),
a Delaware corporation, directly sued Acceptance, AICI Capital Trust (“AICI”), and
the officers of Acceptance: Kenneth Coon, Georgia Mace, and John Nelson. AICI
was and is a wholly-owned subsidiary of Acceptance. The primary allegation of the
shareholders was that Acceptance failed to have adequate reserves in place prior to
1999 to account for increased claims stemming from a California Supreme Court
decision.

       Reserves, as reported by an insurance company, are estimates of its liabilities
and expenses that it will pay on claims already reported and claims that may exist, but
have not yet been reported. In the area of unreported claims, an insurer must engage
in some speculation and, as a result, could over- or under-estimate appropriate
reserves. A company is said to have inadequate reserves if it does not allocate
sufficient funds to offset a likely loss contingency scenario.

        The officers of Acceptance reported the company’s reserves quarterly with
assistance from external accountants. In this case, Price Waterhouse Coopers
(“PWC”) reviewed the reserve estimates, and, after discussion with Acceptance, a
final figure was reported in each quarter in Acceptance’s public filings. Because the
reserve figures were estimates of future contingencies, Acceptance and PWC offered
a range of figures. From 1996 to 1999, PWC found that Acceptance’s reserve figures
met the requirements of Nebraska insurance law and were computed using generally
accepted accounting principles (“GAAP”). During the relevant time period,
Acceptance’s and PWC’s independent estimates were within five percent of each
other, and Acceptance’s numbers were both above and below PWC’s figures.

      In 1995, the California Supreme Court, in Montrose Chem. Corp. of Cal.v.
Admiral Ins. Co., 913 P.2d 878 (1995), issued an opinion that was significant for
construction insurance claims. The decision applied a continuous injury trigger of

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coverage, broadening liability relative to previous law. Id. at 889-90. After the
decision, Acceptance crafted explicit exclusions into its policies to avoid Montrose-
related claims. However, for the policies written before 1995, an increase in the
number of claims was anticipated due to the decision in Montrose.

       In 1997, Nebraska amended its annual statement requirements to require
greater detail for loss contingencies that could affect reserves. As a result,
Acceptance added cautionary language alluding to the Montrose decision and its
effect on reserves. Such language did not exist for the previous public filings made
by Acceptance. In 1999, Acceptance made the decision to increase its reserve
estimates due to increased claims for incidents prior to 1995 in California related to
Montrose. Prior to Acceptance’s decision, three other insurance companies had
already begun reporting Montrose-specific reserves in their public filings.

       In 2001, in another action against Acceptance, Magid v. Acceptance Ins. Co.,
2001 WL 1497177, *8 (Del. Ch. 2001), the Delaware Court of Chancery stated that
the effect of Montrose was significant and the company may have needed to make
timely adjustments to its reserves. The issue in Magid was more limited than the
present matter, and the Magid court did not render any specific findings that
Acceptance was under-reserved during the class period.

     The district court granted a defense motion to dismiss one claim and a defense
motion for summary judgment as to all others. The shareholders have appealed.

                                          II.

      On appeal, the Appellants argue that the district court erred by dismissing the
shareholders’ suit under Section 11 of the Securities Act of 1933 on the grounds that
the complaint contained no factual allegations to support the claims described therein.
The Securities Act is primarily designed to ensure that investors receive information
concerning the issuance of securities. The Act prohibits misrepresentations and fraud

                                         -4-
in the sale of securities. Since the district court granted dismissal based upon a
motion to dismiss under Federal Rules of Civil Procedure 12(b)(6), we review the
issue de novo. Romine v. Acxiom Corp., 296 F.3d 701, 704 (8th Cir. 2002).

      There is liability under Section 11 if “any part of the registration statement,
when such part became effective, contained an untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.” 15 U.S.C. § 77k(a). To establish a Section 11
claim, a plaintiff must show that he or she bought the security and that there was a
material misstatement or omission. Herman & Maclean v. Huddleston, 459 U.S. 375,
382 (1983). There is no scienter requirement for a Section 11 claim. In re
NationsMart Corp. Sec. Litig., 130 F.3d 309, 315 (8th Cir. 1997). Further, the
particularity requirements of Federal Rule of Civil Procedure 9(b) do not apply to
Section 11 claims. Id. at 314.

       A related issue that the parties and the district court addressed with the Section
11 claim was whether Acceptance followed proper accounting principles. Under 17
C.F.R. § 210.4-01(a)(1), financial statements to the SEC must be made in accordance
with GAAP. The Appellants allege that Acceptance did not adhere to Financial
Accounting Standard No. 5 (FAS-5) in accounting for its contingencies. To comply
with FAS-5, a loss contingency statement must include information available prior
to the issuance of the financial statement explaining that an asset had been impaired
or the amount of loss in the future can be reasonably estimated. The Appellants’
claim under Section 11 is that the Appellees’ registration statement misstated the
reserve holdings of the company because they did not take into account the Montrose
decision. A registration statement is a set of documents, including a prospectus, that
a company disseminates in conjunction with an issuance of securities.

       The district court held that the Appellants’ Section 11 claim was insufficient
as a matter of law. Even under the liberal pleading requirements of Federal Rule of
Civil Procedure 8(a), the district court found that the Appellants had failed to state

                                          -5-
any facts to support their claim. Notably missing was any fact alleged in the
complaint that indicated Acceptance’s reserves were inadequate in light of the
Montrose decision.

       Appellants argue that numerous statements made by the Appellees after the
registration statement was issued show that Acceptance’s reserves were inadequate
at the time of issuance. However, this type of retrospective analysis of awareness
cannot be the basis for a claim. See, e.g., Scibelli v. Roth, 2000 WL 122193, *3
(S.D.N.Y. 2000) (noting that it is “not a reasonable inference” to assume prior
knowledge based upon actual knowledge at a later date). Under both FAS-5 and
Section 11, information is required to be included only if it is available prior to the
issuance of a financial statement. The Appellants’ complaint alleges no such facts to
support prior knowledge by the Appellees. The Appellants are only able to cite
comments after the statement was issued. Even those alleged facts close in time to
the issuance of the statement only speak to the general importance of the Montrose
decision, not the failure to assess any loss contingency.

       While the Appellees did not mention the Montrose decision specifically in their
filings, they did include more general cautionary language about the risk of judicial
findings on specialty-type insurance programs. They mentioned that court holdings
could have an adverse effect on reserves and subsequent losses could occur as a
result. The Appellants allege no facts to suggest that this general language was
inadequate to provide warning of Montrose-related claims. Further, Appellants do
not cite any legal authority to support the contention that specific mention of the
Montrose decision was required by law.

       As a result, we conclude that there is no error with the district court’s finding
that plaintiffs asserted no facts, other than mere conclusions, to show that Acceptance
was under-reserved during the class period.




                                          -6-
                                           III.

      After discovery, the Appellants sought leave to amend their Section 11 claim.
The district court denied the Appellants’ motion to amend because the Appellants had
unduly delayed seeking amendment, the Appellants acted in bad faith during
discovery, and the amendment would be futile. Generally, we review denial of leave
to amend for abuse of discretion. Wheeler v. Missouri Highway & Transp. Comm’n,
348 F.3d 744, 753 (8th Cir. 2003). However, for the narrow issue of futility, we
review de novo. In re K-Tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 899-900 (8th Cir.
2002).

       In making its argument that the district court erred regarding the denial of leave
to amend, the Appellants largely repeat the same arguments they made in support of
their Section 11 claim. Given that there are no substantive differences in the facts
offered in the proposed amendment, we conclude that the amendment would be futile.

       In the alternative, we find no error in the findings of delay and bad faith.
Findings of bad faith and undue delay can support a denial of leave to amend. United
States ex rel. Gaudineer, L.L.P. v. Iowa, 269 F.3d 932, 936 (8th Cir. 2001).
Appellants offer no reason to find the district court was in error except to argue that
the district court approved the relevant scheduling order. This, however, does not
address the larger issue of bad faith, and we cannot find any argument to support the
notion that the district court abused its discretion. As a result, we find no error by the
district court in denying leave to amend.



                                           IV.

       The Appellants also argue that summary judgment was inappropriate because
a reasonable jury could have found that the individual officer defendants knowingly
or recklessly misled the shareholders in violation of Sections 10(b) and 20(a) of the

                                           -7-
Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. §
240.10b-5.

      Rule 10b-5 effectively tracks Section 10(b), so we discuss those claims in terms
of Rule 10b-5. Our analysis applies to both claims. Rule 10b-5 makes it unlawful to
“make any untrue statement of material fact or to omit to state a material fact
necessary in order to make the statements made, in light of the circumstances under
which they were made, not misleading” concerning a publicly traded company.
Although not specified in Rule 10b-5, scienter of intentional misbehavior or
recklessness is required. Florida St. Bd. of Admin. v. Green Tree Fin. Corp., 270
F.3d 645, 653 (8th Cir. 2001).

       Because the Appellants’ 10(b) and 10b-5 claims rely on the same basic material
misstatements as described for the Section 11 claim, all of the arguments in the
previous section apply here as well. There are, however, other reasons why the
district court granted summary judgment for the defendants on the 10(b) and 10b-5
claims.

       The district court found that the Appellants were unable to meet the scienter
requirements of the relevant sections. The Appellants correctly assert that, in general,
state of mind issues are to be decided by the jury. However, issues of scienter can be
resolved as part of a summary judgment for the defendant if there is no genuine issue
of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Further,
issues of scienter under 10(b) and 10b-5 are subject to the more stringent pleading
requirements of the Private Securities Litigation Reform Act (PSLRA). Under the
PSLRA, the plaintiff must, “with respect to each act or omission alleged to violate
this chapter, 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 Appellants argue that the district court failed to view all facts in a light
most favorable to them on the scienter issue. The most significant piece of evidence

                                          -8-
which the Appellants argue was undervalued by the district court was a statement
recorded in notes by an employee, Wilkins, attributed to Mace that the “[p]ast
problem was probably pressure for earnings. Sounded like we committed a sin in the
past.” The statement, however, was found to be inadmissible hearsay by the district
court. Although the statement was a business record, the second level of hearsay,
attributing the statement to Mace, did not fit into an exception.

       The Appellants argue that the statement was an admission by a party opponent
and/or falls under the general hearsay exception. However, the district court was well
within its discretion in finding that the statement was not an admission to the facts in
this case. The Appellants can only offer conjecture to connect the statement with the
present case, and that is not sufficient for this court to override the judgment of the
district court on this evidentiary issue.

        The district court also found that the Appellants’ expert affidavits were
inadmissible on this issue. The standard of review for excluding expert testimony is
abuse of discretion. General Electric Co. v. Joiner, 522 U.S. 136, 141 (1997).
Applying Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), the district
court screened the expert testimony for relevance and reliability. The district court
found that the testimony was unreliable because it was not supported by any
methodology and not particularly helpful to the court. Ultimately, the district court
felt the opinions were mere legal conclusions with no analytical reasoning or support.

       The two experts took the shareholders’ statements as true and did not review
the record to see if the statements were supported. The opinions themselves were
more or less legal conclusions about the facts of the case as presented to the experts
by the shareholders. As a result, the expert opinions were merely opinions meant to
substitute the judgment of the district court. S. Pine Helicopters, Inc. v. Phoenix
Aviation Managers, Inc., 320 F.3d 838, 841 (8th Cir. 2003). When the expert
opinions are little more than legal conclusions, a district court should not be held to


                                          -9-
have abused its discretion by excluding such statements. United States v. Ingle, 157
F.3d 1147, 1152 (8th Cir. 1998).

      The other statements offered by the Appellants to prove scienter do not show
knowing falsity about the reserves. They do show concern about the Montrose
decision, but they do not weigh on the issue of a failure to properly account for
reserves. Without evidence of intentional falsity, the Appellants’ claim cannot
survive summary judgment.

      For the above reasons, as well as those cited in Section II, the district court was
within its discretion when it granted the motion for summary judgment on the Section
10(b) and Rule 10b-5 claims.

                                           V.

      For the reasons stated above, we affirm the judgment of the district court.

                        ______________________________




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