Hamilton v. Cunningham

• Decision Date: 04 April 1995
• Docket Number: No. 94-K-680.,94-K-680.
• Citation: 880 F. Supp. 1407
• Parties: Frederic C. HAMILTON, et al., Plaintiffs, v. Scott A. CUNNINGHAM, Defendant.
• Court: U.S. District Court — District of Colorado

880 F. Supp. 1407

Frederic C. HAMILTON, et al., Plaintiffs, v. Scott A. CUNNINGHAM, Defendant.

No. 94-K-680.

United States District Court, D. Colorado.

April 4, 1995.

Bruce A. Featherstone, Scott R. Bauer, Raymond L. Gifford, Kirkland & Ellis, Denver, CO, for plaintiffs.

Charles F. Brega, Wesley B. Howard, Carla B. Minckley, Brega & Winters, Denver, CO, for defendant.

MEMORANDUM OPINION AND ORDER

KANE, Senior District Judge.

Frederic C. Hamilton, Hamilton Brothers' Exploration Co. ("ExCo"), Hamilton Brothers Petroleum Corporation ("PetCo"), Hamilton Brothers Oil and Gas Corporation ("Oil & Gas Co."), and Hamilton Brothers Oil Company ("OilCo") (collectively "Plaintiffs" or the "Hamilton Parties") initiated this action on March 22, 1994, seeking a declaration of nonliability to defendant Scott A. Cunningham, a former vice-president of OilCo, on various statutory and common law securities claims he filed against them in Canada on statute of limitations grounds. The Hamilton Parties seek entry of judgment pursuant to Fed. R.Civ.P. 12(c) on the twelve remaining claims of their Complaint for Declaratory Judgment as well as on the four remaining claims of Cunningham's Counterclaim. They contend the facts admitted by Cunningham in his Answer and alleged in his Counterclaim establish, as a matter of law, the untimeliness of his Canadian claims.

After hearing oral argument and reviewing carefully the parties' briefs, I have decided to exercise jurisdiction over this declaratory judgment action, granting Plaintiffs' motion in part and denying it in part.

I. FACTS

Until April 1994, and at all times relevant to this lawsuit, Cunningham was the Vice President of OilCo. He also owned stock in several of the corporate plaintiffs, including ExCo. On January 31, 1994, Cunningham filed a Statement of Claim in the Court of Queens Bench of Alberta in the Judicial District of Calgary, Canada (the "Canadian Complaint"). Cunningham asserted claims against the Hamilton Parties and eight other defendants under the Securities Exchange Act of 1934 and its implementing rules, the Organized Crime Control Act (RICO), the federal mail fraud statute, and Canadian securities law, as well as under common law fraud, negligence and breach of fiduciary duty theories. His allegations concerned two transactions involving the plaintiff oil companies: the 1979 merger of Exco into OilCo, a subsidiary of Petco (the "ExCo Transaction" or "Freeze-Out Merger") and a 1974 partial tender offer whereby Volvo North America Corporation (Volvo) acquired a percentage of the common stock of Hamilton Oil Corporation (HOC) (the "Volvo Transaction").

Before Cunningham attempted to serve them with the Canadian Complaint, the Hamilton Parties brought this action in the United States District Court for the District of Colorado. The Hamilton Parties sought a declaration of nonliability to Cunningham on all of Cunningham's Canadian claims. Cunningham filed an Answer and Counterclaim on April 12, 1994, challenging this court's subject matter jurisdiction and asserting as counterclaims here his common law claims in the Canadian action.¹ Thus, Cunningham's common law claims arising out of the ExCo and Volvo Transactions are before this court both as the subjects of the Hamilton Parties' request for declaratory judgment and as the subjects of Cunningham's four remaining counterclaims.² Cunningham's statutory claims are before the court only as part of the Hamilton Parties' request for declaratory judgment.

II. JURISDICTION

My initial concern is with the propriety of the Hamilton Parties' efforts to litigate in this court defenses to claims pending against them in another court.³ Federal courts properly may decline to issue declaratory relief in a dispute already the subject of a pending foreign action if the federal forum is being used for "procedural fencing" or "in a race for res judicata." 10A Wright, Miller & Kane, Federal Practice and Procedure § 2759 at p. 651 & n. 12 (1983 & 1994 Supp.).⁴

In particular, it is not the function of the federal declaratory action merely to anticipate a defense that otherwise could be presented in an action already pending before a court of competent jurisdiction. Id., § 2758 at p. 632 & n. 13 (claims pending in state court generally), § 2765 at p. 729-30 (negligence claims pending elsewhere). But given that the primary issues to be litigated in this case arise under federal statutes and my conclusion below that Colorado bears the "most significant relationship" to the dispute giving rise to Cunningham's claims, I will, under these limited circumstances, exercise jurisdiction to consider the merits of Plaintiffs' claims of nonliability. See id., § 2759 at 657-58 (decision to address merits of request for declaration of nonliability within district court's sound discretion).⁵

III. MERITS

Cunningham's claims against the Hamilton Parties in the Canadian Complaint can be divided into three categories: (1) federal statutory claims (alleging violations of United States securities fraud, mail fraud, and civil RICO statutes); (2) Canadian statutory claims (alleging violations of Alberta provincial securities laws); and (3) common law claims (alleging fraud, breach of fiduciary duty, negligence, wrongful appropriation of corporate opportunity, and conspiracy). With the exception of Cunningham's corporate opportunity claim (which has been dismissed) the Hamilton Parties contend the applicable limitations periods have run on all claims in each category.

A. Standard of Review

A motion for judgment on the pleadings is designed to dispose of cases where material facts are not in dispute and judgment on the merits can be rendered based on the content of the pleadings and any facts of which the court will take judicial notice. 5A C. Wright & A. Miller, Federal Practice & Procedure § 1367 at 509-10 (1990); 2A J. Moore et al., Moore's Federal Practice ¶ 12.15 at 12-141, applied in Geltman v. Verity, 716 F.Supp. 491, 491 (D.Colo.1989) (Carrigan, J.). A Rule 12(c) motion may be of particular value when the statute of limitations provides an effective bar to a party's claims and the entire controversy could be disposed of by a pretrial summary motion. Wright & Miller, supra at 511 & n. 9 (citations omitted).

In reviewing a Rule 12(c) motion,

all well-pleaded material allegations of the opposing party's pleadings are to be taken as true, and all allegations of the moving party that are denied are taken as false. Judgment on the pleadings may be granted only if, on the facts so admitted, the moving party is clearly entitled to judgment.

Geltman, 716 F.Supp. at 491. Applying this standard, the following facts govern the statute of limitations analysis in this case:

• The transactions giving rise to Cunningham's claims against the Hamilton Parties took place on October 15, 1979 (the ExCo Transaction) and September 14, 1984 (the Volvo Transaction). See Cunningham's Canadian Compl. ¶¶ 7, 11, 37; Def.'s Am. Countercl. & Jury Demand ("Counterclaim") ¶¶ 27, 33.

• Cunningham did not discover his claims until he heard testimony about the ExCo and Volvo Transactions during the trial in a related case in March 1988.⁶ Counterclaim ¶¶ 30, 41.

B. Cunningham's Statutory Claims

1. Federal Securities Fraud

Cunningham's Canadian Complaint alleges violations of §§ 10(b) and 14(a) of the Securities Exchange Act of 1934. Statement of Claim ¶¶ 22, 25. The Hamilton Parties assert a one-year/three-year limitations period applies to these claims. Pls.' Mot. J. Pldgs. at 7 (citing Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 362, 111 S.Ct. 2773, 2781, 115 L.Ed.2d 321 (1991); Westinghouse Elec. Corp. v. Franklin, 993 F.2d 349, 353 (3d Cir.1993); Ceres Partners v. GEL Assoc., 918 F.2d 349, 361-64 (2d Cir.1990)). The one-year limitations period accrues upon discovery by plaintiff of the facts constituting the alleged fraud. The three-year limitations period runs from the date of the actual violation and constitutes the maximum time period in which a federal securities claim may be brought. There is no equitable tolling of the three-year period. Lampf, 501 U.S. at 363, 111 S.Ct. at 2782.

Under Lampf and its progeny, the one-year/three-year limitations period governs both Cunningham's § 10(b) and § 14(a) claims under the Act. Applying this limitations period to the operative facts of this case, Cunningham's securities fraud claims based on the 1979 ExCo Transaction were time-barred on October 15, 1982 and his claims based on the 1984 Volvo Transaction were time-barred on September 14, 1987.

2. Cunningham's Mail Fraud Claim

The general five-year statute of limitations for non-capital crimes applies to criminal prosecutions under the mail fraud statute, 18 U.S.C. § 1341. See 18 U.S.C. § 3282, applied in United States v. Blosser, 440 F.2d 697, 699 (10th Cir.1971). The Hamilton Parties assert there is no private right of action under the statute,⁷ but argue if there were, the general five-year limitations period would apply. The general limitations period begins to run upon completion of the crime, Pendergast v. United States, 317 U.S. 412, 418, 63 S.Ct. 268, 270, 87 L.Ed. 368 (1943), or, in the case of mail fraud, from the date of mailing. There is no discovery rule.

In his Canadian Complaint, Cunningham alleges Plaintiffs committed mail fraud by making material misrepresentations or omissions in a 1979 mailing relating to the ExCo Transaction. Canadian Compl. ¶ 25. Accordingly, even if there were a private right of action for mail fraud, Cunningham's claim would have been time-barred in 1984.

3. RICO

RICO claims are subject to a four-year statute of limitations. Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987). The period may be tolled by application of the discovery rule. Bath v. Bushkin, Gaims, Gaines & Jonas, 913 F.2d 817, 820-21 (10th Cir.1990). Taking as true...