Gray v. First Winthrop Corp.

• Decision Date: 28 October 1991
• Docket Number: No. C-90-2600-JPV.,C-90-2600-JPV.
• Citation: 776 F. Supp. 504
• Court: U.S. District Court — Northern District of California
• Parties: Julius GRAY and Leroy William Rodewald, on behalf of themselves and all others similarly situated, Plaintiffs, v. FIRST WINTHROP CORPORATION, et al., Defendants.

776 F. Supp. 504

Julius GRAY and Leroy William Rodewald, on behalf of themselves and all others similarly situated, Plaintiffs, v. FIRST WINTHROP CORPORATION, et al., Defendants.

No. C-90-2600-JPV.

United States District Court, N.D. California.

October 28, 1991.

COPYRIGHT MATERIAL OMITTED

Elizabeth Joan Cabraser, Leiff, Cabraser & Heimann, San Francisco, Cal., and Erwin A. Sherman, Sherman and Osborne, Louisville, Ky., for plaintiff.

David C. Phillips, Goldstein & Phillips, San Francisco, Cal., and Barbara L. Moore, Cooley, Manion, Moore & Jones, Boston, Mass., for defendants Rednick & Wolfe, First Winthrop Corp., Winthrop Financial Co., Inc., Winthrop Securities Co., Inc., Two Winthrop Properties, Inc., Linnaeus-Lexington Associates Limited Partnership, 353 San Francisco Associates Limited Partnership, Arthur J. Halleran, Jr., John M. Nelson IV, David A. Barry, George J. Carter, Carl G. Erickson, David C. Hewitt, John V. McManmon, Jr., Jonathan W. Wexler, Steven E. Wheeler, Thomas C. Wilson, Amy J. Jorgensen, TB Co., and E. Barry Mansur.

David C. Bohan, Jenner & Block, Chicago, Ill., co-counsel for TB Co. and E. Barry Mansur.

Boake Christensen, McCutchen, Doyle, Brown & Enerson, San Francisco, Cal., and Anthony J. Costantini, Associate General Counsel, KPMG Peat Marwick, New York City, for defendant KPMG Peat Marwick (formerly Peat Marwick Main & Co.).

Robert W. Fischer, Jr., Dewey, Ballantine, Bushby, Palmer & Wood, Los Angeles, Cal., for defendants General Elec., General Elec. Pension Trust and Arthur S. Bahr.

ORDER GRANTING DEFENDANTS' MOTIONS FOR SUMMARY JUDGEMENT AND MOTIONS TO DISMISS

VUKASIN, District Judge.

INTRODUCTION

Defendants' Motions for Summary Judgement and Motions to Dismiss were scheduled to be heard on September 5, 1991. Defendants KPMG Peat Marwick ("Peat Marwick") and the Winthrop Defendants¹ moved for summary judgement and for dismissal. Defendants General Electric Company, General Electric Pension Trust ("GEPT"), and Arthur S. Bahr, as trustee of GEPT (the "GE Defendants") moved for summary judgement. After a review of the briefs, this court considered it appropriate to submit the motion on the pleadings pursuant to Local Rule 220-1, and now GRANTS the motions.

BACKGROUND

This is a securities class action arising out of the failure of a real estate limited partnership organized by the Winthrop Defendants. Defendant GEPT was the lender which provided financing for the real estate project. Defendant Peat Marwick prepared or participated in the preparation of financial forecasts for the partnership. Plaintiffs, who are investors in the limited partnership, allege that the offering materials prepared by certain of the defendants created a false and misleading picture that the investments in the partnership were safe and secure. The prospectus and offering materials were issued on October 31, 1984. Plaintiffs invested in the partnership in December 1984 and January 1985, each by purchasing one unit in the form of a $100,000, interest bearing, six year note.

Plaintiffs' complaint initially set forth nine claims. They alleged violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5, civil RICO, and various state causes of action. Following motions to dismiss and stipulations, the RICO claim and several state claims were eliminated. The only federal claims remaining are the claims for federal securities laws violations.

Peat Marwick and the Winthrop Defendants move for summary judgement on the grounds that the Rule 10b-5 claims are time barred and for dismissal of the remaining pendant state law claims. The GE Defendants move for summary judgement on the grounds that the evidence produced in discovery is completely inconsistent with all of the plaintiffs' theories of liability.

THE STANDARD FOR SUMMARY JUDGMENT

Summary judgment should be granted where it is shown that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In Celotex, the Supreme Court made it clear that summary judgment, when appropriate, is a favored method of resolution, and that:

summary judgment is mandated, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial.

Celotex, 477 U.S. at 322, 106 S.Ct. at 2552.

In addition, the Court emphasized in Anderson that, under Fed.R.Civ.P. 56(e), "when a properly supported motion for summary judgment is made, the adverse party `must set forth specific facts showing that there is a genuine issue for trial.'" Anderson, 477 U.S. at 250, 106 S.Ct. at 2511.

DISCUSSION

1. Peat Marwick's and the Winthrop Defendants' Motions.

a. Statutes of Limitations.

According to Lampf, Pleva, Lipkind, Prupis, & Petigrow v. Gilbertson, et al., ___ U.S. ___, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991), "litigation instituted pursuant to § 10(b) and Rule 10b-5 ... must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation." Furthermore, the Court ruled that the limitations period is not subject to the doctrine of equitable tolling. Rather, the three year period is the absolute limit for the institution of the action:

the 1-year period, by its terms, begins after discovery of the facts constituting the violation, making tolling unnecessary.... Because the purpose of the 3-year limitation is clearly to serve as a cutoff, we hold that tolling principles do not apply to that period.

Id. The Court further held that this newly adopted statute of limitations applied to the dispute at issue in the Lampf case.

The question here is whether the statute of limitations adopted in Lampf applies retroactively to this case. James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991), provides the answer. In Beam, the Supreme Court considered whether to apply retroactively the new constitutional rule it had announced earlier in Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984). The Court held that "it is error to refuse to apply a rule of federal law retroactively after the case announcing the rule has already done so.... Once retroactive application is chosen for any assertedly new rule, it is chosen for all others who might seek its prospective application." James B. Beam Distilling Co., 111 S.Ct. at 2446, 2447-48. Under this rationale, it would be error not to apply the Lampf one year/three year statute of limitations to this case. Accordingly, because the Supreme Court applied the new one year/three year rule to the litigants in Lampf itself, this court must apply it to the case before us.²

Applying Lampf to this case, plaintiffs' securities claims are time barred. The offering materials were dated October 31, 1984. The plaintiffs invested in the limited partnership in 1984 and 1985. This action was not brought until September 10, 1990, well after three years had elapsed from the time of the defendants' allegedly fraudulent offering of securities.

The Winthrop Defendants and Peat Marwick are thus entitled to summary judgement on the grounds that plaintiffs securities claims are time barred.

b. Motion to Dismiss Pendant Claims.

In cases where subject matter jurisdiction is premised upon federal claims, federal courts may exercise pendant jurisdiction over related state law claims. If the federal claim is subsequently dismissed, the federal court also has the discretion to dismiss the remaining state law claims. See United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966).

In the instant case, dismissal of the pendant claims is appropriate. The case is still quite young — it was filed approximately one year ago. Even in cases where the federal court exercised jurisdiction over the state claims for a much longer period than we have here, dismissal of pendant claims has been found proper. See, e.g., Danner v. Himmelfarb, 858 F.2d 515, 523 (9th Cir. 1988) (dismissal of pendant state claims proper even though federal court had maintained jurisdiction for three and one-half years). Discovery is far from complete; while the depositions of the GE defendants have been substantially completed, no witnesses from either the Winthrop Defendants or Peat Marwick have been deposed. The court's substantive involvement in the case has been limited to ruling on motions to dismiss and class certification matters. Most of the time that this court has invested in this case has concerned matters of federal law.

Furthermore, the state claims here involve undecided issues of state law that are better left to the state courts to decide. For example, California law is unsettled as to the duties of an independent accountant to third parties such as the plaintiffs. See, e.g., Bily v. Arthur Young & Co., 230 Cal.App.3d 835, 271 Cal.Rptr. 470, review granted and opinion superseded, 274 Cal. Rptr. 371, 798 P.2d 1214 (1990); Mirkin v. Wasserman, 227 Cal.App.3d 1537, 278 Cal. Rptr. 729 (1991), review granted and opinion superseded, 282 Cal.Rptr. 840, 811 P.2d 1024 (1991). Where the pendant claims embrace unsettled questions of state law, the proper exercise of discretion is dismissal of the pendant state law claims. Mayer v. Oil Field Systems Corp., 803 F.2d 749, 757 (2d Cir.1986).

Therefore, plaintiffs' pendant claims are dismissed.

2. The GE Defendants' Motion.

a. Motion for Summary Judgement on 10b-5 Claims.

Plaintiffs' 10b-5 claims against the GE Defendants are time barred under Lampf. However, because the GE Defendants did not raise this issue, this court finds it necessary to address the...