843 F.2d 1537 (3rd Cir. 1988), 87-5205, In re Data Access Systems Securities Litigation
|Docket Nº:||87-5205, 87-5385.|
|Citation:||843 F.2d 1537|
|Party Name:||Blue Sky ,, In re DATA ACCESS SYSTEMS SECURITIES LITIGATION. Appeal of TOLINS & LOWENFELS & Roger A. Tolins. Appeal of I. KAHLOWSKY AND CO. and Peter Cunicelli.|
|Case Date:||April 08, 1988|
|Court:||United States Courts of Appeals, Court of Appeals for the Third Circuit|
Argued Nov. 19, 1987.
Reargued in banc March 8, 1988.
Ronald J. Riccio (argued), John B. Livelli, Robinson, Wayne, Levin, Riccio & LaSala, Newark, N.J., for appellants Lowenfels and Tolins.
Francis P. Devine, III (argued), Guy A. Cellucci, Mark S. Gurevitz, White and Williams, Philadelphia, Pa., for appellants I. Kahlowsky and Cunicelli.
Leonard Barrack, Gerald J. Rodos (argued), Samuel R. Simon, John G. Narkin, Barrack, Rodos & Bacine, Philadelphia, Pa., for appellees plaintiff class of Data Access Systems, Inc. shareholders.
Argued Nov. 19, 1987.
Before SEITZ, HUTCHINSON, and ALDISERT, Circuit Judges.
Reargued in banc March 8, 1988.
Before GIBBONS, Chief Judge and SEITZ, WEIS, HIGGINBOTHAM, SLOVITER, BECKER, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA and ALDISERT, Circuit Judges.
ALDISERT, Circuit Judge.
We visit again the troublesome question presented in Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605 (3d Cir.1980), and Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir.1979), to determine the applicable limitations period for complaints charging violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission, 17 C.F.R. Sec. 240.10b-5 (1987). We are required to decide two important issues: whether subsequent Supreme Court decisions in 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), and our decision in Malley-Duff & Assocs., Inc. v. Crown Life Ins. Co., 792 F.2d 341 (3d Cir.1986), aff'd sub nom. Agency Holding Corp. v. Malley-Duff & Assocs., Inc., supra, require us to re-examine both the reasoning and holdings in Biggans and Roberts; if so, we must determine the proper limitations period. We may make this re-examination freely and without constraint of panel precedents because we are assembled in a court in banc.
The district court determined that the limitations period for this case should be borrowed from New Jersey's six-year statute encompassing common law fraud actions. N.J.S.A. Sec. 2A:14-1. Contending that the shorter, two-year statute of limitations under New Jersey's blue sky law, N.J.S.A. Sec. 49:3-71, should apply, the defendants successfully moved for certification of the district court's determination pursuant to 28 U.S.C. Sec. 1292(b). The court stayed its proceedings pending review by us. The defendants subsequently filed a petition for review with this court, which was granted on March 23, 1987. Jurisdiction was proper in the district court based on 15 U.S.C. Sec. 78aa, 28 U.S.C. Sec. 1331, as the case involves claims under section 10(b) of the 1934 Act and Rule 10b-5. We have jurisdiction under 28 U.S.C. Sec. 1292(b).
This certified class-action lawsuit was brought on behalf of those who purchased common stock of Data Access Systems, Inc. from October 31, 1978, through June 22, 1981. These shareholders filed their initial complaint on June 23, 1981, immediately following certain public disclosures of fraudulent business and stock trading activities involving Data Access. On October 29, 1981, the Securities and Exchange Commission filed a complaint seeking injunctive and other relief against Data Access, related companies, and several individuals alleging that they violated federal securities laws. Data Access subsequently filed for protection under Chapter 11 of the federal bankruptcy code.
The plaintiffs proceeded to file second and third amended complaints. The case at hand relates to the third amended complaint, which named the defendants relevant to the present appeal: Roger Tolins, a New York attorney; Tolins & Lowenfels, his law firm; Peter Cunicelli, an accountant; and I. Kahlowsky, Cunicelli's accounting firm. The third amended complaint stated that Data Access retained Tolins and his firm to represent the company in connection with a February 1979 public offering and to assist it in preparing and filing Form 10-Ks for fiscal years ending August 31, 1978, 1979, and 1980. The plaintiffs alleged that in the registration statement and Form 10-Ks, Data Access represented, in language drafted by Tolins, that it had no potential liability in connection with certain "sales" to its "affiliated" companies, Mark Serv Co., Transnet Corp., and Olympic International Leasing Co. Mark Serv is a partnership owned by, inter alia, certain officers, shareholders, and associated persons of Data Access.
The plaintiffs contend that Tolins and his firm knew or reasonably should have known that the representations contained in the prospectus and Form 10-Ks were materially inaccurate, because they represented that Data Access had no ongoing liabilities in connection with the cluster transactions between the company and its affiliates. The complaint alleged that Tolins ignored or disregarded clear evidence that such representations were false, and further stated that attorney Tolins participated in, aided and abetted, and conspired with the principals of Data Access and others to defraud the shareholder-plaintiffs. Plaintiffs alleged that Tolins and his firm violated section 10(b) of the 1934 Act and Rule 10b-5, and committed common law fraud and negligence.
The third amended complaint also named as defendants Cunicelli and his accounting firm, who were auditors for Mark Serv. The complaint noted that Touche Ross & Co., Data Access' auditors, requested Cunicelli and his company to provide information
concerning Mark Serv's business dealings with Data Access. In response, "Kahlowsky and Cunicelli advised Touche Ross, inter alia, that there were no liabilities and guarantees on the part of [Data Access] to the Mark Serv lending banks, and that said banks were not relying upon [Data Access] or upon any obligation undertaken by [Data Access] as security for their loans to Mark Serv." App. at Vol. I, 183a. Plaintiffs contend that when Cunicelli and I. Kahlowsky made their representations to Touche Ross, they knew that Data Access was contingently liable to the Mark Serv lending banks. The complaint stated that Cunicelli and Kahlowsky fraudulently and recklessly misrepresented and failed to disclose to Touche Ross the material facts with respect to Data Access' obligations to Mark Serv and to Mark Serv's lending banks; it alleged that the accountants participated in, aided and abetted, and conspired with the principals of Data Access and others to defraud the shareholder-plaintiffs. Here too, plaintiffs allege that the accountant appellants violated section 10(b) of the 1934 Act and Rule 10-5, and committed common law fraud and negligence.
Because this appeal involves the selection, interpretation, and application of legal precepts, the standard of review is plenary. Dent v. Cunningham, 786 F.2d 173, 175 (3d Cir.1986). The scope of this court's review is generally governed by the controlling questions of law set forth in the district court's certification order under 28 U.S.C. Sec. 1292(b). Akerly v. Red Barn Sys., Inc., 551 F.2d 539, 543 (3d Cir.1977). However, this court may consider all grounds that might require reversal of the order appealed from. Merican, Inc. v. Caterpillar Tractor Co., 713 F.2d 958, 962 n. 7 (3d Cir.1983), cert. denied, 465 U.S. 1024, 104 S.Ct. 1278, 79 L.Ed.2d 682 (1984).
The district court certified two questions for review pursuant to section 1292(b):
For the statute of limitations found in the New Jersey Blue Sky law to apply to plaintiffs' security claims herein, need plaintiffs' claims state a viable cause of action under said blue sky law?
If the answer to the foregoing question is in the affirmative, does plaintiffs' Third Considered Amended Class Action Complaint, alleging that defendants substantially participated and/or aided and abetted in the sale of securities to plaintiffs, state a viable cause of action against defendants as "sellers" under the applicable liability provision of the New Jersey Blue Sky law?
App. at 225. (Technically speaking, the district court certified three questions. Because the wording of the second question embraces both the issues and parties in the third question, we proceed as if the court certified two questions.)
Depending upon our answers to these questions, we are required to affirm or reverse the district court's determination as to the limitations period. The first certified question squarely presents us with occasion to consider the effect of the subsequent Supreme Court decisions in Malley-Duff, Wilson, and DelCostello on our holdings in Biggans and Roberts. The second certified question asks whether plaintiffs' allegations against the defendant accountants and lawyers state a claim under New Jersey's blue sky law, and therefore are governed by the statute of limitations set forth in that law. Our approach to the second question will depend upon our answer to the first.
At the outset we 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); Roberts v. Magnetic Metals Co., 611 F.2d 450, 461 (3d Cir.1979) (Seitz, C.J., dissenting). 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...
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