Berning v. AG Edwards & Sons, Inc., No. 89 C 6483.

• Decision Date: 10 September 1991
• Docket Number: No. 89 C 6483.
• Citation: 774 F. Supp. 480
• Parties: Robert F. BERNING and Evelyn C. Berning, Plaintiffs, v. A.G. EDWARDS & SONS, INC. and John R. Stuhrenberg, Defendants.
• Court: U.S. District Court — Northern District of Illinois

774 F. Supp. 480

Robert F. BERNING and Evelyn C. Berning, Plaintiffs, v. A.G. EDWARDS & SONS, INC. and John R. Stuhrenberg, Defendants.

No. 89 C 6483.

United States District Court, N.D. Illinois, E.D.

September 10, 1991.

Rosemarie J. Guadnolo, John J. Enright, Arvey, Hodes, Costello & Burman, Chicago, Ill., for plaintiffs.

Jeffery H. Fradkin, Kent Lawrence, Charles J. Risch, Lawrence, Kamin, Saunders & Uhlenhop, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

HART, District Judge.

In ruling on defendants' motion for summary judgment, it was held that there were no undisputed facts showing that plaintiffs' § 10(b) claim was untimely filed. See Order dated March 7, 1991 at 8-9, 1991 WL 34439. Plaintiffs' claim was filed more than one year after the violation occurred, but less than three years thereafter. It was held that the one-year statute of limitations period set forth in a case decided after this lawsuit was filed (see Short v. Belleville Shoe Manufacturing Co., 908 F.2d 1385, 1387 (7th Cir.1990), cert. denied, ___ U.S. ___, 111 S.Ct. 2887, 115 L.Ed.2d 1052 (1991)) would not be applied retroactively since there was sufficient evidence to indicate that plaintiffs delayed the filing of their suit in reliance on the then-existing three-year statute of limitations, see Norris v. Wirtz, 818 F.2d 1329 (7th Cir.), cert. denied, 484 U.S. 943, 108 S.Ct. 329, 98 L.Ed.2d 356 (1987). However, on June 20, 1991, the Supreme Court held that a § 10(b) claim must be filed within one year after discovery and three years after the occurrence of the violation.¹Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 2780-82 & n. 9, 115 L.Ed.2d 321 (1991). Defendants argue that consideration of Lampf, along with another Supreme Court decision decided the same day, James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991), requires retroactive application of the limitation period of Lampf. Plaintiffs argue the limitation period set forth in Lampf should be applied prospectively, but, in any event, that they filed suit within one year of discovery of their claim. Alternatively, plaintiffs argue defendants are estopped from raising the statute of limitations defense. It is undisputed that plaintiffs brought suit within the three-year period of repose.

The first question to address is whether this suit was brought within one year of discovery. In responding to the original motion for summary judgment, plaintiffs made no such contention; they argued only that the new limitation period set forth in Short should not be applied retroactively. The present lawsuit was filed on Friday, August 25, 1989. If plaintiffs discovered the facts constituting the alleged § 10(b) violation prior to August 25, 1988, they did not satisfy the one-year limitation period. Plaintiffs have the burden of submitting evidence that they brought suit within one year of discovery and that they remained unaware of the facts supporting their claim without any fault or want of diligence. See Teamsters Local 282 Pension Trust Fund v. Angelos, 815 F.2d 452, 456 (7th Cir.1987); Hupp v. Gray, 500 F.2d 993, 996 (7th Cir.1974); General Builders Supply Co. v. River Hill Coal Venture, 796 F.2d 8, 12 (1st Cir.1986); Hernandez v. Childers, 736 F.Supp. 903, 908 (N.D.Ill.1990). See also Anixter v. Home-Stake Production Co., 939 F.2d 1420, 1434 (10th Cir.1991) (§ 11 & § 12(2) claims).

In Lampf, the Supreme Court recognized that various limitation provisions of the Securities Acts contained similar one- and three-year periods of limitations. The various sections, while similar, each vary in terminology. The Court said: "To the extent that these distinctions in the future might prove significant, we select as the governing standard under § 10(b) the language of § 9(e) of the 1934 Act, 15 U.S.C. § 78i(e)." Lampf, 111 S.Ct. at 2782 n. 9. Section 13 of the 1933 Act refers to "discovery of the untrue statement or the omission,"² whereas § 9(e) of the 1934 Act refers to "discovery of the facts constituting the violation." For purposes of the issue presently before the court, no distinction is found between the terminology of the two statutes. A recent case applies the same discovery standard for both § 13 and § 9(e) and this court will do so as well. See Anixter, at 1441-42. Full knowledge of the existence of a claim is not necessary before the statutory period commences; "inquiry notice" is sufficient. DeBruyne v. Equitable Life Assurance Society of United States, 920 F.2d 457, 466 (7th Cir. 1990); Anixter, 1437-38. Once a party has reason to be suspicious, the one-year period begins to run. DeBruyne, 920 F.2d at 466. Evidence of the possibility of fraud is sufficient; full exposition of a scam is not necessary. Anixter, at 1437-38 (quoting Kennedy v. Josephthal & Co., 814 F.2d 798, 802 (1st Cir.1987)).

Plaintiffs contend that they did not have sufficient evidence of scienter until shortly before they filed suit. They, however, fail to provide any affidavit or other evidence to support this contention. Thus, even if this fact were material, plaintiffs have failed to satisfy their burden of proof. In any event, the financial loss that plaintiffs complain about occurred in October 1987. On November 25, 1987, plaintiffs sent a lengthy letter of complaint to the National Association of Security Dealers ("NASD"). Plaintiffs were already complaining that they were not adequately advised of the risk of trading, that defendants conducted trading not suitable for plaintiffs, and that plaintiffs were unduly pressured into settling with defendants. When interviewed about the NASD complaint on August 18, 1988, plaintiffs were represented by their present counsel. The uncontested facts show that plaintiffs were on inquiry notice prior to August 25, 1988. Therefore, plaintiffs did not bring suit within one year of discovery. Plaintiffs' claims can only be timely if it is held that Lampf should not be applied retroactively or that defendants are equitably estopped from raising their statute of limitations defense.

In Beam, the Supreme Court emphasized that ordinarily new rules of law will be applied retroactively. Beam, 111 S.Ct. at 2445. Relying on principles of equality and stare decisis, see id. at 2446-48, it was held that "when the Court has applied a rule of law to the litigants in one case it must do so with respect to all others not barred by procedural requirements or res judicata." Id. at 2448. In Lampf, the newly announced statute of limitations for § 10(b) claims was applied to the litigants in that case. See Lampf, 111 S.Ct. at 2782. Although the issue of retroactive application was not expressly discussed by the majority, the parties had briefed the issue and Justice O'Connor dissented on the ground that the case should have been remanded for a determination of the equities of retroactive or prospective application. See id. at 2785-88 (O'Connor, J., dissenting). There is nothing in Beam to indicate that express discussion of the issue of retroactivity is necessary for a new rule to be applied retrospectively in pending or future cases. Thus, a number of cases have applied Lampf retrospectively. See Boudreau v. Deloitte, Haskins & Sells, 942 F.2d 497 (8th Cir.1991) (per curiam); Anixter, at 1440-41; Barr v. McGraw-Hill, 770 F.Supp. 855, 859 (S.D.N.Y.1991); Klein v. Goetzmann, 770 F.Supp. 78, 82 (N.D.N.Y.1991); Vito v. Prudential-Bache Securities, Inc., No. 90-7662, 1991 WL 131186 (E.D.Pa. July 11, 1991); Sanders v. Keefe, No. 90 C 4310, 1991 WL 133706 (N.D.Ill. July 11, 1991); Baggett v. Edward D. Jones & Co., No. 90-1054-C, 1991 WL 126602 (D.Kan. June 27, 1991). See also Aaronson v. Bushell, No. 88 Civ. 8611, 1991 WL 152608 (S.D.N.Y. Aug. 1, 1991); Duke v. Touche Ross & Co., No. 90 Civ. 5610, 1991 WL 137493 (S.D.N.Y. July 24, 1991). But see Glick v. Berk & Michaels, P.C., No. 90 Civ. 4230 at 8 n. 6, 1991 WL 152614 (S.D.N.Y. July 26, 1991).³ In light of Beam, since Lampf was applied to the litigants in Lampf, the new rule of law announced in Lampf must also be applied in the present case which was pending at the time Lampf was decided.

Plaintiffs argue that the only rule applied to the litigants in Lampf was the three-year repose limitation, see Lampf, 111 S.Ct. at 2782, a limitation that does not bar the claims of the Bernings. They argue that different equities apply to retroactive application of the one-year discovery limitation and that Lampf cannot have a stare decisis effect as to the one-year limitation since that part of the § 9(e) limitation was not applied in Lampf. This precise issue has not yet been expressly considered by any court.⁴ Plaintiffs, however, cite no precedent that would support dividing the § 9(e) limitation into two separate limitations with one being applied prospectively and one retrospectively. Moreover, it is questionable whether the Chevron-type analysis that plaintiffs seek to apply, see Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), is still fully viable in light of Beam. See Barr, 770 F.Supp. at 860. Also, it would be inconsistent with Beam to make such a division and to require consideration of the individual circumstances and equities of each case in determining whether the one-year limitation should be applied prospectively to a particular plaintiff. See id. at 860. Beam instead calls for application of one consistent rule in all lawsuits. In light of Beam, it must be held that the one- and three-year limitation period of Lampf will be applied retrospectively to all cases pending at the time Lampf was decided.

Plaintiffs argue that defendants should be estopped from raising their statute of limitations defense since it was not in defendants' original answer and was not set forth in an amended answer until this litigation was 16 months old and over four months after the Seventh Circuit decided Short. Lampf, 111 S.Ct. at 2782,...