638 F.2d 605 (3rd Cir. 1980), 80-1281, Biggans v. Bache Halsey Stuart Shields, Inc.
|Citation:||638 F.2d 605|
|Party Name:||Robert P. BIGGANS, Appellant, v. BACHE HALSEY STUART SHIELDS, INC., f/t/a Bache Halsey Stuart, Inc.|
|Case Date:||December 31, 1980|
|Court:||United States Courts of Appeals, Court of Appeals for the Third Circuit|
Submitted under Third Circuit Rule 12(6) Sept. 18, 1980.
Rehearing In Banc Rehearing Denied Jan. 22, 1981.
Paul Breen, Philadelphia, Pa., for appellant.
Abraham C. Reich and Charles M. Solomon, Philadelphia, Pa., for appellee; Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., of counsel.
Before GIBBONS, WEIS and SLOVITER, Circuit Judges.
SLOVITER, Circuit Judge.
The issue on appeal is whether a suit claiming damages from a brokerage house for "churning", or excessive trading of a customer's account, in violation of the federal securities laws is governed by the statute of limitations applicable to actions brought under the Pennsylvania Securities Act or applicable to common law fraud actions. We hold that the limitations period applied to fraud actions is controlling.
Robert P. Biggans, appellant, opened a discretionary trading account with Bache Halsey Stuart Shields, Inc. (Bache) in June 1975. Accepting his version of the facts, since we must give him the benefits of all reasonable inferences in reviewing a summary judgment against him, he entrusted $6,500 to defendant Bache to invest and manage. During the 17 month period from June 1975 to October 1976, defendant, through its agent, made approximately 300 purchases and sales of call options; purchases during that period were over $250,000 and sales were close to that amount. Plaintiff lost $5,905.37 while defendant's commission from the activity was $23,355.30. Plaintiff claims that this excessive trading by his account executive was done only to create commissions for the defendant in violation of a duty to act in plaintiff's
best interest. He claims that this activity constituted churning, which occurs when a broker abuses a customer's trust and confidence for personal gain by inducing transactions in the customer's account that are excessive in size or frequency in view of the financial resources and character of the account, and that it violated section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1976), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1979), and § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (1976). The last transaction in question occurred on October 31, 1976. The complaint was filed on February 28, 1979.
Defendant moved for summary judgment on the ground that the action was time-barred. The district court recognized that the absence of a federal statute expressly providing a period of limitations for private actions based on section 10(b) of the Securities Exchange Act required selection of an appropriate limitations period from the law of Pennsylvania, the forum state. The court considered two options: the one-year statute of limitations governing civil actions brought pursuant to section 501 of the Pennsylvania Securities Act, Pa.Stat.Ann. tit. 70, § 1-501 (Purdon Supp.1980), 1 or the longer statute applicable to actions for common law fraud and breach of fiduciary duty. 2 Reasoning that the Pennsylvania Securities Act rather than Pennsylvania's common law provided a cause of action more closely analogous to a cause of action based on section 10(b), the court held that the one-year statute was the proper choice. The court found as a matter of law that Biggans filed his suit more than one year after he knew, or exercising reasonable diligence should have known, of the alleged fraud, and granted Bache's motion for summary judgment. 3 Biggans v. Bache
Halsey Stuart Shields, Inc., 487 F.Supp. 829 (E.D.Pa.1980).
On appeal, appellant argues that the district court's choice of statute of limitations is inconsistent with our recent decision in Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir. 1979). We agree.
In Roberts, this court faced for the first time the issue of the appropriate state statute of limitations to apply in federal securities suits, an issue which has divided the circuits. 4 The suit, which was brought by a selling shareholder against the corporation, its merger partner, and their broker agent, alleged defendants violated sections 10(b) and 14(a) of the Securities Exchange Act by making material misrepresentations and omissions in connection with the solicitation of shareholder approval of a merger. The court held, with one dissent, that the suit was governed by the six-year statute of limitations which New Jersey applied to actions for common law fraud, and not by the two-year statute provided in New Jersey's version of the Uniform Securities Act. Judge Gibbons and I, comprising the majority, wrote separate opinions. Judge Gibbons stated that the absence of a federal statute of limitations required that in federal securities litigation, we give deference to the policy of repose of the forum state. If the state court would entertain an action for the relief sought, no state policy of repose was implicated. The relevant inquiry under his analysis was whether the lawsuit would be time- barred if brought in state court. My approach differed in that I stressed the need to identify the state statute of limitations which best comports with the federal substantive policy advanced by the federal cause of action. We need not here speculate as to whether the divergence in our approach might, in some factual situation, lead us to different results. Indeed, Judge Gibbons expressly noted that he did not disagree with my approach. Id. at 456. Chief Judge Seitz, writing in dissent, also agreed that the court must choose the state statute of limitations which best effectuated federal policy, id. at 460-61, although he disagreed with our selection.
Whatever the difference in perspectives used by Judge Gibbons and me, we examined the same factors in reaching agreement that the limitations period of the state securities statute was inapplicable. Chief among those factors was that New Jersey's securities statute, like the Uniform Securities Act, did not provide a civil remedy for sellers against fraudulent buyers. The federal plaintiff, if relegated to his state cause of action, would therefore have been limited to a suit for common law fraud, an action which could have been maintained within the time in question. For Judge Gibbons, the absence of state statutory protection to sellers or tenderers of securities meant that the state statute could hardly be considered the analogous reference point. I agreed with the importance of that factor, also concluding that the state securities law intended to supplement the body of common
law permitting sellers to sue fraudulent buyers.
To continue readingFREE SIGN UP