The opinion of the court was delivered by: DIAMOND
The defendant in these consolidated cases has filed motions to stay plaintiffs' pendent state claims, to strike plaintiffs' claims for punitive damages, and for summary judgment on statute-of-limitations grounds. The plaintiffs have filed cross-motions to strike the statute-of-limitations defense and for summary judgment as to the defendant's counterclaim for indemnification. For the reasons set forth below, the court: (1) will deny the defendant's motions for summary judgment on the statute-of-limitations defense and, accordingly, grant the plaintiffs' cross-motions to strike that defense, (2) will grant the plaintiffs' motions to strike the defendant's claims for indemnification, and (3) will grant in part and deny in part the defendant's motions to stay the pendent state claims and to strike the plaintiffs' claims for punitive damages.
All plaintiffs are represented by the same counsel and have filed similar complaints alleging, in addition to a number of pendent state claims, violations of § 10(b) of the Security Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78j(b), and of Rule 10b-5, 17 C.F.R. 240.10b-5, promulgated under § 10(b) of that act. The defendant has moved for summary judgment in all cases except the Scott case on the ground that they are time-barred. The parties agree that under the facts of these cases if a six-year limitation period applies, the suits are timely, but if a two-year period is applicable, they can only be saved by the federal tolling doctrine.
I. STATUTE OF LIMITATIONS
Congress did not provide a specific time period within which a claim under § 10(b) of the Exchange Act 1934 must be brought. As a result, the court must determine the applicable federal statute of limitations. Johnson v. Railway Express Agency, 421 U.S. 454, 95 S. Ct. 1716, 44 L. Ed. 2d 295 (1975); Cope v. Anderson, 331 U.S. 461, 67 S. Ct. 1340, 91 L. Ed. 1602 (1947). And, further, in the absence of an express Congressional choice of a limitations period, the court must presume that Congress chose to defer to each forum state's policies of repose rather than to have national uniformity. United Parcel Service v. Mitchell, 451 U.S. 56, 101 S. Ct. 1559, 67 L. Ed. 2d. 732 (1981); Johnson, supra. Therefore, the court must "determine which limitations period is 'the most appropriate one provided by state law.' Johnson v. Railway Express Agency, 421 U.S. 454, 462, 95 S. Ct. 1716, 44 L. Ed. 2d 295 (1975). This depends upon an examination of the nature of the federal claim and the federal policies involved. See [ United Auto Workers v.] Hoosier Cardinal [Corporation], [383 U.S. 696,] 706-707, [ 86 S. Ct. 1107, 16 L. Ed. 2d 192 (1966)]." United Parcel Service, supra at 60-1.
On two occasions the federal policies embodied in section 10(b) and Rule 10(b)(5) have been analyzed by the Third Circuit in light of the appropriate Pennsylvania statute of limitations. See Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605 (3rd Cir. 1980); Roberts v. Magnetic Metals Co., 611 F.2d 450 (3rd Cir. 1979). In Biggans, this circuit considered the choice between the statute of limitations under the Pennsylvania Securities Act (sometimes PSA) and the limitations period applicable to Pennsylvania common-law fraud. Biggans is indistinguishable from the cases sub judice, and is therefore controlling in the disposition of the parties' cross-motions on the statute-of-limitations issue.
In Biggans, an investor brought suit against Bache Halsey Stuart Shields, Inc., a stock brokerage firm with which the investor had opened a discretionary trading account. The investor alleged that Bache had made numerous trading transactions on his account not for the authorized and legitimate purpose of increasing the value of his account with Bache, but for the improper purpose of generating sales commissions for the benefit of Bache. The investor charged that this "churning" of transactions was a manipulative stock practice prohibited by section 10(b) and Rule 10b-5. The district court adopted the limitations period provided for in the Pennsylvania Securities Act, and held that the suit was time-barred.
In reversing the district court, the Third Circuit stated:
Bache argues that because the claims asserted by Biggans would be encompassed within the Pennsylvania Securities Act, the statute of limitations provided in that Act governs. That is apparently the reasoning adopted by the district court. The difficulty with Bache's argument is that it neglects the significant fact that the Pennsylvania Securities Act provides no cause of action for damages to Biggans or to an investor in his situation. Assuming the Pennsylvania statute proscribes churning, such activity can be the subject of an injunction action brought by the Pennsylvania Securities Commission, Pa. Stat. Ann. tit. 70, § 1-509, or can subject Bache to criminal penalties, id., § 1-511. It is clear, however, that the statute does not give Biggans the right to sue Bache for damages. Biggans, supra at 609. (emphasis added)
The Biggans court noted that the PSA provides only limited remedies to a buyer or seller of securities. A complaining buyer or seller, if he still holds the security, may obtain recision plus interest from the date of the alleged unlawful transaction less any income the complainant earned on the security. 70 Pa. C.S.A. § 1-501(a)(b) (1981). As an alternative to recision, a buyer can seek damages from the seller in an amount equal to the purchase price minus the value the buyer received when he disposed of the security. 70 Pa. C.S.A. § 1-501(a) (1981). The alternative to recision for a seller of securities who establishes that the buyer purchased the security in violation of the PSA is the difference between the sale price and the price the buyer received when the buyer disposed of the security. 70 Pa. C.S.A. § 1-501 (b). Under the Pennsylvania Securities Act, a plaintiff may sue only the individual or other legal entity with whom the plaintiff stands in privity. So, if a named defendant did not buy the security from the plaintiff or sell it to the plaintiff, no liability would attach to that defendant under the PSA. 70 Pa. C.S.A. § 1-506 (1981).
The Pennsylvania Securities Act does not supplant the common-law remedies available to an injured party in a security transaction, it merely supplements them. id. Under Pennsylvania common law, an injured party is not limited to suit against one in privity with him, but may sue any individual or legal equity who aided or abetted the perpetration of the fraud, See e.g. Littler v. Dunbar, 365 Pa. 277, 74 A.2d 650 (1950); Cameron v. Carnegie Trust Co., 292 Pa. 114, 140 A. 768 (1928); Humbird v. Davis, 210 Pa. 311, 59 A. 1082 (1904); Eckrich v. DiNardo, 283 Pa. Super. 84, 423 A.2d 727 (1980). Furthermore, the injured party is not limited in the remedies that he may seek as he is under the PSA, but may seek compensation for any damages that directly flow from the fraud. Scaife Company v. Rockwell-Standard Corporation, 446 Pa. 280, 285 A.2d 451 (1971), cert. denied, 407 U.S. 920, 92 S. Ct. 2459, 32 L. Ed. 2d 806 (1972); Neuman v. Corn Exchange National Bank and Trust Co., 356 Pa. 442, 51 A.2d 759 (1947); but cf. Tilghman v. Dollenberg, 418 Pa. 604, 213 A.2d 324 (1965). In addition, the Biggans court noted that Pennsylvania common law also would recognize an action against a brokerage firm for breach of a fiduciary duty. See e.g. Claughton v. Bear, Stearns & Co., 397 Pa. 480, 156 A.2d 314 (1958); Butcher v. Newburger, 318 Pa. 547, 179 A. 240 (1935); Vollmer v. Newburger, 277 Pa. 282, 121 A. 56 (1923).
The plaintiffs have sued Parker-Hunter under two theories to establish a security act violation. The first theory charges that Parker-Hunter aided and abetted Otto in a security-fraud scheme. The PSA does not impose civil liability on an aider and abettor of a security fraud who does not stand in privity with the victim. Therefore, under Biggans, supra, since there is no comparable remedy under PSA, the limitations period must be that period ...