Complaint was due to an illness which struck plaintiffs' counsel in late 1984. The Common Pleas Court considered this matter but in its Opinion concluded that counsel's illness was not sufficient excuse. The merits of this excuse and the wisdom of the state court's decision are not before us for consideration and we make no comment on them. We are limited quite narrowly to the preclusive effect of the state court's dismissal order.
A) Res Judicata
Plaintiffs make much of the fact that the state court's decision was not "on the merits", the supposed sine qua non for preclusive effect in Pennsylvania. We recognized this argument in our original Opinion and we noted that "on the merits" in this context is a term of art and may not be read literally. See, Wade v. City of Pittsburgh, 765 F.2d 405, 408 (3d Cir. 1985); Restatement of Judgments 2d § 19, comment a. In fact the authors of the Restatement decry the use of this term with its "possibly misleading connotations."
For example, in Pennsylvania an order dismissing an action for failure to comply with a court order will be given preclusive effect, even though the decision is not "on the merits" in the ordinary sense of the term. Wade, 765 F.2d at 408; Bon Homme Richard Restaurants, Inc. v. Three Rivers Bank, 298 Pa. Super. 454, 444 A.2d 1272 (1982). In this case there is no dispute that plaintiffs failed to comply with the Common Pleas Court's orders setting deadlines for filing the Complaint, completing discovery and placing the case on the trial list. As noted above, the state court concluded that plaintiffs' failures were unexcused and we may not second-guess that conclusion. Because Pennsylvania courts would give preclusive effect to a dismissal for failure to comply with court orders, this action is barred even though the merits have not been addressed.
Plaintiffs argue that dismissal here was for non pros and under Pennsylvania law such an action may be refiled within the limitations period, provided plaintiffs tender to defendant the costs incurred in the initial suit. However in the circumstances of this case, a second suit may not be brought without leave of court for good cause shown. Bon Homme Richard, 298 Pa. Super. 454, 444 A.2d 1272; Robinson v. Trenton Dressed Poultry Co., 344 Pa. Super. 545, 496 A.2d 1240 (1985). In this case plaintiffs attempted to show good cause to the state court to avoid dismissal of the original state court action. That court considered the issue and concluded that plaintiffs' failures were unexcused. We may not now entertain the same issues and reach a contrary result.
It is important to note that in this case we are presented with a strong statement of the state court's intentions as to the preclusive effect of its dismissal order. The Common Pleas Court plainly specified that dismissal was "with prejudice", and this order was affirmed on appeal. We are constrained to give to this order the preclusive effect the courts of Pennsylvania would accord it and the plain import of the phrase "with prejudice" is that no further litigation of the matter is contemplated or permitted.
B) Statute of Limitations.
During the pendency of the motion for reconsideration the United States Supreme Court and the Third Circuit have issued decisions on the appropriate limitations period for federal securities law and RICO claims. Defendants have advanced these recent developments as an alternative basis for dismissal.
In Agency Holding Corp. v. Malley-Duff & Associates, Inc., 479 U.S. 1080, 94 L. Ed. 2d 138, 107 S. Ct. 1278 (1987), the Supreme Court held that the 4-yr. statute of limitations contained in the Clayton Act is the appropriate limitations period for civil RICO violations. In doing so the Court rejected analogous state statutes of limitations in favor of other federal limitations periods which promote uniformity and comport more closely with the purposes of the federal cause of action.
Following Malley-Duff, the Third Circuit considered whether analagous state or federal limitations periods should apply to § 10(b) and Rule 10b-5 claims. In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir. 1987). In Data Access, the Circuit sitting en banc determined that the limitations period contained in the Securities Exchange Act of 1934 was the most closely analogous and appropriate for application to § 10(b) and Rule 10b-5 claims. That statute requires suit to be filed within one year after the plaintiff discovers the facts constituting the violation, and in any event no more than three years after such violation. If Data Access is applicable in the present case plaintiffs' securities law claims would be time-barred. The allegedly fraudulent transactions occurred in 1981 and plaintiffs certainly knew of the violations when they instituted the state court action on November 18, 1983. This federal suit was begun February 17, 1987.
The question left unanswered by the en banc court in Data Access was whether this holding should be given retrospective application. A three judge panel of the Third Circuit addressed the issue in Hill v. Equitable Trust Co., 851 F.2d 691 (3d Cir. 1988) and concluded that retrospective application of Data Access was appropriate and consistent with the tenets of Chevron Oil Co. v. Huson, 404 U.S. 97, 30 L. Ed. 2d 296, 92 S. Ct. 349 (1971).
The Chevron analysis requires consideration of 3 criteria to determine whether the holding should be limited to prospective application:
(1) The holding must establish a new principle of law, either by overruling clear past precedent on which litigants may have relief, or by deciding an issue of first impression whose resolution was not clearly foreshadowed.