Ferguson v. Roberts, 92-2656

• Citation: 11 F.3d 696
• Decision Date: 08 December 1993
• Docket Number: No. 92-2656,92-2656
• Parties: Fed. Sec. L. Rep. P 98,003, RICO Bus.Disp.Guide 8443 Merrill FERGUSON, Stephen W. Dils, Gail W. Dils, as Trustee for the Dils Trust, et al., Plaintiffs-Appellants, v. Richard ROBERTS and Roberts & Ellsworth, Ltd., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 696

11 F.3d 696

Fed. Sec. L. Rep. P 98,003, RICO Bus.Disp.Guide 8443

Merrill FERGUSON, Stephen W. Dils, Gail W. Dils, as Trustee for the Dils Trust, et al., Plaintiffs-Appellants, v. Richard ROBERTS and Roberts & Ellsworth, Ltd., Defendants-Appellees.

No. 92-2656.

United States Court of Appeals,

Seventh Circuit.

Argued Jan. 22, 1993.

Decided Dec. 8, 1993.

Lawrence R. Samuels, Jeffrey A. Berman, Jacquelyn F. Kidder, Patricia K. Smoots, Patrick J. Ahern, argued, Chicago, IL, for plaintiffs-appellants.

Barry L. Kroll, argued, Brigid E. Kennedy, David E. Morgans, Williams & Montgomery, Chicago, IL, for defendants-appellees.

Before POSNER, Chief Judge, CUDAHY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

The plaintiffs brought this action under Sec. 10(b) of the Securities Exchange Act of 1934 ("the Act"). The district court granted the defendants' motion for summary judgment. It held that the newly adopted one-year statute of limitations combined with the three-year statute of repose made the plaintiffs' claims time-barred. Because there was no just reason for delay, the district court entered final judgment pursuant to Federal Rule of Civil Procedure 54(b). The plaintiffs appealed. We now affirm.

I BACKGROUND

A. Facts

The plaintiffs Merrill Ferguson, Stephen Dils, Gail Dils, and Steven Givot brought this action against the defendants Richard Lurie, James Jamieson, Land Acquisition Co., Richard Roberts, and Roberts & Ellsworth, Ltd. ("R & E"). The plaintiffs alleged that Lurie and Jamieson fraudulently represented the value of land in which the plaintiffs had invested through a limited partnership in Valley Two Limited Partnership ("Valley Two"). They sought relief on a variety of theories, including RICO, Sec. 10(b) of the Act, Illinois securities fraud, consumer fraud and deceptive business practice, and breach of fiduciary duty. The plaintiffs also alleged that the defendant Roberts and his law firm, R & E, aided and abetted Lurie and Jamieson in their violation of Rule 10b-5, promulgated pursuant to Sec. 10(b) of the Act, because Roberts drafted the sale agreement for the property and the limited partnership agreement at issue in this case. The factual prelude to this suit, as set forth in the complaint, follows.

Richard Lurie and James Jamieson formed a general partnership known as Land Acquisition Co., which was a general partner in a real estate limited partnership, Valley Two. In May and June 1984, Richard Lurie separately approached Merrill Ferguson, Steven Givot, and Stephen Dils and asked them if they would be interested in investing in real estate by way of a limited partnership interest in Valley Two. Lurie told Ferguson, Givot, and Steve Dils that Lurie had experience in real estate investments and was familiar with real estate in the Phoenix area. Lurie conveyed to the plaintiffs his belief that this land could be purchased for a bargain price and resold a short time later for a substantial profit. Based on these representations, Ferguson, Givot, and Steve Dils decided to invest in the partnership.

During these conversations, according to the plaintiffs, very few details were given. Lurie did not tell the plaintiffs the identity of the seller, the purchase price, the financing package, or that defendant Jamieson was a general partner of the seller. Nor were the plaintiffs apprised of other details of the transaction. Lurie did not inform the limited partners that the seller had acquired the property on the same day it was deeded to Valley Two or that the property had sold four months earlier for over a million dollars less than the price at which Valley Two purchased it. The plaintiffs also claim that they were not informed that additional cash contributions would be necessary, or that Lurie would receive $350,000 in fees out of capital contributions to Valley Two. The plaintiffs contend that, if they had known these facts, they would not have invested.

Also in 1984, at Lurie's request, Roberts drafted the Valley Two limited partnership agreement. He drafted the documents transferring property from Double J to Valley Two as well. To what extent Roberts knew the details of these transactions is disputed.

At the end of 1984, 1985, 1986, 1987, and 1988, Lurie sent each of the plaintiffs letters requesting additional cash contributions. In The plaintiffs began to have serious concerns about their investments in December of 1987 when they received a fourth request for capital. However, Lurie continued to represent that the investments would yield a substantial profit. By early 1989, the plaintiffs were convinced they had been defrauded and filed their initial complaint on March 20, 1989. Jamieson was added as a defendant on November 16, 1989. After receiving answers to an initial discovery request, the plaintiffs discovered facts that led them to believe that Roberts may have aided and abetted the defendants in their securities fraud. Consequently, Roberts and R & E were added as defendants on January 18, 1990.

each of these letters, Lurie did not disclose additional information about the original transaction or the investment. He also failed to inform the plaintiffs that 25% of the Valley Two property had been sold in February of 1985. He continued, instead, to assure the plaintiffs that the investment would be profitable.

B. District Court Proceedings

In February 1991, the plaintiffs sought leave of the district court to file a third amended complaint. This complaint expanded the counts against Roberts and R & E from the initial aiding and abetting the violation of Rule 10b-5 to include conspiracy to defraud, common law fraud, violations of RICO, aiding and abetting to violate RICO, and conspiracy to violate RICO. The district court denied this motion. It noted that these additional counts undoubtedly would have required a great deal of additional discovery. Given the date set for close of discovery and the nearing trial date, the district court determined that the defendants would be prejudiced by allowing the plaintiffs to amend their complaint. It therefore denied the motion.

Later, these same defendants filed a motion for reconsideration of the district court's denial of their motion for summary judgment ¹ in light of the Supreme Court's decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), which established a new statute of limitations for claims brought under Sec. 10(b) of the Act. The district court granted the motion for reconsideration and entered summary judgment on behalf of the defendants Roberts and R & E. The district court held that Lampf required it to conclude, as a matter of law, that the plaintiffs' claims against Roberts and R & E were barred by the statute of limitations. This was especially true, noted the district court, because Roberts' involvement in the sale necessarily ended when the limited partnership agreement was filed in September 1984, well outside the three-year statute of repose adopted in Lampf.

Subsequently, Congress reversed Lampf by enacting Sec. 27A of the 1934 Act. Section 27A instructed courts to reinstate cases, dismissed under Lampf, which met certain criteria. The plaintiffs asserted that their claims against Roberts and R & E met these requirements. The district court, however, denied the plaintiffs' motion for reconsideration. It held that Sec. 27A required reinstatement only when the plaintiffs' claims were filed timely under the pre-Lampf limitations period, along with the applicable principles of retroactivity. The plaintiffs, continued the district court, could not demonstrate that their claims were filed timely under this court's decision in Short v. Belleville Shoe Manufacturing Co., 908 F.2d 1385 (7th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 2887, 115 L.Ed.2d 1052 (1991), which, like Lampf, had established a one-year statute of limitations combined with a three-year statute of repose. Particularly, the district court held that the plaintiffs could not show reliance on pre-Short law because of the short time between discovery of the cause of action and the filing of the complaint. Consequently, the district court determined that Short should be applied retroactively and that the plaintiffs' claims were time-barred.

The plaintiffs now appeal. They allege three errors in the district court's decisions. First, they argue the district court erred in failing to reinstate their claims against Roberts and R & E. Second, they claim the district court abused its discretion in denying them leave to file their third amended complaint. Finally, they allege error in several discovery determinations made during the course of litigation. We address each of these in turn.

II ANALYSIS

To resolve the issues involved in this case, we again must enter the arcane world of borrowing statutes of limitations. Prospective application of the Supreme Court's decision in Lampf will resolve for future litigants the appropriate limitations for Rule 10b-5 causes of action.

The starting point of our analysis is the congressional directive of Sec. 27A of the Act. As stated above, Sec. 27A was a response to the Supreme Court's opinions in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), and James B. Beam Distilling Co. v. Georgia, --- U.S. ----, 111 S.Ct. 2439 (1991). Lampf adopted a uniform federal statute of limitations for Rule 10b-5 causes of action borrowed from Sec. 13 of the Securities Act of 1933. ² Jim Beam addressed the issue of retroactivity generally. This decision modified the traditional analysis of Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), and held that "[o]nce retroactive application is chosen for any assertedly new rule, it is chosen for all others who might seek its prospective application." Jim Beam, --- U.S. at ----, 111 S.Ct. at 2447-48. Because the Lampf ...