September 16, 1988
ROBERT S. ADELAAR, SAMUEL G. BARNES, SUSAN H. BARNES, JOSEPH V. BATTISTA, JR., ROBERT B. BELL, RONALD F. CALKINS, MOHAN L. CHAUDHURI, JEN WEN CHEN, ALI AZAM CHOUDHURY, BONIFACE S. COSTA, JOHN DOMMISSE, TALLY H. EDDINGS, II, WILLIAM F. HOLTZ, STEPHEN HOOPER, MAX R. ISRAELSON, SURINDER K. KALLAR, Executor of the Estate of Baltej S. Kallar, BARBARA T. KINGHORN, S.R. KINGHORN, JOHN D. KRISTOFIC, MANIKOTH G. KURUP, ELAINE M. LANTZ, JOSEPH D. LANTZ, DANIEL J. MELKER, RALSTON W. MERCHANT, JR., PRAMOD K. MOHANTY, MICHAEL MORCHOWER, MARTHA R. PATTERSON, E. NORMAN PETERSON, JR., JOE M. PHILLIPS, JR., MARION W. PINES, SAMUEL R. PINES, S. JAIKAR RAO, ROBERT T. SCOTT, JOHN A. STRAKA, ROBERT J. A. THACKER, LOUISE H. THACKER, (ADDED BY 2ND AMENDED COMPLT.), DONALD C. TRAPP, JOSEPH R. VILSEK, JR., BARRY Q. WALKER, DAVID W. WILDER, MARY A. YENNEY, THOMAS M. YENNEY, SIMON YOUNG, WALTER J. ZPEVAK, Plaintiffs,
LAUXMONT FARMS, INC., LAUXMONT FARMS II, INC., LAUXMONT FARMS III, INC., RONALD C. KOHR, BRADLEY D. KOHR, JAMES D. KOHR, JAMES JOSEPH CLARK, ANDREWS DAVIS LEGG BIXLER MILSTEN & MURRAH, An Oklahoma Professional Corporation, TIMOTHY M. LARASON, JOSEPH G. SHANNONHOUSE, IV, RICHARD G. INGHAM, JOSEPH J. SCHOPEN, W.Z.W. FINANCIAL SERVICES, INC., d/b/a Cornerstone Financial Services, Inc., ANCHOR NATIONAL FINANCIAL SERVICES, INC., RUSSELL W. STERLING, BETTY GRIFFIN, Executor of the Estate of E. Exum Griffin, RAYMOND T. WALLER, ADVEST, INC., RICHARD E. THOMPSON, BERNARD A. ROSNER, PROFESSIONAL PLANNING ASSOCIATES, INC., DORTHEA M. CULLEN, (DISM'D PER ORDER DTD. 2/10/88), Executor of the Estate of Richard S. Cullen, J.I.I. SECURITIES, INC., THOMAS K. MERCER, MERCER DIVERSIFIED SECURITIES, INC., KENNETH P. MULVANEY, CHARLES MITCHELL, MHA FINANCIAL CORPORATION, HOWARD W. LEEB, GARY SPRUNGER, HOWARD W. LEEB & ASSOCIATES, PETER STIPANOVICH, WILLIAM R. SCHMIDT, INVESTMENTS, INCORPORATED, A. R. MORGANTHAU & ASSOCIATES, ANTHONY R. MORGANTHAU, Defendants
The opinion of the court was delivered by: CALDWELL
WILLIAM W. CALDWELL, UNITED STATES DISTRICT JUDGE
Defendants, Andrews Davis Legg Bixler Milsten & Murrah, Timothy M. Larason and Richard G. Ingham, have filed a motion for judgment on the pleadings, contending that count II of the plaintiffs' complaint, a claim pursuant to section 10(b) of the Securities and Exchange Act of 1934 (the 1934 Act), 15 U.S.C. § 78j(b), and its corresponding rule, 17 C.F.R. § 240.10(b)-5, and count IV, an aiding and abetting claim based upon the securities claim set forth in count II, are barred by the statute of limitations recently adopted by the Third Circuit in In Re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir. 1988) (en banc), cert. denied, Vitiello v. I. Kahlowsky & Co., 488 U.S. 849, 57 U.S.L.W. 3233, 102 L. Ed. 2d 103, 109 S. Ct. 131 (1988) (No. 88-54). Defendants, Advest, Inc., Betty Griffin, Raymond T. Waller, Russell W. Sterling, Investments Incorporated, William Schmidt, Peter Stipanovich, Mercer Diversified Securities, Inc., Thomas K. Mercer and J.I.I. Securities, Inc., have also filed a motion for judgment on the pleadings on the same ground. Most of the other defendants have filed statements joining the Andrews Davis motion. Plaintiffs have opposed the motions. They have been fully briefed and are now ripe for disposition.
In Data Access, supra, the Third Circuit adopted for use in section 10(b) and Rule 10(b)-5 actions (hereinafter "10(b)-5 claims") the express statutes of limitations already found in the 1934 Act. Such claims must now be brought within "one year after plaintiff discovers the facts constituting the violation, and in no event more than three years after such violation." 843 F.2d at 1550. The Third Circuit made clear that the three year period was an absolute limit, a "period of repose", id. at 1546, which was not subject to any equitable tolling doctrine suspending the running of the statute during the time a plaintiff could not have reasonably known about violations.
The sales of the limited partnerships at issue in the instant case all took place from 1978 through 1981. Under Data Access, this lawsuit would therefore be untimely as to 10(b)-5 claims since it was filed in January of 1987, more than three years after the last possible sale.
Plaintiffs argue, however, that the circumstances of the instant case, in light of the three part test in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S. Ct. 349, 30 L. Ed. 2d 296 (1971), indicate that Data Access should not be applied retroactively. Conversely, defendants urge us to apply the general rule that a court should look to the law in effect at the time of its decision. See Mineo v. Port Authority, 779 F.2d 939 (3d Cir. 1986), cert. denied, 478 U.S. 1005, 106 S. Ct. 3297, 92 L. Ed. 2d 712 (1986). They also argue that retroactive application is proper here under Chevron.1
The parties originally argued without the benefit of Hill v. Equitable Trust Co., 851 F.2d 691 (3d Cir. 1988), but they have filed supplemental briefs addressing that decision. The Court in Hill, after considering the Chevron test, applied Data Access retroactively. We will therefore begin our analysis with Hill, bearing in mind, however, that the circumstances of the individual case must be considered. See Al-Khazraji v. Saint Francis College, 784 F.2d 505 (3d Cir. 1986), aff'd, 481 U.S. 604, 107 S. Ct. 2022, 95 L. Ed. 2d 582 (1987). In Hill, the District Court of Delaware had held that the 10(b)-5 claims of non-Delaware residents were subject to the Maryland statute of limitations, the state of the defendant bank's improper activities. The limitations period was one yearfrom discovery or three years from sale. The non-Delaware residents' claims were therefore barred since the relevant transactions had taken place in November of 1978 and the filing of the lawsuit in April of 1982. During the pendency of the Hill appeal, Data Access was decided. The issue then became whether that decision should be applied retroactively in Hill. Referring to the Chevron test, the Third Circuit noted that nonretroactive application of a decision depends upon the following considerations:
(1) The holding must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed;
(2) The merits and demerits in each case must be weighed by looking to the history of the rule in dispute, its purpose and effect, and whether retrospective operation will further or retard the rule's operation;
(3) Retrospective application must create the risk of producing substantially inequitable results.
Hill, supra, 851 F.2d at 696 (citing ...
Buy This Entire Record For