Levine v. NL Industries, Inc.
| Decision Date | 15 February 1991 |
| Docket Number | D,No. 717,717 |
| Parties | , Fed. Sec. L. Rep. P 95,784, 21 Envtl. L. Rep. 20,556 Morton LEVINE, suing individually and on behalf of all other shareholders of NL Industries, Inc. similarly situated, Plaintiff-Appellant, v. NL INDUSTRIES, INC., Defendant-Appellee. ocket 89-7949. |
| Court | U.S. Court of Appeals — Second Circuit |
Rachell Sirota, New York City (Howard B. Sirota, Rabin & Sirota, New York City, of counsel), for plaintiff-appellant.
Stewart D. Aaron, New York City (Richard L. Bond, Stephen B. Camhi, Robert G. Manson, Dorsey & Whitney, New York City, of counsel), for defendant-appellee.
Before LUMBARD, FEINBERG and MAHONEY, Circuit Judges.
This is a class action brought pursuant to section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. Sec. 78j(b)(1988), and Securities and Exchange Commission rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1990), promulgated thereunder. Appellant Morton Levine claims that defendant NL Industries, Inc. ("NL") should have disclosed that its wholly-owned subsidiary, NLO, Inc. ("NLO"), was operating a uranium processing center at Fernald, Ohio (the "Fernald facility") in violation of state and federal environmental laws, and that as a result NL was subjecting itself to significant liability. Levine also claims that NL issued a number of material misrepresentations concerning the performance of its petroleum services business.
The United States District Court for the Southern District of New York, Miriam Goldman Cedarbaum, Judge, granted summary judgment dismissing the environmental claim in an opinion issued July 31, 1989, Levine v. NL Indus., 717 F.Supp. 252 (S.D.N.Y.1989), and granted summary judgment dismissing the petroleum services claim in an opinion issued August 28, 1989, Levine v. NL Indus., 720 F.Supp. 305 (S.D.N.Y.1989). Judgment was then entered dismissing the complaint, from which this appeal was taken.
We affirm the judgment of the district court.
NLO operated the Fernald facility, which was owned by the Department of Energy ("DOE"), from 1951 through 1985 pursuant to a contract between DOE and NLO under which DOE agreed to indemnify NLO for various categories of losses and expenses, including litigation expenses. On December 10, 1984, it was publicly disclosed that uranium dust had been emitted accidentally at the Fernald facility. On January 23, 1985, a class action was brought against NL and NLO by landowners and residents within a five-mile radius of the Fernald facility. In re Fernald Litigation, C-1-85-0149 (S.D.Ohio). On March 11, 1986, the State of Ohio brought a separate action against DOE, NLO and NL seeking clean-up and response costs, residual damages, and civil penalties for alleged violations of various environmental statutes and regulations. See Ohio v. United States Dep't of Energy, 689 F.Supp. 760 (S.D.Ohio 1988) (), aff'd, 904 F.2d 1058 (6th Cir.1990).
Morton Levine commenced this action on May 13, 1986 on behalf of all persons who purchased the common stock of NL between January 27, 1982 and December 10, 1984 (the "class period"). His first claim is that NL should have disclosed that NLO was operating the Fernald facility in violation of state and federal environmental laws, thereby subjecting NL to significant liability.
Petroleum services is one of NL's principal lines of business. Petroleum services companies as a group were highly profitable through 1981, but generally experienced difficulty during the class period. Levine's second claim in this action is that NL made various public statements attributing the downturn in its petroleum services business to temporary factors, thus "minimizing its problems and predicting future favorable results when it internally knew that NL was experiencing deterioration in its business which it internally projected would continue in the future." The last of these allegedly misleading statements occurred in 1984.
Purchasers of NL's common stock during the class period are alleged to have paid inflated prices therefor as a result of the asserted nondisclosures and misrepresentations.
Although the briefing and argument of this appeal was directed primarily to the merits, NL's brief on appeal included a contention that we should affirm the judgment of the district court because Levine's claims are barred by the applicable statute of limitations. NL urged that this court follow the Third Circuit's ruling in In re Data Access Sys. Sec. Litig., 843 F.2d 1537 (3d Cir.) (in banc), cert. denied, 488 U.S. 849, 109 S.Ct. 131, 102 L.Ed.2d 103 (1988), which 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. We subsequently adopted the Data Access rule in Ceres Partners v. GEL Assocs., 918 F.2d 349 (2d Cir.1990). Accordingly, we will first consider the limitations issue, and thereafter the merits.
We note at the outset several references by the district court to a motion by NL to amend its answer to assert a statute of limitations defense. See Levine, 717 F.Supp. at 252; Levine, 720 F.Supp. at 305, 312 n. 1. We do not understand these references. NL's answer clearly states the limitations defense, and the docket sheet does not indicate any motion to amend the answer. Had NL failed to plead the limitations defense in its answer, it would ordinarily be regarded as waived. See Fed.R.Civ.P. 12(b); 5A C. Wright & A. Miller, Federal Practice and Procedure Sec. 1347, at 184 (2d ed.1990). Since, however, this does not appear to us to have been the case, we proceed to consider NL's limitations defense.
In Ceres, this circuit adopted a uniform federal limitations period for the implied rights of action derived from sections 10(b) and 14(d) and (e) of the Exchange Act and rule 10b-5, disavowing our prior practice of borrowing state limitations periods. Ceres, 918 F.2d at 360-64. The limitations rule now applied in this circuit is the one year/three year standard of Data Access that is also provided in the Exchange Act by sections 9(e) and 18(c), 15 U.S.C. Secs. 78i(e) and 78r(c) (1988), for express rights of action under sections 9(e) and 18(a), id. Secs. 78i(e) and 78r(a). Ceres, 918 F.2d at 362-64.
Levine commenced this action on May 13, 1986. The alleged omissions in connection with the Fernald facility were made public on December 10, 1984, when the uranium release was disclosed, or at the very latest January 23, 1985, when In re Fernald Litigation was publicly announced. As to Levine's petroleum services-related claim, the last alleged misrepresentation by NL was made in 1984 and the class period ended on December 10, 1984. Since these dates are more than one year prior to the time when Levine commenced this action, and the events upon which Levine premises this litigation were conspicuously public in nature, the one-year statute of limitations adopted in Ceres would, if applicable, probably bar both of Levine's claims. We conclude, however, that this action is not governed by the limitations rule adopted in Ceres.
As the outcome in Ceres was the same as it would have been through application of state limitations periods in accordance with our prior precedents, Ceres left "for the future all questions concerning retroactive application" of its one-year/three-year statute of limitations. 918 F.2d at 364. We have since addressed those questions in Welch v. Cadre Capital, 923 F.2d 989, 992-95 (2d Cir.1991), a case in which section 10(b) and rule 10b-5 claims had been dismissed by the district court on Ceres limitations grounds.
We reversed. After a careful analysis of the retroactivity issue in terms of the governing three-part test set forth in Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 355, 30 L.Ed.2d 296 (1971), Welch held that Ceres should not be applied retroactively, thus allowing claims to proceed that were brought within the time allowed by pre-Ceres precedents, although not allowed by the rule stated in Ceres. 1 See also Finkel v. The Stratton Corp., 754 F.Supp. 318, 331, 332 (S.D.N.Y.1990) ().
As in Welch, we decline to give Ceres retroactive application here. NL makes no claim that, in the absence of application of the Data Access/Ceres rule, Levine's claim is barred by any applicable statute of limitations. We therefore proceed to the merits.
We first address Levine's claim that NL fraudulently failed to disclose that NLO was operating the Fernald facility in violation of pertinent environmental law. In order for an omission to be actionable, the omitted information must have been material, Basic Inc. v. Levinson, 485 U.S. 224, 231, 108 S.Ct. 978, 983, 99 L.Ed.2d 194 (1988), and there must have been a duty to disclose it, id. at 239 n. 17, 108 S.Ct. at 987 n. 17.
The district court granted NL summary judgment on this claim because it found that NL had no duty to disclose that NLO was operating the Fernald facility in violation of applicable environmental law. Levine, 717 F.Supp. at 257. Levine, on the other hand, contends that NL had a duty to disclose because disclosure was necessary to make several statements in NL's annual reports and form 10-K filings not misleading, and because such a duty was imposed by 17 C.F.R. Secs. 229.101(c)(1)(xii) and 229.103 (1990). With one exception discussed below, we do not examine whether NL had a duty to disclose, because we conclude that Levine's allegations did not satisfy the requirement of materiality.
The Supreme Court has ruled in the context of proxy solicitations that "[a]n omitted fact is material if there is a substantial likelihood that a reasonable...
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