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Oetting v. Heffler

United States District Court, E.D. Pennsylvania

August 11, 2017

JAMES OETTING, Individually and on behalf of all others similarly situated, Plaintiff,
v.
HEFFLER, RADETICH & SAITTA, LLP, EDWARD J. SINCAVAGE, EDWARD J. RADETICH, JR., and MICHAEL T. BANCROFT, Defendants.

          MEMORANDUM

          DuBois, J.

         I. INTRODUCTION

         This case involves claims asserted by plaintiff James Oetting on behalf of himself and a certified class of similarly situated individuals who received payments from a settlement fund in a long-running multidistrict litigation in the United States District Court for the Eastern District of Missouri. This case was originally filed as a separate action in that district but was transferred to this Court pursuant to 28 U.S.C. § 1404(a) by Order dated July 25, 2011. Plaintiff seeks damages from defendants for harm suffered by the class due to fraudulent claims made on the settlement fund by a former employee of defendant Heffler, Radetich & Saitta, LLP (“Heffler”), that were authorized by defendants. Plaintiff asserts claims for negligence, accountant malpractice, breach of fiduciary duty, and fraud.

         Presently before the Court are the parties' memoranda and supplemental memoranda on all choice of law issues. For the reasons that follow, the Court concludes that Pennsylvania's statute of limitations, the Missouri savings statute, and Missouri substantive law are applicable to this case.

         II. BACKGROUND

         The relevant facts as outlined in plaintiff's Second Amended Complaint, attached exhibits, and the underlying MDL docket are as follows. This case arises out of securities litigation following a merger between BankAmerica Corporation (“BankAmerica”) and NationsBank. On October 16, 1998, the first of numerous class actions was initiated against BankAmerica. Second Am. Compl. ¶ 1. The Judicial Panel for Multi-District Litigation issued a Transfer Order on February 12, 1999, consolidating all cases relating to the merger for all pretrial purposes in the Eastern Division of the Eastern District of Missouri. Second Am. Compl. ¶ 2. Judge John F. Nangle was the appointed judge. Judge Carol E. Jackson succeeded Judge Nangle upon his death. Id. The multi-district litigation is identified as In re BankAmerica Corp. Securities Litigation, 99-md-1264 (E.D. Mo.) (“the MDL”).

         By Order dated July 6, 1999, Judge Nangle certified four classes in the MDL: (1) the NationsBank Holder Class, (2) the NationsBank Purchaser Class, (3) the BankAmerica Holder Class, and (4) the BankAmerica Purchaser Class. Second Am. Compl. ¶ 3. Plaintiff James Oetting was a member of the original NationsBank Holder Class. Judge Nangle approved a settlement between the MDL defendants and all four of the MDL classes by Order dated September 20, 2002. Second Am. Compl. ¶ 24. Under the terms of the settlement agreement, the MDL defendants agreed to pay $490 million to the class members, with $333.2 million allocated to a combined NationsBank class and $156.8 million allocated to a combined BankAmerica class. Id.

         Following submission of a proposal to class counsel, Heffler was appointed by the MDL Court as the Claims Administrator for the settlement. Second Am. Compl. ¶¶ 4-9, 25-26. As Claims Administrator, Heffler was responsible for publicizing the settlement, receiving and reviewing submitted claims, identifying valid and invalid claims, and distributing the settlement proceeds to valid claimants. Second Am. Compl. ¶ 25-26. The individual defendants in this case, Edward J. Sincavage, Edward J. Radetich, Jr., and Michael T. Bancroft, were partners in Heffler during the time that the firm oversaw distribution of the MDL settlement fund. Second Am. Compl. ¶ 12.

         On May 13, 2004, lead counsel for the NationsBank class filed a motion for partial distribution of the NationsBank settlement fund. Second Am. Compl. ¶ 29; Pls' Joint Mot. for Approval of Distribution of Class Settlement Fund, In re BankAmerica Corp. Securities Litig., MDL No. 1264 (E.D. Mo. May 13, 2004), Doc. No. 616. In support of that Motion, counsel submitted an affidavit from defendant Sincavage stating, inter alia, that Heffler had examined and calculated all claims forms to determine that they were properly completed, signed, and documented. Second Am. Compl. ¶ 29. By Order dated June 14, 2004, Judge Nangle granted the Motion and approved a partial distribution of the settlement funds in accordance with the motion and the attached affidavit from Sincavage. Id.; Order, In re BankAmerica Corp. Securities Litig., MDL No. 1264 (E.D. Mo. June 14, 2004), Doc. No. 630.

         During Heffler's administration of the settlement, but prior to the first distribution of settlement funds authorized by the MDL Court by Order dated June 14, 2004, a then-employee of Heffler, Christian Penta, submitted false claims for payment from the NationsBank class settlement fund. Second Am. Compl. ¶ 28. Thus, the first distribution included “payment(s) of over $5.87 million based on false claims submitted by Penta and his co-conspirators.” Second Am. Compl. ¶ 30. The fraud was not immediately discovered.

         A grand jury in Philadelphia, Pennsylvania ultimately returned an indictment against Penta and four co-conspirators on charges including mail fraud, wire fraud, and tax evasion relating to three separate class action settlement funds managed by Heffler, including the In re BankAmerica fund. Indictment, United States v. Penta et al., Criminal Action No. 08-550 (E.D. Pa. Sept. 11, 2008) (Savage, J.).[1] The Penta indictment was publicly announced on November 20, 2008, in a press release issued by the United States Attorney for the Eastern District of Pennsylvania. Defs' Mem. on Choice of Law Issues (“Defs' Mem.”), Ex. G, Press Release, “Six Charged in $40 Million Class Action Fraud, ” Issued by the United States Attorney for the Eastern District of Pennsylvania, Nov. 20, 2008 (“Press Release”).[2]

         On October 29, 2009, the law firm of Green Jacobsen, former class counsel, filed a Supplemental Complaint with the MDL Court on behalf of the NationsBank class. Supp. Compl., In re BankAmerica Corp. Securities Litig., MDL No. 1264 (E.D. Mo. Oct. 29, 2009), Doc. No. 723. The Supplemental Complaint asserted against Heffler claims of breach of fiduciary duty, negligent misrepresentation, accountant malpractice, conversion, and money had and received. Id. On May 3, 2010, more than six months after the filing of the Supplemental Complaint, Heffler moved to dismiss or strike the Supplemental Complaint because, inter alia, the NationsBank class did not first obtain leave of court as required by Federal Rule of Civil Procedure 15(d). [Heffler's] Mot. to Strike the Supp. Compl., or in the Alternative, to Dismiss the Supp. Compl., In re BankAmerica Corp. Securities Litig., MDL No. 1264 (E.D. Mo. May 3, 2010), Doc. No. 745. In response, on May 13, 2010, Green Jacobsen moved for leave to file the Supplemental Complaint. Mot. for Leave to File Supp. Compl., In re BankAmerica Corp. Securities Litig., MDL No. 1264 (E.D. Mo. May 13, 2010), Doc. No. 749 & 750. The MDL Court ultimately granted Heffler's Motion to Dismiss and denied Green Jacobsen's Motion for leave to file the Supplemental Complaint by Order dated November 5, 2010, and dismissed the Supplemental Complaint, concluding that although the allegations in the Supplemental Complaint were “connected to” the underlying MDL, the asserted claims were “not similar enough in substance to the claims in the underlying action to justify supplemental pleading.” Mem. and Order, In re BankAmerica Corp. Securities Litig., MDL No. 1264 (E.D. Mo. Nov. 5, 2010), Doc. No. 763.

         On February 8, 2011, former plaintiff David Oetting filed this lawsuit in the Eastern District of Missouri on behalf of a putative class of NationsBank settlement claimants. Complaint, Oetting v. Heffler, Radetich, & Saitta, LLP, Civil Action No. 11-253 (E.D. Mo. Feb. 8, 2011). The Complaint named Heffler as the sole defendant, and included claims for breach of fiduciary duty, accountant malpractice, and respondeat superior liability based on the conduct of its former employee, Penta. Id. By Order dated July 25, 2011, Judge Jackson dismissed the respondeat superior claim on the ground that it failed as a matter of Missouri tort law because Penta acted outside of the scope of his employment. Memorandum and Order, Oetting v. Heffler, Radetich, & Saitta, LLP, Civil Action No. 11-253 (E.D. Mo. July 25, 2011), Doc. Nos. 19, 20. By separate Order dated July 25, 2011, Judge Jackson transferred the case to this Court on Heffler's motion pursuant to 28 U.S.C. § 1404(a) for the convenience of the parties and witnesses. Order, Oetting v. Heffler, Radetich, & Saitta, LLP, Civil Action No. 11-253 (E.D. Mo. July 25, 2011), Doc. Nos. 18, 21.

         Following the transfer to this Court, on August 16, 2011, plaintiff David Oetting filed the First Amended Complaint. Heffler filed an Answer to the First Amended Complaint on September 13, 2011. By Order dated August 21, 2015, the Court granted plaintiff leave to file and serve a Second Amended Complaint. On September 3, 2015, David Oetting filed a Second Amended and Restated Complaint, adding James Oetting as plaintiff. The Second Amended Complaint includes five separate claims for relief: a claim of breach of fiduciary duty against Heffler (Count I), a claim of “accountant malpractice” against Heffler (Count II), claims of fraud against Bancroft and Sincavage (Count III), a claim of negligence against Radetich (“Count VI” [sic]), and claims of negligence against “all defendants” (“Count VII” [sic]). The Second Amended Complaint asserts these claims on behalf of individual plaintiffs David Oetting and James Oetting, and on behalf of “a class of all persons similarly situated, who are defined as all members of the NationsBank classes (a) who were entitled to receive a distribution from the [MDL] Action in 2004; (b) who have received a distribution at any time from the [MDL] Action and [sic] (c) who are yet to receive a distribution from the [MDL] action.”

         On October 1, 2015, Heffler filed a Motion to Dismiss. The individual defendants also filed a separate Motion to Dismiss on that date. By Memorandum and Order dated December 15, 2015, the Court granted in part and denied in part defendants' Motions to Dismiss. The Court concluded that David Oetting lacked Article III standing to pursue claims in this case because he did not cash the checks issued by the MDL settlement fund, and the Court dismissed David Oetting from the case with prejudice. However, the Court concluded that James Oetting was properly added as a plaintiff by the Second Amended Complaint and that James Oetting had Article III standing. The Court denied the Motions to Dismiss in all other respects.

         On January 5, 2016, remaining plaintiff James Oetting filed a Motion for Class Certification. Following limited discovery, defendants filed a Response in Opposition to the Motion on February 29, 2016. The Court ultimately certified the following class:

All individuals and entities who are or were members of one of the NationsBank classes in In re BankAmerica Securities Litigation, Multidistrict Litigation Number 1264, in the United States District Court for the Eastern District of Missouri, who (1) filed valid claims for distribution(s) from the NationsBank settlement fund, (2) received payment on their claims from the NationsBank settlement fund, and (3) are eligible for any additional distributions from the NationsBank settlement fund.

         Pursuant to the Third Amended Scheduling Order dated November 3, 2016, motions for summary judgment and Daubert motions were scheduled to be filed on or before January 13, 2017. On December 2, 2016, counsel for defendants submitted to the Court a letter to request a scheduling conference for the purpose of addressing an “as-yet undetermined choice of law issue.” See Doc. No. 104. The Court held a scheduling conference on December 14, 2016, and, recognizing that the parties had not previously raised choice of law issues, ordered the parties to brief all such issues. Following an initial round of briefing, on June 1, 2017, the Court ordered the parties to file supplemental memoranda of law addressing (1) the applicable statute of limitations, (2) the applicability of equitable tolling, and (3) the applicability of the Missouri and Pennsylvania savings statutes, and the parties did so. In addition, the Court held a telephone conference on August 4, 2017, at which counsel for the parties agreed that all choice of law issues, including the applicable statute of limitations, had been fully briefed and were ripe for decision. For the reasons set forth below, the Court concludes that the Pennsylvania statute of limitations, the Missouri savings statute, and Missouri substantive law are applicable to this case.

         III. DISCUSSION

         a. Law of the Case

         Plaintiffs first argue that the “law of the case” doctrine requires the Court to apply Missouri law to all aspects of this case, because that state's law was used in a past decision in this case. That doctrine “provides that a previous holding in a case constitutes the law of the case and precludes relitigation of the issue on remand and subsequent appeal.” Walton v. City of Berkeley, 223 S.W.3d 126, 128-29 (Mo. 2007) (citation omitted). While this case was still in the Eastern District of Missouri, in granting defendants' Motion to Dismiss with respect to a respondeat superior claim, the district court stated that “[t]he parties are in agreement that Missouri law applies in this diversity action.” Memorandum and Order, Oetting v. Heffler, Radetich, & Saitta, LLP, Civil Action No. 11-253 (E.D. Mo. July 25, 2011), Doc. No. 18. Plaintiffs argue that the court's statement is binding as the “law of the case.”

         The Court rejects this argument. The doctrine of the law of the case only applies to issues that were “actually decided by the court.” Eckell v. Borbidge, 114 B.R. 63, 69 (E.D. Pa. 1990) (DuBois, J.) (citing Todd & Co., Inc. v. SEC, 637 F.2d 154, 157 (3rd Cir. 1980)). The Missouri district court did not actually decide that Missouri law applied; it only stated that the parties were “in agreement” on that issue. The Court therefore declines to apply the law of the case doctrine.

         b. Statute of Limitations

         Although defendants have not formally challenged the timeliness of plaintiff's claims, the parties seek a determination of what state's statute of limitations applies to the claims in this case. The Court concludes that under the Missouri borrowing statute, the claims in this case accrued in Pennsylvania, and therefore the Pennsylvania statute of limitations applies to the case. The Court further concludes that the Missouri savings statute is also applicable.

         1. Applicable Law

         Because this case was filed in the Eastern District of Missouri and transferred pursuant to 28 U.S.C. § 1404(a), this Court must follow the law that would have been applied had it remained in its original venue. Van Dusen v. Barrack, 376 U.S. 612, 639 (1964). “A federal court exercising diversity jurisdiction is required to apply the law of the forum when ruling on statutes of limitations.” Nettles v. Am. Tel. & Tel. Co., 55 F.3d 1358, 1362 (8th Cir. 1995). Therefore, acting as “a federal court sitting in diversity within the State of Missouri, ” this Court is “required to apply Missouri's statute of limitations to claims brought before it.” Hopkins v. Kansas Teachers Cmty. Credit Union, 265 F.R.D. 483, 489 (W.D. Mo. 2010) (citing Rademeyer v. Farris, 284 F.3d 833, 836 (8th Cir.2002)).

         Missouri's statute of limitations framework includes a “borrowing” statute, which requires that “[w]henever a cause of action has been fully barred by the laws of the state, territory or country in which it originated, said bar shall be a complete defense to any action thereon, brought in any of the courts of this state.” Mo. Rev. Stat. § 516.190. “The term ‘originated, ' as used in the borrowing statute, is equivalent to the term ‘accrued.'” Ferrellgas, Inc. v. Edward A. Smith, P.C., 190 S.W.3d 615, 620 (Mo.Ct.App. W.D. 2006) (citing Thompson by Thompson v. Crawford, 833 S.W.2d 868, 871 (Mo. 1992)). A cause of action accrues “where as well as when the final significant event that is essential to a suable claim occurs.” Penalosa Co-op. Exch. v. A.S. Polonyi Co., 754 F.Supp. 722, 733 (W.D. Mo. 1991) (citing Mack Trucks, Inc. v. Bendix-Westinghouse Auto. Air Brake Co., 372 F.2d 18, 20 (3rd Cir. 1966)). For most claims, a cause of action accrues when and “where the fact of damage became ‘capable of ascertainment.'” Ferrellgas, 190 S.W.3d at 621. “Damage is ascertainable when the fact of damage can be discovered or made known, not when the plaintiff actually discovers injury or wrongful conduct.” Klemme v. Best, 941 S.W.2d 493, 497 (Mo. 1997). Indeed, “[a] plaintiff's ignorance of his cause of action will not prevent the statute from running.” State ex rel. Gasconade Cty. v. Jost, 291 S.W.3d 800, 804 (Mo.Ct.App. 2009).

         The determination of where and when a cause of action accrues is an objective test decided as a matter of law by the court. Anderson v. Griffin, Dysart, Taylor, Penner & Lay, P.C., 684 S.W.2d 858, 861 (Mo.Ct.App. 1984).

         2. Analysis

         Plaintiff's only argument[3] with respect to the Missouri borrowing statute is that the injuries alleged in this case have not yet accrued, because “no class member would have even known of the damages the class sustained at the time of discovery of the theft, or anytime thereafter. Even more so, virtually all of the class members do not even know to this day that the class was damaged.” Pl.'s Supp. Mem. of Law (“Pl.'s Supp. Mem.”) at 6-7. Plaintiff's argument ignores the relevant standard: a cause of action accrues, under the borrowing statute, “when the fact of damage can be discovered or made known, not when the plaintiff actually discovers injury or wrongful conduct, ” Klemme, 941 S.W.2d at 497, and “plaintiff's ignorance of his cause of action will not prevent the statute from running, ” Jost, 291 S.W.3d at 804. The Court thus rejects plaintiff's position.

         Defendants primarily argue that each class member's injuries “accrued” in their individual home states and countries. Defs' Mem. at 6. In interpreting Missouri law, the United States Court of Appeals for the Eighth Circuit held that “for cases involving a purely economic injury, as opposed to a physical accident with economic consequences, a cause of action originates where the plaintiff is financially damaged.” Great Plains Trust Co. v. Union Pac. R. Co., 492 F.3d 986, 993 (8th Cir. 2007). Because the class members suffered a purely economic injury, defendants argue, Great Plains requires the application of the statute of limitation of each class member's home state.

         In response, plaintiff argues that Great Plains is “inapposite” because the harm in that case, the defendant's failure to pay, is not at issue in this case. Pl.'s Conflict of Laws Mem. (“Pl.'s Mem.”) at 17. The Court agrees that Great Plains is distinguishable. The defendant in Great Plains was obligated to make certain interest payments to plaintiff, and the injury giving rise to the lawsuit was the defendant's failure to make one such payment. The court reasoned that the corporate plaintiff “could only have ascertained [the purely economic injury] at its place of business, ” in its home state, because that is where it “felt the cash flow crunch.” Great Plains, 492 F.3d at 993 (internal quotations omitted). In other words, since the plaintiff expected payments, the injury was ascertainable as soon as the plaintiff discovered that no payment had been made. In contrast, in this case, the class members could not have ascertained their injuries when they received distributions, because they had no reason to suspect that their distributions were fraudulently reduced.

         Defendants argue in the alternative that that Pennsylvania's statute of limitations applies because the harm in this case was first capable of ascertainment when and where the Penta indictment was announced. That announcement was made by way of a press release from the United States Attorney for the Eastern District of Pennsylvania, based in Philadelphia, on November 20, 2008. In support of this argument, defendants rely upon Ferrellgas, in which a Missouri-based company was involved in a lawsuit filed in California. 190 S.W.3d at 617. The company lost the lawsuit, and filed a malpractice suit in Missouri state court against the law firm that had represented it in the California litigation. Id. On appeal, the Missouri appellate court, applying the Missouri borrowing statute, concluded that California's statute of limitations applied to the case. Id. at 622. Specifically, the court held that the California verdict, when it was announced, became “a matter of public record, which is immediately ‘capable of ascertainment.'” Id. Since that verdict was announced in California, the court ruled that the injury accrued in California. Id. The court explicitly reasoned that it did not matter “where the plaintiffs were physically located” when they discovered the injury. Id. at 621.

         Following the reasoning in Ferrellgas, this Court concludes that the class members' injuries became capable of ascertainment in Pennsylvania, where the Penta indictment was publicly announced. The press release announcing the indictment plainly stated that the indicted individuals had “submitted numerous false and fraudulent claims in three major class action lawsuits[, including] In Re: BankAmerica Corporation Securities Litigation.” Penta Indictment. By way of a simple internet search for the term “BankAmerica, ” members of the NationsBank class could have easily discovered the facts giving rise to their injury. Therefore, at the time and place that the press release was made public-November 20, 2008, in Philadelphia, Pennsylvania-the injury became ascertainable, because “the fact of damage [could have been] ...


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