Ceres Partners v. GEL Associates
| Decision Date | 08 November 1990 |
| Docket Number | D,No. 390,390 |
| Citation | 918 F.2d 349 |
| Parties | , Fed. Sec. L. Rep. P 95,639 CERES PARTNERS, Plaintiff-Appellant, v. GEL ASSOCIATES, Gollust, Tierney and Oliver, Coniston Partners, Coniston Institutional Investors, Gollust and Tierney, Incorporated, Keith R. Gollust, Paul E. Tierney, Jr., and Augustus K. Oliver, Defendants-Appellees. ocket 89-7666. |
| Court | U.S. Court of Appeals — Second Circuit |
Evan L. Gordon, New York City (Bangser & Weiss, New York City, on the brief), for plaintiff-appellant.
Richard F. Ziegler, New York City (Thomas G. Dagger, Michael S. Sommer, Cleary, Gottlieb, Steen & Hamilton, New York City, on the brief), for defendants-appellees.
Daniel L. Goelzer, Gen. Counsel of the S.E.C., Washington, D.C. (Jacob H. Stillman, Associate Gen. Counsel, Thomas L. Riesenberg, Asst. Gen. Counsel, Rada L. Potts, Atty., Paul Gonson, Solicitor, Washington, D.C., of counsel), filed a brief for amicus curiae S.E.C. in support of appellant.
Patricia A. McGovern, Harris J. Amhowitz, Leonard P. Novello, Eldon Olson, New York City (Carl D. Liggio, New York City, of counsel), filed a brief for amici curiae Ernst & Young, Coopers & Lybrand, Peat Marwick Main & Co., and Price Waterhouse, in support of appellees.
Before KEARSE, ALTIMARI, and MAHONEY, Circuit Judges.
Plaintiff Ceres Partners ("Ceres") appeals from an order of the United States District Court for the Southern District of New York, Milton Pollack, Judge, summarily dismissing its complaint for damages against defendants GEL Associates ("GEL"), et al., for violation of Secs. 10(b), 14(d), and 14(e) of the Securities Exchange Act of 1934, as amended by the Williams Act, Pub.L. No. 90-439, Sec. 3, 82 Stat. 455 (1968) (collectively "1934 Act" or "Act"), 15 U.S.C. Secs. 78j(b), 78n(d), and 78n(e) (1988), and Securities and Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1989). Borrowing the statute-of-limitations period that would be applied to such claims in accordance with New York law, the district court found that Ceres's claims were time-barred. 714 F.Supp. 679 (1989). On appeal, all of the parties urge us to abandon this Circuit's established rule that the statute of limitations applicable to claims under Secs. 10(b) and 14 of the 1934 Act is that provided by the most analogous state statute, and instead to adopt a uniform federal limitary period on such claims. They disagree, however, on what period should be selected. Ceres contends that a five-year period should be selected, and that on this basis the judgment dismissing the complaint should be vacated. As discussed below, the judgment would be affirmed if we were to follow this Circuit's existing precedent and borrow a state statute of limitations. We conclude, however, that plaintiffs' federal securities law claims should be governed by a uniform federal limitary period, and under the period we adopt here, the judgment is affirmed.
According to the complaint, Ceres is a general partnership with its principal office and place of business located in New Jersey. Ceres acts as a broker-dealer and engages in risk arbitrage for its own account. GEL is a Bahamas limited partnership; the other defendants are affiliated with GEL through various partnership arrangements. Defendant Gollust, Tierney and Oliver ("GTO"), a New Jersey general partnership, is the general partner of GEL. Defendant Gollust and Tierney, Inc., a New Jersey corporation, is a general partner of GTO. Each of the individual defendants is In August 1986, Gelco Corporation ("Gelco" or the "company"), a Minnesota corporation whose stock was listed on the New York Stock Exchange, announced a restructuring plan that included an offer to purchase up to 3,000,000 of its own shares for $17-$20 per share. Prior to September 25, 1986, Ceres, in the course of its risk arbitrage business, purchased 102,100 shares of Gelco stock in anticipation of Gelco's self-tender.
both a general partner of GTO and a general partner of defendant Coniston Partners ("Coniston"), a New Jersey limited partnership. The complaint alleges that Coniston is well known in the financial community for acquiring stakes in companies considered vulnerable to takeover threats.
On September 25, 1986, when the market price of Gelco shares was approximately $18 per share, Ceres sold 90,000 shares of its Gelco stock to Jefferies & Co., a broker acting on behalf of GEL, for $18.50 per share. On the same day, Ceres also sold short 29,700 shares.
After the close of the market on September 25, 1986, Coniston publicly announced that GEL had acquired approximately 17.6% of Gelco's stock and that Coniston intended to offer $22.50 per share in cash for Gelco's outstanding shares, subject to certain conditions. The price of Gelco stock rose to more than $22 a share the next day, and Ceres was eventually forced to cover its short position at an average price of $22.875 per share. On October 6, 1986, GEL filed on behalf of itself and the other defendants a Schedule 13D report with the SEC, disclosing defendants' ownership of more than 5% of Gelco's stock and describing their plans to acquire the company.
On January 11, 1989, Ceres commenced the present action, alleging that GEL's stock purchases from Ceres and others on September 25, 1986, constituted a de facto tender offer and that GEL's failure, prior to those purchases, to file a Schedule 14D-1 report announcing a tender offer violated Secs. 14(d) and 14(e) of the 1934 Act. The complaint also alleged that defendants violated Sec. 10(b) of the 1934 Act and Rule 10b-5 thereunder by failing to disclose to Ceres their intention to extend a merger proposal to Gelco. Ceres sought to recover the difference between the price of the Gelco shares it sold to Jefferies & Co. and the price Ceres would have received had it known of defendants' plans, plus the losses it incurred in covering its short sales.
Defendants moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) on the grounds that (1) the complaint failed to state a claim on which relief could be granted, and (2) the face of the complaint revealed that Ceres's claims were barred by the applicable statute of limitations. In support of their statute-of-limitations contention, defendants argued that under existing Circuit precedent the district court should apply New York law, that New York law required application of the statute of limitations that would be used in New Jersey as the state of the plaintiff's residence, and that a court sitting in New Jersey would be required by In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir.) (en banc) ("Data Access"), cert. denied, 488 U.S. 849, 109 S.Ct. 131, 102 L.Ed.2d 103 (1988), to rule 1934 Act claims barred if not asserted within one year of their discovery, but in no event more than three years after their accrual (the "one-year/three-year" period). Defendants argued, alternatively, that the court should decline to refer to state law and should instead apply a uniform federal statute of limitations, which should be the one-year/three-year period adopted in Data Access.
In opposition to defendants' motion, Ceres agreed that the court should ignore state law and borrow the most analogous federal period of limitations; but it argued that the most appropriate analogue was the five-year limitations period applicable to the express right of action provided by the Insider Trading Sanctions Act of 1984, 15 U.S.C. Sec. 78t(d) (1988), as amended by the Insider Trading and Securities Fraud and Enforcement Act of 1988, 15 U.S.C. Sec. 78t-1 (1988) (collectively "Insider Trading Act" or "ITA"). The ITA amendment was enacted some six months after the decision in Data Access.
The district court, in an opinion reported at 714 F.Supp. 679 (1989), granted defendants' Since Ceres acknowledged that it had discovered the pertinent information on or shortly after September 25, 1986, i.e., more than one year prior to the institution of the present action, the court dismissed the complaint as time-barred. This appeal followed.
motion to dismiss the complaint as time-barred. Though noting that it would be preferable to have 1934 Act claims governed by a uniform federal statute of limitations, the court felt constrained to follow this Circuit's precedents such as Arneil v. Ramsey, 550 F.2d 774 (2d Cir.1977), and it thus looked to the New York statutes to determine the applicable statute of limitations. Since Ceres is a New Jersey resident, the court determined that New York courts would use whatever statute of limitations would be applied to these claims by a court sitting in New Jersey. See N.Y.Civ.Prac. L. & R. ("CPLR") Sec. 202 (McKinney 1990). Since the federal courts have exclusive jurisdiction over claims under the 1934 Act, see 15 U.S.C. Sec. 78aa (1988), and a federal court sitting in New Jersey would be bound to follow the decisions of the Third Circuit, the district court concluded that Ceres's claims were governed by the one-year/three-year limitations period adopted by the Third Circuit in Data Access. The court also concluded that even if it were free to ignore state law and borrow from a federal statute of limitations, the Insider Trading Act's five-year period would not be an appropriate choice
On appeal, Ceres pursues its contention that the federal courts should not borrow statutes of limitations governing claims under Secs. 10(b) and 14 of the 1934 Act by looking to state law. Contending that the most appropriate limitary period would be the five-year statute of limitations contained in the Insider Trading Act, Ceres argues that its complaint therefore should not have been dismissed on statute-of-limitations grounds. The SEC has filed a brief as amicus curiae in support of Ceres's position.
Defendants renew their contention that the most appropriate limitary period is the one-year/three-year period...
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