In re National Smelting of New Jersey, Inc., Civ. A. No. 84-3199.

• Citation: 722 F. Supp. 152
• Decision Date: 30 June 1989
• Docket Number: Civ. A. No. 84-3199.
• Parties: In re NATIONAL SMELTING OF NEW JERSEY, INC. BONDHOLDERS' LITIGATION.
• Court: U.S. District Court — District of New Jersey

722 F. Supp. 152

In re NATIONAL SMELTING OF NEW JERSEY, INC. BONDHOLDERS' LITIGATION.

Civ. A. No. 84-3199.

United States District Court, D. New Jersey.

June 30, 1989.

COPYRIGHT MATERIAL OMITTED

Philip B. Seaton, Kozlov, Seaton & Romanini, Cherry Hill, N.J., R. Bruce McNew, Christopher T. Reyna, Greenfield & Chimicles, Haverford, Pa., for plaintiffs.

William J. Prout, Jr., Tompkins, McGuire & Wachenfeld, Newark, N.J., for defendant Boris Gresov.

Joseph Polino, Mt. Holly, N.J., for defendants Robert Puckett and Edward Puckett.

Kathy M. Hooke, Salvatore T. Alfano, Clapp & Eisenberg, Newark, N.J., for defendant Aaron Holman.

Scott Univer, Arthur Young & Co., New York City, for third-party defendant Arthur Young & Co.

Eileen Lindsay, Pitney, Hardin, Kipp & Szuch, Morristown, N.J., for third-party defendants Windels, Marx, Davies & Ives and James Conroy.

A. Richard Ross, John Gilfillan, III, Carella, Byrne, Bain & Gilfillan, Roseland, N.J., for third-party defendant Michael Thomas.

OPINION AND ORDER

GERRY, Chief Judge.

As the trial date of this five-year old class action securities case nears, the court is presented with a flurry of last minute motions for summary judgment. To say that this matter has generated substantial motion practice during its long life would be an understatement: we note that the docket sheet compiled by the clerk of the court on this case runs over 30 pages and currently contains 937 entries. There is little need, therefore, for a lengthy recitation of the factual allegations and procedural history of this litigation.

The plaintiff contends, inter alia, that the Preliminary Official Statement ("POS") and Official Statement ("OS") issued to prospective bondholders contained misrepresentations and omissions on which they ("the plaintiffs") relied to their injury when the company which received the bond proceeds, National Smelting of New Jersey ("NSNJ"), became insolvent and its assets virtually worthless.

Boiled down, the plaintiffs' central theory of liability is this: the OS and POS implied that much of the bond proceeds— some $3.9 million of a total $6.6 million— were to be used by NSNJ to purchase a lead smelting and refining plant in Pedricktown, New Jersey. (Prior to the purchase, the plant was owned by defendant N.L. Industries, Inc. ("NL").) Thus, prospective investors were led to believe that the plant, which was to secure the bonds, was worth at least $3.9 million. In fact, the plaintiffs charge, the plant was worth substantially less than $3.9 million, and the purchase price covered not only the acquisition of the plant but the relinquishing, by NL, of obligations owed NL by NSNJ's parent company National Smelting & Refining ("NSR") and by the Standard Metals Corporation ("SMC"), which owned 50% of NSR. The plaintiffs further claim that the OS failed to disclose information which tended to show that the plant was worth less than $3.9 million and additionally failed to describe the "other transactions" which were funded by the $3.9 million.

After being pared down by motion practice and other developments,¹ the list of defendants currently include Boris Gresov, CEO and Chairman of the Board of Standard Metals Corporation and Director of NSR; Robert L. Puckett, CEO and Director of NSR and NSNJ; Edward L. Puckett, Vice President and Director of NSR and NSNJ; and Aaron Holman, Treasurer of SMC and Director of NSR.

Gresov has filed a third-party complaint against Arthur Young & Company who served as certified public accountants to NSNJ and independent outside auditors to NSR; and Michael Thomas, general partner of Standard Ventures Limited Partnership ("SVLP"), which (according to the OS) acted as an "acquisition advisor" on the Pedricktown deal.

In addition, Holman has impleaded the law firm of Windels, Marx, Davies & Ives and James P. Conroy, Esq. (a member of the Windels firm). Windels and Conroy acted as legal counsel to SMC.

Presently before us are motions for summary judgment on behalf of defendants Holman and the Pucketts. Also, third-party defendants Arthur Young & Company, Michael Thomas and Windels and Conroy seek summary judgment on the third-party complaints of Gresov and Holman, respectively. Finally, defendant Gresov and third-party defendants Conroy and Windels urge dismissal of Alston and Birds' claim for contribution against them which, by the terms of settlement between Alston & Bird and the plaintiff class, has been assigned to the plaintiffs.

Legal Analysis

Summary judgment may be granted only when the record shows that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. Hersh v. Allen Products Co., 789 F.2d 230, 232 (3d Cir.1986).

A genuine issue of material fact is created where the non-moving party adduces sufficient evidence in opposition to a motion against him to support a reasonable jury verdict in his favor. Id. at 248, 211-212. In evaluating whether he has met his burden, the evidence is viewed in the light most favorable to the non-moving party. White v. Westinghouse Electric, 862 F.2d 56, 59 (3d Cir.1988), (rehearing den. Jan. 5, 1989). The allegations of the non-moving party are accepted as true, and any conflicts are resolved in his favor. Id., citing Gans v. Mundy, 762 F.2d 338, 340 (3d Cir.), cert. denied, 474 U.S. 1010, 106 S.Ct. 537, 88 L.Ed.2d 467 (1985). Inferences to be drawn from the evidence must be viewed in the light most favorable to the non-moving party. Id. However, when faced with a properly presented motion for summary judgment, the non-moving party is required "to go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

Similarly, with regard to the motions to dismiss, "the accepted rule is that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).

With these principles in mind, we discuss the motions before us seriatim.

I. Defendant Holman's Motion for Summary Judgment

A. Statute of Limitations

Defendant Holman's first argument in support of his motion for summary judgment is based on the Third Circuit Court of Appeal's en banc decision in In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir.) (en banc), cert. denied sub. nom, Vitriella v. I. Kahlowsky, ___ U.S. ___, 109 S.Ct. 131, 102 L.Ed.2d 103 (1988). Abandoning the frustrating and tedious procedure of adopting the most analogous state statute of limitations period and applying it to claims under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), the Third Circuit held that "the proper period of limitations for a complaint charging violation of section 10(b) and Rule 10b-5 is one year after the plaintiff discovers the facts constituting the violation and in no event more than three years after such violation." Id. at 1550 (the "one-three rule").

Holman contends that the plaintiffs were aware of the facts upon which they based their claim against him at least as early as April 30, 1984, approximately 15 months before plaintiff's July 19, 1985 complaint naming Holman as a defendant. Therefore, if we apply Data Access retroactively, as Holman insists we must, the plaintiff class's claims are time-barred.

To resolve this issue, we must answer essentially two questions. First, should Data Access apply retroactively in the context of this case? Second, at what point did or should the plaintiff class have possessed such facts about Holman's potential culpability as to trigger the running of the statute of limitations?

Our answer to the first question depends on the application of three factors articulated by the Supreme Court in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971). These factors are premised on a general assumption that judicial decisions should apply retroactively. To apply Data Access non-retroactively under the Chevron test:

(1) its holding must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed;

(2) we must weigh the merits and demerits of this case by looking to the history of the rule in dispute, its purpose and effect, and whether retrospective operation will further or retard the rule's operation; and

(3) retrospective application of Data Access must create the risk of producing substantially inequitable results.

Chevron Oil Co., 404 U.S. at 106-107, 92 S.Ct. at 355-56; Hill v. Equitable Trust Co., 851 F.2d 691, 696 (3d Cir.1988), cert. denied, ___ U.S. ___, 109 S.Ct. 791, 102 L.Ed.2d 782.

Defendant Holman insists that our task is a simple one in light of the decision of a panel of the Third Circuit in Hill. Holman argues that Hill stands firmly for the proposition that Data Access did not overrule clear precedent upon which § 10(b) plaintiffs could have reasonably relied, and therefore we must find that the first Chevron factor counsels against non-retroactive application of Data Access here. Unfortunately for Holman, we do not read Hill as standing for such a broad proposition.

Hill involved an appeal by a group of Maryland resident plaintiffs whose § 10(b) claims were dismissed as time-barred. Referring to Delaware's borrowing statute, Senior District Judge Latchum had determined that Maryland law provided the applicable statute of limitations to be applied to the Maryland plaintiffs' claims, and that the Maryland Blue Sky Law was the Maryland state law most analogous to the plaintiff's § 10(b) claim.²...