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