Biggans v. Bache Halsey Stuart Shields, Inc.
Decision Date | 14 January 1980 |
Docket Number | Civ. A. No. 79-758. |
Parties | Robert P. BIGGANS v. BACHE HALSEY STUART SHIELDS, INC. f/t/a Bache Halsey Stuart, Inc. |
Court | U.S. District Court — Eastern District of Pennsylvania |
Paul Breen, Philadelphia, Pa., for plaintiff.
Abraham C. Reich, Charles M. Solomon, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., for defendant.
Before the court is defendant's motion for summary judgment. Plaintiff brings this action for securities fraud, alleging that defendant's registered representative engaged in excessive trading or "churning" of plaintiff's account in the purchase and sale of "call" options between June of 1975 through October of 1976.1 The claims are based upon § 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, promulgated thereunder by the Securities Exchange Commission, as well as § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a). Jurisdiction is invoked under § 27 of the Securities Exchange Act, 15 U.S.C. § 78aa.
Plaintiff filed his complaint on February 28, 1979. In June of 1975, plaintiff owned various amounts of two stocks which were turned over to defendant's agent for the purpose of liquidating and reinvesting. The sale of stock generated approximately $6,500 which was initially reinvested in stock and later reinvested in various call options. Plaintiff claims that the defendant by failing to control its agent and failing to learn or to understand the investment needs of the plaintiff aided and abetted the agent who in bad faith "churned" customer's account with the fraudulent purpose of deriving a profit for himself and defendant.2 He claims that this deception was in violation of the aforementioned statutes and rules.
Defendant argues that plaintiff's claims are time barred. The federal statute provides no statute of limitations for an action under 10b-5. Therefore I must look to state law for an analogous statute of limitations. Ernst and Ernst v. Hochfelder, 425 U.S. 185, 210 n. 29, 96 S.Ct. 1375, 1389 n. 29, 47 L.Ed.2d 668 (1976). A legal issue before the court is whether to apply the three year statute of limitations under the Pennsylvania "Blue Sky" Law or the six year statute of limitations applicable to common law fraud in Pennsylvania.
In Frankel v. Schmertz, No. 74-1695 (E.D.Pa. March 18, 1976), I held the Pennsylvania Blue Sky law was the analogous cause of action to a 10b-5 action, and thus the Blue Sky law statute of limitations was applicable. I believe it is still the most closely analogous state cause of action which "best effectuates the Federal policy involved." Abetti, et al. v. Sheftel, et al., No. 78-4269 (E.D.Pa. Nov. 21, 1979, Hannum, J.).
Plaintiff argues that the recent decision of the Court of Appeals for the Third Circuit in Roberts v. Magnetic Metals Company, 611 F.2d 450 (3d Cir. 1979), requires this court to apply the statute of limitations applicable to common law fraud. The Roberts case held that in New Jersey, common law fraud is more closely analogous to a seller's cause of action under 10b-5. The opinions of Judge Gibbons and Judge Sloviter, which constituted the majority in the Roberts case, emphasized the fact that the New Jersey Blue Sky law provided no cause of action for sellers. Sellers were relegated to common law fraud actions.
The Roberts case reinforces my holding that in Pennsylvania, the statute of limitations under the Blue Sky law applies to this action. Unlike the limited New Jersey statute, the Pennsylvania Securities Act is broadly written to prohibit the type of actions complained of here. The Pennsylvania law covers a scope of activities analogous to those covered by 10b-5. See 70 Pa.Cons.Stat.Ann. §§ 1-403, 1-404, 1-401.
The crucial question to be answered in order to determine whether plaintiff's claims are time barred is when plaintiff received "actual notice or upon the exercise of reasonable diligence should have known of the facts constituting the violation."3 If plaintiff had actual notice or should have known of the facts before February 28, 1978, then he is time barred in this suit.
When an investor is advised by his accountant that he should get an attorney, and that something irregular is going on in his brokerage account, he is not only on notice of the facts constituting a violation, but that a possible legal action exists. Under any standard of diligence that could be applied, direct counseling such as plaintiff received from his...
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Biggans v. Bache Halsey Stuart Shields, Inc.
...Pennsylvania law covers a scope of activities analogous to those covered by 10b-5. See 70 Pa.Cons.Stat.Ann. §§ 1-403, 1-404, 1-401." 487 F.Supp. at 830. The Pennsylvania statutory provisions cited by the district court appear to encompass churning within the activities proscribed. Section 4......