The opinion of the court was delivered by: SWEET
This action was begun by Randolph Phillips against certain directors of the Alleghany Corporation and the Corporation itself on December 30, 1974. The facts which gave rise to the action are described in Phillips v. Tobin, 403 F. Supp. 89 (S.D.N.Y.1975) and will not be repeated here. In Phillips, the Honorable Robert J. Ward dismissed Counts 2, 4, 5 and 6 of Phillips' amended complaint, and portions of Counts 1 and 7.
On appeal, the Court of Appeals for the Second Circuit held that, because the only claims remaining were derivative, Phillips was not an appropriate representative of the Corporation to prosecute its suit. Phillips v. Tobin, 548 F.2d 408 (2d Cir. 1976), Cert. denied, 434 U.S. 809, 98 S. Ct. 42, 54 L. Ed. 2d 67. Simon V. Haberman, a shareholder of Alleghany, has retained counsel and has been substituted for Mr. Phillips in this action.
The individual defendants now move for summary judgment on the ground that the action is barred by the applicable statute of limitations. Defendant Alleghany moves to disqualify Mr. Haberman on the ground that he does not meet the standards required by the Court of Appeals in Phillips. Both motions are denied.
The Summary Judgment Motion
In Phillips, Judge Ward found that plaintiff's Rule 10b-5 and Section 14(a) causes of action (Counts I and III) arose in 1970 and were not time barred. 403 F. Supp. at 94. Defendants, however, contend that Judge Ward did not consider the argument they now make: to wit, that the applicable limitation is three years, because the Maryland "blue sky" statute of limitations applies.
Because there is no express statute of limitations governing claims under Section 14(a) or Section 10(b) of the Securities Exchange Act, this court must apply the applicable statute of limitations of New York, Cope v. Anderson, 331 U.S. 461, 464-7, 67 S. Ct. 1340, 91 L. Ed. 1602 (1947)
along with New York's borrowing statute, N.Y. # CPLR § 202. Id; Sack v. Low, 478 F.2d 360 (2d Cir. 1973); Arneil v. Ramsey, 550 F.2d 774, 779-80 (2d Cir. 1977). 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.
For purpose of New York's borrowing statute, Alleghany is a non-resident of New York. See American Lumbermens Mut. Cas. Co. v. Cochrane, 129 N.Y.S.2d 489, Aff'd, 284 App.Div. 884, 134 N.Y.S.2d 473, Aff'd 309 N.Y. 1017, 133 N.E.2d 461.
The disposition of the motion therefore turns on the determination as to the place where the cause of action accrued. Because that state is determined to be New York, the motion must be denied. There have been differing decisions on which test to apply to determine the place of accrual of an action for the purposes of the New York borrowing statute. See CPLR § 202, Supplementary Practice Commentaries, C202:3, 1974, 1976, 1978 (McKinney's).
The Honorable Thomas P. Griesa in Bache Halsey Stuart, Inc. v. Namm, 446 F. Supp. 692 (S.D.N.Y.1978) and Judge Ward in Natural Resources Corp. v. Royal Resources Corp., 427 F. Supp. 880 (S.D.N.Y.1977) reviewed the applicable New York and federal cases, and arrived at different conclusions.
In Natural Resources Corp. Judge Ward reasoned that Martin v. Julius Dierck Equip. Co., 52 A.D.2d 463, 384 N.Y.S.2d 479 (Second Department 1976) revealed a change in New York's test for purposes of the borrowing statute. The traditional test, noted Judge Ward, is the "place of injury test" i. e. the cause of action is deemed to have accrued where the plaintiff was injured. See Sack v. Low, 478 F.2d 360, 365 (2d Cir. 1973). In Martin, however, the Appellate Division applied a different test. Under the latter test a court determines where a cause of action accrued by posing the following question: "(W)hat (is) the essence of the action . . . and which jurisdiction has the most significant contacts with the issues before the court(?)" (citations omitted). Natural Resources, supra at 884.
Judge Griesa, on the other hand, noted in Bache that Martin was affirmed by the New York Court of Appeals (at 43 N.Y.2d 583, 403 N.Y.S.2d 185, 374 N.E.2d 97 (1978)) on grounds other than the appropriateness of the Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963) test. Moreover, noted Judge Griesa, the Second Circuit had failed to adopt the Appellate Division's "most significant contracts" approach in Arneil v. Ramsey, 550 F.2d 774 (2d Cir. 1977) (decided before the New York Court of Appeals affirmed Martin ).
Judge Griesa therefore concluded that Martin's use of the "most significant contacts" test did not supplant the older "place of injury"
standard. See Sack v. Low, supra.
For the reasons stated in this opinion, this court is not required to make a final determination on the issue of which test to apply. But, candor compels the court to admit the reasoning of Babcock is compelling.
If application of a mechanical rule is to be avoided, the law of the jurisdiction with the dominant interest in resolution of the underlying issue should prevail. See Babcock supra at 481-2, 240 N.Y.S.2d 743, 191 N.E.2d 279. Such reasoning underlay the Appellate Division's analysis in Martin, which was not disturbed by New York's Court of Appeals, and Judge Ward's analysis in Natural Resources. Application of the "most significant contacts" test, therefore, is the trend in New York, and this court is persuaded that New York's courts would apply it to the New York borrowing statute on these facts. See CPLR § 202, Supplementary Practice Commentaries, C 202:3, Supra.
Turning then to the facts here, Alleghany is incorporated in Maryland, its principal place of business is New York, and Alleghany's shares are traded on the New York Stock Exchange. The proxy statements alleged to be false and misleading were mailed from Alleghany's New York offices. New York was where the tender offer by Alleghany took place, and New York was where the offer was accepted. This court therefore finds that New York has the most significant contacts with the ...