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PENTURELLI v. SPECTOR COHEN GADON

February 14, 1985

Bernardo J. PENTURELLI
v.
SPECTOR COHEN GADON & ROSEN P.C., et al.



The opinion of the court was delivered by: HUYETT

 HUYETT, District Judge.

 Plaintiff Bernardo J. Penturelli filed this action on December 13, 1984, alleging that defendants defrauded him on December 15, 1978, when he subscribed for and purchased 28 fractional undivided working interests in the Addison Development, a program whereby a limited number of persons would sublease certain rights to mine and remove all mineable and merchantable coal from specific seams of coal situated within Addison Township, Somerset County, Pennsylvania. Plaintiff Penturelli seeks recovery from twenty-five defendants who played various roles in the Addison Development project under the Securities Act of 1933, 15 U.S.C. § 77a et seq., ("the '33 Act"), the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., ("the '34 Act"), the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), and state common law.

 Presently pending are eight motions to dismiss. Defendants have asserted a number of grounds for dismissal including lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. I will review each basis for dismissal in seriatim.

 In deciding a motion to dismiss, I must accept as true all factual allegations made in the complaint and must resolve all reasonable inferences to be drawn from those allegations in the light most favorable to plaintiff. Dismissal is appropriate only when it appears beyond a doubt that plaintiff can prove no set of facts in support of his claims which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02, 2 L. Ed. 2d 80 (1957).

 Statute of Limitations

 Defendants' first contention is that the statute of limitations had expired before plaintiff filed this action. Plaintiff alleges that he was defrauded in December of 1978. Defendants assert that Pennsylvania "blue sky" statute of limitations as embodied in 70 P.S. § 1-504(a) should govern this action because no federal statute provides an applicable limitations period. Section 504(a) states in pertinent part:

 
No action shall be maintained to enforce any liability created under section 501 . . . unless brought before the expiration of three years after the act or transaction constituting the violation or the expiration of one year after the plaintiff receives actual notice or upon the exercise of reasonable diligence should have known of the facts constituting the violation, whichever shall first expire.

 Application of section 504, however, presumes that there is a private cause of action under the Commonwealth's "blue sky" law comparable to that raised by the plaintiff under the federal securities acts. As defendants all note, 70 P.S. § 1-401 closely parallels the federal section 10(b) under which plaintiff is proceeding in part, but the sole source of civil liability for any act in violation of section 401 is found in section 501, which provides in pertinent part:

 
(a) Any person who . . . offers or sells a security in violation of sections 401, 403, 404, or otherwise by means of any untrue statement of material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading . . . shall be made liable to the persons purchasing the security from him . . . .
 
(b) Any person who purchases a security in violation of sections 401, 403, 404 or otherwise by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, . . . shall be liable to the person selling the security to him . . . .

 Although these sections give a cause of action to defrauded sellers and buyers, they only give the seller or buyer the right to sue the person purchasing or selling the security. In other words, the Pennsylvania securities statute grants a private remedy to a buyer only against his seller. When there is no private remedy under the state securities statute, but there is a common law fraud action, the federal court must look to the Commonwealth's statute of limitations for common law fraud.

 Applying exactly this type of analysis, the Third Circuit, in Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605, 610 (3d Cir.1980), held that the Commonwealth's six year statute of limitations for common law fraud applied to a § 10b action against a brokerage house which handled securities transactions for the plaintiff. Similarly, in Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d Cir.1981), the court held that the common law fraud statute of limitations of six years governed a suit for securities fraud brought by a purchaser of a limited partnership in an oil-and gas-drilling venture against an accounting firm which prepared an opinion letter outlining the tax treatment of investors.

 The key question here is which of the defendants, if any, were sellers of the alleged securities involved. Such a determination probably involves a factual determination which is not appropriately made on a motion to dismiss. Furthermore, I am not sure, as defendants contend, that a mere allegation of privity by plaintiff between himself and each defendant is enough to make each defendant a seller for purposes of the securities acts. See Lewis v. Walston & Co., 487 F.2d 617 (5th Cir.1973) (whether the person was the proximate cause of the sale); Hill York Corporation v. American International Franchises, 448 F.2d 680 (5th Cir.1971) (Did the injuries to plaintiff flow directly and approximately from the actions of the defendant?). Because ...


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