Teamsters Local 282 Pension Trust Fund v. Angelos

• Decision Date: 17 March 1987
• Docket Number: No. 86-1122,86-1122
• Citation: 815 F.2d 452
• Parties: 8 Employee Benefits Ca 1543 TEAMSTERS LOCAL 282 PENSION TRUST FUND, Plaintiff-Appellant, v. Anthony G. ANGELOS, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 452

815 F.2d 452

8 Employee Benefits Ca 1543

TEAMSTERS LOCAL 282 PENSION TRUST FUND, Plaintiff-Appellant, v. Anthony G. ANGELOS, et al., Defendants-Appellees.

No. 86-1122.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 18, 1986.

Decided March 17, 1987.

Edward J. Boyle, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City, for plaintiff-appellant.

John Powers Crowley, Matthew F. Kennelly, Margaret L. Paris, Cotsirilos & Crowley, Ltd., Chicago, Ill., for defendants-appellees.

Before WOOD, COFFEY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

This action is the most recent in a series of cases involving the Teamsters Local 282 Pension Trust Fund (Fund) and its two million dollar loan to the Des Plaines Bancorporation, Inc. (Bancorporation), a bank holding company whose principal asset was the Des Plaines Bank (Bank). The Fund appeals the district court's order granting summary judgment to the appellees ¹ on the ground that the federal securities claims are time-barred. For the reasons set forth in this opinion we affirm the judgment of the district court.

I Facts

In March 1979, the Fund made a two million dollar loan to Bancorporation for the use and benefit of Bancorporation's wholly-owned subsidiary, the Bank. The Bank was indebted to Central National Bank of Chicago (CNB) and came under threat of foreclosure when, in February 1979, CNB notified the Bank that it would permit no further extensions of the time to repay the loan. In late January 1979, appellee Angelos contacted Fund trustee John Cody about the possibility of arranging a loan from the Fund to the Bank. Loan negotiations took place during the month of February. On February 27th, the Fund's trustees (Trustees) voted unanimously to approve the loan. Bancorporation pledged the Bank's stock as part of the security for the loan. Bancorporation also furnished an opinion letter from the law firm of Jenner & Block stating that there were no actions, suits or proceedings pending against Bancorporation or Bank that would adversely affect the operations of either.

Bancorporation did not disclose to the Fund the fact that, during February 1979, the Federal Deposit Insurance Corporation (FDIC) was completing its semi-annual audit of the Bank. The FDIC audit revealed several serious deficiencies in the operations of the Bank: inadequate capitalization, ineffective loan administration, insufficient liquidity, violation of laws and regulations, and failure of the board of directors to supervise the Bank properly.

In March 1981, two years after the Fund made the loan, Bancorporation defaulted on its semi-annual loan payments to the Fund. However, two weeks later, the Bank was closed by state and federal regulatory officials and placed under the receivership of the FDIC. The loan thus became uncollectible.

This suit is one of three filed after Bancorporation's default. In Katsaros v. Cody, 568 F.Supp. 360 (E.D.N.Y.1983), aff'd as modified, 744 F.2d 270 (2d Cir.), cert. denied, 469 U.S. 1072, 105 S.Ct. 565, 83 L.Ed.2d 506 (1984), certain of the Fund's participants sued the Trustees of the Fund under section 404 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1101, et seq., claiming that the Trustees breached their fiduciary duties to the Fund by approving the two million dollar loan. The Katsaros court found that the Trustees had breached their fiduciary duties to the Fund by approving the loan without seeking independent, outside counsel or making an independent investigation of the borrower. The Second Circuit, in affirming the district court in Katsaros, determined that "[a] reasonable investigation would have revealed evidence that the loan was totally unsound." 744 F.2d at 279.

The second suit was brought by the Secretary of Labor, also alleging that the Trustees breached their fiduciary duties under ERISA by making the loan. Donovan v. Cody, Civ. No. 82-1920 (E.D.N.Y.). Donovan was consolidated for trial with Katsaros in the United States District Court for the Eastern District of New York.

The present action was initiated by the Fund as plaintiff against directors of Bancorporation and the law firm of Jenner & Block. The complaint alleged four counts. The first count alleged a violation of section 17(a) of the Securities Act of 1933. Count II alleged a violation of section 10(b) of the Securities Exchange Act of 1934 and the related SEC Rule 10b-5. Counts III and IV alleged state common law fraud and negligent misrepresentation. The defendants moved for summary judgment contending that the action was barred by collateral estoppel. The district court granted the defendants' motion for summary judgment as to all defendants. Teamsters Local 282 Pension Trust Fund v. Angelos, 585 F.Supp. 1401, 1405 (N.D.Ill.1984) (Teamsters I). The Fund appealed the district court's grant of summary judgment. This court affirmed the grant of summary judgment in favor of the defendants on the Fund's claim of negligent misrepresentation under Illinois law. However, the remainder of the judgment was reversed, and the case was remanded for further proceedings. This court held that, while the New York litigation established that the Trustees breached their fiduciary duty to investigate Bancorporation and the Bank before making the loan, such a failure to investigate does not relieve the other party of liability for securities fraud. Thus, the grant of summary judgment for defendants on Counts I, II and III was inappropriate. Teamsters Local 282 Pension Trust Fund v. Angelos, 762 F.2d 522, 531-32 (7th Cir.1985) (Teamsters II).

On remand the district court addressed the following questions:

1. whether [the] Fund had brought suit after the expiration of the applicable statute of limitations;

2. whether the transaction in suit involves a security and:

(a) if so, whether defendants had made false statements or material omissions with the degree of scienter required by Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) and Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), cert. denied, 434 U.S. 875, 98 S.Ct. 224, 54 L.Ed.2d 155 (1977), or

(b) if not, whether there is any other basis for federal jurisdiction over the remaining state-law fraud claim.

Teamsters Local 282 Pension Trust Fund v. Angelos, 624 F.Supp. 959, 960 (N.D.Ill.1985) (Teamsters III).

The district court found it necessary to answer only the first question regarding the applicable statute of limitations. Four directors and the law firm Jenner & Block moved for summary judgment under Fed.R.Civ.P. 56 arguing that the action is time-barred. Id. at 963. The district court granted the defendants' motion for summary judgment and dismissed the action as to all defendants. Id. at 965. The court stated that the applicable statute of limitations in an action based on a federal securities law claim is the statute of limitations of the forum state. Id. at 962. Following Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123 (7th Cir.1972), the district court held that the applicable statute of limitations for federal securities law actions in Illinois is the three-year statute of limitations of the Illinois securities law. 624 F.Supp. at 962. The district court also held that the limitations period should not be tolled on the facts of this case. The United States District Court for the Eastern District of New York in the Katsaros litigation had already established the Fund's lack of due diligence in making a pre-loan investigation of Bancorporation and the Bank. Id. at 964-65. Collateral estoppel, held the district court, thus prevented the fund from asserting in this action that it had exercised the due diligence that is a predicate for equitable tolling of the statute of limitations. Id. at 965. The district court also declined to exercise pendent jurisdiction over appellant's common law fraud claim and dismissed it for lack of subject matter jurisdiction. Id.

II The Applicable Statute of Limitations

The Fund invites us to reconsider this court's holding in Parrent, 455 F.2d 123, that the applicable statute of limitations in a federal securities law claim in Illinois is the three-year limitations period of the Illinois securities law. It submits that such reconsideration is required in light of the Supreme Court's holding in Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). We must decline this invitation.

This court has had several occasions to consider whether Hochfelder (requiring the element of scienter in a Rule 10b-5 claim) mandates the application of the Illinois five-year statute of limitations for common law fraud actions instead of the three-year period of the Illinois securities law. This court has consistently held in post-Hochfelder cases that the three-year statute of limitations of the Illinois securities law continues to apply. ² Indeed, as long ago as Cahill v. Ernst & Ernst, 625 F.2d 151, 156 (7th Cir.1980), a post-Hochfelder case, we noted that a concern for predictability and certainty in the law required that we hold a steady course with respect to this statute of limitations issue: "[P]arties to litigation within this circuit have become accustomed since 1972 to our adoption of state securities law limitations in section 10(b) cases. For us to change the applicable limitation period without good and substantial cause would add an unnecessary uncertainty to the prosecution of federal claims under section 10(b)." Those concerns are even stronger seven years later. The principle of stare decisis requires this result. The bench and bar of the Seventh Circuit have relied on a fifteen-year history of applying the Illinois securities law statute of limitations to federal securities law claims arising in Illinois.

We are aware that there is a significant degree of confusion throughout the country regarding the appropriate methodology for selecting the appropriate...