Anixter v. Home-Stake Production Co.

• Decision Date: 23 October 1992
• Docket Number: Nos. 90-5040,HOME-STAKE,s. 90-5040
• Citation: 977 F.2d 1549
• Parties: Fed. Sec. L. Rep. P 97,046 Ivan A. ANIXTER, et al., Plaintiffs/Appellees, v.PRODUCTION COMPANY, et al., Defendants, and Wynema Anna Cross, Executrix of the Estate of Norman C. Cross, Jr., et al., Defendants/Appellants. Ivan A. ANIXTER, et al., Plaintiffs/Appellees, v.PRODUCTION COMPANY, et al., Defendants, and Kothe & Eagleton, Inc., Defendant/Appellant. through 90-5049, 90-5051, 90-5053, 90-5055--90-5059, 90-5062 and 90-5067.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1549

977 F.2d 1549

Fed. Sec. L. Rep. P 97,046

Ivan A. ANIXTER, et al., Plaintiffs/Appellees, v. HOME-STAKE PRODUCTION COMPANY, et al., Defendants, and Wynema Anna Cross, Executrix of the Estate of Norman C.

Cross, Jr., et al., Defendants/Appellants.

Ivan A. ANIXTER, et al., Plaintiffs/Appellees, v. HOME-STAKE PRODUCTION COMPANY, et al., Defendants, and Kothe & Eagleton, Inc., Defendant/Appellant.

Nos. 90-5040 through 90-5049, 90-5051, 90-5053,

90-5055--90-5059, 90-5062 and 90-5067.

United States Court of Appeals Tenth Circuit.

Oct. 23, 1992.

Walter Steele, Denver, Colo., and Thomas M. Affeldt, co-counsel, (Jack L. McNulty and C.B. Savage with them on the briefs) of Savage, O'Donnell, Scott, McNulty & Affeldt, Tulsa, Okl., for defendant-appellant E.M. Kunkle.

B. Hayden Crawford (Kyle B. Haskins with him on the briefs) of Crawford, Crowe & Bainbridge, P.A., Tulsa, Okl., for defendants-appellants Norman C. Cross, Jr.; Wynema Anna Cross, Executrix of Estate of Norman C. Cross, Jr.; and Cross and Co.

Stan P. Doyle (James C. Thomas with him on the briefs) of Doyle & Harris, Tulsa, Okl., for appellant-defendant Kothe & Eagleton, Inc., a professional corp.

Peter Van N. Lockwood (Albert G. Lauber and Jill R. Shellow with him on the briefs) of Caplin & Drysdale, Chartered, Washington, D.C., (Elihu Inselbuch of Caplin & Drysdale, New York City, William A. Wineberg and Michael R. Simmonds of Broad, Schulz, Larson & Wineberg, San Francisco, Cal., and William H. Hinkle, Tulsa, Okl., with him on the briefs) for plaintiffs-appellees.

Frank E. Sims, pro se defendant-appellant, Tulsa, Okl., on the brief.

Robert S. Trippet, pro se defendant-appellant, Tulsa, Okl., on the brief.

Timothy E. Flanigan, Acting Asst. Atty. Gen., Tony M. Graham, U.S. Atty., Barbara C. Biddle and Jeffrey K. Shapiro, Dept. of Justice, Washington, D.C., on the brief for intervenor U.S.

James R. Doty, Jacob H. Stillman, Leslie E. Smith, and Randall W. Quinn, Washington, D.C., on the brief for amicus curiae S.E.C.

Before MOORE, ANDERSON, and BRORBY, Circuit Judges.

ORDER ON PETITIONS FOR REHEARING

JOHN P. MOORE, Circuit Judge.

Upon our order reviving plaintiffs' claims under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. 240.10b-5, based on § 27A of the Securities Exchange Act of 1934, § 476 of the Federal Deposit Insurance Corporation Improvement Act of 1991, and rejecting certain defendants' contention the district court erred by reinstating the § 10(b) claims against them during trial, Anixter v. Home-Stake Prod. Co., 977 F.2d 1533 (1992) (Anixter II), defendants Kothe & Eagleton, Inc. (K & E); Wynema Anna Cross, Executrix of the Estate of Norman C. Cross, Jr., and Cross & Company (Cross); and E.M. Kunkel (Kunkel) have filed three separate petitions for rehearing. We deny the petitions in part and grant in part to remand on the issues of the statute of limitations and prejudgment interest with the following amplifications.

In its separate petition, K & E urges the 1971 Class plaintiffs' § 10(b) action is time-barred under the applicable Oklahoma statute of limitations to which we must look under § 27A. Given our selection of April 30, 1971, as the time from which notice was triggered, or the date of purchase if purchased after the discovery date, Anixter v. Home-Stake Prod. Co., 939 F.2d 1420, 1440 (10th Cir.1991) (Anixter I ), K & E argues because the last date of sale for the 1971 Program was December 31, 1971, the last date for filing could be no later than December 31, 1973. K & E contends, therefore, plaintiffs' May 24, 1974, suit was untimely and should be dismissed even under § 27A.

Although we look to federal law to determine when the statute of limitations begins to run, state law governs the length of that limitary period. Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1412 (9th Cir.1987) (citation omitted). In this case, as previously noted, Oklahoma law sets the applicable limitary period to file an action for fraud as two years from the date of discovery, Okla.Stat.Ann. tit. 12, § 95, to run "from the date of actual or constructive discovery of the fraud." Dzenits v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 494 F.2d 168, 171 (10th Cir.1974). "The crucial issue of fact with respect to the commencement of the running of the applicable two-year statute of limitations is when the plaintiff actually knew, or in the exercise of reasonable diligence should have known, of the existence of the alleged fraudulent ... activity on the part of the defendants." Id. at 171-72.

Moreover, because § 27A reinstates a statute of limitations for actions under § 10(b) commenced on or before June 19, 1991, and rejects the imposition of a statute of repose as found in § 13 of the Securities Act of 1933, 15 U.S.C. § 77m, and announced in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), principles of equitable tolling enunciated throughout federal law, see Bailey v. Glover, 88 U.S. (21 Wall.) 342, 22 L.Ed. 636 (1874), and Holmberg v. Armbrecht, 327 U.S. 392, 66 S.Ct. 582, 90 L.Ed. 743 (1946), and mirrored in Oklahoma law, see, e.g., Dearing v. State ex rel. Comm'rs of Land Office, 808 P.2d 661 (Okla.1991), may also be read into the two-year period. State of Ohio v. Peterson, Lowry, Rall, 651 F.2d 687, 691 (10th Cir.), cert. denied, 454 U.S. 895, 102 S.Ct. 392, 70 L.Ed.2d 209 (1981). Federal law determines what circumstances will toll a state statute of limitations applied to private actions under § 10(b). Esplin v. Hirschi, 402 F.2d 94, 103 (10th Cir.1968), cert. denied, 394 U.S. 928, 89 S.Ct. 1194, 22 L.Ed.2d 459 (1969).

Albeit our selection of April 30, 1971, as the date from which plaintiffs' were placed on notice of the alleged fraudulent acts, the jury answered special interrogatories ¹ finding the 1971 Class plaintiffs in the exercise of reasonable diligence could not have discovered K & E's involvement in the alleged fraud until September 1973, the time when Home-Stake declared bankruptcy. Given the many theories of fraudulent concealment presented to the jury and the court's instructing the jury on equitable estoppel, we cannot say with certainty whether the jury's factual finding on the statute of limitations implicitly incorporated a finding the statute was equitably tolled. Moreover, because K & E was not named in the 1971 SEC suit, the jury may well have considered equitable tolling in arriving at the later September 1973 date.

We recognize in securities fraud cases the cause of action may accrue at a separate and distinct time from when the plaintiff/investor is injured. That is, a material misrepresentation may far precede plaintiff's injury. Nevertheless, an aggrieved investor must bring an action once he discovers or should have discovered the fraud. "The purpose of the Securities Exchange Act is to protect the innocent investor, not one who loses his innocence and then waits to see how his investment turns out before he decides to invoke the provisions of the Act." Volk, 816 F.2d at 1413 (citation omitted) (quoting Royal Air Properties, Inc. v. Smith, 312 F.2d 210, 213-14 (9th Cir.1962). Indeed, in Anixter I, we noted the various investment and tax concerns that individual investors, later class representatives, considered upon learning of the rescission offer.

We must, therefore, remand this action for the trial court to determine whether the contested § 10(b) class action was timely filed based on these considerations and the standards we announced in Anixter I. The district court is in a better position to make those findings in accordance with this order and other relevant factors we have set forth.

Notwithstanding this disposition, we reject K & E's contention its activity did not amount to proof of scienter under § 10(b) and Rule 10b-5. Evidence was introduced in support of plaintiffs' claims K & E was primarily and secondarily liable under Rule 10b-5, and the jury was instructed without objection on each of the elements necessary to find liability. Moreover, we have held proof of recklessness satisfies the requirement for scienter, not only aligning ourselves with other Circuits but also fulfilling the principle, "the Securities Acts are to be broadly construed to achieve their remedial goals." Hackbart v. Holmes, 675 F.2d 1114, 1117 (10th Cir.1982) (citing Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972)). Again, the jury placed its stamp on the evidence related to the actions of David James and John Eagleton, K & E attorneys who participated in the 1971 Home-Stake offering. K & E's version of this evidence cannot now displace the verdict.

Cross seeks rehearing to dismiss the tag-along judgment in an appended non-class action, Anderson v. Home-Stake Prod. Co., 74-C-180, 1989 WL 201629, which involved claims of 1969 and 1970 individual investors. ² The individual 1969 and 1970 § 10(b) actions were not filed until April 25, 1974. In contrast, the 1965 through 1971 Class representatives filed suit against Cross on March 30, 1973, just within two years of April 30, 1971. As already noted, the jury made factual findings on each plaintiff class, ³ but no such special interrogatory was returned for these particular claims. This gap is not filled by the court's October 17, 1988, order summarily concluding these claims were timely. Extrapolating from all of these facts and adhering to our prior determination setting April 30, 1971, as the date on which the discovery period began, we, therefore, conclude the individual Anderson 1969 and 1970 claims which were not filed until April 25, 1974, must be dismissed. Section 27A would not revive those claims.

The remainder of the contentions raised by Cross in their petition for rehearing are without merit. We cannot say the district court abused its discretion in its evidentiary rulings ⁴ or that the court's active...