June 7, 1995
Nearly twelve years ago -- on July 1, 1983 -- Arthur L. Guptill Jr., who had been brought into this action as a third-party defendant, filed claims against C. Joseph Manfredo, a defendant in the original action. All of the other claims in this suit were settled a decade ago, leaving only the claims by William L. Guptill -- who, as personal representative of his father's estate, was substituted as the plaintiff
subsequent to the death of his father in 1992 -- against Manfredo.
Trial in this case has been repeatedly delayed by, inter alia, attempts to settle the dispute, a bankruptcy filing by Manfredo, a two-year lapse between the time the plaintiff obtained relief from the automatic bankruptcy stay and the time this court was notified that the stay was no longer in effect, the state of Manfredo's health (which precluded trial during the past winter), and, most recently, the retention by Manfredo (who had been proceeding pro se since 1984) of counsel. Trial is now scheduled to begin June 19, 1995, and, in anticipation of that trial, Manfredo's recently-retained counsel has filed a motion for partial summary judgment.
The claims in this suit arise under the federal securities laws and the common law of fraud, embezzlement, and breach of fiduciary duty. The motion for partial summary judgment raises three arguments: (1) that a release signed by Arthur Guptill on August 4, 1981, bars all of these claims, except those made in connection with Arthur Guptill's account at A.G. Edwards & Son; (2) that the statute of limitations bars the claims under § 10(b) of the Securities Exchange Act of 1934 ("the 1934 Act"), 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, that accrued prior to July 1, 1982 -- a year before Arthur Guptill filed claims against Manfredo (or, alternatively, those that accrued prior to July 1, 1980 -- three years before Arthur Guptill's filing); and (3) that the statute of limitations governing claims for common-law fraud bars those claims that accrued prior to July 1, 1980 -- three years before Arthur Guptill's filing.
These claims arise out of financial transactions involving Arthur L. Guptill Jr. and C. Joseph Manfredo. Manfredo was, according to the plaintiff's supplemental pretrial memorandum, Arthur Guptill's investment adviser and broker. Manfredo -- who was employed first at Shearson/American Express, Inc., and later at A.G. Edwards & Sons, Inc. -- was Arthur Guptill's broker, but, in addition, Manfredo advised Arthur Guptill regarding investments in enterprises that were unrelated to either Shearson or A.G. Edwards. Their broker-client relationship began in 1977, and the events at issue occurred "during the period from approximately 1977 through 1982." Answer of Third-Party Defendant Arthur L. Guptill, Jr. to Third Party Complaint of Shearson/American Express, Inc., with Counterclaims and Crossclaims Against Shearson/American Express, Inc., C. Joseph Manfredo and A.G. Edwards & Sons, Inc. P 30.
The claims that continue to be pressed in this action, see supra n.2, include claims under § 10(b) of the 1934 Act (and Rule 10b-5), as well as claims of common-law fraud, embezzlement, and breach of fiduciary duty. The defenses asserted are the August 4, 1981, release and the statute of limitations. See Answer and Special Defense of Defendant, C. Joseph Manfredo to Cross-claims of Arthur L. Guptill, Jr. Against Shearson/American Express, Inc., A.G. Edwards & Sons, Inc., and C. Joseph Manfredo, at 8 ("The Plaintiff's claims are barred by the applicable statutes of limitations . . . .").
THE STATUTE OF LIMITATIONS AND § 10(b)
Easily the most complex issue raised by defendant's motion is the effect of the statute of limitations on the plaintiff's claims under § 10(b) of the 1934 Act. The complexity stems from the fact that (1) because causes of action under § 10(b) have been implied by the courts, it was left to the courts to discern what limitations period to apply, and (2) significant judicial and legislative developments regarding the applicable statute of limitations have occurred in the last decade. The judicial developments involve decisions by (1) the Third Circuit beginning with In re Data Access Systems Securities Litigation, 843 F.3d 1537 (3d Cir.) (in banc), cert. denied, 488 U.S. 849 (1988), and (2) the Supreme Court, most particularly Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 115 L. Ed. 2d 321, 111 S. Ct. 2773 (1991), and James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 115 L. Ed. 2d 481, 111 S. Ct. 2439 (1991), both of which were decided on June 20, 1991. The legislative development is Congress's reaction to the Supreme Court's decisions of June 20, 1991 -- that is, § 476 of the Federal Deposit Insurance Corporation Improvement Act of 1991, 105 Stat. 2236, which has been codified at 15 U.S.C. § 78aa-1. In order to determine the effect of the statute of limitations on Guptill's claims, it is first necessary to trace these developments in some detail, beginning with the Supreme Court's decisions of June 20, 1991.
In Lampf, the Supreme Court attempted to decide, once and for all, what limitations period governs actions under § 10(b). There the Court "held that 'litigation instituted pursuant to § 10(b) and Rule 10b-5 . . . must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation.'" Plaut v. Spendthrift Farm, Inc., 131 L. Ed. 2d 328, 115 S. Ct. 1447, 1450 (1995) (quoting Lampf, 501 U.S. at 364). The Court "applied that holding to the plaintiff-respondents in Lampf itself, found their suit untimely, and reinstated a summary judgment previously entered in favor of the defendant-petitioners." Id. In so doing, the Court rejected the argument that principles of equitable tolling -- i.e., that the statute of limitations is tolled until the date on which the plaintiff discovered, or with the exercise of reasonable diligence should have discovered, the facts constituting the alleged fraud, see Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605, 607-08 n.3 (3d Cir. 1980) -- could apply to extend the limitations period:
The 1-year period, by its terms, begins after discovery of the facts constituting the violation, making tolling unnecessary. The 3-year limit is a period of repose inconsistent with tolling. . . . Because the purpose of the 3-year limitation is clearly to serve as a cutoff, we hold that tolling principles do not apply to that period.