Welch v. Cadre Capital

• Citation: 923 F.2d 989
• Decision Date: 22 January 1991
• Docket Number: D,No. 263,263
• Parties: , Fed. Sec. L. Rep. P 95,763, 18 Fed.R.Serv.3d 1441 Dr. William WELCH III, Dr. Andrew Guest, and Mrs. Elizabeth Guest, Plaintiffs-Appellants, v. CADRE CAPITAL, R. Laken Mitchell, Esq., John Roberts, Edna Lou Ballard, Norman Ballard, Financial Centre Securities, Northwest Mutual, a Savings Institution, Defendants-Appellees, Mutual Fire & Marine Inland Insurance Company, Defendant. ocket 90-7419.
• Court: U.S. Court of Appeals — Second Circuit

Page 989

923 F.2d 989

59 USLW 2464, Fed. Sec. L. Rep. P 95,763,

18 Fed.R.Serv.3d 1441

Dr. William WELCH III, Dr. Andrew Guest, and Mrs. Elizabeth Guest, Plaintiffs-Appellants, v. CADRE CAPITAL, R. Laken Mitchell, Esq., John Roberts, Edna Lou Ballard, Norman Ballard, Financial Centre Securities, Northwest Mutual, a Savings Institution, Defendants-Appellees Mutual Fire & Marine Inland Insurance Company, Defendant.

No. 263, Docket 90-7419.

United States Court of Appeals Second Circuit.

Argued Sept. 26, 1990.

Decided Jan. 22, 1991.

Peter Luria, West Hartford, Conn., for plaintiffs-appellants.

Alexandra Davis, Hartford, Conn. (Kimberly A. Knox, Moller, Horton & Fineberg, and Antoinette L. Ruzzier, Hartford, Conn., on the brief), for defendants-appellees Roberts, Edna Lou Ballard, Norman Ballard, and Financial Centre Securities.

Russell J. Ober, Jr., Pittsburgh, Pa. (Steven Petrikis, Rose Schmidt Hasley & DiSalle, Pittsburgh, Pa., and Robert L. Wyld, Linda L. Yoder, Shipman & Goodwin, Hartford, Conn., on the brief), for defendant-appellee Northwest Sav. Bank.

J. Jeffrey Coughlin, Bridgeport, Conn. (Bai, Pollock & Dunnigan, Bridgeport, Conn., on the brief), for defendant-appellee Cadre Capital.

Before NEWMAN, PIERCE, and ALTIMARI, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

In Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir.1990), we abandoned the practice of applying analogous state statutes of limitations to actions brought under section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and rule 10b-5, 17 C.F.R. Sec. 240.10b-5 (1990). Following intimations from the Supreme Court, see Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), we opted for a uniform federal limitations period and selected the limits specified in sections 9(e) and 18(c) of the '34 Act, 15 U.S.C. Secs. 78i(e), 78r(c)--one year from discovery of the violation and three years from the violation. The issue in the pending appeal is whether the new limitations rule of Ceres should be applied retroactively, an issue Ceres did not resolve.

The issue arises on an appeal by William Welch and Andrew and Elizabeth Guest from the April 12, 1990, order of the District Court for the District of Connecticut (Alan H. Nevas, Judge) granting a motion to dismiss their '34 Act claims against a group of eight defendants allegedly responsible for defrauding plaintiffs into buying and maintaining limited partnership shares in an ill-fated oil and gas drilling venture. Welch v. Cadre Capital, 735 F.Supp. 467,

476 (D.Conn.1989). Judge Nevas found plaintiffs' '34 Act claims time-barred under the federal limitations period this Circuit adopted in Ceres, decided after his decision. We conclude that this case falls within the exception to the general practice of applying new judicial decisions retroactively. We therefore reverse and remand.

BACKGROUND

The complaint alleges the following facts as grounds for plaintiffs' '34 Act claims. William Welch and Andrew and Elizabeth Guest each purchased limited partnership interests in the Keystone 84-1 Oil and Gas Drilling Program. The Keystone Program, for which defendant Cadre Capital served as managing general partner, involved a venture to drill at least six oil and gas wells. To become limited partners, Welch and the Guests were required to purchase one or more discrete interests in Keystone; the price for each interest was a $5,000 cash payment and execution of a $15,000 promissory note. The Guests purchased six limited partnership interests on May 10, 1984, based on representations made by defendants Edna Lou and Norman Ballard, acting on behalf of defendant Financial Centre Securities. On May 25, 1984, Welch purchased two limited partnership interests on the recommendation of defendant John Roberts, then a registered broker with Financial Centre Securities. In July of 1984, defendant R. Laken Mitchell, counsel for the general partnership, informed Welch and the Guests that their notes had been assigned to defendant Northwest Savings Bank as collateral for loans used to finance drilling operations. Defendant Mutual Fire & Marine Inland Insurance Company guaranteed payment of the assigned notes on behalf of the general partnership.

Welch and the Guests first learned of Keystone's demise in early 1987. Welch heard of Keystone's "financial difficulties" from defendant Roberts in January 1987. The Guests remained unaware until March 1987 when Financial Centre Securities informed them of Keystone's insolvency. Welch and the Guests subsequently brought suit on October 17, 1988, in the District Court for the District of Connecticut. The first two counts of their six-count complaint alleged violations of the mandatory registration provisions of the 1933 Securities Act, Sec. 5(a), (c), 15 U.S.C. Sec. 77e(a), (c), and the anti-fraud provisions of the '33 Act, Secs. 12, 17, 15 U.S.C. Secs. 77l and 77q(a), and section 10(b) of the 1934 Securities and Exchange Act, 15 U.S.C. Sec. 78j(b) and rule 10b-5, 17 C.F.R. Sec. 240.10b-5, promulgated thereunder. In addition to suing for primary violations of the '34 Act, the plaintiffs also alleged that Northwest Savings Bank and Mutual Fire & Marine Inland Insurance Company aided and abetted the commission of securities fraud by the other defendants. The other four counts sought relief for violations of the anti-fraud provision of the Connecticut Uniform Securities Act, Conn.Gen.Stat. Sec. 36-498 (1989), common law fraud, breach of fiduciary duty, and negligent misrepresentation.

By order dated August 17, 1989, Judge Nevas granted defendants' motion to dismiss the '33 Act claims. See Welch v. Cadre Capital, 735 F.Supp. 467 (D.Conn.1989). Deferring decision on the '34 Act claims, Judge Nevas informed the parties that he would decline to exercise jurisdiction over the pendent state law counts should the '34 Act claims later be dismissed. Id. at 476. In a subsequent decision, Judge Nevas anticipated this Circuit's decision in Ceres and adopted the one-year/three-year limitations period. Id. at 476-77. He then ruled that the new limitations period should be applied retroactively in this case. Since appellants filed their suit more than one year after discovery of the alleged fraud, the '34 Act claims were dismissed in an order dated April 12, 1990. With all federal claims dismissed, Judge Nevas then dismissed without prejudice the pendent state law counts on May 24. Judgment was entered on May 25. Without awaiting entry of judgment, appellants filed on May 2, 1990, a notice of appeal from the April 12th order.

DISCUSSION

I. Appellate Jurisdiction

Initially, we must determine our appellate jurisdiction, which is called into question by the appellants' failure to notice an appeal from the final judgment dismissing all claims. Prior to oral argument, we invited the parties to consider whether the appeal could be entertained on the basis of the premature notice of appeal from the April 12 order dismissing the federal claims, but leaving the pendent state law claims for dismissal a month later.

On prior occasions we have indicated that a premature notice of appeal from a nonfinal order may ripen into a valid notice of appeal if a final judgment has been entered by the time the appeal is heard and the appellee suffers no prejudice. See Festa v. Local 3, International Brotherhood of Electrical Workers, 905 F.2d 35, 36-37 (2d Cir.1990); Schlehan v. Olympic Worldwide Communications, Inc., 763 F.2d 135, 138 (2d Cir.1985); Pireno v. New York State Chiropractic Association, 650 F.2d 387, 389-90 n. 4 (2d Cir.1981), aff'd on other grounds sub nom. Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982); cf. Matarese v. LeFevre, 801 F.2d 98, 104-06 (2d Cir.1986) (premature appeal of order, subsequently entered, denying rule 60(b) motion), cert. denied, 480 U.S. 908, 107 S.Ct. 1353, 94 L.Ed.2d 523 (1987). ¹ Though there may be limits upon our willingness to permit a premature notice of appeal to "ripen" after entry of a final judgment, see 16 C. Wright, A. Miller, E. Cooper, Federal Practice and Procedure Sec. 3950, at 392 (Supp.1990), it is appropriate to entertain jurisdiction in this case. ² Judge Nevas made clear in the August 17, 1989, order disposing of the '33 Act claims that he would exercise his discretion to dismiss the state law counts if the '34 Act counts were later found to be time-barred. In light of this clearly-expressed intention, the order of April 12, 1990, granting defendants' motion to dismiss the '34 Act claims, effectively signaled the end of the case. Appellees are not prejudiced by our accepting jurisdiction based on the premature notice of appeal, now that a final judgment has been entered. ³

II. Retroactivity of Ceres

In Ceres this Circuit replaced the longstanding practice of borrowing the most analogous state statute of limitations for claims founded on section 10(b) of the '34 Act and rule 10b-5 with the limitations periods statutorily prescribed for private causes of action expressly provided by the '34 Act. See 15 U.S.C. Secs. 78i(e) and 78r(c). First adopted by the Third Circuit, see In re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir.) (in banc), cert. denied, 488 U.S. 849, 109 S.Ct. 131, 102 L.Ed.2d 103 (1988), and more recently by the Seventh Circuit, see Short v. Belleville Shoe Manufacturing Co., 908 F.2d 1385 (7th Cir.1990), this "one-year/three-year" formulation bars any suit filed more than one year after discovery of the fraud or more than three years after the violation. The Third Circuit has applied the federal limitations period retroactively, Hill v. Equitable Trust Co., 851 F.2d 691 (3d Cir.1988), cert. denied, 488 U.S. 1008, 109 S.Ct. 791, 102 L.Ed.2d 782 (1989), although the ruling had no adverse consequence for the plaintiffs since their claims would have been barred under the equivalent...