Pacific Mut. Life Ins. Co. v. First RepublicBank Corp.

• Citation: 997 F.2d 39
• Decision Date: 20 July 1993
• Docket Number: Nos. 92-1662,92-3375,s. 92-1662
• Parties: , Fed. Sec. L. Rep. P 97,664 PACIFIC MUTUAL LIFE INSURANCE CO., Plaintiff-Appellant, v. FIRST REPUBLICBANK CORP., et al., Defendants-Appellees. TGX CORP., Plaintiff, v. Gloria Annette Turner SIMMONS, et al., Defendants-Appellants Cross-Appellees, v. GREENWICH INSURANCE COMPANY, et al., Defendants-Appellees Cross-Appellants. Gaylon D. SIMMONS, et al., Plaintiffs-Appellants Cross-Appellees, v. J.C. TEMPLETON, et al., Defendants-Appellees Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 39

997 F.2d 39

62 USLW 2080, Fed. Sec. L. Rep. P 97,664

PACIFIC MUTUAL LIFE INSURANCE CO., Plaintiff-Appellant, v. FIRST REPUBLICBANK CORP., et al., Defendants-Appellees.

TGX CORP., Plaintiff, v. Gloria Annette Turner SIMMONS, et al., Defendants-Appellants Cross-Appellees, v. GREENWICH INSURANCE COMPANY, et al., Defendants-Appellees

Cross-Appellants.

Gaylon D. SIMMONS, et al., Plaintiffs-Appellants Cross-Appellees, v. J.C. TEMPLETON, et al., Defendants-Appellees Cross-Appellants.

Nos. 92-1662, 92-3375.

United States Court of Appeals Fifth Circuit.

July 20, 1993.

Rehearing Denied in No. 92-3375 Aug. 25, 1993.

Stewart M. Weltman, Chicago, IL, for Pacific Mut. Life Ins. Co.

Scott R. McIntosh, Barbara C. Biddle, Atty., Appellate Staff, Civ.Div., Dept. of Justice, Washington, DC, for intervenor U.S. in both cases.

Hannah Berkowitz, James W.B. Benkard, Davis, Polk & Wardwell, New York City, James L. Truitt, Hutcheson & Grundy, Dallas, TX, for Morgan Stanley & Co.

Eldon Olson, Gen. Counsel, New York City, Jon N. Ekdahl, Chicago, IL, for amicus Anderson, et al.

Robert G. Cohen, Kathryn Oberly, Ernst & Young, New York City, Jonathan M. Hoff, Weil, Gotshal & Manges, New York City, Morton Lee Susman, Weil, Gotshal & Manges, Houston, TX, for Ernst & Young.

Ernest E. Figari, Jr., Donald Colleluori, Figari & Davenport, Dallas, TX, Theodore Gewertz, Robert B. Mazur, Claire D. Chappell, Wachtell, Lipton, Rosen & Katz, New York City, for Salomon Bros Marvin S. Sloman, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, William Norfolk, Theodore Edelman, Tariq Maudaya, Sullivan & Cromwell, New York City, for Goldman & Sachs.

Ewell E. Eagan, Jr., Willard H. Henson, Gordon, Arata, McCollam & Duplantis, F. Henri Lapeyre, Jr., Lapeyre, Terrell & Randazzo, New Orleans, LA, for Gaylon D. Simmons and Gloria Annette Turner.

Leslie E. Smith, Paul Gonson, Sol., S.E.C., Jacob H. Stillman, Associate Gen. Counsel, Washington, DC, for intervenor U.S. in No. 92-3375.

Dermot S. McGlinchey, James M. Garner, Martha M. Young, J. Forrest Hinton, McGlinchey, Stafford, Cellini & Lang, New Orleans, LA, for Greenwich Ins. Co., et al.

Leila D'Aquin, Harold B. Carter, Jr., Patrick O'Keefe, Stephen Williamson, Montgomery, Barnett, Brown, Read, Hammond & Mintz, New Orleans, LA, for J.C. Templeton, et al.

Julie E. Schwartz, Liskow & Lewis, New Orleans, LA, Donald C. Templin, Phillip Philbin, Haynes & Boone, Dallas, TX, for BDO Seidman.

Appeal from the United States District Court for the Northern District of Texas.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before POLITZ, Chief Judge, REAVLEY and BARKSDALE, Circuit Judges.

REAVLEY, Circuit Judge:

Plaintiffs who suffered dismissals in two separate securities-fraud cases asked the district courts to reinstate their claims under § 27A(b) of the Securities Exchange Act, 15 U.S.C. § 78aa-1(b), which Congress enacted in November 1991. The district courts denied these motions after holding that § 27A(b) violates the Constitution by disturbing final judgments and invading judicial authority. We conclude that the legislation is constitutional and we reinstate the plaintiffs' suits.

I. BACKGROUND

A. PACIFIC MUTUAL LIFE INS. CO. V. FIRST REPUBLICBANK CORP., ET AL.

In March 1991, Pacific Mutual Life Insurance Company (PMLI) sued investment bankers and accountants (collectively PMLI Defendants) ¹ for securities fraud under § 10(b) of the 1934 Securities Exchange Act (1934 Act), 15 U.S.C. § 78j(b). PMLI's claims arise from the June 1987 merger of InterFirst Corporation and RepublicBank Corporation, PMLI's purchase of InterFirst securities in July and September 1987 for approximately $8 million, and the PMLI Defendants' facilitation of those transactions.

From long before PMLI purchased the securities to the time after PMLI filed its suit, this court determined the statute of limitations for implied private actions under § 10(b) according to analogous state law. When PMLI filed its suit in the United States District Court for the Northern District of Texas, our precedent recognized that the four-year limitations period applicable to fraud actions in Texas also governs § 10(b) actions filed there. In re Sioux, Ltd., Sec. Litig. v. Coopers & Lybrand, 914 F.2d 61, 64 (5th Cir.1990). For that reason, although the PMLI Defendants filed dispositive motions under FED.R.CIV.P. 9(b) and 12(b)(6), they did not contest the timeliness of PMLI's suit.

While these motions awaited the district court's consideration, the Supreme Court issued Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991). Lampf implicitly overrules Sioux, Ltd. and many similar cases in other circuits with its holding that the Securities Exchange Act as written in 1934, not state law, establishes the limitations period for § 10(b) suits. Id. at ----, 111 S.Ct. at 2780. The Court read the Securities Exchange Act of 1934 to establish a uniform rule that "[l]itigation instituted pursuant to § 10(b) ... must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation." Id. at ----, 111 S.Ct. at 2782 (1-and-3 rule).

On the same day that the Court rendered Lampf, it decided James B. Beam Distilling Co. v. Georgia, --- U.S. ----, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991). A plurality of the Beam Court held that Georgia's Supreme Court erred by "refus[ing] to apply a rule of federal law retroactively after the case announcing the rule has already done so." Id. at ----, 111 S.Ct. at 2446. Beam teaches that "when th[is] Court has applied a rule of law to the litigants in one case it must do so with respect to all others not barred by procedural requirements or res judicata." Id. at ----, 111 S.Ct. at 2448.

Because the Lampf Court applied the 1-and-3 rule to eliminate Gilbertson's § 10(b) claim, Beam required courts to apply the limitation rule announced in Lampf to pending claims under § 10(b). The PMLI Defendants promptly brought Lampf and Beam to the district court's attention, and the court dismissed PMLI's § 10(b) claims with prejudice in August 1991. The district court based its dismissal on the fact that "the face of [PMLI's complaint establishes] that this action was filed more than three years after the alleged misrepresentations or omissions upon which [PMLI's] claim rests." Recognizing no way around Lampf and Beam, PMLI did not appeal.

Three months later, however, Congress provided a way around Lampf and Beam by passing § 27A, which provides:

(a) Effect on Pending Causes of Action.--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.

(b) Effect on Dismissed Causes of Action.--Any private civil action implied under section 10(b) of this Act that was commenced on or before June 19, 1991--

(1) which was dismissed as time barred subsequent to June 19, 1991, and

(2) which would have been timely filed under the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991,

shall be reinstated on motion by the plaintiff not later than 60 days after [December 19, 1991].

1934 Act § 27A (amended by P.L. 102-242 (December 19, 1991)), codified at 15 U.S.C. § 78aa-1. On January 31, 1992, PMLI filed a motion to reinstate pursuant to § 27A(b). The PMLI Defendants challenged the constitutionality of § 27A(b), and the district court admitted the United States as an intervenor to explain why § 27A is constitutional. After considering the parties' written submissions, the district court held: 1) § 27A(b) contravenes due process by divesting the PMLI Defendants of their final judgment; and 2) § 27A contravenes the constitutionally-mandated retroactivity of new legal rules recognized in Beam. PMLI appeals from the district court's denial of its motion to reinstate. Pacific Mutual Life Ins. Co. v. First Republic Bank Corp., 806 F.Supp. 108 (N.D.Tex.1992).

B. SIMMONS, ET AL. V. TGX CORP., ET AL.

In 1987, TGX Corporation sued Gaylon Simmons ² over a $21 million stock purchase contract which the parties executed in November 1986, and Simmons filed a counterclaim against TGX under § 10(b). TGX filed for bankruptcy protection in 1990, staying the counterclaim. Simmons then filed a separate § 10(b) suit in March 1990 against attorneys, accountants, and directors (collectively TGX Defendants) ³ who facilitated the stock purchase.

Simmons sued the TGX Defendants in the United States District Court for the Eastern District of Louisiana. ⁴ The parties disputed whether Simmons met Louisiana's two-year prescriptive period for securities fraud, which this court has held applicable to § 10(b) claims. Jensen v. Snellings, 841 F.2d 600, 606 (5th Cir.1988). The Supreme Court rendered Lampf and Beam before the district court ruled on the parties' limitation dispute.

The TGX Defendants informed the district court that Simmons sued them in March 1990, and his complaint alleges November 1986 misdeeds. They argued that these facts entitled them to dismissal under Lampf's 1-and-3 rule. Simmons did not dispute the effect of Lampf, and the district court directed the TGX Defendants to draft a judgment and order. That document recited:

all of the federal claims asserted are time-barred, and the Defendants are entitled to judgment on those claims as a matter of law; and [the court finds that] final judgment should be entered....

[P]laintiffs' claims ... under ... the Securities Exchange Act of 1934 are hereby dismissed with prejudice.

Simmons asked the district court to delete "with prejudice" from the judgment to avoid any preclusive effect, and the court obliged before...