that the plaintiff did not owe Edwards and Hanly the $108,000.00 deficiency.
On September 13, 1976, Edwards and Hanly filed a Chapter XI petition in bankruptcy. On September 15, 1976, the plaintiff's action against Edwards and Hanly was stayed indefinitely by the bankruptcy court. The present action against the two exchanges was instituted on January 13, 1977. A recitation of the circumstances leading up to the Edwards and Hanly action was prompted due to the similarity of operative facts between that case and the present one. The plaintiffs' claim against the defendant-Exchanges arises from the same circumstances. Basically, the present plaintiffs are alleging that the Exchanges "aided and abetted" Edwards and Hanly's alleged wrongdoing.
In the First Count of the Complaint (paras. 46-68) plaintiff alleges that the NYSE and AMEX are liable under § 6 of the Exchange Act
for violating NYSE rules 405 and 431 and AMEX rules 411 and 462 in connection with the brokerage accounts held by the plaintiff and the class members with Edwards and Hanly. The Second Count (paras. 69-74) alleges a violation of Exchange Act § 9(a)
in that plaintiff claims that Edwards and Hanly induced the plaintiff and others similarly situated to purchase large amounts of Trans-Lux stock in order to create the appearance of active trading in the stock and then prevented the liquidation of the plaintiff's and class members' margin accounts in order to artificially stabilize the market price of the Trans-Lux stock. Plaintiff alleges that the defendants were aware of this activity on the part of Edwards and Hanly and substantially assisted Edwards and Hanly in carrying out these illegal activities.
Count Three (paras. 75-79) alleges a violation of § 17(a)
of the Securities Act and § 10(b)
of the Exchange Act and rule 10b-5
promulgated thereunder. Plaintiff claims that the defendants knowingly withheld facts pertaining to the Trans-Lux stock transactions and that their actions constitute common law fraud and a violation of the aforementioned provisions. Count IV (paras. 80-82) alleges a violation of the margin requirements of § 7 of the Exchange Act
and Regulation T
promulgated thereunder. The Fifth Count (paras. 83-84) alleges the use of "manipulative, deceptive, fraudulent and fictitious devices to induce, and to attempt to induce, purchases and sales of stock traded 'over the counter'" in violation of Exchange Act § 15(c).
Finally, in the Sixth Count (paras. 85-87), plaintiff alleges a common law breach of contract.
II. DEFENDANTS' MOTION
As previously stated, the defendant-Exchanges have moved for judgment on the pleadings
dismissing the first, third, fourth, fifth and sixth counts of the complaint arguing that the claims asserted in those counts are not legally cognizable. The defendants have moved for summary judgment
on the second, third and fifth counts of the complaint arguing that the claims asserted in those counts are time-barred. The Court will address the motions for summary judgment first.
Count two of the complaint is brought pursuant to § 9(a) of the Exchange Act. Section 9 contains its own statute of limitation set forth in subsection (e):
No action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation.
Defendants point to January 9, 1974, as the date of the last securities transaction involving plaintiff's account -- the date on which Edwards and Hanly liquidated the account.
Since this action was commenced on January 13, 1977, defendants contend that the § 9(a) claim contained in Count Two is time-barred. Plaintiff responds to defendants' position that this claim is untimely by arguing that the limitation period discussed above is subject to federal equitable tolling principles.
Plaintiff's position raises two questions: First, is the federal equitable tolling doctrine applicable? Second, if it is applicable, then are there disputed factual issues pertaining to when the plaintiff knew or, in the exercise of reasonable diligence, should have known of defendants' fraudulent activities thus precluding summary judgment?
In resolving the first question, the Court rejects defendants' contention that equitable tolling is inappropriate as to § 9(a) due to the "built-in" tolling provision of § 9(e) which "was intended to impose an absolute bar to claims more than three years old."
Federal limitations periods, whether built-in to a statute providing for substantive liability or not, are subject to equitable tolling. American Pipe & Construction Co. v. Utah, 414 U.S. 538, 559, 94 S. Ct. 756, 769, 38 L. Ed. 2d 713 (1974), reh. denied, 415 U.S. 952, 94 S. Ct. 1477, 39 L. Ed. 2d 568 (1974); see also Glus v. Brooklyn Eastern District Terminal, 359 U.S. 231, 79 S. Ct. 760, 3 L. Ed. 2d 770 (1959). Concluding that the doctrine applies, however, does not end the inquiry as to the timeliness of the claim contained in the second count. The second question is whether the actual application of the doctrine to the facts of this case results in a tolling of the limitations periods; and concomitantly, whether that question is even capable of resolution at this stage of the proceedings in the context of a summary judgment motion.
Under the equitable tolling doctrine, when fraud is concealed the limitations period is tolled until the plaintiff becomes aware of the fraud, or should have become aware of it. Hochfelder v. Midwest Stock Exchange, 503 F.2d 364, 375 (7th Cir.), cert. denied, 419 U.S. 875, 95 S. Ct. 137, 42 L. Ed. 2d 114 (1974); see also Holmberg v. Armbrecht, 327 U.S. 392, 66 S. Ct. 582, 90 L. Ed. 743 (1946). Where active concealment is present then the statute is tolled until actual discovery. Tomera v. Galt, 511 F.2d 504, 510 (7th Cir.1975). In paragraph 45 of the complaint plaintiff alleges:
All of the aforementioned facts and circumstances were actively concealed by Defendants and Edwards & Hanly from Plaintiff and others similarly situated who could not, as a result, have discovered same. Only as a result of discovery proceeding by subpoena in the action entitled Walck v. Edwards & Hanly, E.D. Pa., Civil Action No. 74-664, were these facts and circumstances able to be discovered.