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ADAMS v. MARTYN

June 17, 1986

RICHARD A. ADAMS
v.
HARRY E. MARTYN, III, individually, and doing business as HARRY E. MARTYN, III, & ASSOCIATES



The opinion of the court was delivered by: HUYETT

 HUYETT, J.

 Defendant Harry E. Martyn, III, has moved for summary judgment in this securities fraud case on the ground that plaintiff's federal claims are barred by the applicable statutes of limitations. I agree with Martyn, and will grant the motion. I will also dismiss the remaining pendent state law claims because of lack of subject matter jurisdiction.

 I. FACTS

 In December 1981, plaintiff Richard A. Adams purchased a tax shelter investment from Martyn for $ 5,000. At that time, Adams, the Superintendent of Human Resources for the Bethlehem Steel Corporation, earned about $ 75,000 annually. On his 1981 federal tax return, Adams declared a $ 25,000 business loss for "mining development expense" associated with the tax shelter. In 1983, the Internal Revenue Service (IRS) disallowed the tax shelter deduction, and assessed a tax deficiency of approximately $ 8,500 against Adams.

 From July 1983 to July 1984, Adams received at least five notices from the IRS concerning this tax deficiency - - including a 90-day letter in October 1983. But he took no action in response to these letters until July 1984. According to Adams, he ignored the deficiency notices for a year on Martyn's advice:

 
Martyn . . . indicated with me that other people had received 90-day letters and they were ignoring them and that the IRS was giving up on those cases . . . . He told me that there were many cases adjudicated by the courts in favor of the taxpayers and . . . there was some guy in the Philadelphia district who had still not yet gotten the word . . . . So, that is the reason why we didn't do anything else with respect to these letters.

 Adams deposition at 88.

 Adams also discussed the notices with his accountant, who told him that there might be a problem with the tax shelter deduction. Finally, in July 1984, Adams contacted an attorney, who informed him that he was "in big trouble," having ignored the IRS notices and the 90-day letter. Adams eventually settled the deficiency dispute with the IRS, which collected the amount due. Then, on July 5, 1985, Adams filed this suit, alleging violations of federal and state securities laws.

 II. DISCUSSION

 In count I of his complaint, Adams asserts that Martyn is liable to him under section 12(1) of the Securities Act of 1933 (the 1933 Act), 15 U.S.C. § 77l(1). In count II, Adams alleges that Martyn is liable to him under section 12(2) of the 1933 Act, 15 U.S.C. § 77l(2). And in count III, Adams claims that Martyn acted in violation of section 10(b) of the Securities Exchange Act of 1934 (the 1934 Act), 15 U.S.C. § 78j. Adams also asserts that Martyn violated rule 1Ob-5, which is promulgated under section 10(b) of the 1934 Act. In his motion for summary judgment, Martyn maintains that all three of these federal claims are time-barred by the applicable statutes of limitations.

 In ruling on this motion for summary judgment, I must resolve all inferences to be drawn from the facts in favor of plaintiff, the non-moving party. Continental Insurance Co. v. Bodie, 682 F.2d 436, 438 (3d Cir. 1982). And I may grant summary judgment here only if it is established that there is no genuine issue as to any material fact and that defendant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Small v. Seldows Stationery, 617 F.2d 992, 994 (3d Cir. 1980).

 A. 1933 Act Claims

 Both parties agree that counts I and II are subject to the limitations period set out in ...


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