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WACHOVIA BANK & TRUST CO., N.A. v. RANDELL

February 5, 1979

WACHOVIA BANK AND TRUST CO., N.A. (as Trustee and Agent for various trust accounts), MELLON BANK, N.A. (as Trustee for a special investment trust account), FIRST WISCONSIN TRUST CO. (as Trustee for various trust accounts), THE DREYFUS OFFSHORE TRUST, N.V., and NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Plaintiffs, against CORTES W. RANDELL, JOHN G. DAVIES, JAMES F. JOY, BERNARD J. KUREK, ROGER O. WALTHER, PEAT, MARWICK, MITCHELL & CO., ANTHONY M. NATELLI, JOSEPH SCANSAROLI, DONALD A. FERGUSSON, ROBERT A. FERGUSSON WHITE & CASE, and MARION J. EPLEY III, Defendants.


The opinion of the court was delivered by: MOTLEY

MEMORANDUM OPINION

Plaintiffs have brought this action under the federal securities laws and under New York's law of fraud. The action arises out of the collapse of National Student Marketing Corp. (NSM) stock in February, 1970. Plaintiffs were institutional investors in that stock which they purchased on December 17, 1969. Several of the defendants have moved for summary judgment. Those defendants are the accountants to NSM: Peat, Marwick, Mitchell & Co. (Peat, Marwick), and two partners in that firm, Anthony Natelli and Joseph Scansaroli, and the lawyers for NSM, White & Case and a partner in that firm, Marion J. Epley. This action was commenced on September 26, 1977.

 On March 2, 1970, a class action separate and distinct from this action was filed in the Southern District of New York against most of the defendants here on behalf of a class of investors in NSM stock alleging securities violations. Several other class actions were also filed in this court and were consolidated with the earlier action into one case, Garber v. Randell, 70 Civ. 835. Plaintiffs were by definition members of that class action. Before class action certification was decided, plaintiffs filed an action for securities violations in the United States District Court for the District of Columbia on January 29, 1973. Wachovia Bank and Trust Co. v. National Student Marketing Corp., (Parker, J.). Class action certification was then granted in the New York action, Garber. Plaintiffs then opted out of the class by letter dated November 23, 1973.

 In 1977 a motion to dismiss was filed in the District of Columbia action by the Peat, Marwick and White & Case defendants based on the statute of limitations. Immediately, the plaintiffs filed the instant action based on the identical claims made in the District of Columbia action. Plaintiffs styled the instant action a "protective" action to be prosecuted in the event the other action was dismissed.

 By opinion not yet published, dated November 20, 1978, Judge Parker in the District of Columbia action dismissed the plaintiffs' claims against the accountants and the attorneys on the ground of the statute of limitations. Judge Parker also denied plaintiffs' motion for reconsideration on December 20, 1978.

 Judge Parker applied the statute of limitations of the District of Columbia since under the federal securities laws the applicable statute of limitations is the law of the forum state. Stull v. Bayard, 561 F.2d 429, 431-32 (2d Cir. 1977), cert. denied, 434 U.S. 1035, 98 S. Ct. 769, 54 L. Ed. 2d 783 (1978). Under this statute he found that the plaintiffs' claims were barred as to the moving defendants.

 The same defendants now move for summary judgment in the instant action on the ground that under Rule 41(b) Judge Parker's dismissal was on the merits and bars relitigation of that claim here. This court agrees and dismisses the action as to those defendants dismissed in the District of Columbia action.

 Rule 41(b) states in part:

 
"Involuntary Dismissal: Effect thereof. . . . Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue or for a failure to join a party under Rule 19, operates as an adjudication upon the merits."

 Plaintiffs urge that this dismissal not be considered as an adjudication on the merits. They argue that it would be contrary to reason to allow Judge Parker's dismissal based on the District of Columbia's statute of limitations to bar a claim in New York to which a longer statute of limitation applies.

 However, the Second Circuit in Bertha Building Corp. v. National Theatres Corp., 248 F.2d 833, 840 (2d Cir. 1957), cert. denied, 356 U.S. 936, 78 S. Ct. 777, 2 L. Ed. 2d 811 (1958), stated clearly:

 
"We are unmoved by the petitioner's contention that we were wrong in asserting that a dismissal based upon a defense of the statute of limitations is an adjudication on the merits. Warner v. Buffalo Drydock Co., 67 F.2d 540 (2d Cir.), which is cited in support of that contention, we think is distinguishable. And moreover, it has been superseded by the clear mandate of Rule 41(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A., which in its last sentence directly contradicts the holding of the Warner case. Although under the rule in a proper situation the District Judge may specify that his order be without prejudice, Judge Galston did not so qualify his order of dismissal."

 This holding was followed by the district court in Murphy v. A/S Sobral, 187 F. Supp. 163, 164 (S.D.N.Y.1960).

 In 1973, the Second Circuit followed the Bertha holding. In Sack v. Low, 478 F.2d 360 (2d Cir. 1973), a Massachusetts District Court had dismissed federal securities law claims based on the Massachusetts statute of limitations. The plaintiffs brought the identical claims here in the Southern District of New York. The latter court dismissed the claims under Rule 41(b), relying on the holding in Bertha, supra, that a dismissal based on the statute of limitations of another jurisdiction was an adjudication on the merits. The plaintiffs appealed to the Second Circuit. However, they also moved in the ...


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