Gridley v. Cunningham, s. 76-1480

Decision Date24 February 1977
Docket NumberNos. 76-1480,76-1481,s. 76-1480
Citation550 F.2d 551
PartiesFed. Sec. L. Rep. P 95,884 John GRIDLEY, Jr., Appellee, v. John W. CUNNINGHAM, Appellant. John N. GRIDLEY, III, Appellee, v. John W. CUNNINGHAM, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Paul N. Cotro-Manes, Salt Lake City, Utah, for appellant.

Gary J. Pashby, Sioux Falls, S.D., for appellee.

Before HEANEY and STEPHENSON, Circuit Judges, and STUART, * district judge.

STUART, District Judge.

In separate actions John Gridley Jr. and his son, John Gridley III, sought to recover damages for losses sustained from their purchase of certain Sayre & Fisher Company (S & F) securities. The actions were joined for trial and appeal. Judgment by default was entered against S & F after it became bankrupt. The trial court 1 awarded judgment in favor of each plaintiff in the amount of $50,000 against John W. Cunningham on securities violation counts and in favor of Cunningham on the common law fraud counts. The defendant, Cunningham, has appealed raising issues as to the statutes of limitations and plaintiffs alleged failure to make timely tender back of the securities.

Early in April 1972, while the Gridleys were in California, the contemplated merger of S & F with American General Finance Corporation was discussed with a friend. They became interested in the investment opportunity, and upon their return to Sioux Falls, South Dakota, John Jr. contacted defendant Cunningham, Executive Vice President of S & F. After some telephone conversations John Jr. decided to purchase 25,000 shares of S & F stock at $2.00 a share. John III decided to purchase a $75,000 face value convertible debenture with an 8% annual interest rate for $50,000.

On April 19, 1972, in accordance with instructions received from Cunningham, the Gridleys forwarded $100,000 to a trust fund in San Diego. Cunningham brought the necessary papers to Sioux Falls the same day and the transaction was completed in his motel room that evening. It was during this conversation that statements were made or omitted that resulted in a finding of violations of section 12(1) and (2) of the Securities Act of 1933 (The Act), 15 U.S.C. § 77l (1) and (2).

Proceedings to register the stock purchased by John Jr. with the SEC were to begin within five days after purchase. This was not done. As he was unable to get a satisfactory answer to his inquiries, John Jr. brought an action in the United States District Court of South Dakota against Sayre & Fisher for breach of contract on November 8, 1972.

John III did not receive the interest on the convertible debentures which became due April 19, 1973. On June 4, 1973, he filed a complaint in the same court alleging in one count breach of contract by S & F and common law fraud against Cunningham and Sayre & Fisher in a second count. On the same date John Jr. amended his complaint against S & F by adding a common law fraud count against S & F and Cunningham.

On April 30, 1974, the court allowed John Jr. and John III to amend their complaints to add a count against Cunningham alleging that he violated sections 12(1) and (2) of The Act, 15 U.S.C. 77l (1) and (2).

The issues before us here arise out of the cause of action stated in the April 30 amendment.

John Jr.'s Section 12(1) Claim

A section 12(1) claim must be brought within one year after the violation. Section 13 of The Act, 15 U.S.C. 77m. The trial court held John Jr.'s section 12(1) action was not barred under the statute because he had commenced a contract action against S & F on November 8, 1972, well within the year after the violation which occurred, April 19, 1972. The trial court relied on Fed.R.Civ.P. 15(c) in relating the April 30, 1974, amendment back to the original complaint. Fed.R.Civ.P. 15(c) provides:

Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. An amendment changing the party against whom a claim is asserted relates back if the foregoing provision is satisfied and, within the period provided by law for commencing the action against him, the party to be brought in by amendment (1) has received such notice of the institution of the action that he will not be prejudiced in maintaining his defense on the merits, and (2) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against him.

We do not believe the 1966 amendment to Rule 15(c) contemplated such an expansive approach to the relation back rule. It was primarily intended to alleviate harsh decisions which had defeated claims on technicalities that should have been decided on their merits. Private parties who had actions against some government agency were the principal victims. Proposed Rules of Civil Procedure, 39 F.R.D. 69, 82 (1966). Wright and Miller, Federal Practice and Procedure, Vol. 6, § 1498, at 506.

The original complaint was only an action for breach of contract against the corporation. Cunningham had signed the contract as executive vice-president. He was never made a party to that cause of action and had no personal responsibility. The June 4, 1973, amendment added a count of common law fraud against both him and S & F. We do not believe that the second requirement for bringing in a new party was met. There was no mistake in the identity of the proper party in the contract action. The amendment added a new cause of action in which Cunningham was a proper defendant. There was no reason for Cunningham to know from the contract action against the corporation that he would be named a defendant in a fraud action. The district court erred in holding the cause of action founded upon section 12(1) of The Act was not barred by the statute of limitations. However, in view of our holding on the section 12(2) action, there is no change in the result.

Section 12(2) Actions

If the common law fraud actions brought against Cunningham by John III's complaint and John Jr.'s amendment to his complaint filed June 4, 1973, are within the section 12(2) statute of limitations, the April 30, 1974, amendments alleging the security violations are clearly not barred under the...

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  • McKenzie v. Lunds, Inc.
    • United States
    • U.S. District Court — District of Minnesota
    • September 15, 1999
    ...S.Ct. 1723, 80 L.Ed.2d 196 (1984). The purpose of Rule 15(c) is to permit cases to be decided on their merits. See, Gridley v. Cunningham, 550 F.2d 551, 553 (8th Cir. 1977). "Thus, relation back has been permitted of amendments that change the legal theory of the action, see, e.g., Donnelly......
  • Pell v. Weinstein
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    • U.S. District Court — Middle District of Pennsylvania
    • March 20, 1991
    ...regardless of whether the plaintiff knew of the violation. See Cook v. Avien, 573 F.2d 685, 691 (1st Cir.1978); Gridley v. Cunningham, 550 F.2d 551, 552-53 (8th Cir. 1977); McCullough v. Leede Oil & Gas, Inc., 617 F.Supp. 384, 387 (W.D.Okl.1985); Felts v. National Account System Assoc., Inc......
  • Blatt v. Merrill Lynch, Pierce, Fenner & Smith Inc.
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    • February 23, 1996
    ...of whether the plaintiff knew of the violation" or whether information was concealed from the plaintiff); Gridley v. Cunningham, 550 F.2d 551, 552-54 (8th Cir. 1977) (same); Mason v. Marshall, 412 F.Supp. 294, 299 (N.D.Tex.1974), aff'd, 531 F.2d 1274 (5th Cir.1976) (same); Gardner v. Invest......
  • Cook v. Avien, Inc.
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    • U.S. Court of Appeals — First Circuit
    • March 28, 1978
    ...period runs from the date of the violation irrespective of whether the plaintiff knew of the violation. See Gridley v. Cunningham, 550 F.2d 551, 552-53 (8th Cir. 1977); Mason v. Marshall, 412 F.Supp. 294, 299 (N.D.Tex.1974), aff'd, 531 F.2d 1274 (5th Cir. 1976); Ferland v. Orange Groves of ......
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2 books & journal articles
  • Fraud and Misrepresentation
    • United States
    • ABA Antitrust Library Business Torts and Unfair Competition Handbook Business tort law
    • January 1, 2014
    ...764, 767 (10th Cir. 1980); Gridley v. Sayre & Fisher Co., 409 F. Supp. 1266, 1272 (D.S.D. 1976), aff’d sub nom. Gridley v. Cunningham, 550 F.2d 551 (8th Cir. 1977); Odette v. Shearson, Hammill & Co., 394 F. Supp. 946, 956 (S.D.N.Y. 1975). 130. Stewart v. Bennett, 359 F. Supp. 878, 885 n.16 ......
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    • ABA Archive Editions Library Business Torts and Unfair Competition Handbook. Second Edition Business Tort Law
    • June 23, 2006
    ...Embryol. Scis., Inc., 620 F.2d 764, 766 (10th Cir. 1980); Gridley v. Sayre & Fisher Co., 409 F. Supp. 1266, 1272 (D.S.D. 1975), aff’d , 550 F.2d 551 (8th Cir. 1977); Odette v. Shearson, Hammill & Co., 394 F. Supp. 946, 956 (S.D.N.Y. 1975). 107. Stewart v. Bennett, 359 F. Supp. 878, 884 n.16......

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