Friedlander v. Troutman, Sanders, Lockerman & Ashmore

Citation788 F.2d 1500
Decision Date09 May 1986
Docket NumberNo. 85-8399,85-8399
PartiesBlue Sky L. Rep. P 72,388, 54 USLW 2590, Fed. Sec. L. Rep. P 92,732 Herman FRIEDLANDER, individually on behalf of himself and all former minority common shareholders of Nimslo Technology, Inc., a Georgia corporation (dissolved), Plaintiffs-Appellees, v. TROUTMAN, SANDERS, LOCKERMAN & ASHMORE, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)

William G. Leonard, Thomas S. Richey, John T. Marshall, Atlanta, Ga., for defendant-appellant.

Edward L. Greenblatt, Henry A. Brachtl, Atlanta, Ga., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before JOHNSON and ANDERSON, Circuit Judges, and DYER, Senior Circuit Judge.

ANDERSON, Circuit Judge:

In this case we must determine the most appropriate state statute of limitations to apply to a claim for a violation of Sec. 10(b) of the Securities Exchange Act, 15 U.S.C. Sec. 78j(b), and Rule 10b-5, 17 C.F.R. Sec. 240.10b-5.

I.

Friedlander alleges that Troutman, Sanders participated in a scheme to defraud him and other members of the class he represents in connection with the forced sale of stock owned by members of the class. The principal transaction involved in the alleged fraud took place in November 1980. Friedlander brought the instant suit in the federal District Court for the Northern District of Georgia in January 1984.

Friedlander filed a motion to simplify issues, arguing that the four-year statute of limitations for common law fraud claims under Georgia law should be applied to his claim under Sec. 10(b) and Rule 10b-5. Troutman, Sanders moved for summary judgment, contending that the two-year statute of limitations in the Georgia blue sky law should apply to claims under Sec. 10(b) and Rule 10b-5.

In an order dated October 15, 1984, the district court granted Friedlander's motion to simplify issues and denied Troutman, Sanders' motion for summary judgment as to the statute of limitations question. Friedlander v. Troutman, Sanders, Lockerman & Ashmore, 595 F.Supp. 1442, 1452 (N.D.Ga.1984). The district court held that the four-year limitations period applicable to Georgia common law fraud claims should govern this Sec. 10(b) and Rule 10b-5 action. Id. at 1451.

On October 24, 1984, Troutman, Sanders moved the district court to certify the October 15, 1984 order for interlocutory appeal pursuant to 28 U.S.C. Sec. 1292(b). On April 19, 1985, the district court granted Troutman, Sanders' request because there was "a substantial ground for difference of opinion as to the choice of a limitations period, which is a controlling issue in this action." Record on Appeal, vol. 4 at 1140. Troutman, Sanders petitioned this court for leave to appeal and this court granted the petition on May 21, 1985.

II.

No federal statute provides a specific statute of limitations for private rights of action asserted under Sec. 10(b) and Rule 10b-5. In order to fill that void, federal courts borrow the most appropriate statute of limitations of the forum state. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n. 29, 96 S.Ct. 1375, 1389 n. 29, 47 L.Ed.2d 668 (1976); Diamond v. Lamotte, 709 F.2d 1419, 1421-22 (11th Cir.1983). The state limitations period applicable to the most analogous state law is applied to the federal cause of action, unless "the state limitations period is inconsistent with the policies expressed in the federal statutes." Diamond, 709 F.2d at 1421 (citations omitted).

The district court rejected Troutman, Sanders' argument that there should be a uniform limitations period for all Sec. 10(b) and Rule 10b-5 claims arising in Georgia. It found that "a court must, in every case, consider state law in the context of plaintiff's particular claim." Friedlander, 595 F.Supp. at 1445. The district court "resist[ed] the temptation of drawing an analogy between federal and state statutes rather than between federal and state claims merely for the sake of convenience." Id. The court decided that it could not "merely ... find a state law generally analogous to a federal law relied upon by a plaintiff when the analogy does not apply to plaintiff's specific claim." Id. (emphasis in original). Applying its claim-by-claim approach, the district court selected the four-year statute of limitations for general fraud actions as the most analogous, primarily because the Georgia blue sky law would provide no remedy for a seller like Friedlander, although such a remedy would have been available to a purchaser.

In holding that a federal court must select state limitations periods on a claim-by-claim, rather than a statute-by-statute, basis, the district court relied on several decisions of this court dealing with the appropriate limitations period for claims arising under a different statute, i.e., 42 U.S.C. Secs. 1981, 1983. Id. (citing Scarlett v. Seaboard Coast Line Railroad Co., 676 F.2d 1043, 1050-51 (5th Cir. Unit B 1982); 1 Whatley v. Department of Education, 673 F.2d 873, 875-78 (5th Cir. Unit B 1982); Beard v. Stephens, 372 F.2d 685, 690 (5th Cir.1967)). According to the principles announced in the cases cited by the district court, different actions under Secs. 1981 and 1983 are subject to different limitations periods according to the type of wrong alleged. Moreover, different counts alleged in the same action may be subject to different periods of limitations.

Since the district court issued its order, the Supreme Court has overruled this line of Sec. 1983 cases. Wilson v. Garcia, --- U.S. ----, 105 S.Ct. 1938, 85 L.Ed.2d 254 (1985). In Wilson, the Supreme Court ruled that a single limitations period must be selected to apply to all claims arising under 42 U.S.C. Sec. 1983 in a given state. 2 The Supreme Court noted that " '[f]ew areas of the law stand in greater need of firmly defined, easily applied rules than does the subject of periods of limitations.' " Id. at ----, 105 S.Ct. at 1942 (quoting Chardon v. Fumero Soto, 462 U.S. 650, 667, 103 S.Ct. 2611, 2621, 77 L.Ed.2d 74 (1983) (Rehnquist, J., dissenting)). In Wilson, the Supreme Court held: (1) where federal law is sufficiently available to decide the question, the characterization of the claim for statute of limitations purposes is a matter of federal law; (2) all Sec. 1983 claims arising in a single state should be subject to a single statute of limitations--expressly rejecting the position that each different claim "should be evaluated differently depending upon the varying factual circumstances and the legal theories presented in each individual case," id. at ----, 105 S.Ct. at 1943; and (3) after exploring the nature and purpose of Sec. 1983 claims, the Court concluded that such "claims are best characterized as personal injury actions," id. at ----, 105 S.Ct. at 1949, and the state limitations period for personal injury actions should be applied to Sec. 1983 actions.

A. Characterization of Rule 10b-5 Claims As A Matter of Federal Law

Addressing the first question, the Wilson Court stated that "[i]n borrowing statutes of limitations for other federal claims, this Court has generally recognized that the problem of characterization 'is ultimately a question of federal law.' " Id. at ----, 105 S.Ct. at 1944 (footnote omitted) (quoting Auto Workers v. Hoosier Cardinal Corp., 383 U.S. 696, 706, 86 S.Ct. 1107, 1113, 16 L.Ed.2d 192 (1966)); see also United Parcel Service, Inc. v. Mitchell, 451 U.S. 56, 60-61, 101 S.Ct. 1559, 1563, 67 L.Ed.2d 732 (1981). Moreover, the Court stated, "Congress surely did not intend to assign to state courts and legislatures a conclusive role in the formative function of defining and characterizing the essential elements of a federal cause of action." --- U.S. at ----, 105 S.Ct. at 1944. On the facts of the case before it, the Court found that the characterization of Sec. 1983 for statute of limitations purposes was derived from matters of federal law--the elements of the cause of action and Congress' purpose in providing it. Id. at ----, 105 S.Ct. at 1943. Therefore, since the Court found that there was federal law available to decide the question, it concluded that the characterization of Sec. 1983 should be treated as a federal question. Id.

In the instant case, too, the elements of a cause of action under Sec. 10(b) and Rule 10b-5 are matters of federal law. 3 Congress' purpose in enacting Sec. 10(b) is also a matter of federal law. 4 Thus, the characterization of an action under Sec. 10(b) and Rule 10b-5 for statute of limitations purposes is a matter of federal law.

B. Claim-by-Claim Approach Rejected

In undertaking the second step of its analysis, the Supreme Court in Wilson stated:

If the choice of the statute of limitations were to depend upon the particular facts or the precise legal theory of each claim, counsel could almost always argue, with considerable force, that two or more periods of limitations should apply to each Sec. 1983 claim. Moreover, under such an approach different statutes of limitations would be applied to the various Sec. 1983 claims arising in the same State, and multiple periods of limitations would often apply to the same case.

Id. at ----, 105 S.Ct. at 1946 (footnotes omitted). 5

The Supreme Court concluded that "[t]here is no reason to believe that Congress would have sanctioned this interpretation of its statute." Id. Instead, the Supreme Court found that the "federal interests in uniformity, certainty, and the minimization of unnecessary litigation all support the conclusion that Congress favored," id. at ----, 105 S.Ct. at 1947, the selection, in each state, of "the one most appropriate statute of limitations for all Sec. 1983 claims." Id.

The federal interests considered in Wilson are no less important in selecting limitations periods for actions under Sec. 10(b) and Rule 10b-5 than they are in selecting such periods under Sec. 1983. The comprehensive scheme of statutes and regulations designed to police...

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