Asdar Group v. Pillsbury, Madison and Sutro
| Decision Date | 17 October 1996 |
| Docket Number | No. 95-55739,95-55739 |
| Parties | 146 A.L.R. Fed. 811, 65 USLW 2269, Fed. Sec. L. Rep. P 99,333, 96 Cal. Daily Op. Serv. 7680, 96 Daily Journal D.A.R. 12,657 ASDAR GROUP, a Nevada corporation, Plaintiff-Appellant, v. PILLSBURY, MADISON AND SUTRO; Joann Taormina; James Sterrett; Does 1 Through 100, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Frederick A. Santacroce, Las Vegas, Nevada, for plaintiff-appellant.
Mark C. Zebrowski, Gray, Cary, Ware & Freidenrich, San Diego, California, for defendants-appellees.
Appeal from the United States District Court for the Southern District of California, Irma E. Gonzalez, District Judge, Presiding. D.C. No. CV-95-00147-IEG.
Before: FLETCHER and TASHIMA, Circuit Judges, and RESTANI, * Judge of the United States Court of International Trade.
Asdar, a Nevada corporation, appeals from the district court's 12(b)(6) dismissal of its complaint against Pillsbury, Madison & Sutro, Joann Taormina, and James Sterrett (hereinafter collectively referred to as "Pillsbury"). Asdar sought contribution and indemnification from Pillsbury 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. We have jurisdiction pursuant to 28 U.S.C. § 1291.
Pillsbury provided legal advice and services 2 to Asdar, a financial services consultant doing business in California, in connection Purchasers of various Asdar securities ("plaintiffs") named Asdar as defendant in a federal class action in September 1989, alleging violations of various federal securities laws and state statutes and asserting common-law claims for fraud and negligent misrepresentation. The plaintiffs sought damages of over $2 million. The federal proceedings in the plaintiffs' case took place in the Southern District of California before the Honorable Judith N. Keep.
with the registration and promotion of certain securities. These services included drafting and filing all required federal and state documents.
The district court severed the state claims and the plaintiffs brought a separate action in state court, eventually naming Pillsbury as an additional defendant. Asdar cross-complained against Pillsbury in state court in July 1993 seeking indemnity, accounting, and apportionment for any liability imposed upon it in both the state and federal court actions. The state court granted summary judgment for Pillsbury and against the plaintiffs in November 1993 on the ground that since the plaintiffs were neither clients nor intended beneficiaries of Pillsbury's legal services they were owed no duty by Pillsbury. It subsequently granted summary judgment for Pillsbury on Asdar's cross-complaint on the ground that Pillsbury breached no duty to Asdar's shareholders or other plaintiffs, that any legal malpractice claim by Asdar was time-barred by California law, that the court was not the proper forum for a complaint for indemnity based on Rule 10b-5, and that a client has no common-law indemnity action against its attorney. Asdar represented in its opening brief in this appeal that its appeal from the state court's judgment is pending in the state court of appeal.
In federal court, the plaintiffs attempted in September 1993 to amend their complaint to name Pillsbury as a defendant, alleging RICO violations and aiding-and-abetting liability. The court denied the motion in October 1993. In March 1994 it denied the plaintiffs' motion for reconsideration of its denial and it entered judgment in favor of Pillsbury even though it had never allowed the plaintiffs to name Pillsbury as a defendant. Pillsbury represented in its brief in this appeal that the plaintiffs never appealed the judgment in favor of Pillsbury.
Asdar filed its complaint in this action on February 6, 1995 seeking contribution under federal law, equitable indemnity under state law, and equitable indemnity based on negligence. All federal contributions claims were based on alleged violations of § 10(b), Rule 10b-5, and RICO. This action was assigned to Judge Gonzalez. Pillsbury moved to dismiss the complaint under 12(b)(6).
Meanwhile, in the plaintiffs' (the purchasers of various Asdar securities) suit against Asdar, the district court (Judge Keep) on February 14, 1995, after a bench trial, entered judgment in favor of plaintiffs, finding that Asdar made a material misrepresentation in connection with the sale of its securities to the plaintiffs and awarding damages in the amount of $2,519,881.91 for violations of § 10(b) and Rule 10b-5.
The district court (Judge Gonzalez), in the action appealed to us, dismissed Asdar's complaint against Pillsbury in April 1995. Asdar conceded the correctness of the dismissal of its RICO contribution and indemnity claims because the judgment in the plaintiffs' case had not awarded any RICO damages. The district court dismissed Asdar's claims for indemnification because Ninth Circuit case law holds that indemnification is not available in 10b-5 actions. Laventhol, Krekstein, Horwath & Horwath v. Horwitch, 637 F.2d 672, 676 (9th Cir.1980), cert. denied, 452 U.S. 963, 101 S.Ct. 3114, 69 L.Ed.2d 975 (1981). Asdar has not challenged this aspect of the district court's ruling. The district court dismissed Asdar's contribution claim as time-barred by the three-year statute of repose imposed on 10b-5 actions by the Supreme Court in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364, 111 S.Ct. 2773, 2782-83, 115 L.Ed.2d 321 (1991). The district court held that the statute began to run either when Pillsbury performed the last relevant legal work for Asdar or when the plaintiffs filed suit against Asdar and that in either case Asdar's contribution action was barred. Asdar timely appeals.
A district court's dismissal for failure to state a claim is reviewed de novo. Stone v. Travelers Corp., 58 F.3d 434, 436-37 (9th Cir.1995).
The Supreme Court held in 1993 that contribution is available to a defendant in a 10b-5 action. Musick, Peeler & Garrett v. Employers Insurance of Wausau, 508 U.S. 286, 113 S.Ct. 2085, 124 L.Ed.2d 194 (1993). The question of the statute of limitations applicable to a 10b-5 contribution action appears to be one of first impression in the circuits. 3
The usual source for a statute of limitation for an action brought under a federal statute is the statutory text. Unfortunately, because the 10b-5 action is an implied right of action,
[t]he text of § 10(b) provides little guidance where we are asked to specify elements or aspects of the 10b-5 apparatus unique to a private liability arrangement ... Having made no attempt to define the precise contours of the private cause of action under § 10(b), Congress had no occasion to address how to limit, compute, or allocate liability arising from it.
Musick, 508 U.S. at 295, 113 S.Ct. at 2090. The Supreme Court has recently explained the proper method for resolving questions about 10b-5 actions in such a situation:
When the text of § 10(b) does not resolve a particular issue, we attempt to infer how the 1934 Congress would have addressed the issue had the 10b-5 action been included as an express provision in the 1934 Act. For that inquiry, we use the express causes of action in the securities Acts as the primary model for the § 10(b) action. The reason is evident: Had the 73d Congress enacted a private § 10(b) right of action, it likely would have designed it in a manner similar to the other private rights of action in the securities Acts.
Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, ----, 114 S.Ct. 1439, 1448, 128 L.Ed.2d 119 (1994) (internal quotation marks and citations omitted) (citing Musick ). The Musick Court explained the rationale for, and the purposes of, this methodology:
We [attempt to infer how the 1934 Congress would have addressed the issue had the 10b-5 action been included as an express provision in the 1934 Act in order] to ensure that the rules established to govern the 10b-5 action are symmetrical and consistent with the overall structure of the Act and, in particular, with those portions of the Act most analogous to the private 10b-5 right of action ... [O]ur goals in establishing [those rules are] to ensure the action does not conflict with Congress' own express rights of action, to promote clarity, consistency and coherence for those who rely upon or are subject to 10b-5 liability, and to effect Congress' objectives in enacting the securities laws.
Musick, 508 U.S. at 294-95, 113 S.Ct. at 2090 (citations omitted). Thus, the fundamental question is what statute of limitations the 1934 Congress would have chosen for 10b-5 contribution actions if it had included a private right of action under § 10(b) in the 1934 Act.
Asdar argues that a state statute of limitations should govern its contribution action because there is no federal statute of limitations expressly applicable to contribution actions under § 10(b) and Rule 10b-5 and because when no federal statute of limitations applies the federal courts as a general rule "borrow" the most closely analogous statute from state law. While Asdar is correct as to the general rule, see, e.g., Wilson v. Garcia where ... the claim asserted is one implied under a statute that also contains an express cause of action with its own time limitation, a court should look first to the statute of origin to ascertain the proper limitations period.... When the statute of origin contains comparable express remedial provisions, the inquiry usually should be at an end. Only where no analogous counterpart is available should a court then proceed to apply state-borrowing principles.
471 U.S. 261, 266-67, 105 S.Ct. 1938, 1942, 85 L.Ed.2d 254 (1985) ("When Congress has not established a time
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