Reid v. Walsh
| Decision Date | 30 September 1986 |
| Docket Number | Civ. A. No. 85-355-B,85-502-B and 85-503-B.,85-356-B |
| Citation | 645 F. Supp. 685 |
| Parties | Charles M. REID, et al. v. Douglas WALSH. (Two Cases) Charles M. REID, et al. v. EQUITIVEST, INC., et al. (Two Cases) |
| Court | U.S. District Court — Middle District of Louisiana |
Wendell G. Lindsay, Jr., Lindsay, Marcel & Wells, Scott H. Crawford, Preis & Crawford, Baton Rouge, La., for plaintiffs.
Claude F. Reynaud, Jr., Breazeale, Sachse & Wilson, Baton Rouge, La., Rudolfo J. Aguilar, Jr., for defendants.
This is an action filed pursuant to Section 12(1) and (2) of the Securities Act of 1933, 15 U.S.C. § 77l and Article 2315 of the Louisiana Civil code. The case is now before the Court on motions filed by the defendants, Douglas Walsh, David McCollister, Equitivest, Inc. and Equitivest Securities, Inc. The defendants have moved to dismiss plaintiffs' claims filed pursuant to § 12(1) of the Securities Act of 1933, 15 U.S.C. § 77l(1), for failure to state a claim upon which relief can be granted. The defendants also seek to dismiss the claims of David Wilcox and Charles K. Thibodeaux filed pursuant to § 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(2), and Louisiana Civil Code article 2315 for failure to state a claim upon which relief can be granted.
The defendants have moved to dismiss the claims of the plaintiffs1 filed pursuant to § 12(1) of the Securities Act of 1933, 15 U.S.C. § 77l(1),2 for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure.3 The plaintiffs' § 12(1) claims are based upon the alleged failure of the defendants to file a registration statement.4 The defendants contend that these claims are barred by the one year statute of limitations contained in § 13 of the Act, 15 U.S.C. § 77m.5 Although the defendants deny any violations of § 12(1), they assert that any actions by them which could constitute a violation of § 12(1) would necessarily have occurred prior to May 10, 1983, the date partnership documents were executed and the amended articles of partnership were filed. The present suit was filed on April 11, 1985.6 Since more than one year has elapsed between May 10, 1983 and the date of the filing of this suit, the defendants argue that the 12(1) claims are barred by Section 13 of the Act.
The plaintiffs oppose defendants' motion to dismiss on two grounds. First, plaintiffs assert that the statute of limitations set forth in Section 13 commenced to run in October of 1984 and, therefore, this action was timely filed. Plaintiffs rely upon Doran v. Petroleum Management Corp., 576 F.2d 91, 93 (5th Cir.1978), wherein the Court stated that "the relevant inquiry is which of the defendant's activities—offer, sale or delivery—occurred last as that is the time period from which to measure the limitation period." The plaintiffs submit that the last violation occurred in October of 1984 when Larry Walsh, the general partner, drew upon the limited partners' letters of credit which were serving as security for their promissory notes. This contention is without merit. In Holloway v. Combined Equities, Inc., 628 F.Supp. 59 (M.D.La.1986), this Court held that receipt of a payment on a promissory note given as part of the purchase price for a security does not constitute a violation of the Securities Act of 1933. Since the proceeds derived in this case from the letters of credit "funded the amounts due under each plaintiff's promissory note",7 the Court finds that the action of Walsh in drawing upon plaintiffs' letters of credit is the equivalent of payment of the promissory note. For the reasons set forth in Holloway, Walsh's actions in drawing upon the plaintiffs' letters of credit cannot be considered a violation of the Securities Act. Therefore, the date on which the letters of credit were drawn upon cannot be used as the date upon which to base the commencement of the statute of limitations in this case.
In the alternative, the plaintiffs invoke the doctrine of equitable tolling to estop the defendants from asserting the statute of limitations as a defense. There is a conflict in the circuits as to whether the doctrine of equitable tolling of the Section 13 period is applicable to non-registration claims.8 The Fifth Circuit Court of Appeals has not ruled on this issue.
When the issue of equitable tolling came before the Court in an earlier motion, the Court did not decide whether the doctrine was applicable to non-registration claims because the Court found that insufficient allegations had been set forth in the complaint to rely on the doctrine of equitable tolling. Therefore, the Court issued an order9 requiring the plaintiffs to amend this complaint to set forth facts to support their claim of the doctrine of equitable tolling. In addition, the Court ordered that the motion to dismiss be converted to a motion for summary judgment.10
The plaintiffs timely amended their complaint. However, the Court finds that the complaint as amended fails to contain allegations that would support the application of the doctrine of equitable tolling to estop the defendants from asserting the statute of limitations as a defense. There is no allegation in the complaint that the defendants fraudulently concealed or misrepresented the status of the security with regard to whether it was registered or not. In those circuits where the doctrine of equitable tolling of the Section 13 period has been held applicable to non-registration claims, there has been a requirement of relating the fraudulent concealment to the registration of the security in order to toll the statute of limitations with regard to the Section 12(1) non-registration claim.11
Not only does the complaint fail to set forth sufficient allegations to support the application of the doctrine of equitable tolling, but the evidence submitted by the defendants clearly shows that the doctrine does not apply under the facts of this case. In support of their motion for summary judgment, the defendants have submitted the affidavits of Douglas M. Walsh and James H. (Rip) Collins. Each of these affiants deny they made any representations that a prospectus and/or registration would be obtained or attempted to be obtained in the future. Walsh stated that although a private placement memorandum was prepared and offered to individuals, it was done only as a private offering as was clearly stated in the memorandum. This memorandum which was attached to Walsh's affidavit states in part:
THE LIMITED PARTNERSHIP UNITS OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH OR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR THE COMMISSIONER OF SECURITIES OF THE STATE OF LOUISIANA (THE "COMMISSIONER") NOR HAS THE COMMISSION OR THE COMMISSIONER PASSED UPON THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE UNITS OFFERED HEREIN WILL BE OFFERED ONLY IN THE STATE OF LOUISIANA, AND THEREFORE, ANY INDIVIDUAL PURCHASING A UNIT MUST PURCHASE FOR INVESTMENT AND NOT WITH A VIEW TOWARD PUBLIC DISTRIBUTION OR RESALE. ALSO, THE UNITS OFFERED HEREIN WILL BE SUBJECT TO SPECIAL RESTRICTIONS ON TRANSFERABILITY BECAUSE OF THE INTRASTATE NATURE OF THE OFFERING. SEE "RESTRICTIONS ON TRANSFEABILITY".
All capitals used in the original. The plaintiffs have submitted no evidence to rebut the evidence submitted by the defendants.
Although a motion for summary judgment "may be granted only if it appears from pleadings, depositions, admissions and affidavits, considered in the light most favorable to the non-moving party, that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law,"12 it is incumbent upon the non-moving party, once such burden has been met, to counter the mover's evidence with competent evidence setting forth specific facts to show that there is a genuine issue of material fact which would preclude the court from granting the motion for summary judgment.13
The defendants have presented unrebutted evidence in support of their motion for summary judgment that there had been no fraudulent concealment of the non-registration of the security by defendants. Thus, the Court finds that the doctrine of equitable tolling does not apply under the facts of this case. Since the Court has previously found plaintiffs' claim under Section 12(1) of the Securities Act of 1933 has prescribed, defendants' motion to dismiss and for summary judgment is granted as to this claim.
The defendants have also moved to dismiss the claims of David Wilcox and Charles K. Thibodeaux made pursuant to § 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(2)14 and Article 2315 of the Louisiana Civil Code15 for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Defendants' motion is based on two grounds: (a) the § 12(2) claims are barred by the one year statute of limitations contained in Section 13;16 and, (b) the claims made pursuant to article 2315 are barred by the one year prescriptive period contained in article 3492 of the Louisiana Civil Code.17 In support of their motion, the defendants have attached excerpts of the depositions of David Wilcox, Charles K. Thibodeaux and James Collins. Because evidence was submitted in connection with this motion, the Court converted the motion to dismiss to a motion for summary judgment18 and gave the parties twenty days to file additional evidence in support of or opposition to the motion.
After reviewing the evidence presented in connection with this motion, the Court finds that there are genuine issues of material fact to be resolved on whether Wilcox and...
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