LeCroy v. Dean Witter Reynolds, Inc.

• Decision Date: 01 February 1984
• Docket Number: No. LR-C-81-415.,LR-C-81-415.
• Citation: 585 F. Supp. 753
• Parties: Ruth Brooks LeCROY, Plaintiff, v. DEAN WITTER REYNOLDS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

585 F. Supp. 753

Ruth Brooks LeCROY, Plaintiff, v. DEAN WITTER REYNOLDS, INC., Defendant.

No. LR-C-81-415.

United States District Court, E.D. Arkansas, W.D.

February 1, 1984.

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Wesley Ketz, Jr., Batesville, Ark., for plaintiff.

Peter Kumpe, Wright, Lindsey & Jennings, Little Rock, Ark., for defendant.

MEMORANDUM AND ORDER

EISELE, Chief Judge.

Pending before the Court is defendant's motion for partial summary judgment. For the reasons stated below, the motion will be granted in part and denied in part.

This case involves the sale of certain securities by Dean Witter Reynolds, Inc., the defendant, to Ms. Ruth LeCroy, the plaintiff. Ms. LeCroy's complaint includes nine causes of action premised on the Securities Act of 1933, the Securities Exchange Act of 1934, the Arkansas Securities Act of 1959, and the Arkansas common law theories of fraud and intentional infliction of emotional distress. Though the bases for liability are numerous, the gist of Ms. LeCroy's complaint is quite simple.

Ms. LeCroy claims that in September of 1978 she was approached by an agent of the defendant about investing some of her savings. She states that, being of advanced age, she was interested in investing her savings in a way that would secure for her a monthly income. Specifically, she states she informed defendant's agent that: (1) she was advanced in years and did not want any long-term investments; (2) she needed a return on her investment that would be greater than a return she could obtain from a savings account; and (3) she wanted her principal available for use in case it was needed. She ultimately tendered $25,128.02 to defendant who purchased for her 25 units of a security known as The Corporate Income Fund ("Fund").

Ms. LeCroy apparently became dissatisfied with the securities purchased and brought this suit on July 1, 1981, on the grounds that: (1) the Fund is a long-term investment not suited to the needs she made expressly known to defendant; (2) the monthly income from the Fund was approximately $190, a sum less than that she desired and could have obtained from a savings account; and (3) the Fund did not mature for 26 years during which time the value of her principal diminishes and access to her principal is impaired.

In short, Ms. LeCroy claims defendant purchased securities of a type she expressly stated she did not desire and therefore seeks a recission of the sale, actual damages in the amount of $25,128.02, interest on that sum at 6% per annum, punitive damages of $1,000,000, compensatory damages for personal injury and mental and emotional distress in the amount of $150,000 and costs and attorney's fees.

It is important to keep in mind what the plaintiff is not alleging. She is not claiming that the Fund shares themselves were valueless or had some value less than what she paid. Nor does she claim that the Fund itself is valueless or exists to defraud its shareholders. She asserts only that these securities, that is, shares of the Fund, were not the securities she bargained for, and that she was defrauded into purchasing them.

The defendant has moved for partial summary judgment on three points. First, it contends that the plaintiff's first two causes of action, which stem from alleged violations of section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, are barred by the applicable statute of limitations. Second, it urges the Court to dismiss plaintiff's claim for intentional infliction of emotional distress. Third, it requests the Court to make a ruling setting forth the maximum amount of damages that the plaintiff may recover if the defendant is found liable for plaintiff's third, fourth, fifth, sixth and eighth causes of action.

As a preliminary matter, the Court recognizes the drastic nature of the summary judgment remedy. The Court may grant summary judgment only if "the moving party has established his right to a judgment with such clarity as to leave no room for controversy and the non-moving party is not entitled to recover under any discernible circumstances." Butler v. MFA Life Insurance Co., 591 F.2d 448, 451 (8th Cir.1979). Furthermore, the Court must view all the evidence in the light most favorable to the non-moving party, Camfield Tires, Inc. v. Michelin Tire Corp., 719 F.2d 1361, 1364 (8th Cir.1983), in determining whether a genuine issue of material fact exists that would preclude the entry of summary judgment. In the context of defendant's statute of limitations defenses, the Court notes that summary judgment is appropriate if the action is clearly barred, but that if the running or tolling of the statute requires the adjudication of facts, summary judgment is inappropriate. See Admiralty Fund v. Jones, 677 F.2d 1289, 1293 (9th Cir.1982) (citing C. Wright & A. Miller, Federal Practice and Procedure § 2734 at 647-48 (1973)). Although cognizant of these strictures on the availability of the summary judgment remedy, the Court nevertheless finds that defendant's motion must be granted in part and denied in part.

I. Statute of Limitations

The defendant contends that the applicable statute of limitations bars plaintiff's first and second causes of action. The plaintiff's first two causes of action are both premised on § 5(b)(2) of the 1933 Securities Act. Section 5(b)(2) prohibits any person from selling or delivering a security unless the security is preceded or accompanied by a properly-drawn prospectus. The plaintiff contends that in September of 1978 the defendant delivered two securities to her without providing her with the required prospectuses.

Technically, the plaintiff is required to plead and prove compliance with the statute of limitations. See McMerty v. Burtness, 72 F.R.D. 450, 453 (D.Minn. 1976); L. Loss III Securities Regulation, Ch. 11(C)(1)(f)(ii) at 1744 (2d ed. 1961) (hereinafter cited as "Loss"). See also Cook v. Avien, Inc., 573 F.2d 685, 695 (1st Cir. 1978). Plaintiff's complaint omits any such pleading. Nevertheless, the defendant has raised the issue in its motion for partial summary judgment and in her response, the plaintiff has asserted proper compliance with the applicable limitations periods. The Court will therefore consider whether the plaintiff has in fact timely filed her first two causes of action.

A. Applicable Statutory Provisions

Section 5 provides in pertinent part:

It shall be unlawful for any person, directly or indirectly

* * * * * *

(2) to carry or cause to be carried through the mails or in interstate commerce any such security for the purpose of sale or for delivery after sale, unless accompanied or preceded by a prospectus that meets the requirements of subsection (a) of section 77j of this title.

The provision, standing alone, creates no private cause of action. However, Congress infused life into section 5 by providing under section 12(1), 15 U.S.C. § 77l (1), that a private party may sue for violations of section 5. The applicable statute of limitations for section 12(1), appears in section 13, 15 U.S.C. § 77m, which states:

No action shall be maintained to enforce any liability created under section 77k or 77l(2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 77l(1) of this title, unless brought within one year after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under section 77k or 77l(1) of this title more than three years after the security was bona fide offered to the public, or under section 77l(2) of this title more than three years after the sale.

(emphasis added).

B. One-Year Limitations Period

The defendant contends that the one-year limitations period has run and that consequently the plaintiff's first two causes of action are time-barred. The plaintiff essentially concedes that the complaint was not filed within one year of the date that the securities were offered, sold or delivered. See Mason v. Marshall, 412 F.Supp. 294, 299 (N.D.Tex.1974) (period commences as of the last of these three events), aff'd, 531 F.2d 1274 (5th Cir.1976); Buchholtz v. Renard, 188 F.Supp. 888 (S.D.N.Y.1960). Nevertheless, the plaintiff urges the Court to apply the Federal Equitable Tolling Doctrine and find that her first two causes of action are not barred.

1. Federal Equitable Tolling Doctrine

At the outset, the Court notes that the doctrine has limited application. Equitable tolling is invoked primarily in two situations: where fraud forms the basis of the federal cause of action; and where other non-fraud-based federal causes of action have been concealed by the tort-feasor.¹ See Dyer v. Eastern Trust & Banking Co., 336 F.Supp. 890, 901 (D.Me. 1971). In practical effect, the doctrine tolls the running of the applicable limitations period until the fraud or the fraudulent concealment is (or should have been) discovered by the plaintiff.

Unquestionably, the equitable tolling doctrine applies in the context of statutes of limitations under the federal securities laws. The doctrine, however, must be applied in the light of the particular facts and circumstances and consistently with the policies underlying the cause of action being asserted. The mere fact that the Securities Act was designed largely to proscribe and redress the consequences of fraud in the securities markets does not mean that the equitable tolling doctrine automatically applies in each and every securities case.

The doctrine should obviously apply where a broker/dealer fraudulently conceals any violation of the securities acts (whether or not the underlying violation constitutes fraud).²See Peoria Union Stock Yards Co. v. Penn Mutual Life Insurance Co., 698 F.2d 320, 326 (7th Cir. 1983). Where, however, an investor seeks equitable...