The opinion of the court was delivered by: Edelstein, District Judge:
Defendants have moved for partial summary judgment, to
dismiss for failure to plead a cause of action pursuant to
Fed.R.Civ.P. 12(b)(6) and for failure to plead fraud with
particularity pursuant to Fed.R.Civ.P. 9(b), and to compel
arbitration as to any remaining claims. For the following
reasons: (1) defendants' motion for partial summary judgment is
granted; (2) defendants' motion to dismiss plaintiffs' claims
for failure to plead fraud with particularity pursuant to
Fed.R.Civ.P. 9(b) is granted; and (3) defendants' motion to
compel arbitration as to plaintiffs' remaining claims is
At the heart of this dispute is plaintiffs Jesus Norniella
and Ruth Norniella's claim that defendants Kidder, Peabody &
Co., Inc., ("Kidder") and Ramon A. Almonte "churned"
plaintiffs' accounts. In January 1983, plaintiffs claim that
defendant Almonte, a broker with defendant Kidder, gained their
friendship and subsequently induced them to open three trading
accounts with Kidder. Plaintiffs claim that Almonte
fraudulently induced them to make a number of investments
through the accounts and that Almonte consistently
overestimated the value of the accounts. Although plaintiffs
inquired as to the status of their accounts, plaintiffs claim
that Almonte told them that the accounts were doing well.
Plaintiffs claims that they instructed Almonte to invest in
safe, long-term investments because the money from the accounts
was to be used for their retirement. According to plaintiffs,
however, defendants used plaintiffs accounts to engage in short
term bond trading, including the practice of day trading in
bonds from Kidder's own inventory, and speculative stock
trading. Plaintiffs admit having received confirmation slips
for the transactions that took place and monthly account
statements, but claim that the statements did not list the
excessive commissions taken by defendants and were constructed
so that plaintiffs could not figure out how much money was
Eventually, plaintiffs claim that they showed their account
statements to a friend who informed them that money had been
lost due to the churning of their accounts. When plaintiffs'
attorney then attempted to contact Kidder, plaintiffs claim
that Kidder attempted to cover up the fraud that had taken
place. Plaintiffs then
instituted this action on November 13, 1986, claiming
violations of Sections 10(b) and 20 of the Securities Exchange
Act of 1934 (the "Exchange Act") 15 U.S.C. § 78j(b), and 78t,
the Racketeering Influenced and Corrupt Organization Act
("RICO"), 18 U.S.C. § 1962(c), and also asserting state law
claims for common law fraud, breach of fiduciary duty, and
negligent mismanagement. Defendants have moved for partial
summary judgment to dismiss plaintiffs' Exchange Act claims
arising from transactions prior to November 13, 1984 as being
barred by the statute of limitations, to dismiss the remaining
Exchange Act claims and RICO claims for failure to plead a
cause of action pursuant to Fed.R.Civ.P. 12(b)(6) and failure
to plead fraud with particularity pursuant to Fed.R.Civ.P.
9(b), and finally to compel arbitration as to any remaining
A. Statute of Limitations
A party moving for partial summary judgment must establish
that there is no genuine issue of material fact and that it is
entitled to judgment as a matter of law as to the claims that
the party wishes to dismiss. Fed.R.Civ.P. 56(c). The moving
party has the initial burden of establishing the absence of a
genuine issue of material fact. Adickes v. S.H. Kress & Co.,
398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970).
The non-moving party then has the burden of showing with
specific facts that there is a genuine issue for trial.
Fed.R.Civ.P. 56(e). In meeting this burden, the non-moving
party may not rely on speculation and conjecture. Knight v.
U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986), cert.
denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).
Until recently, this Court looked to state law to determine
the applicable statute of limitations for implied causes of
action under the federal securities laws. However, in Ceres
Partners v. Gel Assoc., 918 F.2d 349 (2d Cir. 1990), the Court
of Appeals adopted a uniform statute of limitations of one year
from discovery and no more than three years after the conduct
alleged to constitute a violation for claims brought under
Sections 10(b) and 14 of the Exchange Act. Id. at 364. The
Court of Appeals left "for the future all questions concerning
retroactive application" of the court's decision to apply a
uniform statute of limitations to such claims. Id.
The parties' briefs submitted before the Court of Appeals
decision in Ceres Partners v. Gel Assoc. did not contest that
the two year statute of limitations provided for under the law
of Puerto Rico was applicable to the Exchange Act claims in
this action. Given that the parties have not chosen to raise
the issue of whether Ceres Partners v. Gel Assoc. should apply
retroactively to plaintiffs' Section 10(b) claims in this
action, this Court will apply the two year statute of
limitations provided for under the law of Puerto Rico to both
plaintiffs' Section 10(b) and Section 20 claims.
Although the parties do not contest the application of Puerto
Rico's statute of limitations, the parties do contest when the
two year limitations period began to run. The issue of when the
statute of limitations begins to run is a matter of federal
common law. Arniel v. Ramsey, 550 F.2d 774, 780 (2d Cir. 1977);
Salgado v. Piedmont Capital Corp., 534 F. Supp. 938, 947 (D.P.R.
1981). Under federal law, the statute of limitations begins to
run "when the plaintiff has actual knowledge of the alleged
fraud or knowledge which in the exercise of reasonable
diligence should have led to actual knowledge." Stull v.
Bayard, 561 F.2d 429, 432 (2d Cir. 1977), cert. denied,
434 U.S. 1035, 98 S.Ct. 769, 54 L.Ed.2d 783 (1978). Nonetheless,
when a claim for relief is stated against a defendant who has
concealed the wrong alleged, the applicable statute of
limitations will be suspended for the duration of the period of
concealment. Moviecolor Ltd. v. Eastman Kodak Co., 288 F.2d 80,
82-83 (2d Cir.), cert. denied, 368 U.S. 821, 82 S.Ct. 39, 7
L.Ed.2d 26 (1961).
The core component of a churning claim is excessive trading
activity. See Newburger, Loeb & Co., Inc. v. Gross,
563 F.2d 1057, 1069 (2d Cir. 1977), cert. denied, 434 U.S. 1035, 98
S.Ct. 769, 54 L.Ed.2d 782 (1978). Plaintiffs claim that they
opened the accounts in question to make safe long-term
investments and that 169 transactions took place during the two
years that plaintiffs had these accounts. Plaintiffs admit to
having received both confirmation slips of the trades and
monthly accounts which kept track of each trade that took
place. Plaintiffs therefore received 169 confirmation slips,
one for each transaction, and 24 monthly statements, in which
every one of the transactions was recorded. Plaintiffs claim
that they were unaware of the level of commissions being taken
by defendants. However, it seems very unlikely that the client
confirmation slips did not specifically state defendants'
commission. Moreover, the amount of commissions being taken by
defendants has nothing to do with the level of activity
reflected in the confirmation slips and ...