Davis v. Birr, Wilson & Co., Inc.

• Decision Date: 24 February 1988
• Docket Number: No. 87-1768,87-1768
• Citation: 839 F.2d 1369
• Parties: Fed. Sec. L. Rep. P 93,640 John William DAVIS, Plaintiff-Appellant, v. BIRR, WILSON & CO., INC., a California Corporation, et al., Defendants- Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1369

839 F.2d 1369

Fed. Sec. L. Rep. P 93,640

John William DAVIS, Plaintiff-Appellant, v. BIRR, WILSON & CO., INC., a California Corporation, et al Defendants- Appellees.

No. 87-1768.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 15, 1988.

Decided Feb. 24, 1988.

William N. Woodson, III, Palo Alto, Cal., for plaintiff-appellant.

Robert J. Stumpf, San Francisco, Cal., for defendants-appellees.

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

Before ALDISERT, ^* SKOPIL and SCHROEDER, Circuit Judges.

PER CURIAM:

Davis appeals from the district court's grant of summary judgment in favor of Birr, Wilson & Company. The single issue on appeal is whether Davis' section 10(b) action is barred by the statute of limitations. We affirm.

These claimed violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), are subject to California's three-year statute of limitations for fraud Cal.Civ.Proc.Code Sec. 338(4). Robuck v. Dean Witter & Co., Inc., 649 F.2d 641, 643 (9th Cir.1980). The statute of limitations begins to run when the plaintiff has actual knowledge of the fraud or knowledge of facts sufficient to put a reasonable person on notice. Id. at 644.

In April 1981, Davis transferred his investment account from Merrill Lynch to Birr, Wilson in order to retain his current sales representative, who was transferring to Birr, Wilson. In the same year, the challenged investments occurred. During that year, Davis received confirmation slips, accountings, and monthly reports. Further, Davis was aware that these investments resulted in losses. However, Davis claims that he did not suspect fraud until 1985, when he received legal advice that his Birr, Wilson account had been improperly handled. He did not file suit until March 1986. The district court found that:

each of the challenged transactions occurred in 1981, and the defendants supplied the plaintiff with monthly statements, confirmation slips and a Current Portfolio Statement for 1981. Each one of those reports accurately reflected the performance of the plaintiff's managed account.... The plaintiff filed this lawsuit on March 5, 1986. He knew or should have known of the alleged fraud during or before February 1983. The plaintiff fails to demonstrate facts sufficient to lead this Court to conclude that the statute of limitations should be tolled in this matter.

We have observed that parties seeking summary disposition have a difficult burden in showing there are no material issues of fact regarding notice. S.E.C. v. Seaboard Corp., 677 F.2d 1289, 1294 (9th Cir.1982). "However, reasonable diligence is tested by an objective standard, [citation omitted] and when uncontroverted evidence irrefutably demonstrates plaintiff discovered or should have discovered the fraudulent conduct, the issue may be resolved by summary judgment." Kramas v. Security Gas & Oil, Inc., 672 F.2d 766, 770 (9th Cir.), cert. denied, 459 U.S. 1035, 103 S.Ct. 444, 74 L.Ed.2d 600 (1982).

In this case Davis was well-educated and had recently invested large sums of money with other brokers. He received monthly statements of his account, followed his investments, and made suggestions concerning them. In connection with one of his investments, Davis acknowledged that he was "an experienced and sophisticated investor." This is not a case like Vucinich v. Paine, Webber, Jackson & Curtis, Inc., 803 F.2d 454 (9th Cir.1986), in which we held there were questions of fact concerning the tolling of a statute for a naive investor who claimed that she was lulled into inaction by the defendant.

The summary judgment entered below is affirmed.

ALDISERT, Circuit Judge, concurring:

Although I join in the per curiam opinion of the court, I write separately to suggest that the Supreme Court has now sent signals that a uniform limitations period should be established nationwide for cases brought under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and its nubile offspring, Rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1987). I think that it is both timely and appropriate for this court to adopt a clear-cut limitations period because of the rapidly accelerating growth of securities transactions in the states and territories that fall within this court's extensive jurisdiction.

I.

I recognize that the Supreme Court has yet to rule on the applicable limitations period for a section 10(b) and Rule 10b-5 action. 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). The absence of a uniform limitations period in such actions has been described by Judge Easterbrook as "one tottering parapet of a ramshackle edifice. Deciding what features of state periods of limitation to adopt for which federal statutes wastes untold hours." Norris v. Wirtz, 818 F.2d 1329, 1332 (7th Cir.), cert. denied, --- U.S. ---- 108 S.Ct. 329, 98 L.Ed.2d 356 (1987). Judge Easterbrook has lamented:

Never has the process been more enervating than in securities law. There are many potentially analogous state statutes, with variations for different kinds of securities offenses and different circumstances that might toll the period of limitations. Both the bar and scholars have found the subject vexing and have pleaded, with a unanimity rare in the law, for help. E.g., Louis Loss, Fundamentals of Securities Regulation 1164-75 (1983); Thomas Lee Hazen, The Law of Securities Regulation Sec. 13.8 & n. 2 (1985) (collecting authority); Report of the Task Force on Statute of Limitations for Implied Actions, 41 Bus.Law. 645 (1986). As the ABA's Committee on Federal Regulation of Securities observed, id. at 646-47, 656-57, the courts of appeals disagree on every possible question about limitations periods in securities cases. Only Congress or the Supreme Court can bring uniformity and predictability to this field[.]

Id. Yet we first must review the reasoning and holdings of our cases setting forth the present limitations period in section 10(b) cases.

In the seminal case of Fratt v. Robinson, 203 F.2d 627, 635 (9th Cir.1953), the court declared, strangely enough, that actions based on section 10(b) "do not arise out of nor upon a statute," but instead are based upon state tort fraud precepts. Accordingly, the court determined that Washington's three-year statute of limitations for fraud applies to section 10(b) actions brought in that state. In Royal Air Properties, Inc. v. Smith, 312 F.2d 210, 214 (9th Cir.1962), we recognized that "[i]n an action brought under section 10(b) of the Securities Exchange Act of 1934 there is no federal statute of limitations," and, without offering any additional reasoning, simply said that in Fratt "we applied the applicable state statute of limitations" to such actions. In Hecht v. Harris, Upham & Co., 430 F.2d 1202, 1210 (9th Cir.1970), we simply noted that in a section 10(b) case brought in California, the state's limitations period for fraud applied, citing only Royal Air Properties and Fratt. Speaking for the court in Robuck v. Dean Witter & Co., 649 F.2d 641 (9th Cir.1980), Judge Goodwin noted that in a section 10(b) case, it was possible that two limitations periods could be applied to a single complaint brought in California: three years for a count sounding in fraud; two years for one charging lack of "due diligence." Judge Goodwin summarized ruling case law:

Our rule for federal causes of action with no federal limitations period is to look to the state statute of limitations applicable to the most similar state-law cause of action. E.g., Briley v. California, 564 F.2d 849, 854 (9th Cir.1977). An action for damages charging a violation of the anti-fraud provisions of the federal securities laws most resembles an action for fraud, for in order to trigger liability, both must include a showing of intentional or reckless conduct. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Hence, plaintiff's causes of action for violations of federal law, and for violations of any NYSE and NASD rules proscribing fraud must be governed by the three-year fraud statute, section 338(4). See, United California Bank v. Salik, 481 F.2d 1012, 1015 (9th Cir.), cert. denied, 414 U.S. 1004, 94 S.Ct. 361, 38 L.Ed.2d 240 (1973); Sackett v. Beaman, 399 F.2d 884, 890-91 (9th Cir.1968); Turner v. Lundquist, [377 F.2d 44 (9th Cir.1967) ]. To the extent that some of the exchange rules require "due diligence" on the part of a broker, rather than merely refraining from fraudulent acts, any cause of action arising under them would be barred by the two-year state statute of limitations for negligence, Cal.Civ.Proc.Code Sec. 339 (West). See Rochelle v. Marine Midland Grace Trust Co., [535 F.2d 523 (9th Cir.1976) ].

Id. at 644; see also Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1411-12 (9th Cir.1987); Semegen v. Weidner, 780 F.2d 727, 733 (9th Cir.1985).

The law in this court, borrowing state limitations periods for section 10(b) cases, was in tune with that of all courts of appeals, see, e.g., Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605 (3d Cir.1980), because all of us were marching to the drum beat then set by the Supreme Court--where the federal statute is silent, borrow from that state limitations period that most resembles the federal cause of action. But the Court has now changed the beat. We are now marching to a different drummer since the recent trilogy of Agency Holding Corp. v. Malley-Duff & Assocs., Inc., --- U.S. ----, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), Wilson v. Garcia, 471 U.S. 261, 105 S.Ct. 1938, 85 L.Ed.2d 254 (1985), and DelCostello v. International Bhd. of Teamsters, 462 U.S. 151, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983).

II.

In Agency Holding Corp. v. Malley-Duff Assocs., Inc., --- U.S. ----, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), the Court provided us with a formula to approach the problem we...