501 U.S. 350 (1991), 90-333, Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson

Docket Nº:No. 90-333
Citation:501 U.S. 350, 111 S.Ct. 2773, 115 L.Ed.2d 321, 59 U.S.L.W. 4688
Party Name:Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson
Case Date:June 20, 1991
Court:United States Supreme Court
 
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Page 350

501 U.S. 350 (1991)

111 S.Ct. 2773, 115 L.Ed.2d 321, 59 U.S.L.W. 4688

Lampf, Pleva, Lipkind, Prupis & Petigrow

v.

Gilbertson

No. 90-333

United States Supreme Court

June 20, 1991

Argued February 19, 1991

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Syllabus

During 1979 through 1981, plaintiff-respondents purchased units in seven Connecticut limited partnerships, with the expectation of realizing federal income tax benefits. Among other things, petitioner, a New Jersey law firm, aided in organizing the partnerships and prepared opinion letters addressing the tax consequences of investing. The partnerships failed, and, subsequently, the Internal Revenue Service disallowed the claimed tax benefits. In 1986 and 1987, plaintiff-respondents filed complaints in the Federal District Court for the District of Oregon, alleging that they were induced to invest in the partnerships by misrepresentations in offering memoranda prepared by petitioner and others, in violation of, inter alia, § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and asserting that they became aware of the alleged misrepresentations only in 1985. The court granted summary judgment for the defendants on the ground that the complaints were not timely filed, ruling that the claims were governed by Oregon's 2-year limitations period for fraud claims, the most analogous forum state statute; that plaintiff-respondents had been on notice of the possibility of fraud as early as 1982; and that there were no grounds sufficient to toll the statute of limitations. The Court of Appeals also selected Oregon's limitations period, but reversed, finding that there were unresolved factual issues as to when plaintiff-respondents should have discovered the alleged fraud.

Held: The judgment is reversed.

895 F.2d 1416, 1417, and 1418, reversed.

JUSTICE BLACKMUN delivered the opinion of the Court with respect to Parts I, II-B, II-C, III, and IV, concluding that:

1. Litigation instituted pursuant to § 10(b) and Rule 10b-5 must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation, as provided in the 1934 Act and the Securities Act of 1933. State borrowing principles should not be applied where, as here, the claim asserted is one implied under a statute also containing an express cause of action with its own time limitation. The 1934 Act contemporaneously enacted a number of express remedial provisions actually designed to accommodate a balance of interests very similar to that at stake in this litigation. And the limitations periods in all but one of its causes of action include some variation

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of a 1-year period [111 S.Ct. 2776] after discovery combined with a 3-year period of repose. Moreover, in adopting the 1934 Act, Congress also amended the 1933 Act, adopting the same structure for each of its causes of action. Neither the 5-year period contained in the 1934 Act's insider trading provision, which was added in 1988, nor state law fraud provides a closer analogy to § 10(b). Pp. 358-362.

2. The limitations period is not subject to the doctrine of equitable tolling. The 1-year period begins after discovery of the facts constituting the violation, making tolling unnecessary, and the 3-year limit is a period of repose inconsistent with tolling. P. 363.

3. As there is no dispute that the earliest of plaintiff-respondents complaints was filed more than three years after petitioner's alleged misrepresentations, plaintiff-respondents' claims were untimely. P. 364.

BLACKMUN, J., delivered the opinion of the Court with respect to Parts I, II-B, II-C, III, and IV, in which REHNQUIST, C.J., and WHITE, MARSHALL, and SCALIA, JJ., joined, and an opinion with respect to Part II-A, in which REHNQUIST, C.J., and WHITE and MARSHALL, JJ., joined. SCALIA, J., filed an opinion concurring in part and concurring in the judgment, post, p. 364. STEVENS, J., filed a dissenting opinion, in which SOUTER, J., joined, post, p. 366. O'CONNOR, J., filed a dissenting opinion, in which KENNEDY, J., joined, post, p. 369. KENNEDY, J., filed a dissenting opinion, in which O'CONNOR, J., joined, post, p. 374.

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BLACKMUN, J., lead opinion

JUSTICE BLACKMUN delivered the opinion of the Court, except as to Part II-A.

In this litigation, we must determine which statute of limitations is applicable to a private suit brought pursuant to § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, 15 U.S.C. § 78j(b), and to Securities and Exchange Commission Rule 10b-5, 17 CFR § 240.10b-5 (1990), promulgated thereunder.

I

The controversy arises from the sale of seven Connecticut limited partnerships formed for the purpose of purchasing and leasing computer hardware and software. Petitioner Lampf, Pleva, Lipkind, Prupis & Petigrow is a West Orange, N.J., law firm that aided in organizing the partnerships and that provided additional legal services, including the preparation of opinion letters addressing the tax consequences of investing in the partnerships. The several plaintiff-respondents purchased units in one or more of the partnerships during the years 1979 through 1981 with the expectation of realizing federal income tax benefits therefrom.

The partnerships failed, due in part to the technological obsolescence of their wares. In late 1982 and early 1983, plaintiff-respondents received notice that the United States Internal Revenue Service was investigating the partnerships. The IRS subsequently disallowed the claimed tax benefits because of overvaluation of partnership assets and lack of profit motive.

On November 3, 1986, and June 4, 1987, plaintiff-respondents filed their respective complaints in the United States District Court for the District of Oregon, naming as defendants petitioner and others involved in the preparation

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of offering memoranda for the partnerships. The complaints alleged that plaintiff-respondents were induced to invest in the partnerships by misrepresentations in the offering memoranda, in violation of, among other things, § 10(b) of the 1934 Act and Rule 10b-5. The claimed misrepresentations were said to include assurances that the investments would entitle the purchasers [111 S.Ct. 2777] to substantial tax benefits; that the leasing of the hardware and software packages would generate a profit; that the software was readily marketable; and that certain equipment appraisals were accurate and reasonable. Plaintiff-respondents asserted that they became aware of the alleged misrepresentations only in 1985, following the disallowance by the IRS of the tax benefits claimed.

After consolidating the actions for discovery and pretrial proceedings, the District Court granted summary judgment for the defendants on the ground that the complaints were not timely filed. App. to Pet. for Cert. 22A. Following precedent of its controlling court, see, e.g., Robuck v. Dean Witter & Co., 649 F.2d 641 (CA9 1980), the District Court ruled that the securities claims were governed by the state statute of limitations for the most analogous forum state cause of action. The court determined this to be Oregon's 2-year limitations period for fraud claims, Ore.Rev.Stat. § 12.110(1) (1989). The court found that reports to plaintiff-respondents detailing the declining financial status of each partnership and allegations of misconduct made known to the general partners put plaintiff-respondents on "inquiry notice" of the possibility of fraud as early as October, 1982. App. to Pet. for Cert. 43A. The court also ruled that the distribution of certain fiscal reports and the installation of a general partner previously associated with the defendants did not constitute fraudulent concealment sufficient to toll the statute of limitations. Applying the Oregon statute to the facts underlying plaintiff-respondents' claims, the District Court determined that each complaint was time-barred.

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The Court of Appeals for the Ninth Circuit reversed and remanded the cases. See, e.g., Retz v. Leasing Consultants Associates, 895 F.2d 1418 (1990) (judgment order). In its unpublished opinion, the Court of Appeals found that unresolved factual issues as to when plaintiff-respondents discovered or should have discovered the alleged fraud precluded summary judgment. Then, as did the District Court, it selected the 2-year Oregon limitations period. In so doing, it implicitly rejected petitioner's argument that a federal limitations period should apply to Rule 10b-5 claims. App. to Pet. for Cert. 8A. In view of the divergence of opinion among the Circuits regarding the proper limitations period for Rule 10b-5 claims,[1] we granted certiorari to address this important issue. 498 U.S. 894 (1990).

II

Plaintiff-respondents maintain that the Court of Appeals correctly identified common law fraud as the source from which § 10(b) limitations should be derived. They submit that the underlying policies and practicalities of § 10(b) litigation do not justify a departure from the traditional practice of "borrowing" analogous state law statutes of limitations. Petitioner, on the other hand, argues that a federal period is appropriate, contending that we must look to the "1- and 3-year" structure applicable to the express causes of action in § 13 of the Securities Act of 1933, 48 Stat. 84, as amended, 15 U.S.C. § 77m, and to certain of the express actions in the

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1934 Act, see 15 U.S.C. §§ 78i(e), 78r(c), and 78cc(b).[2] The Solicitor General, appearing on behalf of the Securities and Exchange Commission, agrees that use of a [111 S.Ct. 2778] federal period is indicated, but urges the application of the 5-year statute of repose specified in § 20A of the...

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