Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

GUTMAN v. EQUIDYNE EXTRACTIVE INDUSTRIES

May 8, 1991

ERNEST GUTMAN, JOSEPH KARLIN, EDWARD J. KINEKE, THOMAS R. CASEY, ROBERT DOWNING, EFREM HIAN, MICHAEL R. TONGEL, NORMAN WALL, RALPH A. JESSAR, SALVATORE J. VERNACE, ELLIOT A. HELLER, AHMAD HASHEMIYOON, ALF ABRAHAMSEN, MICHAEL A. GOLD, BARRY JAY KAYE, ALAN H. KOTZ, JOSEPH
v.
COOPER, HARRIS TRUST AND SAVINGS BANK, AS EXECUTOR OF THE ESTATE OF LLOYD V. CONANT, AND NOVICK BROS. A PENNSYLVANIA PARTNERSHIP, AS INVESTORS WHO PURCHASED THE SECURITIES OF EQUIDYNE EXTRACTIVE INDUSTRIES 1980 PETRO/COAL PROGRAM I AND ALSO DERIVATIVELY ON BEHALF OF EQUIDYNE 1980 GAS AND OIL ASSOCIATES I, A LIMITED PARTNERSHIP, PLAINTIFFS, V. EQUIDYNE EXTRACTIVE INDUSTRIES 1980 PETRO/COAL PROGRAM I, EQUIDYNE 1980 GAS AND OIL ASSOCIATES I, EQUIDYNE 1980 COAL VENTURE, EQUIDYNE EXTRACTIVE INDUSTRIES, INC., EQUIDYNE CORPORATION, EASTLAND DRILLING CORPORATION, EASTERN MINING SYSTEMS, EASTLAND INDUSTRIES, INC., STUART R. ROSS, JOEL I. BEELER, ROBERT H. LIEBMANN, ROBSON, MILLER & OSSERMAN, AND MARKS SHRON AND COMPANY, DEFENDANTS. ROBSON, MILLER & OSSERMAN, THIRD-PARTY PLAINTIFF, V. JOEL I. BEELER, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Kevin Thomas Duffy, District Judge:

MEMORANDUM AND ORDER

In early 1987, plaintiffs Ernest Gutman, Joseph Karlin, Edward J. Kineke, Thomas R. Casey, Robert Downing, Efrem Hian, Michael R. Tongel, Norman Wall, Ralph A. Jessar, Salvatore J. Vernace, Elliot A. Heller, Ahmad Hashemiyoon, Alf Abrahamsen, Michael A. Gold, Barry Jay Kaye, Alan H. Kotz, Joseph V. Cooper, Harris Trust and Savings Bank as Executor of Lloyd V. Conant's Estate, and Novick Brothers commenced this action against, inter alia, defendant law firm of Robson, Miller & Osserman ("Robson"), alleging violations of: § 10(b) of the Securities and Exchange Act of 1934 ("1934 Act") and Rule 10b-5 promulgated thereunder; §§ 17(a) and (a)(2) of the Securities Act of 1933 ("1933 Act"); the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. (1982); common law fraud and deceit; and legal malpractice in connection with a fraudulent investment letter. On November 17, 1987, Robson moved to dismiss federal and pendent state claims. By order dated July 25, 1990, I dismissed claims founded upon §§ 17(a) and (a)(2) and legal malpractice against Robson. The only claims which remain as against Robson are claims pursuant to § 10(b) and Rule 10b-5, and state claims pendent thereto. In addition, I dismissed the complaint against defendant accounting firm, Marks Shron & Co. Robson now moves pursuant to Fed.R.Civ.P. 15(a) to amend its answer to add an affirmative statute of limitations defense as to the federal claims. In the event that I grant that motion, Robson further moves pursuant to Fed.R.Civ.P. 56(c) to dismiss all remaining federal claims as time barred and dismiss the state claims for incomplete diversity and lack of pendent jurisdiction.

FACTS

This action arises out of the investments by Gutman, et al. in a limited partnership known as Equidyne Extractive Industries 1980, Petro/Coal Program I ("Equidyne") which was a New York limited partnership created for the purpose of subleasing, developing, and mining coal from various tracts of land located in the State of Kentucky. Claiming to have been induced to make their respective investments by a series of written misrepresentations, Gutman et al. filed a complaint against Robson on November 28, 1986.

In lieu of an answer, Robson moved to dismiss the complaint, raising a statute of limitations defense as to the legal malpractice claim only. No statute of limitations defense was then asserted as to the alleged securities laws violations. An amended complaint, dated September 11, 1987, was then filed, containing the same essential claims but setting forth additional supportive factual allegations. On November 17, 1987, Robson served another motion to dismiss the amended complaint. Although that motion raised the issue of statute of limitations on the legal malpractice claim, it raised no such defense with regard to the claims based on securities law violations and common law fraud. Subsequently, Robson served its answer to the amended complaint. No affirmative defense was contained within that answer dated September 24, 1990.

DISCUSSION

By this application, Robson now seeks to amend its answer in order to add a statute of limitations defense to the federal claims at bar. Gutman et al. take exception, claiming that Robson does not deny that it was served with the original complaint in early 1987 and should have been on notice of potential affirmative defenses. Yet, almost four years after service of the complaint, Robson seeks leave to amend its answer to assert an affirmative defense with respect to claims under § 10(b) of the 1934 Act, and Rule 10b-5 promulgated thereunder. On the other hand, Robson asserts that no prejudice will be suffered by the amendment. According to Robson, no discovery has taken place in this action and it served its answer a mere three months before bringing this motion, thus no prejudice can be claimed. Not only is the delay reasonable, but the request is made in light of a decision rendered by the Second Circuit after the time that Robson answered.

Pursuant to Fed.R.Civ.P. 15(a), a party is given the opportunity to amend its answer as follows:

It is undisputed that under this rule, leave of court may be sought when a party has determined that it must amend its answer when more than 20 days have elapsed since the original answer was served. In the within action, such leave is necessary since Robson served and filed its original answer on September 24, 1990. Furthermore, while motions to amend the answer are committed to the discretion of the court, leave is to be freely given when justice so requires. Poloron Products, Inc. v. Lybrand Ross Bros. & Montgomery, 72 F.R.D. 556 (S.D.N.Y. 1976). A defendant would not be prohibited from adding an affirmative defense about which it had knowledge as long as the addition does not prejudice the opposing party. Ragin v. Harry Macklowe Real Estate Co., 126 F.R.D. 475, 478 (S.D.N.Y. 1989). Moreover, "amendments seeking to insert or correct matters about which parties should have known but did not know are plainly within the scope of Rule 15(a)." Hanlin v. Mitchelson, 794 F.2d 834 (2d Cir. 1986).

In this case, Robson contends that it is entitled to amend its answer to include an affirmative defense of statute of limitations, almost four years after service of the original complaint and after resolving two previous motions to dismiss, because of a recent decision in the Second Circuit that might affect the viability of the federal claims at bar. I agree. New law which creates the potential to affect jurisdiction over a matter at hand provides adequate justification to allow an answer to be amended.

A uniform statute of limitations period for federal claims arising under § 10(b) of the 1934 Act has recently been set at one-to-three years. Ceres Partners v. Gel Assoc., 918 F.2d 349 (2d Cir. 1990). "This `one year/three year' formulation bars any suit filed more than one year after discovery of the fraud or more than three years after the violation." Welch v. Cadre Capital, 923 F.2d 989 (2d Cir. 1991). Prior to Ceres, there was no uniform statute of limitations for federal securities fraud litigation and district courts were constrained to borrow an appropriate statute of limitations period. "Hence, the federal court could be required to borrow whatever period one state court would conclude a sister state's court might apply in a case over which neither has any jurisdiction." Ceres Partners v. Gel Assoc., 918 F.2d at 354. Thus, the longstanding practice of borrowing the most analogous state statute of limitations for claims founded on the 1934 Act § 10(b), and Rule 10b-5 promulgated thereunder, was essentially replaced. Welch v. Cadre Capital, 923 F.2d 989, 992 (2d Cir. 1991).

In light of this, Robson maintains that it timely moved to add an affirmative defense and requests that Ceres be applied retroactively in order to dismiss the federal claims for having been brought after the requisite statutory period of one-to-three years. However, the ruling in Ceres had no adverse consequence for the plaintiffs since their claims would have been barred under the applicable limitations period under state law. See Welch v. Cadre Capital, 923 F.2d at 993. Because plaintiffs' 10b-5 claims were properly dismissed under either approach in the Ceres case, left unresolved was the retroactive application of the `one year/three year' limitations period. Id. at 993 (citing Ceres Partners v. Gel Assoc., 918 F.2d at 364).

The Supreme Court has articulated a three-part test germane to determining whether to apply a new limitations rule retroactively. Welch v. Cadre Capital, 923 F.2d at 993 (citing Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971)). A court must consider whether: (1) the new rule overrules clear past precedent on which litigants may have relied; (2) retroactive application of the new rule will further or retard its operation; (3) retroactive ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.