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KORWEK v. HUNT

October 24, 1986

PHILIP and DOROTHY KORWEK, MARTY FINKELSTEIN, WILLIAM L. COHN and JAMES G. WILLIAMS, Plaintiffs,
v.
NELSON BUNKER HUNT, WILLIAM HERBERT HUNT, INTERNATIONAL METALS INVESTMENT CO., LTD., SHEIK MOHAMMET ABOUD AL-AMOUDI, SHEIK ALI BIN MUSSALEM, FAISAL BEN ABDULLAH AL SAOUD, MAHMOUD FUSTOK, NAJI ROBERT NAHAS, BACHE HALSEY STUART SHIELDS, INC., BACHE GROUP, INC. (PRUDENTIAL BACHE SECURITIES, INC.), MERRILL LYNCH, PIERCE FENNER & SMITH, INC., CONTICOMMODITY SERVICES, INC., CONTICAPITAL MANAGEMENT, INC., CONTICAPITAL LTD., NORTON WALTUCH, MELVIN SCHNELL, GILION FINANCIAL, INC., BANQUE POPULAIRE SUISSE, ADVICORP ADVISORY AND FINANCIAL CORPORATION, S.A., COMMODITY EXCHANGE, INC., THE BOARD OF TRADE OF THE CITY OF CHICAGO, DONALDSON, LUFKIN & JENRETTE ACLI FUTURES, INC., formerly ACLI INTERNATIONAL COMMODITY SERVICES, INC., LITARDEX TRADERS, S.A., WALTER GOLDSCHMIDT, CONTINENTAL GRAIN CO., Defendants



The opinion of the court was delivered by: LASKER

LASKER, D.J.

This class action is brought by five named plaintiffs on behalf of themselves and a proposed class of short sellers of silver futures contracts who traded between July 3, 1979 and February 26, 1980 against a number of defendants, including individuals, firms, and commodities exchanges. Plaintiffs allege that all defendants other than the exchanges attempted to manipulate the price of silver and silver futures and conspired to monopolize the market for silver and silver futures with the result that silver prices climbed to artificially high levels and plaintiffs were forced to liquidate their short positions at a substantial loss.

 The complaint charges the non-exchange defendants with violations of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1-2 (counts I & II); violations of the Clayton Act, 15 U.S.C. §§ 12-27 (count III); violations of New York antitrust law, N.Y. Gen. Bus. Law § 340 (count IV); violations of Sections 9(b) and 4b of the Commodity Exchange Act ("CEA"), 7 U.S.C. §§ 13(b) and 6b (counts V & VI); common law fraud (count VII); and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68 (count IX). First Amended Complaint PP223-30, 232-36 (filed Feb. 22, 1985). *fn1" Certain of the non-exchange defendants (hereinafter "defendants") *fn2" move to dismiss these claims -- both as asserted by the proposed class and as asserted by the named plaintiffs individually -- on the ground that they are barred by the applicable statutes of limitations. Defendants also move to dismiss the CEA § 4b claim for failure to state a cause of action.

 The complaint is identical in its claims to that filed in a related, pending litigation before this court. See Gordon v. Hunt, No. 82-1318 (MEL) (S.D.N.Y. filed March 4, 1982). The plaintiff in Gordon sought to certify a class of those traders who sold silver futures contracts short and suffered a loss therefrom during the period August 7, 1979 through March 26, 1980. The Gordon class was certified on July 19, 1983, but limited to those persons who traded silver futures contracts during the period in August-September 1979 when the named plaintiff traded. See Gordon v. Hunt, 98 F.R.D. 573 (S.D.N.Y. 1983). Subsequently, four of the five individuals who are named plaintiffs in the instant case filed a motion to intervene and expand the class in Gordon. Notice of Motion To Intervene and Expand the Class (filed Oct. 19, 1983). That motion was denied. Gordon v. Hunt, No. 82-1318, slip op. (Oct. 30, 1984).

 The present class action was filed on November 2, 1984, three days after the motion to intervene and expand the class in Gordon was denied. The proposed class in this case is represented by the following named plaintiffs, whose states of residence and the periods during which they held short positions in the market are as follows: Philip & Dorothy Korwek Michigan 8/14/79 - 10/12/79 Marty Finkelstein Pennsylvania 7/2/79 - 7/27/79 8/16/79 - 8/18/79 9/5/79 - 9/13/79 William L. Cohn Massachusetts 12/5/79 - 2/26/80 James Williams Colorado 8/31/79 - 11/7/79

 Exhibit A to Complaint, Korwek v. Hunt, No. 84-7934 (filed Nov. 2, 1984); Amendment to Complaint By Stipulation Nunc Pro Tunc (filed June 19, 1985) (adding Williams as named plaintiff). *fn3"

 I. Statute of Limitations

 The latest acts attributed by the complaint to any of the defendants occurred in May 1980. First Amended Complaint PP124, 191. Consequently, absent any tolling effects, at the time this action was initiated on November 2, 1984, plaintiffs' claims were at least four years and five months old, and any causes of action governed by limitations periods of four years or less would accordingly have been time-barred.

 Plaintiffs contend, however, that (1) the running of all applicable statutes of limitations was tolled by the defendants' fraudulent concealment of their alleged conspiracy and the plaintiffs' resulting inability to discover the actionable wrongs earlier than February 1985; (2) the defendants are estopped from raising statute of limitations defenses to the class action claims because they opposed notice to the proposed Gordon class in August 1983, shortly following the decision on the Gordon class certification motion; and (3) the filing of the Gordon class action and the related motion to intervene and expand the class tolled the running of all applicable statutes of limitations as to the present class action under the rule established by the Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538, 38 L. Ed. 2d 713, 94 S. Ct. 756 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 76 L. Ed. 2d 628, 103 S. Ct. 2392 (1983).

 A. Equitable Tolling Premised on Defendants' Fraudulent Concealment

 Plaintiffs assert that the defendants fraudulently concealed their alleged conspiracy to manipulate the price of silver and silver futures, and that the plaintiffs were thereby prevented from discovering their causes of action until February 28, 1985, when the Commodity Futures Trading Commission ("CFTC") filed an administrative complaint against some of the defendants alleging a conspiracy to manipulate the market. Plaintiffs point to specific allegations in the complaint charging that various defendants misrepresented or withheld information from the CFTC and the Commodity Exchange, Inc. which had the effect of concealing the conspiracy (First Amended Complaint PP58(k) (1), 94(a)-(e), 183(a)-(d), 186, 187, 197, 208), and argue that if the CFTC was unable to formulate and file a complaint before February 1985, plaintiffs -- with significantly fewer resources than a national regulatory body -- could not have been expected to do so.

 The standard applicable to a claim of equitable tolling was set out by the Court of Appeals for this circuit in City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974):

 Once it appears that the statute of limitations has run, the plaintiff must sustain the burden of showing not merely that he failed to discover his cause of action prior to the running of the statute of limitations, but also that he exercised due diligence and that some affirmative act of fraudulent concealment frustrated discovery notwithstanding such diligence.

 Id. at 461 (citations omitted) (emphasis in original). The Court of Appeals has also held that "the time from which the statute of limitations begins to run is not the time at which a plaintiff becomes aware of all of the various aspects of the alleged fraud, but rather the statute runs from the time at which plaintiff should have discovered the general fraudulent scheme." Berry Petroleum Co. v. Adams & Peck, 518 F.2d 402, 410 (2d Cir. 1975).

 Even were plaintiffs' allegations of fraudulent concealment on the part of defendants sufficiently pleaded -- an issue we do not reach here -- plaintiffs have failed to carry their burden of showing that they did not discover their causes of action well in advance of February 1985 and that they could not with due diligence have made such a discovery.

 Plaintiffs had the opportunity to learn of the general fraudulent scheme which is at the heart of their complaint in a number of ways. First, there were the several lawsuits filed beginning in 1979 alleging the same conspiracy against many of the same defendants as plaintiffs charge in this case. See, e.g., Strax v. Commodity Exchange, Inc., 79 Civ. 5366(MEL) (SDNY); Zeltser v. Hunt, 80 Civ. 4009(KTD) (SDNY); Minpeco, S.A. v. ContiCommodity Services, Inc., 81 Civ. 7619(MEL) (SDNY). The filing of lawsuits by private parties has been held in this circuit to put plaintiffs on notice of their potential claims. See Berry Petroleum, 518 F.2d at 410. Second, as early as March 1980 public investigations including hearings before congressional committees had commenced which scrutinized the activities of many of the defendants in connection with the collapse of the silver market. See, e.g., Silver Prices and the Adequacy of Federal Actions in the Marketplace, 1979-80: Hearings Before the Subcomm. on Commerce, Consumer, and Monetary Affairs of the House Comm. on Government Operations, 96th Cong., 2d Sess. Moreover, reports on the subject were issued by the CFTC as early as May 1980. See, e.g., Report of the Commodities Futures Trading Commission on Recent Developments in the Silver Futures Markets, Senate Comm. on Agriculture, Nutrition and Forestry, 96th Cong., 2d Sess. (Comm. Print 1980). Finally, there was such substantial media coverage of the events which form the basis for plaintiffs' claims that in a related litigation we took judicial notice that "[r]egular newspaper readers know what this case is about." Minpeco, S.A. v. ContiCommodity Services, Inc., 552 F. Supp. 327, 331 (S.D.N.Y. 1982).

 The existence of the foregoing opportunities militates against even the possibility that plaintiffs could not, with the exercise of due diligence, have learned of the general scheme in which defendants are charged to have participated. It is plaintiffs' burden to show they were actually prevented from discovering their causes of action. They have failed to carry the burden.

 Plaintiffs' argument that they could not have discovered defendants' alleged wrongs before the CFTC filed its civil enforcement action in February 1985 is somewhat puzzling. For even if, as plaintiffs contend, the fact that the CFTC took five years to file a complaint demonstrates that it was difficult to discover the facts surrounding the claimed conspiracy, plaintiffs appear to have borrowed little from the CFTC's learning since the amended complaint in this action is virtually identical to that filed in 1982 in the Gordon action. In any event, that plaintiffs were able to file a detailed complaint in this action in November 1984, months before the filing of the CFTC complaint, simply belies any argument that facts about the alleged conspiracy were not a matter of public knowledge until February 1985. *fn4"

 The running of the applicable statutes of limitations was not tolled, therefore, based upon defendants' fraudulent concealment of their activities.

 B. Estoppel

 Plaintiffs argue in the alternative that defendants are estopped from asserting statute of limitations bars to the class claims on the ground that some of the defendants opposed notice to the class in August 1983, shortly after the decision on the Gordon class certification motion. See Affidavit in Opposition to Motions by Various Defendants To Dismiss the Complaint, Exhibit B at 6-7 & Exhibit C at 3. Plaintiffs appear to be contending that such opposition to class notice in Gordon may have delayed the filing of this class action by postponing notification to potential members of the current proposed class that they had been excluded from the certified Gordon class, and thus that defendants cannot now be heard to complain that the action is time barred.

 The logic of plaintiffs' argument is unclear. Even if the actions of a few defendants were sufficient to work an estoppel as to all defendants -- a doubtful proposition -- the plaintiffs would still not be entitled to such broad estoppel protection. First, it is not the purpose of a class action notice to inform those who have been excluded from a proposed class that they can no longer rely on that class action to represent their interests; rather it is to enable those who are included in the certified class to opt out of the class and to inform such class members that a judgment in the action will bind all those members who do not request exclusion. See Fed. R. Civ. P. 23(c)(2). Second, it is difficult to discern any prejudice suffered by the present class as the result of opposition to class notice by some defendants in August 1983. By the time in October 1983 when the motion to intervene and expand the class in Gordon was filed, enough people had apparently learned of the decision to limit the Gordon class to traders who maintained short positions between August 8 and September 4, 1979 to enable all of the named plaintiffs who subsequently brought this action in November 1984 to participate in the motion to intervene. In short, regardless of any obstacles to class notice created by any defendants, all of the named plaintiffs who brought the present action in November 1984 (the relevant date for limitations purposes) were on hand in October 1983. Moreover, any prejudice suffered by the class as the result of the decision of the plaintiffs' attorney not to file a new class action in October 1983 is not attributable to any lack of awareness on the part of potential class members that they were not included in the Gordon class.

 For these reasons, defendants are not estopped from asserting that plaintiffs' class claims are time barred.

 C. Class Action Tolling Under The Rule Of American Pipe and Crown Cork

 Plaintiffs contend that under the rule established by the Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538, 38 L. Ed. 2d 713, 94 S. Ct. 756 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 76 L. Ed. 2d 628, 103 S. Ct. 2392 (1983), the prior filing of the class action in Gordon had the effect of tolling the statutes of limitations as to the individual and class claims asserted in this case. If the plaintiffs' position is correct, only a little over two years would have run on the applicable statutes of limitations between the latest date on which plaintiffs' causes of action could have accrued (May 1980) and the initial filing of the present complaint (November 1984), since the running of the statutes would have been tolled during the period between the filing of the Gordon class action (March 1982) and the certification of the class (July 1983) and between the filing of the motion to intervene and expand the class (October 1983) and the denial of that motion (October 1984). Such a toll would be significant because, as discussed below, the shortest limitations period applicable to plaintiffs' claims is three years.

 The Class Action Tolling Rule

 In American Pipe purported members of a class which the trial court had refused to certify sought to intervene in the residual plenary action after the statute of limitations on their claims had run. 414 U.S. at 540-44. In reversing the Ninth Circuit Court of Appeals' affirmance of the trial court's denial of the motions to intervene, the Supreme Court stated:

 We are convinced that the rule most consistent with federal class action procedure must be that the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.

 Id. at 554. The Court reached this conclusion with an eye on the principal purposes of the class action procedure -- promotion of efficiency and economy of litigation.

 A contrary rule allowing participation only by those potential members of the class who had earlier filed motions to intervene in the suit would deprive Rule 23 class actions of the efficiency and economy of litigation which is a principal purpose of the procedure. Potential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable. In cases such as this one, where the determination to disallow the class action was made upon considerations that may vary with subtle factors . . ...


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