Algrant v. Evergreen Valley Nurseries Ltd. Partnership

Decision Date16 September 1997
Docket NumberNo. 96-1994,96-1994
PartiesRoland R. ALGRANT; The Douglas F. Allison Trust; Anchor Sales Associates, Inc; Daniel Avery; James B. Bagley; Thomas S. Boron; Mary Pat Boron; Franklin Edward Cater, Jr.; Paul W. Dlabal; Michael B. Elefante; Herbert Fisher; Susan E. Haar; Marilyn C. Harlin; Steven G. Horowitz; Herbert J. Hostetler; Rudolph S. Maurizi Estate; Dr. P. Jagannadha Reddy; E.W. Richardon, Jr.; Patrick Ruppert; Susan Sloan; Narendra K. Sood; Usha R. Sood; George L. Yonano; Lucretia L. Yonano, Appellants, v. EVERGREEN VALLEY NURSERIES LIMITED PARTNERSHIP; The Parkinson Pension Trust; E. Wayne Pocius; Russell M. Dimmick; Van Pines of Pa; William L. Parkinson, Dr.; Unique Garden Center Company.
CourtU.S. Court of Appeals — Third Circuit

Alexander D. Bono (argued), Timothy D. Katsiff, Blank, Rome, Comisky & McCauley, Philadelphia, PA, for Appellants.

E. Parry Warner (argued), Obermayer, Rebmann, Maxwell & Hippell, Philadelphia, PA, for Appellees The Parkinson Pension Trust and Dr. William L. Parkinson.

Joseph A. McGinley (argued), Lavin, Coleman, O'Neil, Ricci, Finarelli & Gray, Philadelphia, PA, for Appellees E. Wayne Pocius Before: MANSMANN, NYGAARD and ROSENN, Circuit Judges.

Russell M. Dimmick, Van Pines of Pennsylvania, and Unique Garden Center Company.

OPINION OF THE COURT

ROSENN, Circuit Judge.

This appeal raises two important issues of first impression in this court relating to commercial promissory obligations and securities. First, whether the obligors on unmatured promissory notes can obtain declaratory relief against the obligees of those notes and have the notes declared void and unenforceable, when the concurrent legal remedy underlying the request for declaratory relief would be barred by the statute of limitations. Second, whether transactions involving investment securities are covered under section 9.2(a) of the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTP/CPL"), which creates a private right of action for consumers injured in the purchase or lease of goods or services. The United States District Court for the Eastern District of Pennsylvania held that the action for declaratory relief was time-barred because the corollary legal actions were based on conduct for which the statute of limitations had run. The court also held that investment securities are not "goods" under the UTP/CPL. The plaintiffs timely appealed. We affirm.

I.

Taking the facts in the light most favorable to the plaintiffs, as did the district court, it appears that in 1986 the defendants organized Evergreen Valley Nurseries Limited Partnership ("Evergreen") to acquire, grow and sell nursery stock. The nursery stock consisted of approximately 950,000 evergreen trees ("nursery stock") on two leased properties in Pennsylvania, one in Lehigh County (called "Raven Valley") and one in Tioga County (called "the Tioga Farm"). In July 1986, the Parkinson Pension Trust ("Trust"), at the direction of Dr. William L. Parkinson, its sole trustee, purchased the Raven Valley nursery stock from Van Pines of Pennsylvania ("Van Pines") and its general partners for approximately $3.6 million. E. Wayne Pocius and Russell Dimmick are the general partners of Van Pines and are also the sole shareholders of Unique Garden Center ("Unique"), the general partner of Evergreen. The Trust then purchased the Tioga Farm nursery stock from Pocius and Dimmick for approximately $600,000.

Following the acquisition of the nursery stock by the Trust, Evergreen then purchased an undivided 91.2% interest in the Trust's nursery stock for the price of $10.4 million. Evergreen financed the purchase of the nursery stock by a $13.5 million offering of Evergreen limited partnership units, pursuant to a private placement memorandum ("PPM"). A substantial number of these units purchased by the plaintiffs are the genesis of this lawsuit. They paid $150,000 for each unit under the terms of the PPM; the purchase price consisted of a $70,000 cash payment, a $9,500 subscription note due on January 20, 1997, and a $70,500 promissory note ("investor note") payable to the Trust, which became due and payable on July 1, 1996.

The PPM issued by Evergreen did not disclose that Evergreen was to pay the Trust approximately $10.4 million for 91.2% of the nursery stock which the Trust had purchased from Evergreen for about $4.2 million. Thus, it failed to disclose that the purchase price for the interest in land had more than doubled in two months. The PPM did not mention the intricate entanglement of the parties involved in the underlying transactions or the self-dealing in the purchase of the nursery stock.

In 1989, the Internal Revenue Service ("IRS") issued a report concluding that the price of the nursery stock had been significantly overvalued. Although Evergreen initially contested the IRS report, in 1993 Evergreen and the IRS entered into a closing agreement in which Evergreen admitted that the nursery stock had been over-valued by at least $3.2 million. On October 11, 1993, the plaintiffs obtained a copy of the closing agreement between the IRS and Evergreen.

The plaintiffs filed their complaint in the district court on November 16, 1995, raising four claims. The first three claims sought a declaratory judgment that certain Investor Notes were void and unenforceable because they had been procured through fraud: (I) declaratory relief under Section 29(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(b) (Supp.1997); (II) declaratory relief under Section 508 of the Pennsylvania Securities Act, 70 Pa. Cons.Stat. § 1-508 (1994); and (III) declaratory relief based on common law fraud. Count IV alleged a violation of the UTP/CPL. The plaintiffs asserted that because of the Trust's expressed intent to collect on the investor notes in July 1996, they were compelled to bring this action to declare the notes void and unenforceable.

The defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failing to state a claim upon which relief could be granted. The district court dismissed Counts I, II, and III as time-barred and dismissed Count IV for failing to state a claim on which relief can be granted. The plaintiffs appealed from the dismissal of all four claims.

II.

When reviewing a motion to dismiss under Rule 12(b)(6) on statute of limitations grounds, the court exercises plenary review to determine "whether 'the time alleged in the statement of a claim shows that the cause of action has not been brought within the statute of limitations.' " Cito v. Bridgewater Township Police Dep't, 892 F.2d 23, 25 (3d Cir.1989) (citations and emphasis omitted). This court exercises plenary review over a district court order dismissing a complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Moore v. Tartler, 986 F.2d 682, 685 (3d Cir.1993).

Because actions for declaratory relief do not have their own statute of limitations, the district court concluded that the plaintiffs' causes of action are governed by the period of limitations applicable to the substantive claims underlying the action, citing Cope v. Anderson, 331 U.S. 461, 463-64, 67 S.Ct. 1340, 1341-42, 91 L.Ed. 1602 (1947). Thus, the district court held that the statute of limitations to be applied would be the same regardless of the posture of the case, whether offensive or defensive. Accordingly, if the underlying action is time-barred, so is the action for declaratory relief. Judge Huyett, the trial judge, then perceptively determined that Counts I, II, and III were all barred by the applicable statutes of limitations.

Although this court of appeals has not yet spoken on the issue, a number of other courts have. The First, Sixth, Ninth and Tenth Circuit Courts of Appeals have all held that an action for declaratory relief will be barred to the same extent the applicable statute of limitations bars the concurrent legal remedy. International Ass'n of Machinists & Aerospace Workers v. Tennessee Valley Auth., 108 F.3d 658, 668 (6th Cir.1997); Levald, Inc. v. City of Palm Desert, 998 F.2d 680, 688-89 (9th Cir.1993); Gilbert v. City of Cambridge, 932 F.2d 51, 57-58 (1st Cir.1991); Clulow v. Oklahoma, 700 F.2d 1291, 1302 (10th Cir.1983). "It is settled, therefore, that where legal and equitable claims coexist, equitable remedies will be withheld if an applicable statute of limitations bars the concurrent legal remedy." Gilbert, 932 F.2d at 57. The Court of Appeals for the Second Circuit, applying state law, has also held that when a "claim for declaratory relief could have been resolved through another form of action which has a specific limitations period, the specific period of time will govern." Town of Orangetown v. Gorsuch, 718 F.2d 29, 41-42 (2d Cir.1983) (applying New York law). As the district court found in this case, see infra at pp. 184-85, the plaintiffs' claims could have been resolved by available timely legal remedies, including an action to rescind under the federal Securities Exchange Act of 1934. See Gatto v. Meridian Med. Assocs., Inc., 882 F.2d 840, 842 (3d Cir.1989).

The aforementioned courts which applied federal law relied on analogous Supreme Court precedent to reach this conclusion. In Russell v. Todd, 309 U.S. 280, 289, 60 S.Ct. 527, 532, 84 L.Ed. 754 (1940), the Court recognized the long-standing doctrine that "when the jurisdiction of the federal court is concurrent with that at law, or the suit is brought in aid of a legal right, equity will withhold its remedy if the legal right is barred by the local statute of limitations." In Cope v. Anderson, 331 U.S. at 464, 67 S.Ct. at 1341, the Court reiterated this position, stating that "equity will withhold its relief in such a case where the applicable statute of limitations would bar the concurrent legal remedy." We have followed this proposition. See Gruca v. United States...

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