Vigman v. Community Nat. Bank & Trust Co.

• Decision Date: 27 January 1981
• Docket Number: No. 78-3656,78-3656
• Parties: Fed. Sec. L. Rep. P 97,842 Joseph VIGMAN et al., Plaintiffs-Appellants, v. COMMUNITY NATIONAL BANK & TRUST CO. et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 455

635 F.2d 455

Fed. Sec. L. Rep. P 97,842

Joseph VIGMAN et al., Plaintiffs-Appellants, v. COMMUNITY NATIONAL BANK & TRUST CO. et al., Defendants-Appellees.

No. 78-3656.

United States Court of Appeals Fifth Circuit.

Jan. 27, 1981.

Edward A. Perse, Irving E. Dunn, Miami, Fla., for plaintiffs-appellants.

James A. Dixon, Jr., Mitchell Lee Lundeen, Miami, Fla., for Community Nat. Bank & Trust Co.

Fowler, White, Burnette, Hurley, Banick & Strickroot, Curtis Carlson, Miami, Fla., for Bache & Co. Appeals from the United States District Court for the Southern District of Florida.

Before HENDERSON, POLITZ and WILLIAMS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

The appellants, Joseph Vigman, Rae Vigman, Barbara H. Vigman, Marlene Vigman Rudolph, and Richard J. Rudolph, appeal the district court's granting of summary judgment in favor of appellees, Community National Bank & Trust Co. and Bache & Co. The district court granted summary judgment on the ground that appellants' claims under § 10(b) of the Securities Exchange Act of 1934 ¹ and Rule 10b-5 promulgated thereunder, ² § 7 of the Act ³ and Regulation U promulgated thereunder, ⁴ and Rules 401 and 405 of the New York Stock Exchange, were barred by the Florida statute of limitations. We affirm.

I. Factual Background

The facts of this case are undisputed. On November 8, 1968, January 12, 1969, January 14, 1969, and February 10, 1969, appellants borrowed a total of $1,000,000.00 from appellee Community National Bank for the purpose of investing the money in securities. Each of the loans was secured by stocks pledged as collateral by appellants to the Bank. Appellant Joseph Vigman asserts that he was the real party in interest as to each loan transaction.

In connection with each of these loans, appellants executed and delivered to the Bank a Form U-1, Federal Reserve System "Statement of Purpose of Proceeds of a Stock-Secured Extension of Credit by a Bank." According to these statements, the purposes of the loans were to purchase property, pay income tax, use for family investment, and buy real estate. None of the statements of purpose indicated that the true purpose of the loan was to purchase securities and speculate in the stock market. The trading was done at appellee Bache, a securities brokerage firm.

Joseph Vigman has acknowledged that on at least one occasion he was aware that the statement of purpose form was false. Further, on January 31, 1969, Vigman signed and delivered a letter to the president of appellee Bank again falsely describing the purposes of the loans as set out above.

During 1970 and 1971, the Bank exercised its rights under the promissory notes and security agreements by selling the securities held as collateral and applying the proceeds of the sales to pay off the various loans. Joseph Vigman was mailed and received "Advice of Charge" forms reflecting each such transaction. The last of these forms was dated February 22, 1971, and indicated that all of the loans had been completely paid off.

In January, 1973, Joseph Vigman contacted a lawyer regarding other legal matters and mentioned his dissatisfaction with the stock sales. Vigman maintains that he then first learned he might have a cause of action against appellees.

On January 12, 1973, appellants filed an action in a Florida state court, alleging the same facts contained in their present complaint. The state court action was dismissed on interlocutory appeal by the Florida Third District Court of Appeal for lack of subject matter jurisdiction. Community National Bank & Trust Co. v. Vigman, 330 So.2d 211 (Fla.Dist.Ct.App.1976), cert. denied, 341 So.2d 294 (Fla.1976).

Thereafter, on December 30, 1976, appellants filed the present three-count action in federal district court in the Southern District of Florida. Count I alleges violation of § 7 of the Securities Exchange Act, ⁵ and also of Regulation U which regulates the extension of credit by banks for the purpose of purchasing or carrying margin stocks. ⁶ Count II alleges violations of Rule 10b-5, including the use of deceptive devices and the breach of fiduciary duties. Count III alleges that appellees violated New York Stock Exchange Rules 401 and 405, the "Know Your Customer" rule which requires exchange members to use due diligence in the conduct of a customer's account. ⁷ Appellants seek $900,000.00 in damages plus an unspecified sum for lost interest and investment opportunity.

After filing answers to appellants' complaint, appellees moved for summary judgment on the ground that appellants' claims were barred by the applicable Florida statute of limitations. Granting appellees' motion for summary judgment, the district court held that appellants' causes of action were barred "even under the longest (Florida) statute of limitations conceivably applicable," the four-year fraud statute of limitations under § 95.11(3)(j) of the Florida Statutes. Fla.Stat.Ann. § 95.11(3)(j) (West Supp.1980). ⁸ Appellants now challenge the district court's granting of summary judgment in favor of appellees.

II. Accrual of Causes of Action

In passing upon whether the district court erred in granting summary judgment for appellees, we must first determine when appellants' causes of action accrued. Although federal courts look to state law to determine the applicable limitations period, ⁹ the question of when a cause of action accrues, and thus when the limitations period commences running, is governed by federal law. Rawlings v. Ray, 312 U.S. 96, 61 S.Ct. 473, 85 L.Ed. 605 (1941); Azalea Meats, Inc. v. Muscat, 386 F.2d 5 (5th Cir. 1967). Under federal law, a cause of action under § 10(b) and Rule 10b-5, or one under § 7 and Regulation U, accrues when the aggrieved party has either actual knowledge of the violation or notice of facts which, in the exercise of due diligence, would have led to actual knowledge thereof. Azalea Meats, Inc. v. Muscat, 386 F.2d at 8-9 (§ 10(b) action); McNeal v. Paine, Webber, Jackson & Curtis, Inc., 598 F.2d 888, 893 n.11 (5th Cir. 1979) (§ 10(b) and § 7 actions); Goldenberg v. Bache & Co., 270 F.2d 675, 681 (5th Cir. 1959) (§ 7 action). The same principle would apply to the accrual of a cause of action under Rules 401 and 405 of the New York Stock Exchange.

Applying this principle to the facts of the instant case, we find that appellants' causes of action accrued on February 10, 1969. On that date, appellants borrowed the last of the $1,000,000 from the Bank which they used to purchase securities. By this time, appellants had executed and delivered to the Bank all seven of the knowingly false "Statement of Purpose" forms. Further, by February 10, 1969, Vigman had sent the letter to the Bank falsely verifying the purposes of the loans as falsely stated in the "Statement of Purpose" forms. The latest date on which the Bank and Bache could have committed acts of fraud or employed manipulative or deceptive devices in connection with the sale of securities, in violation of § 10(b) and Rule 10b-5, was February 10, 1969. Similarly, February 10, 1969, was the latest date on which the Bank could have extended credit in violation of the margin requirements of § 7 and Regulation U, and on which Bache could have failed to exercise due diligence in the conduct of a customer's account, in violation of New York Exchange Rules 401 and 405. Accordingly, since appellants had actual knowledge of the above facts by February 10, 1969, we hold that appellants' causes of action accrued on that date.

In so holding, we reject appellants' contention that their causes of action did not accrue until they specifically learned from their lawyer in January of 1973 that they might have a cause of action against the Bank and Bache. The knowledge, whether actual or constructive, which an aggrieved party must have for the purpose of the commencing of the running of a statute of limitations is merely that of "the facts forming the basis of his cause of action," see Azalea Meats, Inc. v. Muscat, 386 F.2d at 9 (emphasis added), not that of the existence of the cause of action itself.

III. Applicable Limitations Period

Having determined when appellants' causes of action accrued, we now must determine which statute of limitations applies to each claim in order to determine whether the district court correctly granted summary judgment to appellees on each claim.

The federal securities laws do not in terms provide for a private right of action under either § 10(b) or § 7. The federal securities laws therefore do not contain any limitations period that is expressly applicable to possible claims under § 10(b) and Rule 10b-5, or under § 7 and Regulation U. Similarly, Rules 401 and 405 of the New York Stock Exchange do not expressly create a private right of action thereunder, and accordingly contain no stated limitations period. When federal law contains no limitations period applicable to a particular federal cause of action, federal courts are to apply the forum state's limitations period applicable to the state cause of action that bears the closest substantive resemblance to the federal cause of action. McNeal v. Paine, Webber, Jackson & Curtis, Inc., 598 F.2d at 891-92; Nortek, Inc. v. Alexander Grant & Co., 532 F.2d 1013, 1015 (5th Cir. 1976), cert. denied, 429 U.S. 1042, 97 S.Ct. 742, 50 L.Ed.2d 754 (1977). We therefore must determine which Florida cause of action most closely resembles each of appellants' alleged federal causes of action. We then can decide which Florida limitations period applies to each claim, and thus whether each claim is barred under the applicable limitations period.

A. The § 10(b) and § 7 Claims

The causes of action under Florida law which bear the closest substantive resemblance to actions under § 10(b) and § 7 are that under § 517.21 of the Florida Statutes, Fla.Stat.Ann. § 517.21 (West 1972), ¹⁰ for violations of the sale of securities provisions of the Florida blue sky laws, and that for common law...