Penturelli v. Spector Cohen Gadon & Rosen

• Decision Date: 16 July 1986
• Docket Number: Civ. A. No. 84-6124.
• Citation: 640 F. Supp. 868
• Parties: Bernardo J. PENTURELLI v. SPECTOR COHEN GADON & ROSEN, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

640 F. Supp. 868

Bernardo J. PENTURELLI v. SPECTOR COHEN GADON & ROSEN, et al.

Civ. A. No. 84-6124.

United States District Court, E.D. Pennsylvania.

July 16, 1986.

Henry H. Janssen, Philadelphia, Pa., for plaintiff.

Patrick T. Ryan and Peggy L. Snodgrass, Philadelphia, Pa., for Ely & French Associates, Inc. and Richard C. Ely.

Eugene J. Maginnis, Jr., Philadelphia, Pa., for Alan T. Schiffman and Alan T. Schiffman & Co.

Norbert F. Bergholtz, Philadelphia, Pa., and David E. Tungate, Eckert, Seamans, Cherin & Mellott, Pittsburgh, Pa., for Fetterolf Mining, Inc., Fetterolf Group, Inc., Estate of Myron F. Fetterolf, Louis T. Flori, Anthony A. Dalessandro and Mark Mining No. 2, Inc.

Allan D. Windt, Philadelphia, Pa., for Ashley Mining Co., Inc., Balance Sec. Programs, Inc., Spector Cohen Gadon & Rosen, Edward Cohen, Betsy Cohen, Stephen Sokolic, Richard Abt, Steven F. Gadon and George S. Mack.

Thomas J. Ziomek, David E. Sandel, Jr. and Allan D. Windt, Philadelphia, Pa., for Donald R. Sarp and Donald R. Sarp & Co.

G. Wayne Renneisen and William F. Kiniry, Jr., Philadelphia, Pa., for Herr, Nicholas & Co. and Robert R. Herr.

MEMORANDUM AND ORDER

HUYETT, District Judge.

Plaintiff Bernardo J. Penturelli filed this action on December 13, 1984, claiming that he had been defrauded in the purchase of twenty-eight fractional undivided interests in the Addison Development, a coal mining operation in Pennsylvania whereby a limited number of persons would sublease certain rights to mine and remove all mineable and merchantable coal from specific seams of coal situated within Addison Township, Somerset County, Pennsylvania. Penturelli filed this action against twenty-five defendants who played various roles in the Addison Development project, alleging causes of action under the Securities Act of 1933, 15 U.S.C. § 77a et seq., ("'33 Act"), the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., ("`34 Act"), the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), and state common law.

By memorandum and order dated February 14, 1985, 603 F.Supp. 262, I granted defendants' motions to dismiss on the grounds that there was no security giving rise to a claim under the `33 or `34 Acts and plaintiff had failed to allege that his injury was caused by an activity different from that of the alleged predicate acts or prior RICO criminal convictions. In light of new Supreme Court holdings, the Third Circuit reversed in an opinion dated December 18, 1985. Defendants have now renewed their motions to dismiss claiming that plaintiff's claims are barred by the applicable statutes of limitations and that plaintiff's RICO claim fails to state a claim. I will address the issues raised in defendants' motions seriatim.

Securities Claim — Statute of Limitations

Defendants contend that plaintiff's claim pursuant to section 10(b) of the `34 Act is untimely. The `34 Act, unlike the `33 Act, contains no statute of limitations. In the absence of an express statute of limitations in a federal statute, it is necessary to turn to the law of the forum state to determine the appropriate limitations period. See Biggans v. Bache Halsey Stuart Shields, 638 F.2d 605 (3d Cir.1980); Engl v. Berg, 511 F.Supp. 1146 (E.D.Pa.1981). The key issue here is which state statute of limitations should be applied.

There are two possibilities. The first possibility is the statute of limitations set forth in the Pennsylvania Securities Act, 70 Pa.Stat.Ann. § 1-504(a). Section 504(a) provides that:

No action shall be maintained to enforce any liability created under section 501 (or section 503 as far as it relates to that section) unless brought before the expiration of three years after the act or transaction constituting the violation or the expiration of one year after the plaintiff receives actual notice or upon the exercise of reasonable diligence should have known the facts constituting the violation, whichever shall first expire.

Defendants contend that this provision should be applied and that it sets an absolute limit of three years which plaintiff failed to meet in filing this action. The alternative statute of limitations is that which governs state common law fraud actions. The Third Circuit recently held that for common law fraud actions accruing before February 1983, the limitations period is six years. See A.J. Cunningham Packing Corp. v. Congress Financial Corp., 792 F.2d 330 (3d Cir.1986). In Cunningham, the court specifically rejected the two year period which several courts had suggested was appropriate. The court concluded that the tort of "taking, detaining, or injuring personal property," which is governed by a two year statute of limitations under the 1976 amendments, 42 Pa. Cons.Stat.Ann. § 5524(3), does not encompass a claim for fraud. Id. at 334. Therefore, if I conclude that the appropriate statute of limitations is that which governs common law fraud claims in Pennsylvania, it is clear that plaintiff's claim is timely. The earliest point at which plaintiff's cause of action could have accrued was December 15, 1978; this action was filed on December 13, 1984, two days before the six year period would have run.

The difficult issue, therefore, is which of these two statutes of limitations governs in this case. Defendants, of course, contend that the statute of limitations contained in the Pennsylvania Securities Act governs. In Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir.1979) and Biggans v. Bache Halsey, 638 F.2d 605 (3d Cir.1985), the court held that the relevant inquiry is whether the action would be time-barred if it has been brought in state court; implicit in the inquiry is whether state law provides a similar cause of action. Application of 70 Pa.Stat.Ann. § 1-504(a), therefore, is appropriate only if there is a private cause of action under the Pennsylvania Securities Act comparable to that raised by plaintiff under section 10(b) of the `34 Act.

Section 401 of the Pennsylvania Act closely parallels section 10(b) of the `34 Act under which plaintiff is proceeding. However, as the Biggans court noted, the sole source of civil liability for any acts in violation of section 401 is section 501 of which provides in pertinent part:

(a) Any person who ... offers or sells a security in violation of sections 401, 403, 404, or otherwise by means of any untrue statement of material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading ... shall be made liable to the persons purchasing the security from him ...

(b) Any person who purchases a security in violation of sections 401, 403, 404 or otherwise by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, ... shall be liable to the person selling the security to him ...

These provisions give a private cause of action only to a seller or a buyer to sue the person buying or selling the security. Therefore, in Biggans, there was no state cause of action because plaintiff was suing his broker not the individuals who brought the securities from him or the person from whom he purchased the securities. Therefore, because there was no comparable state cause of action, the statute of limitations set forth in section 504 did not apply. The residual six year statute applied, and the court found plaintiff's action to be timely.

Pointing to paragraph 37 and 49 of the complaint, defendants contend that plaintiff has alleged that each defendant was a seller in that each shared in the proceeds of the fraud committed on plaintiff. However, after reviewing these two paragraphs, I do not believe that plaintiff has specifically alleged that any one of the defendants was a seller of the fractional undivided interests. Rather, he has alleged that each defendant worked in one capacity or another on behalf of the seller, e.g. as attorneys, accountants, or mining experts.

Defendants contend that a civil action exists against aiders and abettors or agents pursuant to section 503 of the Pennsylvania Securities Act, 70 Pa.Stat.Ann. 1-503(a). Section 503(a) states in pertinent part:

Joint and several liability, contribution, corporation's right of indemnification

(a) Every affiliate of a person liable under section 501 or 502, every partner, principal executive officer or director of such person, every person occupying a similar status or performing similar functions, every employee of such person who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the acts or transaction constituting the violation, are also liable jointly and severally and to the same extent as such person, unless the person liable hereunder proves that he did not know, and in the exercise of reasonable care would not have known of the existence of the facts by reason of which the liability is alleged to exist.

Subsection (b) provides for a right of indemnity and contribution given the joint liability established in section (a). Defendants contend that this provision establishes a private cause of action under which a person in plaintiff's position could proceed. There have been no cases under which a person, a buyer or seller, has sued under section 503 an individual aiding or abetting a seller or buyer. It appears that the section only establishes a cause of action in favor of a party who has been held liable to a private party under section 501.

Support for the position that section 503 does not provide a cause of action to a buyer against an aider or abettor is found in several cases. First, in Biggans, Judge Sloviter noted that the sole source of civil liability for any acts in violation of section 401 is found in section 501. 638 F.2d at 609. At...