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HANSEN v. SHEARSON/AMERICAN EXPRESS

June 7, 1995

ELIZABETH HANSEN
v.
SHEARSON/AMERICAN EXPRESS, INC., et al.. WILLIAM L. GUPTILL v. C. JOSEPH MANFREDO



The opinion of the court was delivered by: LOUIS H. POLLAK

 Pollak, J.

 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 *fn1" 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the plaintiff obtained relief from the automatic bankruptcy stay and the time this court was notified that the stay was no longer in effect, the state of Manfredo's health (which precluded trial during the past winter), and, most recently, the retention by Manfredo (who had been proceeding pro se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. *fn2"

 BACKGROUND

 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.

 
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.

 Lampf, 501 U.S. at 363.

 On the same day that Lampf was handed down, the Court also decided Beam, "in which a majority of the Court held, albeit in different opinions, that a new rule of federal law that is applied to the parties in the case announcing the rule must be applied as well to all cases pending on direct review." Plaut, 115 S. Ct. at 1450. "The joint effect of Lampf and Beam was to mandate application of the 1-year/3-year limitations period" to actions that were then pending. Id.

 If, at any time short of six months after Lampf was decided, a motion had been filed in this case to dismiss those of plaintiff's § 10(b) claims that do not satisfy the 1-year/3-year limitations period, the combination of Lampf and Beam would have required that the motion be granted. See, e.g., Khindri v. Yogel, 1991 U.S. Dist. LEXIS 12596, No. 87-6121, 1991 WL 175483, at * 3 (E.D. Pa. Sept. 6, 1991) ("because of the Supreme Court's rejection of modified civil prospectivity in James B. Beam, this court has no choice but to apply the Lampf, Pleva rule in this case"). However, no such motion was filed, and "on December 19, 1991," one day short of six months post-Lampf, "the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991, 105 Stat. 2236. Section 476 of the Act -- a section that had nothing to do with FDIC improvements -- became § 27A of the Securities Exchange Act of 1934, and was later codified as 15 U.S.C. § 78aa-1 (1988 ed., Supp. V)." Plaut, 115 S. Ct. at 1451.

 The new § 27A was an attempt by Congress to ameliorate what Congress evidently perceived as the overly harsh impact of Lampf /Beam -- the anticipated termination, pursuant to the one-year/three-year limitations period announced by the Court in Lampf on June 20, 1991, of large numbers of § 10(b) suits initiated in good-faith reliance on limitations rules more generous than the Lampf rule that prevailed in several circuits as of June 19, 1991.

 Section 27A(a) -- the only part of § 27A that is relevant to this dispute *fn3" -- provides as follows:

 
(a) Effect on pending causes of action
 
The limitation period for any private civil action implied under [ § 10(b) of the 1934 Act] that was commenced on or before June 19, 1991, shall be the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991.

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