Mathews v. Kidder, Peabody & Co., Inc.

• Citation: 947 F.Supp. 180
• Decision Date: 26 September 1996
• Docket Number: Civil Action No. 95-85.
• Parties: John W. MATHEWS, on behalf of himself and all others similarly situated, Plaintiff, v. KIDDER, PEABODY & CO., INC., a Delaware corporation, KP Realty Inc., a Delaware corporation, HSM, Inc., a Texas corporation, Henry S. Miller Co., Henry S. Miller Management Corporation, Henry S. Miller Appraisal Corporation, HSM Real Estate Securities Corporation, and Miller Real Estate Services Corporation, a Texas corporation, Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

947 F.Supp. 180

John W. MATHEWS, on behalf of himself and all others similarly situated, Plaintiff, v. KIDDER, PEABODY & CO., INC., a Delaware corporation, KP Realty Inc., a Delaware corporation, HSM, Inc., a Texas corporation, Henry S. Miller Co., Henry S. Miller Management Corporation, Henry S. Miller Appraisal Corporation, HSM Real Estate Securities Corporation, and Miller Real Estate Services Corporation, a Texas corporation, Defendants.

Civil Action No. 95-85.

United States District Court, W.D. Pennsylvania.

September 26, 1996.

Picadio, McCall, Kane & Norton, Anthony P. Picadio, Pittsburgh, PA, Thomas W. Henderson, Pittsburgh, PA, for Plaintiff.

Kirkpatrick & Lockhart, David A. Brownlee, Pittsburgh, PA, for Defendant Kidder Peabody, K.P. Realty Advisors.

Thorp, Reed & Armstrong, William M. Wycoff, Pittsburgh, PA, for All Remaining Defendants.

OPINION and

ORDER OF COURT

AMBROSE, District Judge.

Currently pending before the Court is the Motion for Leave to File First Amended Complaint (Docket # 37) filed by Plaintiff John W. Mathews ("Plaintiff Mathews"). Plaintiff Mathews has alleged on behalf of himself and a putative class (excluding Defendants and their directors, officers, agents, servants and affiliates), encompassing "all persons residing in the United States who purchased partnership units in KP/Miller Realty Growth Fund I, KP/Miller Growth Fund II and KP/Miller Realty Growth Fund III in the initial offering of such securities," that the Defendants' actions violated 18 U.S.C. § 1962(b), (c) and (d) of the Racketeer Influenced and Corrupt Organization Act ("RICO") and as well has alleged state law claims of breach of fiduciary duty and negligent misrepresentation. The Defendants, Kidder, Peabody & Co. Incorporated, KP Realty Advisers, Inc., HSM, Inc., Henry S. Miller Co., Henry S. Miller Management Corporation, Henry S. Miller Appraisal Corporation; HSM Real Estate Securities Corporation; and Miller Real Estate Services Corporation (the "Defendants") oppose the Plaintiff's Motion and in addition, ask this Court to dismiss the Plaintiff's Complaint in its entirety pursuant to Fed.R.Civ.P. 12(h)(3) on the theory that the Private Securities Litigation Reform Act of 1995 (the "Reform Act") removes this Court's jurisdiction over the federal claims in this action. For the reasons set forth below, the Plaintiff's Motion for Leave to File First Amended Complaint is granted in part and denied in part.

I. The applicability of the Private Securities Litigation Reform Act of 1995 to this lawsuit.

Plaintiff Mathews seeks to amend his Complaint pursuant to Fed.R.Civ.P. 15 in the following manner: (1) add additional named plaintiffs and (2) add factual allegations. In response, the Defendants have raised numerous legal arguments regarding why the Plaintiff should not be permitted to amend the Complaint.

Section 107 of the Reform Act, the section of the Reform Act that contains the amendment relevant to this case, reads in pertinent part: "[s]ection 1964(c) of Title 18, United States Code, is amended by inserting before the period `, except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962 ...'." 109 Stat. 737, 758 (December 22, 1995). Unamended, 18 U.S.C. § 1964(c) ("§ 1964(c)") read "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." 18 U.S.C. § 1964(c).

The RICO claim contained in the Proposed Complaint against the Defendants is based upon "conduct that would have been actionable as fraud in the purchase or sale of securities." Specifically, Plaintiff Mathews has alleged that in the 1980's, the Defendants devised a scheme to mislead a large number of unsophisticated "Mom and Pop" investors (in excess of 6000), through fraudulent conduct, into purchasing a series of limited partnerships in order to generate excessive fees and income for the Defendants. Ultimately, three limited partnership funds were organized to perpetuate the Defendants' scheme KP/Miller Realty Growth Fund I; KP/Miller Realty Growth Fund II; and KP/Miller Realty Growth Fund III. Sales of these three funds raised approximately $85 million.

The Defendants argue that applying the analysis set forth by the United States Court in Landgraf v. USI Film Products, 511 U.S. 244, ___, 114 S.Ct. 1483, 1497, 128 L.Ed.2d 229 (1994), regarding whether newly enacted statutes should be applied to pending cases, § 107 of the Reform Act should be applied to the Plaintiff's RICO claim because (1) "Congress's elimination of civil RICO as a method of litigating securities fraud cases, the specific wording of the Applicability Provision of the Reform Act [§ 108]¹ and the legislative history surrounding the RICO Amendment and the Applicability Provision all demonstrate Congress's intent that the RICO Amendment should be generally applicable to all cases alleging `conduct that would have been actionable' under the Securities Laws" and (2) even if the intent of Congress to apply § 107 retroactively is not clear, the application of § 107 to this case would not have a "retroactive effect" on Plaintiff Mathews' RICO claim because § 1964(c) is a jurisdictional statute. Defendants' Opposition Brief, pp. 19-20. Indeed, with respect to the Defendants' argument that § 1964(c) is a jurisdictional statute, the Defendants request that I dismiss the Plaintiff's Complaint in its entirety pursuant to Fed.R.Civ.P. 12(h)(3) on the grounds that once the Reform Act was enacted into law by Congress on December 22, 1995, jurisdiction over private civil RICO claims was divested from the district courts and therefore, I no longer have jurisdiction over the Plaintiff's civil RICO claim.

In the Landgraf decision, the Court addressed the standards to be applied when ascertaining the applicability/retroactivity of a new law to cases pending when the law was enacted. Specifically, the Landgraf Court held that the following standard for determining retroactivity of new law to pending cases was to be applied:

[w]hen a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly prescribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed. If the statute would operate retroactively, our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result.

Id. at ___, 114 S.Ct. at 1505. Significantly, for purposes of the case sub judice, in discussing the application of new legislation to pending cases and the issue of "retroactivity," the Landgraf Court further stated that "[w]e have regularly applied intervening statutes conferring or ousting jurisdiction, whether or not jurisdiction lay when the underlying conduct occurred or when the suit was filed" and cited to a number of its previous decisions including Bruner v. United States, 343 U.S. 112, 116-117, 72 S.Ct. 581, 584-85, 96 L.Ed. 786 (1952);² Hallowell v Commons, 239 U.S. 506, 508-09, 36 S.Ct. 202, 203-04, 60 L.Ed. 409 (1916);³ The Assessors v. Osbornes, 9 Wall 567, 575, 19 L.Ed. 748 (1869);⁴ Andrus v. Charlestone Stone Products Co., Inc., 436 U.S. 604, 607-08 n. 6, 98 S.Ct. 2002, 2005 n. 6, 56 L.Ed.2d 570 (1978);⁵ United States v. Alabama, 362 U.S. 602, 604, 80 S.Ct. 924, 926, 4 L.Ed.2d 982 (1960);⁶ and Stephens v. Cherokee Nation, 174 U.S. 445, 478, 19 S.Ct. 722, 734, 43 L.Ed. 1041 (1899).⁷ The Landgraf Court also noted that "[a]pplication of a new jurisdictional rule usually `takes away no substantive right but simply changes the tribunal that is to hear the case'." Id. at ___, 114 S.Ct. at 1502, citing, Hallowell, 239 U.S. at 508, 36 S.Ct. at 203. The Court continued, "[p]resent law normally governs in such situations because jurisdictional statutes `speak to the power of the court rather than to the rights or obligations of the parties'." Id. at ___, 114 S.Ct. at 1502, citing, Republic National Bank of Miami v. United States, 506 U.S. 80, 100, 113 S.Ct. 554, 565, 121 L.Ed.2d 474 (1992) (Thomas, J., concurring).⁸

In response to the Defendants' contention that the Reform Act bars this action altogether, Plaintiff Mathews argues that the Reform Act is not to be applied retroactively to this law suit, which was pending when the Reform Act was passed, because the Reform Act is not a jurisdictional statute but rather, one that alters substantial rights the Plaintiff and the other class members had when the suit was filed and in support thereof, cites to the United States Supreme Court's decision in Landgraf, supra. The Plaintiff also cites, inter alia, to two district court decisions which held that pursuant to the principles espoused in Landgraf, § 107 of the Reform Act is not to be applied retroactively to a RICO claim currently pending at the time the Reform Act was enacted because application of the Reform Act to the RICO claims would impair substantial rights possessed by the plaintiffs. See In re Prudential Securities Incorporated Limited Partnerships Litigation, 930 F.Supp. 68 (S.D.N.Y.1996) and District 65 Retirement Trust for Members of the Bureau of Wholesale Sales Reps. v. Prudential Securities, Inc., 925 F.Supp. 1551 (N.D.Ga.1996).

After careful consideration of the submissions of the parties, I hold first that while I agree with the Defendants that § 1964(c)...