Durning v. Citibank, Intern.

• Decision Date: 07 April 1993
• Docket Number: 92-35201,Nos. 92-35154,s. 92-35154
• Citation: 990 F.2d 1133
• Parties: RICO Bus.Disp.Guide 8269 Jean C. DURNING; Marvin B. Durning, Plaintiffs-Appellants, United States Attorney General, Intervenor, v. CITIBANK, INTERNATIONAL; The First Boston Corp.; First Interstate; Wyoming Community Development Authority, Defendants-Appellees. Jean C. DURNING; Marvin B. Durning, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellees, United States Attorney General, Intervenor, v. The FIRST BOSTON CORP.; Citibank, N.A.; First Interstate; First Interstate of Casper; Wyoming Community Development Authority, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1133

990 F.2d 1133

RICO Bus.Disp.Guide 8269

Jean C. DURNING; Marvin B. Durning, Plaintiffs-Appellants, United States Attorney General, Intervenor, v. CITIBANK, INTERNATIONAL; The First Boston Corp.; First

Interstate; Wyoming Community Development

Authority, Defendants-Appellees.

Jean C. DURNING; Marvin B. Durning, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellees, United States Attorney General, Intervenor, v. The FIRST BOSTON CORP.; Citibank, N.A.; First Interstate;

First Interstate of Casper; Wyoming Community

Development Authority, Defendants-Appellants.

Nos. 92-35154, 92-35201.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 10, 1993.

Decided April 7, 1993.

James H. Webster and Richard P. Blumberg, Webster, Mark & Blumberg, Seattle, WA, for plaintiffs-appellants.

Scott A. Milburn, Preston Thorgrimson Shidler Gates & Ellis, Seattle, WA, for defendant-appellee The First Boston Corp. Bennet A. McConaughy, Foster, Pepper & Shefelman, Bellevue, WA, for defendant-appellee Wyoming Community Development Authority.

Douglas Letter, U.S. Dept. of Justice, Washington, DC, for intervenor U.S. and amicus S.E.C.

Before: GOODWIN, FERNANDEZ, and T.G. NELSON, Circuit Judges.

GOODWIN, Circuit Judge:

Plaintiffs-Appellants Marvin and Jean Durning (the "Durnings") appeal the district court's dismissal of their class action in which they assert claims of securities fraud and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, against Defendants-Appellees First Boston Corporation and Wyoming Community Redevelopment Authority and Defendants Citibank, N.A., and First Interstate Bank of Casper, N.A. Defendants-Appellees cross appeal the district court's class certification.

We affirm the district court's dismissal of the Durnings' claims and therefore need not reach the class certification issues.

BACKGROUND

In December 1981, the Wyoming Community Development Authority (the "Authority") issued $75 million in single-family mortgage revenue bonds. The proceeds from the bond issue were used by the Authority to provide housing loans to low and moderate income families in Wyoming. First Boston Corporation was the lead underwriter for the syndicate that marketed the bonds; First Interstate Bank of Casper acted as trustee, and Citibank was the paying agent.

In connection with the bond issue the defendants circulated an Official Statement, a disclosure document akin to a prospectus. The Official Statement listed most of the dates that the bonds could be redeemed, including optional redemption dates beginning in June 1991; but it failed to explain that the bonds were callable under certain conditions at any time.

The Durnings purchased four bonds in December 1981. The bonds had a face value of $5,000 and a maturity date of June 1, 1996. The Durnings allege that they were misled by the Official Statement into believing that the bonds were not subject to redemption prior to 1991, and that they would not have purchased the bonds had they not been so misled. It is undisputed, however, that the bonds themselves and the trust indenture fully authorized the redemptions.

Between 1983 and 1985, the Authority redeemed approximately half of the $75 million bond issue. One of the Durnings' bonds was redeemed in May, 1985. A few months later, Mr. Durning filed this class action through his law firm, Durning, Webster & Lonnquist. The complaint alleged federal securities and RICO violations as well as claims under state securities law, consumer protection and common law fraud and breach of contract theories. ¹

Initially, the district court dismissed the complaint for failing to state a claim for which relief can be granted under Fed.R.Civ.P. 12(b)(6) after determining, as a matter of law, that the Official Statement sufficiently informed investors that the bonds were redeemable prior to June 1991. See Durning v. First Boston Corp., 627 F.Supp. 393 (W.D.Wash.1986). This court reversed, holding that the Official Statement was sufficiently ambiguous to leave open a claim that the document may have misled investors by failing to inform them of the possibility of early redemption. See Durning v. First Boston Corp., 815 F.2d 1265 (9th Cir.), cert. denied, 484 U.S. 944, 108 S.Ct. 330, 98 L.Ed.2d 358 (1987).

Following remand, the district court granted motions to dismiss on a variety of grounds. The district court first dismissed the Durnings' RICO claims, concluding that the Durnings could not prove the requisite pattern of racketeering activity by the defendants. The district court also granted the defendants' renewed motion to dismiss the Durnings' section 10(b) claims as untimely following the Supreme Court's rulings in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991) (adopting federal statute of limitations for federal securities claims under section 10(b) and applying new rule to litigants, dismissing case) and James B. Beam Distilling Co. v. Georgia, --- U.S. ----, ----, 111 S.Ct. 2439, 2448, 115 L.Ed.2d 481 (1991) ("[W]hen 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.").

Section 27A of the Securities and Exchange Act of 1934 (the "Act") was enacted on December 19, 1991, providing for possible reinstatement of section 10(b) claims dismissed after Lampf upon motion within 60 days of section 27A's enactment. The Durnings never filed a motion for reinstatement. They did, however, file their notice of appeal on February 4, 1992 (within section 27A's 60 day period). On February 18, 1991, Appellees timely filed their notice of cross-appeal challenging the district court's class certification.

I. Lampf and Section 27A

Appellants argue that the district court erred in dismissing their claims under section 10(b) of the Act, 15 U.S.C. § 78j, and S.E.C. Rule 10b-5 (hereinafter "10b-5 claim"). Appellants first contend that their 10b-5 claim was timely filed under the limitations period declared by the Supreme Court in Lampf. In the alternative, Appellants contend that section 27A of the Act, 15 U.S.C. § 78aa-1, preserves for them the more lenient state statute of limitations that applied to their case prior to Lampf. ² We reject both of these arguments.

A. Appellants' Claims are Time-Barred under Lampf

In Lampf, the Supreme Court established a uniform statute of limitations for federal securities claims brought under section 10(b) of the Act: such claims "must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation." --- U.S. at ----, 111 S.Ct. at 2782.

Appellants argue that the fraud here consisted of both the misrepresentation in the Official Statement in 1981 and the subsequent redemption of the bonds which, for the Durnings, occurred in 1985. Therefore, the Durnings contend that they brought their suit well within the three-year cutoff because defendants' fraud continued until 1985, the same year the Durnings filed their complaint. We reject this claim just as the magistrate and district court did. The Durnings' securities fraud claim arose in 1981, when the Official Statement allegedly misrepresented the bonds' redemption dates and the bonds were purchased. See Continental Bank, Nat'l Ass'n v. Village of Ludlow, 777 F.Supp. 92, 102 (D.Mass.1991) (Lampf 's three year period of repose "begins when the last alleged misrepresentation was made" by the defendants); see also McCool v. Strata Oil Co., 972 F.2d 1452, 1460 (7th Cir.1992) ("In securities fraud cases, the federal rule is that the plaintiff's cause of action accrues 'on the date the sale of the instrument is completed.' "). ³ Because this occurred in 1981 and the Durnings filed their complaint more than three years later, the Durnings' 10b-5 claim was not timely filed.

In establishing its three-year cutoff date in Lampf, the Supreme Court expressly rejected equitable tolling principles. See --- U.S. at ----, 111 S.Ct. at 2782 ("Because the purpose of the 3-year limitation is clearly to serve as a cutoff, we hold that [equitable] tolling principles do not apply to that period."). Essentially, Appellants are trying to dress an equitable tolling argument in new clothing to avoid the harsh result that the Lampf rule requires. We will not accept Appellants' invitation to ignore the Supreme Court's clear dictate. The Durnings' 10b-5 claim is time-barred under Lampf.

B. Section 27A Does Not Apply

Appellants alternatively argue that section 27A preserves for them the statute of limitations in effect prior to Lampf. Section 27A provides:

(a) Effect on pending causes of action. The limitation period for any private civil action implied under section 10(b) of this Act [15 U.S.C. § 78j(b) ] that was commenced on or before June 19, 1991, shall be the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991.

(b) Effect on dismissed causes of action. Any private civil action implied under section 10(b) of this Act [15 U.S.C. § 78j(b) ] that was commenced on or before June 19, 1991--

(1) which was dismissed as time barred subsequent to June 19, 1991, and

(2) which would have been timely filed under the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991,

shall be reinstated on motion by the plaintiff not later than 60 days after the date of enactment of this section [enacted Dec. 19, 1991].

15 U.S.C. § 78aa-1.

Appellants contend that they fall within section 27A(a)'s purview because their case was "pending" on December 19, 1991, the date section 27A was enacted. Alternatively, Appellants contend that they fall within section 27A(b)'s purview...