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MILLER v. E.W. SMITH CO.

December 16, 1983

RONALD and MARY MILLER
v.
E.W. SMITH CO., GRUNTAL & CO., and WILLIAM SPIROPOULOS



The opinion of the court was delivered by: BECHTLE

 BECHTLE, J.

 In this action, plaintiffs, Ronald and Mary Miller, assert claims against defendants, E.W. Smith Co. ("Smith"), Gruntal & Co. ("Gruntal"), and William Spiropoulos, under the federal securities laws, rules established by the National Association of Securities Dealers, and state tort and contract law. Presently before the court is the motion of defendants Smith and Gruntal to dismiss counts III and IV of the amended complaint, for severance of the state law claims, and for a stay of arbitration on the state law claims until conclusion of the federal suit. For the reasons set forth below, the motion will be granted in part and denied in part.

 COUNT III

 Count III of the amended complaint asserts a claim under § 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(2) (1981). Defendants argue that this claim should be dismissed in view of plaintiffs' failure to plead facts which would satisfy the limitations period established by § 13 of the same Act, 15 U.S.C. § 77m (1981). The court cannot agree.

 As plaintiffs correctly point out, the defendants' motion must be treated as one for summary judgment since defendants have already filed an answer to the amended complaint. Fed.R.Civ.P. 12(b). See generally 5 C. Wright & A. Miller, Federal Practice and Procedure § 1347 (1969). The standard against which a motion for summary judgment is measured requires the moving party to demonstrate both that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law. To meet this burden here, defendants must show that the undisputed material facts reveal that plaintiffs have not timely filed their complaint according to the provisions of § 13 of the Act. Section 13 provides in pertinent part:

 
No action shall be maintained to enforce any liability created under . . . [Section 12(2)] unless brought within one year after discovery of the untrue statements or the omission, or after such discovery should have been made by the exercise of reasonable diligence . . . . In no event shall any action be brought to enforce a liability created under . . . [Section 12(2)] . . . more than three years after the sale.

 15 U.S.C. § 77m (1981).

 Defendants have not met their burden. Since material facts as to the date when the one year limitation period of § 13 began to run remain in dispute, and since the complaint was filed within three years from the date plaintiffs first had contact with defendants, summary judgment will accordingly be denied.

 COUNT IV

 Count IV of the complaint claims that defendants violated Article III, section 2 of the Rules of Fair Practice of the National Association of Securities Dealers ("NASD") and "other NASD rules." Article III, section 2, known as the "suitability rule" provides:

 
In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

 NASD Manual (CCH) art. III § 2 (1983).

 Plaintiffs allege that the defendants recommended to and bought for the plaintiffs securities which the defendants knew were unsuitable in light of plaintiffs' financial situation and needs. Defendants contend that count IV must be dismissed ...


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