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April 30, 1991


The opinion of the court was delivered by: Sweet, District Judge.


Defendants First Blood Associates, A. Frederick Greenberg and Richard M. Greenberg (collectively, "First Blood") have moved for summary judgment dismissing the complaint of plaintiff Stanley B. Block and others ("the Investors") on the grounds that their claims are barred by the statute of limitations. For the following reasons, the motion is granted.

Prior Proceedings

The parties, the underlying facts and the tortuous history of this dispute are described in detail in the prior opinions in this matter, familiarity with which is assumed. Block v. First Blood Associates, 663 F. Supp. 50 (S.D.N.Y. 1987) ("Block I"); Block v. First Blood Associates, 691 F. Supp. 685 (S.D.N.Y. 1988) ("Block II"); Block v. First Blood Associates, 125 F.R.D. 39 (S.D.N.Y. 1989) ("Block III"); Block v. First Blood Associates, 743 F. Supp. 194 (S.D.N.Y. 1990) ("Block IV").

The Present Motion

Following the Second Circuit's decision in Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir. 1990) to adopt a uniform statute of limitations in securities actions brought under § 10(b) of the Securities Exchange Act of 1934, First Blood moved on November 19, 1990 for summary judgment, seeking to apply the new rule announced in Ceres, under which claims must be filed within "one year of their discovery, but in no event more than three years after their accrual." Id. at 351.

Once the Ceres issue had drawn First Blood's attention to the limitations question, it recognized that even under pre-Ceres law there was a question of the timeliness of the Investors' claims. First Blood's reply papers therefore broadened the argument to include this issue as well. Oral argument was heard on January 14, 1991, and following further submission by the parties, the matter was taken on submission on February 21, 1990.*fn1


1.  The Investors Have Not Established Prejudice Which Would
    Warrant Denying Amendment of the Answer.

Although First Blood has not in fact moved to amend its answer, its invocation of the statute of limitations must be considered as a motion to amend under Fed.R.Civ.P. 15(a) to assert the statute as an affirmative defense. See Williams v. Chase Manhattan Bank, N.A., 728 F. Supp. 1004, 1007 (S.D.N.Y. 1990). Rule 15(a) provides that leave to amend "shall be freely given when justice so requires." As the Second Circuit has often stated,

  Reasons for a proper denial of leave to amend
  include undue delay, bad faith, futility of the
  amendment, and perhaps most important, the
  resulting prejudice to the opposing party. Mere
  delay, however, absent a showing of bad faith or
  undue prejudice, does not provide a basis for a
  district court to deny the right to amend.

State Teachers Retirement Board v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962)); see also Richardson Greenshields Securities, Inc. v. Lau, 825 F.2d 647, 653 n. 6 (2d Cir. 1987); Howey v. United States, 481 F.2d 1187, 1190 (9th Cir. 1973) (Lumbard, J.).

The Investors assert that permitting First Blood to assert the statute of limitations at this late date, nearly four years after its original answer, constitutes "undue delay" which should prevent First Blood from amending that answer. Therefore, they contend, under Fed.R.Civ.P. 8(c), First Block must be held to have waived the limitations defense, and its motion must be denied.

However, as Fluor indicates, a party opposing a proposed amendment on the basis of delay must also demonstrate either the amending party's bad faith or the undue prejudice which would result from the amendment. The Investors do not seriously contend that First Blood's failure to avail itself of the limitations argument prior to this time was the result of anything but inadvertence, nor has any evidence been adduced which would support a finding of bad faith.

The Investors do, however, assert that permitting the amendment at this late stage of the litigation would cause them substantial prejudice, primarily based on the extensive discovery and motion practice which have taken place and the substantial attorneys' fees and expenses which have accumulated over the course of the lawsuit. They also allege that First Blood's failure to raise the limitations issue earlier denied them the opportunity to file their claims in a jurisdiction in which they might not have been time-barred.

In order to resolve the issue, it is necessary to consider the nature of the Fluor requirement of "prejudice." It seems clear that a party opposing amendment cannot prove prejudice merely by the fact that the amendment may make it more difficult, or even impossible, for that party to prevail in the litigation. This conclusion applies no matter how heavily the party opposing amendment has invested in the litigation: a claim or defense which is not itself meritorious cannot be preserved simply by its proponent's expenditure of funds.

As the Investors correctly note, a plaintiff's assertion of a time-barred claim is valid so long as the defendant does not assert the defense. Nevertheless, a plaintiff may reasonably be charged with knowledge of the limitations period applicable to his complaint, and thus a plaintiff who incurs significant expenses in ...

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