Wachovia Bank and Trust Co., N. A. v. National Student Marketing Corp., 79-1595
| Citation | 209 U.S.App.D.C. 9,650 F.2d 342 |
| Decision Date | 15 June 1981 |
| Docket Number | No. 79-1595,79-1595 |
| Parties | , Fed. Sec. L. Rep. P 97,712 WACHOVIA BANK AND TRUST CO., N. A. (as Trustee and Agent for various trust accounts) et al., Appellants v. NATIONAL STUDENT MARKETING CORPORATION, et al., two cases. WACHOVIA BANK AND TRUST CO., N. A. (as Trustee and Agent for various trust accounts) et al. v. NATIONAL STUDENT MARKETING CORPORATION, et al., White & Case et al., Appellants. WACHOVIA BANK AND TRUST CO., N. A. (as Trustee and Agent for various trust accounts) et al. v. NATIONAL STUDENT MARKETING CORPORATION, et al., Peat, Marwick et al., Appellants. WACHOVIA BANK AND TRUST CO., N. A. (as Trustee and Agent for various trust accounts) et al. v. NATIONAL STUDENT MARKETING CORPORATION et al., Roger O. Walther, Appellant. WACHOVIA BANK AND TRUST CO., N. A. (as Trustee and Agent for various trust accounts) et al. v. NATIONAL STUDENT MARKETING CORPORATION et al., James F. Joy, Appellant. WACHOVIA BANK AND TRUST CO., N. A. (as Trustee and Agent for various trust accounts) et al. v. NATIONAL STUDENT MARKETING CORPORATION et al., Donald A. Fergusson and Robert A. Fergusson, Appellants. WACHOVIA BANK AND TRUST CO., N. A. (as Trustee and Agent for various trust accounts) et al. v. NATIONAL STUDENT MARKETING CORPORATION et al., Cortes W. Randell, Appellant. to 79-1602. |
| Court | United States Courts of Appeals. United States Court of Appeals (District of Columbia) |
Appeals from the United States District Court for the District of Columbia (D.C. Civil Action No. 166-73).
Juan A. del Real and Gilbert C. Miller, Washington, D. C., with whom Richard M. Phillips, Washington, D. C., was on brief, for appellants in No. 79-1595.
Paul Gonson, Principal Associate Gen. Counsel, Securities and Exchange Commission, Washington, D. C., with whom Michael K. Wolensky, Asst. Gen. Counsel, Securities and Exchange Commission, Washington, D. C., was on brief, for amicus curiae, Securities and Exchange Commission, in No. 79-1595 urging reversal.
Milton V. Freeman, Washington, D. C., with whom Daniel A. Rezneck, Thomas D. Nurmi, and Lawrence A. Schneider, Washington, D. C., were on brief, for White & Case and Marion Jay Epley, III, appellees in No. 79-1595 and cross-appellants in No. 79-1597.
William E. Hegarty, New York City, with whom Mathias E. Mone, New York City, was on brief, for Peat, Marwick, Mitchell & Co., et al., appellees in Nos. 79-1595 and 79-1596 and cross-appellants in No. 79-1598.
Franklin M. Schultz and Bruce W. Dunne, Washington, D. C., were on brief for James F. Joy, appellee in Nos. 79-1595, 79-1596, 79-1597, 79-1598, 79-1599, 79-1601, and 79-1602 and cross-appellant in No. 79-1600.
Sidney Dickstein, Washington, D. C., was no brief for Roger O. Walther, appellee in Nos. 79-1595, 79-1596, 79-1597, 79-1598, 79-1600, 79-1601, and 79-1602 and cross-appellant in No. 79-1599.
William R. Bernard, Washington, D. C., was on brief, for Cortes W. Randell, appellee in Nos. 79-1595, 79-1596, 79-1597, 79-1598, 79-1599, 79-1600, and 79-1601 and cross-appellant in No. 79-1602.
George P. Michaely, Jr., Boston, Mass., were on brief, for Fergusson, et al., appellees in No. 79-1595 and cross-appellants in No. 79-1601.
Also Cherif Sedky entered an appearance for appellants Wachovia Bank and Trust Co., et al. in Nos. 79-1595 and 79-1596.
Before ROBINSON and MIKVA, Circuit Judges, and FLANNERY, * United States District Judge for the District of Columbia.
Opinion for the court filed by Circuit Judge MIKVA.
This is yet another installment in the saga of the collapse of one of the glamor stocks of the 1960s, the National Student Marketing Corporation (NSMC). Appellants allege a widespread scheme to misrepresent the financial condition of NSMC and thereby to stimulate investor interest in NSMC's securities. They seek damages to remedy losses suffered when the value of NSMC stock dropped suddenly and dramatically more than a decade ago, and they appeal the district court's dismissal of their claims as time-barred. On cross-appeal defendants argue that the court below erred in finding that appellants have a private right of action under section 10(b) of the Securities Exchange Act of 1934 (the 1934 Act), 15 U.S.C § 78j(b) (1976), and under section 17(a) of the Securities Act of 1933 (the 1933 Act), 15 U.S.C. § 77q(a) (1976).
We reverse the district court's holding, 461 F.Supp. 999, that appellants' claims are barred by the statute of limitations, and we affirm appellants' right to pursue a remedy under section 10(b) of the 1934 Act.
In December of 1979, appellants (Wachovia) 1 bought approximately five million dollars' worth of NSMC stock from the corporation and two of its directors. The purchase was a private placement transaction governed by detailed purchase agreements. Two months later, the market price of NSMC stock declined more than sixty percent, and NSMC announced that it expected to report a loss for the previous fiscal quarter.
The Securities and Exchange Commission (SEC) then began a two-year investigation of NSMC, which ended in February, 1972, with the filing of an enforcement and injunction action against NSMC and the other major participants in NSMC's merger with Interstate National Corporation. 2 The Commission charged that the price of NSMC stock had been artificially inflated in violation of the securities laws. In addition, various civil actions were filed in 1970 and 1972 by purchasers of NSMC stock. 3
The original complaint in this case, filed January 29, 1973, sought damages from NSMC and several of its officers and employees and from Peat, Marwick, Mitchell & Co. (PMM), NSMC's independent auditor; Anthony Natelli, the PMM partner in charge of the NSMC account; and Joseph Scansaroli, the PMM audit supervisor. These defendants were charged with participating in a conspiracy to defraud investors by artificially inflating the price of NSMC stock and thereby violating various sections of 1933 and 1934 Acts. Specifically, appellants contended that misrepresentations about NSMC's financial condition had been included in oral statements, in press releases, in reports filed with the SEC, and in other published reports not filed with the Commission. The fraudulent scheme was allegedly furthered by NSMC's acquisition of a number of corporations.
The original complaint did not name as defendants White & Case, NSMC's outside counsel, or Jay Epley, the White & Case partner principally in charge of the NSMC account. As NSMC's counsel, they had drafted a purchase agreement between appellants and NSMC and had issued a legal opinion to appellants, in which the buyers were assured that the contemplated transaction would not violate any statute. Two days before the complaint was filed, appellants had entered into a letter agreement with White & Case and Epley, which provided that the statute of limitations would be tolled as to them for two years from the date of the letter. Appellants then amended their complaint on May 28, 1975, to include White & Case and Epley as defendants.
The defendants 4 moved to dismiss the complaint on two grounds: that the action was time-barred under the two-year statute of limitations of the District of Columbia's blue sky law, and that the sections of the securities acts on which the claims were based did not provide for or allow a private right of action. The district court held that a private remedy was implied under section 10(b) of the 1934 Act and under section 17(a) of the 1933 Act, but the court dismissed the action as untimely. 5 Both issues are now before this court. 6
Two statute of limitations questions must be resolved: (1) whether the district court committed error in applying retrospectively Forrestal Village, Inc. v. Graham, 551 F.2d 411 (D.C. Cir. 1977), which calls for a two-year statute of limitations in Rule 10b-5 actions; and (2) whether the district court properly declined application of the equitable tolling principle. 7
For causes of action implied under the securities laws, the forum state's statute of limitations rules. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n.29, 96 S.Ct. 1375, 1389 n.29, 47 L.Ed.2d 668 (1976). At issue here is which limitations period to apply: the three-year general fraud provision, D.C. Code § 12-301(8) (1973), or the two-year blue sky law provision, id. § 2-2413(e).
Resolution of this issue determines whether this suit should be dismissed on statute of limitations grounds. Appellants bought NSMC stock on December 17, 1969. The statute of limitations began to run at the end of February, 1970, 8 and the suit was filed in January, 1973 more than two years, but less than three years, after the limitations period had begun to run. The district court found the two-year period applicable and accordingly dismissed the case for untimely filing.
The question of the appropriate statute of limitations is an equivocal one because the trend in the federal case law has shifted. Federal courts once favored invocation of the general fraud limitations period for Rule 10b-5 actions. But during the last decade, the law has moved toward application of the blue sky law limitations period.
The case law in this circuit reflects that general trend. Before 1977, this court favored application of the three-year general fraud limitations period. But in Forrestal Village, Inc. v. Graham, 551 F.2d 411 (D.C. Cir. 1977), we decided that the two-year blue sky law provision, rather than the three-year general fraud limitations guideline, " 'best effectuates the federal policy involved.' " Id. at 413. 9 In so ruling, this circuit joined the majority of circuits, which at that time in 1977 applied local blue sky law limitations periods to section 10(b) and section 17(a) securities actions.
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