561 F.2d 429 (2nd Cir. 1977), 1241, Stull v. Bayard

Docket Nº:1241, Docket 77-7088.
Citation:561 F.2d 429
Party Name:Richard J. STULL, Plaintiff-Appellant, v. Nicholas H. BAYARD, Paul L. Miller, Howard Piper, Thomas F. Piper and William T. Piper, Jr., Individually and as Executors of the Estate of William T. Piper, Deceased, Nicholas M. Salgo, David W. Wallace, Bangor Punta Corporation and The First Boston Corporation, Defendants-Appellees.
Case Date:August 26, 1977
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 429

561 F.2d 429 (2nd Cir. 1977)

Richard J. STULL, Plaintiff-Appellant,

v.

Nicholas H. BAYARD, Paul L. Miller, Howard Piper, Thomas F.

Piper and William T. Piper, Jr., Individually and as

Executors of the Estate of William T. Piper, Deceased,

Nicholas M. Salgo, David W. Wallace, Bangor Punta

Corporation and The First Boston Corporation, Defendants-Appellees.

No. 1241, Docket 77-7088.

United States Court of Appeals, Second Circuit

August 26, 1977

Argued May 27, 1977.

Page 430

Irving Bizar, New York City (Demov, Morris, Levin & Shein, New York City, Martin Rosengarten, New York City, of counsel), for plaintiff-appellant.

James V. Ryan, New York City (Rogers & Wells, New York City, of counsel), for defendant-appellee Bangor Punta Corp.

Paul G. Pennoyer, Jr., New York City (Chadbourne, Parke, Whiteside & Wolff, New York City, of counsel), for defendants-appellees Howard Piper, Thomas F. Piper and William T. Piper, Jr.

Page 431

Charles W. Sullivan, New York City (Sullivan & Cromwell, New York City, of counsel), for defendant-appellee The First Boston Corp.

Before VAN GRAAFEILAND, Circuit Judge, and MEHRTENS [*] and PIERCE, [**] District Judges.

VAN GRAAFEILAND, Circuit Judge:

This action arises out of the unsuccessful attempt of Chris-Craft Industries (Chris-Craft) to acquire control of Piper Aircraft Corporation (Piper). 1 Plaintiff, a Piper shareholder, brought suit under § 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e), alleging that he and other members of a putative class were induced not to exchange their Piper shares for Chris-Craft stock and cash because of fraudulent misstatements and omissions by defendants. The District Court granted defendants' motion for summary judgment on the ground that plaintiff's claim was barred by the statute of limitations. We affirm.

During 1969, Chris-Craft and Bangor Punta Corporation (Bangor Punta) were engaged in a battle for control of Piper. To induce Piper shareholders to surrender their stock, Chris-Craft made a number of cash tender and stock exchange offers, the last of which expired on August 4, 1969. On July 18, 1969, Bangor Punta filed a prospectus and extended a competing exchange offer. On August 1, 1975, plaintiff commenced this suit against Bangor Punta and The First Boston Corporation, an investment adviser and underwriter, and named as additional defendants certain officers of these corporations and of Piper. His theory of action was that a series of misstatements and omissions by defendants between January and mid-July 1969 induced a number of Piper shareholders not to accept Chris-Craft's final exchange offer. The last wrongful act alleged in the complaint was the overevaluation of an asset in the July 18 Bangor Punta prospectus.

The trial court held that plaintiff's action was governed by a six-year statute of limitation which ran from the last fraudulent act committed by defendants. 2 Because this had occurred on July 18, 1969 and plaintiff did not sue until August 1, 1975, the court found his action to be time-barred. This appeal followed.

Section 14 of the Securities Exchange Act of 1934 prescribes no period of limitation for actions brought thereunder. In such a situation, federal courts apply those statutes of limitation of the forum state which best effectuate the policies underlying the federal statute. Arneil v. Ramsey,550 F.2d 774, 779 (2d Cir. 1977). In actions alleging fraudulent violations of the federal securities law, this court has consistently adopted state statutes of limitation for actions based upon common law fraud. See, e. g., Klein v. Shields & Co., 470 F.2d 1344, 1346 (2d Cir. 1972); Klein v. Auchincloss, Parker & Redpath, 436 F.2d 339, 341 (2d Cir. 1971); Hoff Research & Development Laboratories, Inc. v. Philippine National Bank, 426 F.2d 1023 (2d Cir.

Page 432

1970). 3 We look to federal law, however, to determine when the limitation period starts to run. Arneil v. Ramsey,supra, 550 F.2d at 780. Under federal law, the statute commences to run when the plaintiff has actual knowledge of the alleged fraud or knowledge of facts which in the exercise of reasonable diligence should have led to actual knowledge. Berry Petroleum Co. v. Adams & Peck, 518 F.2d 402, 410 (2d Cir. 1975); Klein v. Shields & Co., supra, 470 F.2d at 1346-47; Azalea Meats, Inc. v. Muscat, 386 F.2d 5, 8-9 (5th Cir. 1967).

The New York statute of limitation most closely analogous to this federal rule, C.P.L.R. § 203(f), provides in part:

. . . (W)here the time within which an action must be commenced is computed from the time when facts were discovered or from the time when facts could with reasonable diligence have been discovered, or from either of such times, the action must be commenced within two years after such actual or imputed discovery . . . .

Because it is undisputed that plaintiff had actual knowledge of defendants' alleged violations of § 14 no later than May 10, 1971, this provision, standing alone, would be a clear bar to the present action. Rickel v. Levy, 370 F.Supp. 751, 756-57 (E.D.N.Y.1974).

However, C.P.L.R. § 203(f), read in conjunction with C.P.L.R. § 213, also permits an action based upon fraud to be brought within six years "from the time the cause of action accrued" if this is longer than the two-year period above provided for. "The result, in an actual fraud suit, is two separately-timed and alternative limitations periods in the case of a...

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