Menowitz v. Brown
| Decision Date | 29 March 1993 |
| Docket Number | Nos. 1023,D,1024,s. 1023 |
| Citation | 991 F.2d 36 |
| Parties | Fed. Sec. L. Rep. P 97,393 Harold MENOWITZ, Stanton Spritzler and Harry Drooker on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. David F. BROWN; Robert F. Ehrling; Gerard P. Mozian; Joseph P. Zdon; George T. Scharffenberger; Marshall Manley; Edwin I. Hatch; Eben W. Pyne; Charles J. Simons; Reuben O'D. Askew; Peter R. Brinckerhoff; Howard L. Clark; KPMG Peat Marwick; PaineWebber, Inc.; Merrill Lynch Capital Markets and Merrill, Lynch, Pierce, Fenner & Smith Inc., Defendants-Appellees. ockets 92-7867, 92-9149. |
| Court | U.S. Court of Appeals — Second Circuit |
Bruce E. Gerstein, New York City (Scott W. Fisher, Barry S. Taus, Garwin, Bronzaft, Gerstein & Fisher, New York City, John P. Zuccarini, Elwood S. Simon, Elwood S. Simon & Assoc., P.C., Bloomfield Hills, MI, Mordecai Rosenfeld, Mordecai Rosenfeld, P.C., New York City, David Pastor, Kenneth Gilman, Gilman & Pastor, Boston, MA, Gary Fields, Siegel & Lipman, Boca Raton, FL, of counsel), for plaintiffs-appellants.
Lewis N. Brown, Miami, FL (Linda H. Gottlieb, Gilbride, Heller & Brown, P.A., Miami, FL, Leonard P. Novello, John A. Shutkin, KPMG Peat Marwick, New York City, of counsel), for defendant-appellee KPMG Peat Marwick.
Robert T. Wright, Jr., Miami, FL (Carlos M. Sires, Mershon, Sawyer, Johnston, Dunwody & Cole, Miami, FL, of counsel), for defendants-appellees O'D. Askew, George T. Scharffenberger, Eben W. Pyne, Edwin Steven M. Edwards, New York City (Ellen Wahl Parker, Davis, Markel & Edwards, of counsel), for defendant-appellee David F. Brown.
I. Hatch, Howard L. Clark, Jr., Marshall Manley, Peter R. Brinckerhoff and Charles J. Simons.
Joel Hirschhorn, Coral Gables, FL (Robert M. Einhorn, Joel Hirschhorn, P.A., Coral Gables, FL, of counsel), for defendant-appellee Robert F. Ehrling.
James D. Wing, Miami, FL (Alice Lash, Fine Jacobson Schwartz Nash Block & England, Miami, FL, of counsel), for defendant-appellee Gerard P. Mozian.
Ronald B. Ravikoff, Miami, FL (Frederick Sall, Zuckerman, Spaeder, Taylor & Evans, Miami, FL, of counsel), for defendant-appellee Joseph P. Zdon.
James J. Hagan, New York City (Bruce D. Angiolillo, Joseph McLaughlin, Simpson, Thacher & Bartlett, of counsel), for defendants-appellees PaineWebber, Inc., Merrill Lynch Pierce Fenner & Smith and Merrill Lynch Capital Markets.
Before: PIERCE, WALKER, Circuit Judges, and CONBOY, District Judge. *
Plaintiffs-appellants in these three actions ("Menowitz," "Spritzler " and "Drooker " ), consolidated in the Southern District of New York before Judge McKenna, assert federal claims under Sections 11 and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k and 77o, Sections 10(b) and 20 of the Securities Exchange Act of 1934, id. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated pursuant to § 10(b), 17 C.F.R. § 240.10b-5, as well as supplemental state law claims. Plaintiffs appeal the district court's judgments dismissing their complaints.
Plaintiffs purchased registered subordinated debentures issued by the General Development Corp. ("GDC") in April, 1988. Defendants-appellees are former directors and officers of GDC, underwriters of the debentures, and GDC's certified public accountants. GDC is a real estate developer which is in the business of selling homesites and other properties in Florida. GDC also provides financing for purchasers of its properties through a subsidiary, GDV Financial Corporation ("GDV"). Now in bankruptcy, GDC is not a party to these actions.
Plaintiffs allege that they were induced to purchase the debentures by fraudulent misrepresentations largely contained in a prospectus and various other SEC-mandated disclosure statements, including a 1988 10-K report and several 1989 10-Q reports. The documents allegedly: (1) misrepresented GDC's financial condition by not disclosing that past profits resulted from illegal real estate sales practices; (2) failed to disclose that claims asserted by disgruntled GDC customers in various then pending civil actions were meritorious and fraudulently represented that, despite then ongoing government investigations, there was no basis for criminal charges against GDC; and (3) failed to disclose the extent of GDC's duties to refund payments due to defaulting purchasers of GDC properties and monies owed by GDC due to GDC's failure to complete certain development projects.
Defendants moved to dismiss the complaints, pursuant to Fed.R.Civ.P. 12 and 9(b), under various theories, including that plaintiffs failed to allege actionable misrepresentations, and failed to plead fraud with particularity, and that plaintiffs' claims were time-barred. The district court dismissed all three complaints as time-barred. See In re Gen. Dev. Bond Litig., 800 F.Supp. 1128, 1143 (S.D.N.Y.1992) ("Gen. Dev. I"); In re Gen. Dev. Bond Litig., 800 F.Supp. 1143, 1148 (S.D.N.Y.1992) ("Gen. Dev. II"). Judge McKenna determined that, on the facts as pled, plaintiffs were placed on inquiry notice of their federal claims more than one year before they filed their complaints. See Gen. Dev. I, 800 F.Supp. at 1136-43.
We address two arguments raised by plaintiffs concerning the statute of limitations
periods applicable to their § 10(b)/Rule 10b-5 claims, and otherwise affirm the judgments of the court below substantially for the reasons set forth in Judge McKenna's opinions in Gen. Dev. I and Gen. Dev. II.
The district court looked to federally mandated disclosure documents containing disclosures of numerous civil actions, as well as criminal and civil government investigations, concerning GDC's and GDV's alleged fraudulent activities. See Gen. Dev. I, 800 F.Supp. at 1136; see also Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir.1991) (). The district court determined that those documents placed plaintiffs on inquiry notice of the probable existence of their claims more than one year before they filed their complaints. See Gen. Dev. I, 800 F.Supp. at 1141-43. Applying the one-year/three-year statute of limitations period applicable to actions under §§ 9(e) and 18(a) of the 1934 Act, which requires that an action be brought "within one year after the discovery of the facts constituting the violation and within three years after such violation," 15 U.S.C. § 78i(e) (§ 9(e)); see also id. § 78r(c) (§ 18(c)), the district court held that plaintiffs' § 10(b)/Rule 10b-5 claims were time-barred. See Gen. Dev. II, 800 F.Supp. at 1148; Gen. Dev. I, 800 F.Supp. at 1143.
These actions were filed during January and March, 1991, and were pending when the Supreme Court decided Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), which applied § 9 to establish a uniform statute of limitations period for § 10(b)/Rule 10b-5 claims. See id. --- U.S. at ----, 111 S.Ct. at 2782 n. 9; see also James B. Beam Distilling Co. v. Georgia, --- U.S. ----, ----, 111 S.Ct. 2439, 2448, 115 L.Ed.2d 481 (1991) () (new construction of civil statute applied to litigants before court must be applied retroactively to other pending cases); Henley v. Slone, 961 F.2d 23, 24-25 (2d Cir.1992) (). The recently enacted § 27A of the 1934 Act applies in part to § 10(b)/Rule 10b-5 actions pending when Lampf was decided, and directs application of "the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991" to such actions. 15 U.S.C. § 78aa-1. 1
The Menowitz and Spritzler actions were filed in the Southern District of New York shortly after we decided Ceres Partners v. GEL Assoc., 918 F.2d 349 (2d Cir.1990), which adopted the one-year/three-year limitations period for the Second Circuit, later made applicable to the entire country by the Supreme Court in Lampf. As we recently held in Walsche v. First Investors Corp., 981 F.2d 649 (2d Cir.1992), under § 27A, the one-year/three-year 1934 Act statute of limitations applies to all claims filed in the Second Circuit after Ceres, no matter when the claims arose.
The Drooker plaintiffs contend that the one-year/three-year limitations period is inapplicable to their claims. Like the Menowitz and Spritzler actions, the Drooker action was filed after Ceres was decided. However, unlike the other two consolidated actions, Drooker was filed in the Southern District of Florida, and transferred to the Southern District of New York pursuant to 28 U.S.C. § 1407 in August 1991, after Lampf was decided. The Drooker plaintiffs argue that § 27A directs application of the pre-Lampf statute of limitations rule of the transferor Eleventh Circuit (which then borrowed state blue sky limitations Section 27A requires federal courts to employ the statute of limitations doctrine "applicable in the jurisdiction" before Lampf to cases pending when Lampf was decided. Upon the § 1407 pre-trial transfer, the Drooker action was placed under the jurisdiction of the district court for the Southern District of New York. Thus, the question presented is whether Second Circuit doctrine directs application of the Eleventh Circuit limitations rule to such a transferred action.
periods) to their claims, rather than the limitations rule we adopted in Ceres. We disagree
Resolution of this question turns on whether the choice of the applicable limitations period is properly understood as a matter of state or of federal law. Section 1407 is designed to provide for the "just and efficient conduct" of related cases filed in various federal districts by consolidating them for pre-trial purposes before one court. See 28...
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