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MATHEWS v. KIDDER

September 26, 1996

JOHN W. MATHEWS, on behalf of himself and all others similarly situated, Plaintiff -vs- KIDDER, PEABODY & CO., INC., a Delaware corporation, KP REALTY ADVISERS, INC., a Delaware corporation, HSM, INC., a Texas corporation, HENRY S. MILLER CO., HENRY S. MILLER MANAGEMENT CORPORATION, HENRY S. MILLER APPRAISAL CORPORATION, HSM REAL ESTATE SECURITIES CORPORATION, and MILLER REAL ESTATE SERVICES CORPORATION, a Texas corporation, Defendants.

Donetta W. Ambrose, U.S. District Judge.


The opinion of the court was delivered by: AMBROSE

OPINION and ORDER OF COURT

Currently pending before the Court is the Motion for Leave to File First Amended Complaint (Docket #: 37) filed by Plaintiff John W. Mathews ("Plaintiff Mathews"). Plaintiff Mathews has alleged on behalf of himself and a putative class (excluding Defendants and their directors, officers, agents, servants and affiliates), encompassing "all persons residing in the United States who purchased partnership units in KP/Miller Realty Growth Fund I, KP/Miller Growth Fund II and KP/Miller Realty Growth Fund III in the initial offering of such securities," that the Defendants' actions violated 18 U.S.C. § 1962(b), (c) and (d) of the Racketeer Influenced and Corrupt Organization Act ("RICO") and as well has alleged state law claims of breach of fiduciary duty and negligent misrepresentation. The Defendants, Kidder, Peabody & Co. Incorporated, KP Realty Advisers, Inc., HSM, Inc., Henry S. Miller Co., Henry S. Miller Management Corporation, Henry S. Miller Appraisal Corporation; HSM Real Estate Securities Corporation; and Miller Real Estate Services Corporation (the "Defendants") oppose the Plaintiff's Motion and in addition, ask this Court to dismiss the Plaintiff's Complaint in its entirety pursuant to Fed. R. Civ. P. 12(h)(3) on the theory that the Private Securities Litigation Reform Act of 1995 (the "Reform Act") removes this Court's jurisdiction over the federal claims in this action. For the reasons set forth below, the Plaintiff's Motion for Leave to File First Amended Complaint is granted in part and denied in part.

 I. The applicability of the Private Securities Litigation Reform Act of 1995 to this lawsuit.

 Plaintiff Mathews seeks to amend his Complaint pursuant to Fed. R. Civ. P. 15 in the following manner: (1) add additional named plaintiffs and (2) add factual allegations. In response, the Defendants have raised numerous legal arguments regarding why the Plaintiff should not be permitted to amend the Complaint.

 Section 107 of the Reform Act, the section of the Reform Act that contains the amendment relevant to this case, reads in pertinent part: "section 1964(c) of Title 18, United States Code, is amended by inserting before the period, 'except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962 . . .'." 109 Stat. 737, 758 (December 22, 1995). Unamended, 28 U.S.C. § 1964(c) ("§ 1964(c)") read "any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." 18 U.S.C. § 1964(c).

 The RICO claim contained in the Proposed Complaint against the Defendants is based upon "conduct that would have been actionable as fraud in the purchase or sale of securities." Specifically, Plaintiff Mathews has alleged that in the 1980's, the Defendants devised a scheme to mislead a large number of unsophisticated "Mom and Pop" investors (in excess of 6000), through fraudulent conduct, into purchasing a series of limited partnerships in order to generate excessive fees and income for the Defendants. Ultimately, three limited partnership funds were organized to perpetuate the Defendants' scheme: KP/Miller Realty Growth Fund I; KP/Miller Realty Growth Fund II; and KP/Miller Realty Growth Fund III. Sales of these three funds raised approximately $ 85 million.

 The Defendants argue that applying the analysis set forth by the United States Court in Landgraf v. USI Film Products, 511 U.S. 244, 114 S. Ct. 1483, 1497, 128 L. Ed. 2d 229 (1994), regarding whether newly enacted statutes should be applied to pending cases, § 107 of the Reform Act should be applied to the Plaintiff's RICO claim because (1) "Congress's elimination of civil RICO as a method of litigating securities fraud cases, the specific wording of the Applicability Provision of the Reform Act [§ 108] *fn1" and the legislative history surrounding the RICO Amendment and the Applicability Provision all demonstrate Congress's intent that the RICO Amendment should be generally applicable to all cases alleging 'conduct that would have been actionable' under the Securities Laws" and (2) even if the intent of Congress to apply § 107 retroactively is not clear, the application of § 107 to this case would not have a "retroactive effect" on Plaintiff Mathews' RICO claim because § 1964(c) is a jurisdictional statute. Defendants' Opposition Brief, pp. 19-20. Indeed, with respect to the Defendants' argument that § 1964(c) is a jurisdictional statute, the Defendants request that I dismiss the Plaintiff's Complaint in its entirety pursuant to Fed. R. Civ. P. 12(h)(3) on the grounds that once the Reform Act was enacted into law by Congress on December 22, 1995, jurisdiction over private civil RICO claims was divested from the district courts and therefore, I no longer have jurisdiction over the Plaintiff's civil RICO claim.

 In the Landgraf decision, the Court addressed the standards to be applied when ascertaining the applicability/ retroactivity of a new law to cases pending when the law was enacted. Specifically, the Landgraf Court held that the following standard for determining retroactivity of new law to pending cases was to be applied:

 
when a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly prescribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed. If the statute would operate retroactively, our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result.

 Id. at 1505. Significantly, for purposes of the case sub judice, in discussing the application of new legislation to pending cases and the issue of "retroactivity," the Landgraf Court further stated that "we have regularly applied intervening statutes conferring or ousting jurisdiction, whether or not jurisdiction lay when the underlying conduct occurred or when the suit was filed" and cited to a number of its previous decisions including Bruner v. United States, 343 U.S. 112, 116-117, 72 S. Ct. 581, 584-85, 96 L. Ed. 786 (1952); *fn2" Hallowell v. Commons, 239 U.S. 506, 508-09, 36 S. Ct. 202, 203-04, 60 L. Ed. 409 (1916); *fn3" The Assessors v. Osborne, 76 U.S. 567, 9 Wall. 567, 575, 19 L. Ed. 748 (1870); *fn4" Andrus v. Charlestone Stone Products Co., Inc., 436 U.S. 604, 607-08 n. 6, 98 S. Ct. 2002, 2005, 56 L. Ed. 2d 570 (1978); *fn5" United States v. Alabama, 362 U.S. 602, 604, 80 S. Ct. 924, 926, 4 L. Ed. 2d 982 (1960); *fn6" and Stephens v. Cherokee Nation, 174 U.S. 445, 478, 19 S. Ct. 722, 734, 43 L. Ed. 1041 (1899). *fn7" The Landgraf Court also noted that "application of a new jurisdictional rule usually 'takes away no substantive right but simply changes the tribunal that is to hear the case'." Id. at 1502, citing, Hallowell, 239 U.S. at 508. The Court continued, "present law normally governs in such situations because jurisdictional statutes 'speak to the power of the court rather than to the rights or obligations of the parties'." 114 S. Ct. at 1502, citing, Republic National Bank of Miami v. United States, 506 U.S. 80, 113 S. Ct. 554, 565, 121 L. Ed. 2d 474 (1992) (THOMAS, J., concurring). *fn8"

 After careful consideration of the submissions of the parties, I hold first that while I agree with the Defendants that § 1964(c) is, in part, a jurisdictional statute, *fn9" I also find that the effect of applying § 107 to the facts presented in this case is distinguishable from the effects obtained in those United States Supreme Court cases cited to in the Defendants' multiple briefs on this issue. For example, in Bruner v. United States, 343 U.S. 112, 72 S. Ct. 581, 96 L. Ed. 786 (1952), discussed in detail supra, and in the other cases where the effect of the intervening jurisdictional statutes did not completely eliminate the plaintiff's claim, but rather, merely altered the court which had jurisdiction over the matter, Plaintiffs were not deprived of their causes of action. Applying § 107 of the Reform Act to the case sub judice clearly will deprive Plaintiff Mathews and the other class members of their causes of action under § 1962 of RICO, which were viable at the time this lawsuit was filed. In other words, application of the Reform Act will not merely change the forum in which the Plaintiff and the class members can bring the RICO claims contained in the Proposed Complaint, but will actually deprive them of their day in court altogether. See Hartford Cas. Ins. Co. v. F.D.I.C., 21 F.3d 696, 700 (5th Cir. 1994) ("this Court has previously . . . [held] that amendments to statutes which affect procedural or remedial rights generally apply to pending cases, where such change does not deprive a party of its '"day in court"'. 'When Congress adopts statutory changes while a suit is pending, the effect of which is not to eliminate substantive right but rather to "change the tribunal which will hear the case," those changes--barring specifically expressed intent to the contrary--will have immediate effect'.") Thus, it is necessary to proceed to the analysis set forth in Landgraf and determine whether or not the Reform Act can properly be applied to the action now before me.

 Upon consideration of the Landgraf analysis, contrary to the Defendants' position that based upon the plain language of § 108 of the Reform Act, the purpose of the Reform Act, the legislative history of the Reform Act and viewing the Reform Act as a whole there is clear Congressional intent that the Reform Act be applied retroactively to pending cases, I conclude first that no clear Congressional intent that § 107 be applied to cases pending when the Reform Act was passed exists. *fn10" Therefore, it is necessary to proceed to the second prong of the Landgraf analysis and determine whether application of the Reform Act to the RICO count would have a "retroactive" effect on the action such that the Reform Act should not govern in the instant matter. As stated above, a new statute has a retroactive effect on a pending case if it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed. Landgraf, 114 S. Ct. at 1505.

 Clearly, applying the Reform Act retroactively to the case sub judice will impair rights Plaintiff Mathews and the class members possessed when this law suit was brought in that if applied, the Reform Act will deprive them of their RICO causes of action which were viable at the time this lawsuit was filed. See also In Re Prudential Securities, 930 F. Supp. at 79 (court held that the Reform Act impaired the plaintiffs' ability to recover for actions which may have violated federal law because it would strip the plaintiffs' complaint of RICO claims after the statute of limitations for securities fraud claims has likely expired and therefore, the statute should not function retroactively without a clear expression of congressional intent which the court did not find). Accordingly, I conclude that the Reform Act is inapplicable to the action at hand to the extent that the Defendants argue that it mandates the complete dismissal of the RICO count in this action. I do, however, recognize that the Defendants' arguments ...


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