Henley v. Slone

• Decision Date: 02 October 1991
• Docket Number: Civ. No. N-89-458 (TFGD).
• Citation: 774 F. Supp. 98
• Court: U.S. District Court — District of Connecticut
• Parties: Julian HENLEY, Plaintiff, v. William SLONE and Advest, Inc., Defendants.

774 F. Supp. 98

Julian HENLEY, Plaintiff, v. William SLONE and Advest, Inc., Defendants.

Civ. No. N-89-458 (TFGD).

United States District Court, D. Connecticut, Bridgeport Division.

October 2, 1991.

Eliot B. Gersten, Andrea A. Hewitt, Hartford, Conn., for Julian Henley.

Michael J. Dodson, Greene, Turk & Lahm, Wethersfield, Conn., for William Slone.

Dean M. Cordiano, Joseph L. Hammer, Day, Berry & Howard, Hartford, Conn., for Advest, Inc.

MEMORANDUM OF DECISION

DALY, District Judge.

At the Court's request, the parties in the above-captioned matter appeared before it on September 23, 1991 to argue whether recent United States Supreme Court and Second Circuit case law with respect to the appropriate statute of limitations for actions brought under § 10(b) of the Securities and Exchange Act of 1934 barred this securities fraud case from proceeding to trial.¹ After careful review of the parties' submissions, both oral and written, and for the reasons set forth below, the Court concludes that recent case law compels a finding that plaintiff's federal claims are timebarred. Accordingly, the Court hereby orders counts one and two of plaintiff's complaint dismissed. The Court further orders count three of plaintiff's complaint dismissed as lacking a basis for pendent jurisdiction.

BACKGROUND

On September 12, 1989, Julian Henley ("plaintiff") filed suit against defendants William Slone ("Slone") and Advest, Inc. ("Advest"), alleging securities fraud violations under both federal and state law. See 15 U.S.C. § 78j (§ 10(b) of Securities and Exchange Act of 1934); 17 C.F.R. §§ 240.10b-5, 240.10b-16; C.G.S.A. §§ 36-472, 36-498(a)(2). The gravamen of plaintiff's claim is that while employed by Advest, his broker Slone not only bought securities on margin for his account without his permission or knowledge but that he also accomplished these purchases by forging plaintiff's name on a margin statement. Plaintiff's claim against Advest is essentially based on the doctrine of respondeat superior.

In its answer, Advest pleaded the statute of limitations as an affirmative defense. Although Slone did not raise this defense in his original answer, he filed a request for leave to amend his answer to plead this defense and two others just prior to the September 23, 1991 oral argument. Finding no bad faith by Slone or undue prejudice to Henley and recognizing the mandate of Federal Rule of Civil Procedure 15(a) that leave to amend be freely given when justice so requires, the Court granted Slone's motion.

DISCUSSION

On June 20, 1991, the Supreme Court held that actions brought pursuant to § 10(b) of the Securities and Exchange Act of 1934 must be commenced within one year of discovery and not more than three years after accrual of the action. Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991) ("Lampf"). The previous year, the Second Circuit Court of Appeals had adopted the same statute of limitations. See Ceres Partners v. GEL Assocs., 918 F.2d 349 (2d Cir.1990).² The initial issue before this Court is whether this new statute of limitations rule applies retroactively, thereby rendering the federal claims in this case time-barred.

The Second Circuit initially held in Welch v. Cadre Capital that the "one-year/three-year" rule established in Ceres did not apply retroactively. On certiorari, however, the Supreme Court vacated the Circuit Court's decision and remanded the matter for further consideration in light of the Supreme Court's rulings in Lampf and James B. Beam Distilling Company v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991) ("Jim Beam"). Welch v. Cadre Capital, 923 F.2d 989 (2d Cir.), vacated and remanded sub nom. Northwest Savings Bank v. Welch, ___ U.S. ___, 111 S.Ct. 2882, 115 L.Ed.2d 1048 (1991). In Jim Beam, the Supreme Court held that "when 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." Jim Beam, ___ U.S. at ___, 111 S.Ct. at 2448.

There is no question that the Supreme Court applied the new statute of limitations to the parties involved in Lampf. The Court reversed the Court of Appeals, holding that the plaintiffs' claims were untimely under the statute of limitations. Lampf, ___ U.S. at ___, 111 S.Ct. at 2782. In fact, this holding provoked a dissent by Justice O'Connor, who wrote a separate opinion "to express her disagreement with the Court's decision ... to apply the new limitations period in this case." Id. ___ U.S. at ___, 111 S.Ct. at 2785 (O'Connor, J., dissenting) (emphasis in original). Given that the Lampf Court applied the new statute of limitations to the parties in that case, Jim Beam dictates that the limitation be applied retroactively to all other parties. Following this analysis, while plaintiff's claims were arguably timely filed on September 12, 1989 under the previous statute of limitations, they are now time-barred.³

Essentially conceding the retroactive application of Lampf and Ceres, plaintiff raises two additional arguments why the statute of limitations should not bar his § 10(b) claims. First, plaintiff asserts that Advest waived the statute of limitations by failing to pursue the defense in its pretrial memorandum. The Court finds this argument unavailing. The Second Circuit has consistently held that the statute of limitations is an affirmative defense under Federal Rule of Civil Procedure 8(c), that is waived only if not asserted in a party's responsive pleadings. Wade v. Orange County Sheriff's Office, 844 F.2d 951, 955 (2d Cir.1988); Davis v. Bryan, 810 F.2d 42, 44 (2d Cir. 1987) (citing Santos v. District Council, 619 F.2d 963, 967 n. 5 (2d Cir.1980)).⁴ Raising the defense in a "boilerplate" fashion is sufficient. Kulzer v. Pittsburgh-Corning Corp., 942 F.2d 122, 125 (2d Cir.1991) (statute of limitations defense sufficiently pleaded when raised in answer but not pursued in pretrial memoranda). The defense "need not be articulated with any rigorous degree of specificity," and is sufficiently raised by its "`bare assertion.'" Id. (quoting Santos, 619 F.2d at 967) (emphasis in original).

The cases cited by plaintiff provide no support for his assertion that a defendant waives the statute of limitations defense when, having properly pleaded the defense in the answer, the defendant fails to pursue it in the pretrial memorandum. In Canal Insurance Company v. First General Insurance Company, 889 F.2d 604 (5th Cir.1989), the defendant implicitly waived an affirmative defense raised in the answer where, in the pretrial memorandum, it stipulated to a fact directly in conflict with the affirmative defense raised in the answer. Id. at 609 (defendant's defense of failure to plead fraud with particularity waived when the defendant stipulated in the pretrial memorandum that the insurance policy at issue was in full force and effect). Randolph County v. Alabama Power Company is similarly distinguishable. 784 F.2d 1067 (11th Cir.1986), cert. denied, 479 U.S. 1032, 107 S.Ct. 878, 93 L.Ed.2d 833 (1987). In Randolph County, the Eleventh Circuit Court of Appeals held that a district court has discretion to exclude factual allegations not set forth in the pretrial memorandum. Id. at 1072. Nothing in that opinion, however, supports plaintiff's assertion that a defendant waives a properly pleaded legal defense not pursued in the trial memorandum. Finally, the holding in Heiar v. Crawford County, 746 F.2d 1190 (7th Cir.1984), cert. denied, 472 U.S. 1027, 105 S.Ct. 3500, 87 L.Ed.2d 631 (1985), is inconsistent with the law in the Second Circuit. The Seventh Circuit Court of Appeals stated in Heiar that even though the statute of limitations was raised in the answer, the defendant waived the defense by not pursuing it with particularity in the pretrial memorandum. Id. at 1196. This holding conflicts with the Second Circuit's recent statement in Kulzer that the statute of limitations is sufficiently pleaded by its "`bare assertion.'" Kulzer, at 125. Here, defendant has taken no explicit action that would constitute waiver of the defense. Thus, there is no basis for concluding that Advest waived the statute of limitations defense by not reasserting it in its pretrial memorandum.

Plaintiff next argues that even if Advest did not waive the defense, his claim is not time barred because the one-year statute of limitations did not begin to run until August 2, 1989, when he obtained a legible copy of the forged margin statement. Plaintiff asserts that only at that time did he "discover" the facts necessary to trigger the running of the statute of limitations and that his filing of the complaint approximately six weeks later, on September 12, 1989, was thus a timely one. This argument, however, does not hold up under close scrutiny.

The statute of limitations begins to run in a federal securities fraud action once the plaintiff has actual knowledge of the alleged fraud or knowledge of facts which in the exercise of reasonable diligence should have led to actual knowledge. Phillips v. Levie, 593 F.2d 459, 462 (2d Cir. 1979). While this determination may require a factual inquiry, an action may be dismissed based on a statute of limitations defense "when it is clear on the face of the pleadings that the action was not timely commenced." See Klein v. Goetzmann, 770 F.Supp. 78 Fed.Sec.L.Rep. (CCH) ¶ 96,204 at 91,072 1990-91 Transfer Binder (N.D.N.Y. 1991).

In order to state a fraud claim under § 10(b), plaintiff must allege conduct by the defendant that is "manipulative or deceptive." Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 473-74, 97 S.Ct. 1292, 1301, 51 L.Ed.2d 480 (1977). "In situations not involving a manipulative scheme, the conduct alleged as fraudulent must include deception, misrepresentation, or nondisclosure. ..." Pross v. Baird, Patrick & Co., 585 F.Supp. 1456, 1459 (S.D.N.Y.1984) (citing ...