Olcott v. Delaware Flood Co., s. 92-5242
| Citation | 76 F.3d 1538 |
| Decision Date | 26 February 1996 |
| Docket Number | 93-5148 and 94-5005,93-5147,Nos. 92-5242,s. 92-5242 |
| Parties | Fed. Sec. L. Rep. P 99,059 Bernard OLCOTT, Plaintiff-Appellant, v. DELAWARE FLOOD COMPANY, a limited partnership under the laws of Oklahoma; Lawton Oil Company, a Kansas corporation; William Douglas Layton, individually and as general partner of Delaware Flood Company, 1976 DH; Delaware Flood Company, 1977, EH; Delaware Flood Company, 1978, FH; Delaware Flood Company, 1979, Ltd., limited partnerships under the laws of Oklahoma; Michael Galesi, Defendants-Appellees. Bernard OLCOTT, Plaintiff-Appellee, v. DELAWARE FLOOD COMPANY, a limited partnership under the laws of Oklahoma; Delaware Flood Company, 1976 DH; Delaware Flood Company, 1977, EH; Delaware Flood Company, 1978, FH; Delaware Flood Company, 1979, Ltd., limited partnerships under the laws of Oklahoma; Michael Galesi, Defendants-Appellants, and Layton Oil Company, a Kansas corporation; William Douglas Layton, individually and as General Partner of Delaware Flood Company, 1976, DH, Defendants. Bernard OLCOTT, Plaintiff, v. DELAWARE FLOOD COMPANY, a limited partnership under the laws of Oklahoma; Delaware Flood Company, 1977, EH; Delaware Flood Company, 1978, FH; Delaware Flood Company, 1979, Ltd., limited partnerships under the laws of Oklahoma; Michael Galesi, Defendants, and Layton Oil Company, a Kansas corporation; William Douglas Layton, individually and as General Partner of Delaware Flood Company, 1976, DH, Defendants-Appellants. Bernard OLCOTT, Plaintiff-Appellee, v. DELAWARE FLOOD COMPANY, a limited partnership under the laws of Oklahoma; Delaware Flood Company, 1976 DH; Delaware Flood Company, 1977, EH; Delaware Flood Company, 1978, FH; Delaware Flood Company, 1979, Ltd., Michael Galesi, Defendants-Appellants, and Layton Oil Company, a Kansas corporation; William Douglas Layton, individually and as General Partner, Defendants. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
David Feinsilver, Feinsilver & Weiner, Millburn, New Jersey, for Appellant Bernard Olcott.
William C. Kellough (Reuben Davis with him on the briefs), Boone, Smith, Davis, Hurst & Dickman, Tulsa, Oklahoma, for Defendants/Appellees and Cross-Appellants.
Before SEYMOUR, Chief Judge; and PORFILIO and EBEL, Circuit Judges.
Today, we are called upon to resolve a fourteen year-old federal securities dispute raising choice of law and sanctions issues. Bernard Olcott brought this Rule 10b-5 securities action alleging he was defrauded regarding his 1976-1979 investments in four limited partnerships. After a lengthy pretrial and discovery process, the district court concluded the limitations period had run on Mr. Olcott's federal claims and dismissed his action in its entirety, including his pendent state claims. Mr. Olcott appeals these dismissals in No. 92-5242.
During the pretrial process, the district court sanctioned the defendants for their failure to comply with a series of court orders concerning an accounting of the financial affairs of the four limited partnerships. All the defendants challenge the propriety of the district court's sanctions in their cross-appeals. 1 Delaware Flood Company and Michael Galesi appeal the sanctions in No. 93-5147, and Layton Oil Company and William Douglas Layton appeal in No. 93-5148. 2
Finally, in No. 94-5005, the defendants appeal the district court's disposition of two remaining issues: the court's refusal to release funds held in escrow gained from the sale of some of the limited partnerships' assets; and, the court's retention of the defendant's security bond to guarantee the payment of the court's sanctions order.
Our holdings in this case may be summarized as follows. We conclude the district court properly dismissed Mr. Olcott's federal claims based on his 1976, 1977, and 1978 investments as time barred by the Third Circuit's three-year statute of repose. However, we remand to the district court for a factual finding when Mr. Olcott possessed inquiry notice of the underlying facts relating to his 1979 investment. On remand, the district court must determine if Mr. Olcott brought this claim within the one year statute of limitation. We also remand the district court's dismissal of Mr. Olcott's pendent state claims for it to conduct the appropriate death knell analysis. We affirm the district court's imposition of a sanction of $402,527.98 against the defendants for their violations of Fed.R.Civ.P. 16(f) and 37(b)(2). We decline to consider the district court's $1.9 million default judgment because the district court did not treat it as a final determination. We remand the issue of whether to release the $213,143 in proceeds from the sale of limited partnership assets from court supervision to the district court for further factual findings. Finally, we reverse the district court and exonerate the defendants' $50,000 bond.
The interminable saga we have before us began when Mr. Olcott invested a total of $1.9 million in four oil drilling and exploration limited partnerships in 1976, 1977, 1978, and 1979. Not pleased with the results of his investment, Mr. Olcott filed suit, alleging the limited partnerships were operated fraudulently. Mr. Olcott named as defendants all four limited partnerships, Delaware Flood Company 1976 DH, Delaware Flood Company 1977 EH, Delaware Flood Company 1978 FH, and Delaware Flood Company 1979 LTD; and Layton Oil Company, Delaware Flood Company, Michael Galesi and William Douglas Layton. These additional defendants had various relationships with the four limited partnerships and each other. Delaware Flood Company was the general partner of all four limited partnerships. In turn, when Mr. Olcott filed suit, Layton Oil Company and William Douglas Layton were the general partners of Delaware Flood Company which was itself a limited partnership. Layton Oil Company subsequently went out of business in 1983.
Michael Galesi was intertwined with the affairs of the other parties in several ways. He was a promoter of the four limited partnerships and a limited partner in some of them. Mr. Galesi also originally was a limited partner of Delaware Flood Company and currently is its general partner. Finally, Mr. Galesi owns Equinox Oil Company which purchased Layton Oil Company's assets, and succeeded to the general partnership interest the defunct company had in the four limited partnerships.
The procedural history of this case has reached Byzantine proportions. Initially, on July 7, 1982, Mr. Olcott filed suit in federal court in the District of New Jersey. On February 18, 1983, the court granted the defendants' forum non conveniens motion made pursuant to 28 U.S.C. § 1404, transferring the case to the Northern District of Oklahoma. A lengthy, multi-round pretrial dispute over an accounting of the financial affairs of all the players ensued. We describe this accounting imbroglio in detail in conjunction with our substantive discussion of the issue in Part IV.
While this case was pending, the Supreme Court decided Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991). In Lampf, the Court held an implied Rule 10b-5, 15 U.S.C. § 78j(b), claim must be filed no more than three years after the underlying events and within one year after the fraud is discovered. Id. at 364, 111 S.Ct. at 2782. In so holding, the Court borrowed the statute of limitations period for express actions as provided under the 1933 and 1934 Securities Acts. Id. at 362, 111 S.Ct. at 2781. The same term the Court announced new rules developed in civil cases must be applied retroactively to all pending similar cases. James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991) (plurality opinion). In response to Lampf and Beam, the defendants filed a motion to dismiss which the district court granted on September 25, 1991. Mr. Olcott appealed to this court.
While Mr. Olcott's appeal was pending, Congress amended the Securities Act to prevent the retroactive application of Lampf. The amendment provided the applicable statute of limitations period for pre-Lampf Rule 10b-5 implied actions would be that of the jurisdiction where the federal court was located, 15 U.S.C. § 78aa-1, the position explicitly rejected in Lampf. 3 Mr. Olcott petitioned this court to reinstate his cause of action pursuant to section 78aa-1. We granted his motion in an unpublished order of June 5, 1992, and remanded the case to the district court.
On remand, the defendants renewed their motion to dismiss which the district court granted. The court explained its reasoning in two orders dated September 23, 1991, and November 12, 1992. First, the court concluded the law of the transferor court applied. Because the case was originally filed in New Jersey, the court applied Third Circuit law. Second, the district court found the Third Circuit's limitations period required a cause of action to be filed within three years of the underlying events and one year from the time the plaintiff had inquiry notice of the fraud. In re Data Access Sys. Sec. Litig., 843 F.2d 1537 (3d Cir.1988) (en banc), cert. denied, 488 U.S. 849, 109 S.Ct. 131, 102 L.Ed.2d 103 (1988). Third, the district court concluded this rule should be applied retroactively. Fourth, the court held Mr. Olcott's claims based on his 1976, 1977, and 1978 investments were time barred because he brought his lawsuit more than three years after the underlying events. Fifth, the court ruled Mr. Olcott's claim based on his 1979 investment was also time barred because Mr. Olcott filed suit in excess of one year after he had notice of the alleged fraudulent activities.
In addition, at the same time the parties litigated the limitations period issue, an ongoing discovery dispute concerning the defendants' repeated failure to provide a complete accounting of the financial affairs of the interlocking partnerships occurred. Ulti...
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