fraud by Touche. The plaintiffs alleged their belief that the
1987 and 1988 Annual Reports and 10-K forms were false and
misleading. First Amended Complaint, ¶¶ 22-23, 31-34. These
were prepared by Touche. In addition, the first amended
complaint alleges that "accounting misrepresentations designed
to mask poor results" and "fraudulent accounting practices"
were used by the defendants. First Amended Complaint, ¶¶ 17,
Touche also argues that the amendment to the second amended
complaint to include claims against it does not relate back,
pursuant to Fed.R.Civ.P. 15(c), since there was no mistake
concerning its identity, but for which the action would have
been brought against it originally.*fn5 The plaintiffs do not
dispute this contention, and the court will proceed on the
assumption that the claim does not relate back.
The plaintiffs contend that the action is still governed by
the six-year statute of limitations, since that statute was in
effect when plaintiffs' claim against Touche accrued.
Plaintiffs also argue that, even if the new one-year
limitations period is applied retroactively, they did not
discover fraud by Touche until, at the earliest, the time they
subpoenaed and received documents from Touche in February
1990. Thus, they contend, the complaint was timely filed and
served in January 1991.
Based on a careful review of the caselaw submitted by the
parties, and its own research, the court concludes that the
"one year/three year" statute of limitations announced in
Ceres applies to the section 10(b) and Rule 10b-5 claims
The general rule is that "judicial precedents normally have
retroactive as well as prospective effect.'" Kremer v. Chemical
Const. Corp., 623 F.2d 786, 788 (2d Cir. 1980), aff'd,
456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982) (quoting National
Ass'n of Broadcasters v. FCC, 554 F.2d 1118, 1130 (D.C. Cir.
1976)). The plaintiffs urge that the Ceres decision should be
applied prospectively only, based on consideration of an
exception to this general rule set forth in Chevron Oil Co. v.
Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971). The
Supreme Court in Chevron held that, for a new rule of law to
qualify for prospective application, a judicial decision "must
establish a new principle of law, either by overruling clear
past precedent on which litigants may have relied, . . . or by
deciding an issue of first impression whose resolution was not
clearly foreshadowed." Chevron, 404 U.S. at 106, 92 S.Ct. at
355. "A court should then 'weigh' in each case whether
retroactive application would conflict with the purposes of the
rule and whether it would produce inequitable results." Welch
v. Cadre Capital, 923 F.2d 989, 993 (citing Chevron, 404 U.S.
at 106-07, 92 S.Ct. at 355-56). The plaintiffs contend they
relied on New York's six-year statute of limitations in
conducting their investigation of possible fraud by Touche, and
that it would be inequitable to now impose the new, shorter
Touche notes that the second consolidated amended complaint,
in which the claims against Touche were first raised, was
filed on January 14, 1991, approximately two months
after the decision in Ceres. Touche contends that the issue of
retroactive or prospective application is inapposite here,
since it applies only when a rule is
announced after the filing of the complaint. Although it may in
the end work a regrettably inequitable result on the
plaintiffs, the court agrees with Touche.
As the Supreme Court stated recently:
[i]t is, of course, a fundamental tenet of our
retroactivity doctrine that the prospective
application of a new principle of law begins on
the date of the decision announcing the
American Trucking Ass'ns, Inc. v. Smith, ___ U.S. ___, 110
S.Ct. 2323, 2335, 110 L.Ed.2d 148 (1990). Analogous to the case
at bar is Goins v. Teamsters Local 639, 598 F. Supp. 1151
(D.D.C. 1984), in which the court held that the Chevron
retroactivity doctrine did not apply to a case brought after
the Supreme Court's announcement of a new six-month statute of
limitations for breach of duty of fair representation claims in
DelCostello v. Int'l Brotherhood of Teamsters, 462 U.S. 151,
103 S.Ct. 2281, 76 L.Ed.2d 476 (1983). The Goins court stated
. . the Chevron court decided only that a new
statute of limitations period should not "be
applied retroactively to bar actions filed before
the date of its announcement." [citation omitted].
Since this action was filed after the announcement
of the six-month limitations period in DelCostello,
the Chevron test is facially inapplicable.
Goins, 598 F. Supp. at 1154 (emphasis in original). Similarly,
the Southern District of New York determined that "[n]o
question of retroactivity arises because the Third Circuit
decided Data Access on April 8, 1988 . . . and plaintiffs at
bar filed their complaint on June 1, 1988."*fn7 Finkel v.
Stratton Corp., 754 F. Supp. 318, 331 (S.D.N.Y. 1990).
The plaintiffs cite the court to Gruber v. Price Waterhouse,
911 F.2d 960 (3d Cir. 1990), for the proposition that reliance
on existing precedent may be considered in deciding whether to
apply the new one-year/three-year limitations period. Id. At
965-67. The complaint in Gruber, however, was filed before the
decision in Data Access. The plaintiffs cite no case, and the
court could not locate a case, which considered the
retroactivity doctrine where the complaint was filed after the
decision changing the statute of limitations. Also, as
previously discussed, the complaint alleging claims against
Touche does not relate back. Accordingly, the
one-year/three-year statute of limitations announced in Ceres
A statute of limitations defense may be properly raised on
a motion to dismiss under Rule 12(b)(6). Munshi v. New York
Univ., 528 F. Supp. 1088, 1092 (S.D.N.Y. 1981). However, the
motion may be granted only when it is clear on the face of the
pleadings that the action was not timely commenced. Id.;
Competitive Assoc., Inc. v. Fantastic Fudge, Inc., 58 F.R.D.
121, 123 (S.D.N.Y. 1973) (motion to dismiss on statute of
limitations grounds denied, in part, because question of fact
existed as to time plaintiffs should have discovered untrue
statements contained in prospectus for sale of securities).
Even though the court has decided the one-year/three-year
limitation applies, it cannot be determined from the pleadings
when the plaintiffs discovered or should have discovered fraud
by Touche. That question is inherently fact-based, and could
almost never be answered by the allegations in the pleadings.
The allegations in the first amended complaint that the
defendants used "fraudulent accounting practices" are not
sufficient to indicate that plaintiffs were aware of or should
have been aware of fraud by Touche at that time. See Robertson
v. Seidman & Seidman, 609 F.2d 583, 589 (2d Cir. 1979) (whether
plaintiff should have suspected fraud by accountant in section
10(b) action was question for jury).
The court can apply the three-year prong of the
Ceres test on the motion to dismiss. Section 10(b) claims must
be brought within three years of the violation, which means
that in no case may claims based on fraudulent actions
occurring outside the three-year period be maintained. See
Farley v. Baird, Patrick & Co., Inc., 750 F. Supp. 1209, 1214
(S.D.N.Y. 1990) ("The three-year outside limitation is an
absolute limitation"). Accordingly, claims arising from
fraudulent conduct by Touche that occurred more than three
years from the date the complaint was filed are
The motion by defendants Panasci, Witting and Hayman to
dismiss the complaint as to them is granted with prejudice.
The motion by defendant Smith to dismiss is denied. The motion
by these same defendants to dismiss cross-claims by defendant
Mosher is also granted. The motion by defendant Touche to
dismiss the complaint on statute of limitations grounds is
granted as to claims arising out of violations occurring more
than three years before the filing of the second consolidated
amended complaint, and is in all other respects denied.
IT IS SO ORDERED.