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May 12, 1976

James Arneil, et al., Plaintiff
James B. Ramsey, et al., Defendants

Brieant, District Judge.

The opinion of the court was delivered by: BRIEANT

BRIEANT, District Judge:

On April 11, 1975, plaintiffs filed a complaint alleging, in fourteen separate counts, numerous violations of Sections 6, 10(b) and 20 of the Securities Exchange Act of 1934 ("the 1934 Act"), 15 U.S.C. §§ 78f, 78j and 78t, and Rule 10b-5, 17 C.F.R. § 240.10b-5. In addition plaintiffs have asserted various claims of common law fraud and breach of a fiduciary duty.

 Jurisdiction is premised on § 27 of the 1934 Act, 15 U.S.C. § 78aa and principles of pendent jurisdiction.

 The Parties.

 Plaintiffs James Arneil and Vernon Stockwell are long-time residents of Wenatchee, Washington. Mr. Arneil is an attorney and Mr. Stockwell is the manager and part owner of two apple orchards.

 Defendant New York Stock Exchange, Inc. ("the Exchange") is a not-for-profit corporation organized under the laws of the State of New York and registered as a national securities exchange under § 6 of the 1934 Act.

 Defendant Blair and Co., Inc. ("Blair") was a member organization of the Exchange and a stockbroker. On September 25, 1970, Blair ceased operations, and the Exchange appointed Mr. Patrick E. Scorese as liquidator for Blair.

 Defendant James B. Ramsey, Jr. is a former President of Blair. Defendant Oliver DeG. Vanderbilt is a former Chairman of the Board of Blair. Defendant William M. Lendman is also a former President of Blair. Ramsey, Vanderbilt and Lendman will sometimes be referred to collectively as the individual defendants.

 The Complaint.

 In Count I, plaintiffs claim that all defendants violated Rule 10b-5 in April of 1969 by inducing and encouraging the plaintiffs to purchase non-voting common and preferred stock of Blair and to become subordinated lenders to Blair. Count II charges all defendants except Blair with aiding and abetting Blair in the sale of its securities in violation of Rule 10b-5. Count III alleges a conspiracy to violate Rule 10b-5 in that the Exchange and the individual defendants agreed to obtain additional capital for Blair through the sale of securities to plaintiffs without adequate disclosure of material facts. Count IV asserts that the Exchange and the individual defendants were persons in control of Blair (as defined by § 20(a) of the 1934 Act) and as such owed a duty to the plaintiffs in connection with the purchase of these securities and issuance of secured demand notes.

 Counts V through XII allege numerous violations of § 6 of the 1934 Act. The Exchange is the only defendant on these § 6 counts, discussed in more detail below.

 Count XIII alleges that all the defendants are guilty of common law fraud in connection with the purchase of the securities and the giving of the notes.

 Finally, Count XIV asserts that the Exchange breached a fiduciary duty which it owed to the plaintiffs by favoring its own interests and the interests of its members over the interests of the plaintiffs and the general public.

 All defendants except Blair *fn1" have moved for summary judgment pursuant to Rule 56, F.R. Civ. P. The individual defendants move solely on the ground that the 10b-5 and common law fraud claims (the only counts in which they are named) are time barred by the applicable statute of limitations. The Exchange bases its motion both upon the statute of limitations point and on the ground that there is no genuine issue as to any material fact.

 The 10b-5 Claims (Counts I-IV).

 The Securities Exchange Act of 1934 prescribes no period within which actions must be brought. Nor is there any general federal statute of limitations applicable to all civil actions alleging violations of federal law. However, it is well settled that where Congress creates federal rights but does not prescribe a time period for enforcement, a federal court will apply the statute of limitations laws of the forum state. International Union, United Auto Workers v. Hoosier Cardinal Corp., 383 U.S. 696, 703-05, 16 L. Ed. 2d 192, 86 S. Ct. 1107 (1966); Klein v. Bower, 421 F.2d 338, 343 (2d Cir. 1970).

 Our reference to New York law to determine whether or not the action is timely includes its "borrowing statute," New York CPLR § 202. Cope v. Anderson, 331 U.S. 461, 91 L. Ed. 1602, 67 S. Ct. 1340 (1947); Sack v. Low, 478 F.2d 360, 365 (2d Cir. 1973); Hornblower, Weeks, Hemphill & Noyes v. Burchfield, 366 F. Supp. 1364, 1367 (S.D.N.Y. 1973). That statute provides:

"An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply."

 As noted in Korn v. Merrill, 403 F. Supp 377, CCH FED. SEC. L. REP. para. 95,355 at 98,767 (S.D.N.Y. 1975), a New York court will borrow the limitations law of a foreign state only where (1) the cause of action being sued upon accrued outside of New York, and (2) the plaintiff is not a resident of New York.

 Here the second condition is clearly satisfied. Plaintiffs are, and at all relevant times have been, residents of the State of Washington. While plaintiffs contend that they were "doing business" in New York by reason of the brokerage accounts which they maintained with Blair in New York City, such business activities do not establish New York residence for purposes of the borrowing statute. See American Lumbermens Mut. Cas. Co. of Ill. v. Cochrane, 129 N.Y.S. 2d 489 (Sup. Ct.), aff'd without opinion, 284 App. Div. 884, 134 N.Y.S. 2d 473 (1st Dept. 1954), aff'd without opinion, 309 N.Y. 1017, 133 N.E.2d 461 (1956).

 The first condition creates a more complicated issue. Sack v. Low, supra at 365, holds that New York would follow the rule of the First Restatement of Conflicts, § 377, note 4, that ". . . when a person sustains a loss by fraud, the place of wrong is where the loss is sustained, not where fraudulent representations are made." The Court went on to state that ". . . loss from fraud is deemed to be suffered where its economic impact is felt, normally the plaintiff's residence." Id. at 366. Applying this test to the facts of this case, ...

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