Adler v. Berg Harmon Associates

• Decision Date: 27 April 1992
• Docket Number: No. 89 Civ. 8114 (WCC).,89 Civ. 8114 (WCC).
• Citation: 790 F. Supp. 1235
• Parties: Edward ADLER, et al., Plaintiffs, v. BERG HARMON ASSOCIATES, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

790 F. Supp. 1235

Edward ADLER, et al., Plaintiffs, v. BERG HARMON ASSOCIATES, et al., Defendants.

No. 89 Civ. 8114 (WCC).

United States District Court, S.D. New York.

April 27, 1992.

Beigel & Sandler, Ltd. (Bijan Amini, Alexander T. Moore, of counsel), New York City, for plaintiffs.

Jacobs Persinger & Parker (I. Michael Bayda, of counsel), New York City, for defendants Berg Harmon Associates, Harmon Associates, Harquel Associates II, Robert T. Harmon Corp., Robert T. Harmon, Charles N. Loccisano, Riveria Partners, Inc., Berg Harmon Lexington Properties, Berg Harmon Properties, III, Berg Harmon Southeast Consulting, Berg Ventures Inc., BH Properties Associates BH Properties, Associates II, BHS Properties, Eastern Realty Consultants, FEC Mortg. Co., First Realty Management, Metro Ventures, Harmon Envicon Associates, South-east Realty Consultants Co., Southern Realty Consultants and Southern Ventures Inc.

Skadden, Arps, Slate, Meagher & Flom (William P. Frank, Richard S. Simon, Peretz Bronstein, of counsel), New York City, for Primerica Corp., Berg Enterprises, Inc. and Kenneth Berg.

OPINION AND ORDER

WILLIAM C. CONNER, District Judge:

This action is presently before the Court on the motion of plaintiffs, Edward Adler, et al., pursuant to Section 476 of the Federal Deposit Insurance Corporation Improvement Act of 1991, Pub.L. No. 102-242, to be codified as Section 27A of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa-1, to reinstate their claims under Section 10(b) of the Exchange Act ("Section 27A").

BACKGROUND

This case arises out of plaintiffs' purchase of interests in a number of limited partnerships (the "Berg Harmon Partnerships") sponsored by defendants. On or about December 7, 1989, plaintiffs commenced this action alleging violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j ("Exchange Act"), Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 78q, the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and of various state laws. Thereafter, defendants moved to dismiss the Complaint under Rules 9(b) and 12(b)(6), Fed.R.Civ.P. Subsequently, defendants moved for partial summary judgment on the Section 10(b) cause of action based upon the one-year/ three-year limitations period adopted by the Second Circuit in Ceres Partners v. GEL Assocs., 918 F.2d 349 (2d Cir.1990). On June 20, 1991, the Supreme Court held that actions brought under § 10(b) of the Exchange Act must be commenced within one year of the discovery of the facts constituting the violation and no later than three years after the violation. Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991). As a result of the decision in James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991), decided on the same day as Lampf, the one-year/three-year rule became retroactively applicable to all existing cases, including the present one. In light of Lampf and Beam, on July 2, 1991, plaintiffs amended their Complaint to delete the Section 10(b) claims, except to the extent the securities fraud claims served as predicate acts to a RICO action.¹ The Court then directed that the motion to dismiss be rebriefed to reflect the dismissal of the securities claims.²

On December 19, 1991, Congress amended the Securities Exchange Act of 1934 by enacting Section 27A to modify the retroactive effect of Lampf. Section 27A provides for reinstatement upon motion of certain actions dismissed under Lampf, provided the action was commenced prior to June 19, 1991 and had been timely filed according to the statute of limitations applicable on June 19, 1991. It is pursuant to this statute that plaintiffs argue for reinstatement of their Section 10(b) claims.

DISCUSSION

Motion to Reinstate Section 10(b) Claims

A. Section 27A Analysis

Section 27A of the Exchange Act overrides the retroactive application of the one-and-three-year limitations rule announced by the Supreme Court in Lampf. Section 27A provides, in pertinent part:

(b) EFFECT ON DISMISSED CAUSES OF ACTION. — Any private civil action implied under section 10(b) of this Act that was commenced on or before June 19, 1991 —

(1) which was dismissed as time barred subsequent to June 19, 1991, and

(2) which would have been timely filed under the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991, shall be reinstated on motion by the plaintiff not later than 60 days after the date of enactment of this section.

Plaintiffs claim that under this provision they are entitled to reinstatement of their Section 10(b) claims, which were effectively dismissed pursuant to Lampf.³ Defendants⁴ submit that plaintiffs' motion should be denied because (1) plaintiffs' Section 10(b) claims are untimely even under the law as it existed in this Circuit, including principles of retroactivity, on June 19, 1991; (2) Lampf and Beam are the laws which were applicable on June 19, 1991 since the Supreme Court did not make new law when it issued those decisions but simply found the law as it then existed; and (3) Section 27A is unconstitutional because by enacting that provision (a) Congress has prescribed rules of decision to the judiciary in cases pending before it without repealing or amending the underlying law, (b) Congress has required courts to disregard their traditional function "to decide cases before them based upon their best current understanding of the law," and (c) Congress has required courts to reopen final judgments rendered in private civil actions.

1. Plaintiffs Added After June 19, 1991

Plaintiffs who joined this action by Amendments to the Complaint on July 2, 1991 and October 7, 1991 are not entitled to move for reinstatement under Section 27A. The plain language of the statute permits reinstatement only of claims commenced prior to June 20, 1991 and dismissed pursuant to Lampf and Beam. Moreover, the Court disagrees with plaintiffs' argument that the claims of the post-Lampf plaintiffs relate back to the date of the filing of the original Complaint in 1989 pursuant to Rule 15(c), Fed.R.Civ.P.

Rule 15(c) in effect at the time of the filing of the Second Amended Complaint provided:

Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. An amendment changing the party against whom a claim is asserted relates back if the foregoing provision is satisfied and, within the period provided by law for commencing the action against the party to be brought in by amendment that party (1) had received such notice of the institution of the action that the party will not be prejudiced in maintaining his defense on the merits, and (2) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.

Fed.R.Civ.P. 15(c).⁵ Although the language of Rule 15(c) does not explicitly govern the relation back of amendments changing or adding plaintiffs, the Advisory Committee Notes to the 1966 amendment to the rule state that "the attitude taken in revised Rule 15(c) toward change of defendants extends by analogy to amendments changing plaintiffs." Therefore, in order for claims by a new plaintiff to relate back to the original complaint, the amendment must relate to the same conduct, transaction, or occurrence described in the original complaint, the defendant must have had the requisite notice of the original action, and there must have been some mistake in the original pleading as to the proper party.

The additional plaintiffs to this action, like the original plaintiffs, are limited partners in the Berg Harmon Partnerships. In Stoppelman v. Owens, 580 F.Supp. 944, 946 (D.D.C.1983), the court found that where the original plaintiffs were limited partners alleging securities fraud by the defendants, the status of the original plaintiffs implied notice as to the existence of possible claims by other limited partners. The court concluded that "the purpose behind the statute of limitations, namely notice, is not defeated in this action by permitting the amended complaint to relate back to the date the original complaint was filed." Id. at 947. While this Court agrees that defendants in this action may be charged with notice of the existence of possible claims by other limited partners, notice in and of itself is insufficient to satisfy Rule 15(c).

As Judge Sweet noted in Morin v. Trupin, 778 F.Supp. 711, 735 (S.D.N.Y.1991), "Subsection (2) makes clear that Rule 15(c) does not exist merely to keep the door open for any tardy plaintiff of whom a defendant may be aware. Rather, Rule 15(c) stands as a device for adding a party who `but for a mistake concerning the identity of the proper party' would have been named originally." There is no suggestion here that the additional plaintiffs would have been included in the original Complaint "but for" a mistake of identity. "Clearly the relation back rule was not designed to provide a means either to circumvent or to expand the limitations period." In re Allbrand Appliance & Television Co., Inc., 875 F.2d 1021, 1025 (2d Cir.1989). Accordingly, the Court concludes that the criteria for relation back under Rule 15(c) have not been met, and the plaintiffs added in the July 2, 1991 and October 7, 1991 Complaints have no Section 10(b) claims to reinstate pursuant to Section 27A.

2. Plaintiffs Residing in the Third Circuit

Plaintiffs residing in the Third Circuit were subject to the one-year/three-year rule as of April 8, 1988, before the commencement of this suit. In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir.), cert. denied, 488 U.S. 849, ...