Majeski v. Balcor Entertainment Co. Ltd., Civ. A. No. 88-C-1079

• Decision Date: 11 March 1992
• Docket Number: 89-C-1315.,Civ. A. No. 88-C-1079
• Citation: 786 F. Supp. 1458
• Parties: Ralph MAJESKI, Joseph Yach, Janice Waisman, Larry R. Peterson, Thomas Weil, Lee Aldridge, Randy Karpinsky, Kenneth Kulas, Robb S. Elliott and Raymond Harding, Plaintiffs, v. BALCOR ENTERTAINMENT COMPANY LTD., an Illinois corporation; Shearson Lehman Hutton, Inc., f/k/a Shearson Lehman Brothers, Inc., and f/k/a Shearson Lehman/American Express, Inc., a Delaware corporation; the Balcor Company, an Illinois corporation; Balcor/American Express Inc., an Illinois corporation; Balcor Securities Company, an Illinois corporation, the American Express Company, a New York corporation; New World Pictures, Ltd., a California corporation, and Balcor Film Investors, an Illinois Limited Partnership, Defendants. Robert ECKSTEIN and Sylvia Eckstein, on Behalf of themselves and all others similarly situated, Plaintiffs, v. BALCOR FILM INVESTORS, Balcor Entertainment Company, the Balcor Company, the Balcor Securities Company, Jerry M. Reinsdorf, Robert A. Judelson, James E. Finley, Gregory S. Junkin, Barry R. Jackson, Joseph A. Kruszynski, New World Entertainment, Ltd., Lawrence L. Kuppin, Robert Rehme, and Harry E. Sloan, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

786 F. Supp. 1458

Ralph MAJESKI, Joseph Yach, Janice Waisman, Larry R. Peterson, Thomas Weil, Lee Aldridge, Randy Karpinsky, Kenneth Kulas, Robb S. Elliott and Raymond Harding, Plaintiffs, v. BALCOR ENTERTAINMENT COMPANY LTD., an Illinois corporation; Shearson Lehman Hutton, Inc., f/k/a Shearson Lehman Brothers, Inc., and f/k/a Shearson Lehman/American Express, Inc., a Delaware corporation; the Balcor Company, an Illinois corporation; Balcor/American Express Inc., an Illinois corporation; Balcor Securities Company, an Illinois corporation, the American Express Company, a New York corporation; New World Pictures, Ltd., a California corporation, and Balcor Film Investors, an Illinois Limited Partnership, Defendants.

Robert ECKSTEIN and Sylvia Eckstein, on Behalf of themselves and all others similarly situated, Plaintiffs, v. BALCOR FILM INVESTORS, Balcor Entertainment Company, the Balcor Company, the Balcor Securities Company, Jerry M. Reinsdorf, Robert A. Judelson, James E. Finley, Gregory S. Junkin, Barry R. Jackson, Joseph A. Kruszynski, New World Entertainment, Ltd., Lawrence L. Kuppin, Robert Rehme, and Harry E. Sloan, Defendants.

Civ. A. Nos. 88-C-1079, 89-C-1315.

United States District Court, E.D. Wisconsin.

March 11, 1992.

George P. Kersten, E. Campion Kersten, Bruce J. Landgraf, Kersten & McKinnon, Jerry H. Friedland (of counsel), Galanis & Friedland, Milwaukee, Wis., Michael S. Glassman, Clemens, Glassman & Clemens, Los Angeles, Cal., Robin F. Zwerling, Zwerling, Schachter & Zwerling, Jules Brody, Stull, Stull & Brody, New York City, for plaintiffs.

Steven Bashwiner, Mary Ellen Hennessy, Katten Muchin & Zavis, Chicago, Ill., Ross A. Anderson, Frisch Dudek Ltd., Milwaukee, Wis., Dennis Perluss, Hufstedler, Miller, Kaus & Beardsley, Los Angeles, Cal., Robert J. Walner, Gen. Counsel, The Balcor Co., Skokie, Ill., H. Nicholas Berberian, Robert Mandel, Neal Gerber & Eisenberg, Chicago, Ill., Terry E. Mitchell, Mitchell, Baxter & Zieger, Milwaukee, Wis., John A. Lawrence, Richman, Lawrence & Mann, Beverly Hills, Cal., Robert B. Ulrich, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for defendants.

DECISION AND ORDER

REYNOLDS, Senior District Judge.

INTRODUCTION

This action concerns a public offering of limited partnership interests in Balcor Film Investors ("BFI"). BFI was formed to produce and distribute movies pursuant to an agreement with a motion picture company, New World Entertainment, Ltd. ("New World"). The initial offering was unsuccessful, and the Securities Exchange Commission required that the purchases of BFI interests be cancelled. On October 11, 1985, the prospectus was amended to make a second offering and to seek resubscription by previous investors. The interests were sold between October 11, 1985, and December 31, 1985. Both the Majeski and Eckstein classes¹ allege that the defendants violated § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 by portraying the BFI investment as "safe and conservative." This court concludes, as discussed below, that the defendants adequately conveyed the risky nature of the BFI investment.

Presently before the court is the defendants' November 5, 1991 motion for partial summary judgment on all remaining federal claims in both Majeski and Eckstein. This court previously dismissed the Majeski class claims that the defendants violated §§ 17(a) and 12(2) of the Securities Act of 1933. The only additional federal claim alleged by the Majeski class is that the defendants violated § 10(b) and Rule 10b-5. The Eckstein class only alleges violations of § 10(b) and Rule 10b-5 in its complaint. The defendants argue that the federal securities law claims under § 10(b) and Rule 10b-5 alleged in both Majeski and Eckstein are barred by the statute of limitations in light of a recent Supreme Court decision, Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991) ("Lampf").

In Lampf, the Supreme Court established a uniform statute of limitations for Section 10(b) claims that "litigation instituted pursuant to § 10(b) and Rule 10b-5 ... must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation." Lampf 111 S.Ct. at 2782 (footnote omitted). The Supreme Court applied this rule retroactively.

On December 20, 1991, the President signed Senate Bill 543 into law, which essentially overruled Lampf. The new law states that:

The limitation period for any private civil action implied under section 10(b) of this Act that was commenced on or before June 19, 1991, shall be the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991.

Federal Deposit Insurance Corporation Improvement Act of 1991, Public L. No. 102-242, § 476, 105 Statutes 2236, 2387 (1991).

The defendants argue that the Majeski and Eckstein classes knew or should have known of their claim in 1985 when they received the BFI prospectus, which contained high risk disclosures; these high risk disclosures would have been in conflict with the "safe and conservative" investment portrayal which the plaintiffs allege the defendants made. Because the last possible day of sale for BFI investments and of receipt of the prospectus was December 31, 1985, any claim accruing at this time had to be filed by December 31, 1988, to meet the three-year prong of the statute of limitations, as this court discusses below. Alternatively, the defendants argue that the plaintiffs knew or should have known of their claim no later than May 14, 1987, when the plaintiffs received a report that BFI had produced all its films, and had a net loss of $14 million. Any claim accruing at this time had to be filed by May 14, 1988, to meet the one-year prong of the statute of limitations, as this court discusses below.

ANALYSIS

Rule 56(c) of the Federal Rules of Civil Procedure provides that a federal district court shall grant a motion for summary judgment if the pleadings, depositions, answers to interrogatories, admissions, and affidavits indicate that no material facts are in dispute and that the moving party is entitled to judgment as a matter of law. Howland v. Kilquist, 833 F.2d 639, 642 (7th Cir.1987). The party moving the court for summary judgment has the burden of proving that no material facts are in dispute, and the court must review the record with all reasonable inferences being drawn in favor of the non-moving party. Becker v. Tenenbaum-Hill Associates, Inc., 914 F.2d 107, 110 (7th Cir.1990); Reardon v. Wroan, 811 F.2d 1025, 1027 (7th Cir.1987).

Applicable Law

The Eckstein class argues that since its complaint was originally filed on February 10, 1989, in the Ninth Circuit, the Ninth Circuit's statute of limitations should be applied. California Code of Civil Procedure § 338(d), which the Ninth Circuit has borrowed for 10(b) purposes, allows actions filed within three years of discovery of the facts constituting fraud.

The defendants argue that the new law mandates that "the jurisdiction" is the Seventh Circuit. This court agrees with the defendants; the Seventh Circuit was "the jurisdiction" for this action as of June 19, 1991. Additionally, this court's earlier analysis and conclusion that Seventh Circuit law applies to the Eckstein class is still applicable. See Eckstein v. Balcor Film Investors, 740 F.Supp. 572 (E.D.Wis.1990). Thus, the Seventh Circuit law as it existed on June 19, 1991 applies.

The relevant Seventh Circuit case is Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir.1990), cert. den., ___ U.S. ___, 111 S.Ct. 2887, 115 L.Ed.2d 1052 (1991) ("Short"). In Short, the Seventh Circuit decided to change its practice of consulting state blue sky statutes to determine the statute of limitations for actions brought under § 10(b) and Rule 10b-5. The court held that § 13 of the Securities Act of 1933 is the controlling statute of limitations for actions under § 10(b) and Rule 10b-5. Id. at 1389. That statute provides:

No action shall be maintained to enforce any liability ... 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.... In no event shall any such action be brought to enforce a liability created ... more than three years after the sale.

Short at 1390. In Short, the Seventh Circuit applied this statute of limitations to the plaintiff in that case. The Seventh Circuit specifically declined to determine whether its decision should be applied retroactively to other actions.

All the parties in this action discuss Chevron Oil v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), in which the Supreme Court established three factors to consider when determining whether newly-created court law should be applied retroactively: (1) whether the decision "establishes 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" (citations omitted); (2) "whether the retrospective operation will further or retard its the new rule's operation" (citation omitted); and (3) whether the retroactive application "could produce substantial inequitable results" (citation omitted). Id. at 106-107, 92 S.Ct. at 355-356.

While the Seventh Circuit has not yet addressed the issue of whether the Short decision should be applied retroactively, this court has applied Short retroactively when no reliance on the formerly applicable statute of limitations has been shown. See Wentzka v. Gellman, 759 F.Supp. 484, 487 (E.D.Wis.1991).

In a recent decision, the Supreme Court greatly reduced, if not abolished, the impact of Chevron Oil when it held that "it is error to refuse to apply a rule of federal law retroactively after the case...