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HALPERIN v. JASPER

October 12, 1989

EDWARD and MARION HALPERIN, Plaintiffs,
v.
BARON JASPER, Defendant



The opinion of the court was delivered by: TROUTMAN

MEMORANDUM

 E. MAC TROUTMAN, SENIOR UNITED STATES DISTRICT JUDGE

 This case involves allegations of securities fraud, a RICO violation and common law torts by plaintiffs Edward and Marion Halperin against Baron Jasper, their longtime accountant and alleged financial advisor.

 The facts of this case were set forth in some detail in the Court's Memorandum and Order of November 20, 1987 (Doc.#13), in which we denied defendant's first motion for summary judgment. Briefly, plaintiffs allege that, unknown to them, defendant had an ongoing financial relationship with the promoter of certain investments recommended to plaintiffs by defendant. Plaintiffs expected and intended that the property investments recommended by defendant would serve as tax shelters. Subsequently, however, the IRS disallowed the deductions which plaintiffs had taken in connection with three of the investments and assessed additional taxes, as well as interest and penalties, against them. The investments themselves are, allegedly, virtually worthless. Plaintiffs have alleged that, had they known of defendant's financial interest in having them invest in these particular properties, they would have scrutinized the investments more carefully and would have considered other options. Believing, however, that defendant's sole interest was to find for them the best tax shelter investments available, plaintiffs allegedly accepted his advice without question.

 As noted, the Court denied defendant's first motion for summary judgment, in which he contended that plaintiffs' losses do not constitute cognizable claims under either the securities laws or RICO. In doing so, we held that plaintiffs had sufficiently stated a claim pursuant to § 10(b) of the Securities Exchange Act and Rule 10(b)(5), promulgated thereunder. We also held that no decision with respect to the sufficiency of the RICO claim was then possible and directed plaintiffs to file a RICO Case Statement in order to allow us to, "better assess the viability of that cause of action". See, Halperin v. Jasper, 1987 U.S. Dist. LEXIS 10828, No. 85-5849 slip op. at 7 (E.D. Pa. Nov. 20, 1987).

 Subsequently, we granted plaintiffs' motion to reopen discovery for the purpose of obtaining information as to the then-current value of the investments. Plaintiffs later requested three additional extensions of time to obtain that discovery, each request accompanied by a full explanation of the difficulties encountered in gathering the needed information, and the Court granted each such request for good cause shown.

 The Court then scheduled a final pre-trial conference for one week after pre-trial memos were due. Unfortunately, defendant's counsel suffered a fractured spine and requested that the conference and trial be postponed until he recovered. At about the time trial could then have been scheduled, new counsel entered an appearance for defendant, necessitating another postponement.

 In the interim, the Court of Appeals for the Third Circuit decided the cases of In Re: Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir. 1988) and Hill v. Equitable Trust Co., 851 F.2d 691 (3d Cir. 1988). In Data Access, the court determined that the proper statute of limitations for claims arising under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, is one year from the discovery of facts constituting a violation and, in no event, more than three years after such violation occurred. In Hill, the court subsequently determined that, in the appropriate case, Data Access could be retroactively applied to bar a cause of action which arose prior to the selection of the one year/three year limitations period.

 These developments in the law prompted defendant's counsel to request additional time before the case was scheduled for trial in order to file a motion for summary judgment on statute of limitations grounds, which the Court granted. That motion is now ready for disposition, oral argument having been held thereon.

 STATUTE OF LIMITATIONS ISSUES

 Defendant contends that the investments in question were made in 1976, 1980 and 1981, respectively, and that plaintiff Edward Halperin was first on notice that defendant may have had a financial interest in having him invest in the recommended properties in October, 1984. Although the complaint was filed in October, 1985, defendant contends that the securities claims are nevertheless barred by the statute of limitations in that the alleged violations occurred at the time the investments were made, more than three years prior to the commencement of this action. Defendant further contends that, because plaintiffs' RICO claims allege the securities violations as predicate offenses and because the securities claims are now barred by the statute of limitations, the RICO claims are likewise time-barred.

 Plaintiffs do not dispute the essential facts upon which defendant's motion is based. Rather, they argue that, as a matter of law, the Data Access decision should not be retroactively applied to bar their securities claims. Plaintiffs further argue that, even if the Court should determine that those claims are time-barred, the RICO claims are not subject to the same limitations period and, hence, are not similarly barred.

 As the Court of Appeals noted in Hill, there is a general rule which favors applying the law in existence at the time an issue is considered. A new rule of law may, however, be applied prospectively when certain criteria, set forth in the case of Chevron v. Huson, 404 U.S. 97, 92 S. Ct. 349, 30 L. Ed. 2d 296 (1971), are met. In order for a new rule of law to be applied prospectively it must, in the first instance, either overrule clear past precedent or decide an issue of first impression where the resolution was not clearly foreshadowed by prior decisions. Second, the Court must weigh, under the facts of each case, the merits of prospective or retrospective application, taking into account the the history of the new rule, its purpose, effect, and whether ...


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