United States District Court, Eastern District of New York
October 9, 1991
STANLEY E. HIRSCHFELD AND DOROTHY HIRSCHFELD, PLAINTIFFS,
TOTAL HEALTH SYSTEMS, INC. AND JAY A. FABRIKANT, DEFENDANTS.
The opinion of the court was delivered by: Spatt, District Judge.
OPINION AND ORDER
In this action, the plaintiffs allege securities fraud in violation of
section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j
), and Rule 10b-5 of the Securities Exchange Commission. The
defendants Total Health Systems, Inc. and Jay A. Fabrikant now move to
dismiss the Complaint, pursuant to Rules 9(b) and 12(b)(6) of the Federal
Rules of Civil procedure, on two grounds: (1) statute of limitations; and
(2) failure to state a claim upon which relief can be granted. For the
reasons set forth below, the defendants' motion is granted.
1. The Parties
The plaintiffs Stanley Hirschfeld and Dorothy Hirschfeld are husband
and wife and reside in Indiana. The defendant Total Health Systems, Inc.
("THS") is a New York corporation which operates various Health
Maintenance Organizations ("HMOs") and has its principal place of
business in Great Neck, New York. The defendant Jay Fabrikant, a New York
resident, was chairman of the board of directors of THS as well as
treasurer, chief operating officer, and 10% shareholder in the
It is undisputed that on May 15, 1987, plaintiff Stanley Hirschfeld
purchased 5500 shares of common stock of THS at 16 1/4 and
that he purchased an additional 20,000 shares at approximately the same
price on May 19, 1987. Stanley Hirschfeld was being advised in these
securities transactions by Thomas Cullen of Rothschild and Company in
Chicago, Illinois. Cullen had received favorable information concerning
THS from a stockbroker colleague. The amended complaint alleges that
Cullen was told of "significant favorable developments at [THS],
including a major pending acquisition, predicted earnings in excess of
$1.00 per share and significant expec[t]ed increases in the HMO
enrollment of [THS]" (see Amended Complaint ¶ 13).
According to the complaint, THS and Jay Fabrikant, along with a company
called Copeland Securities Incorporated ("Copeland") and an individual
named Kenneth W. Germain ("Germain"), "developed and undertook a plan to
promote the stock of [THS] to the investment community by providing false
and misleading information concerning [THS]'s business and financial
condition and thereby increase the market price of [THS]'s stock"
(¶ 8). The complaint also alleges that THS and Fabrikant "aided and
abetted" Copeland and Germain (¶ 9).
2. The Allegations
According to the complaint, Thomas Cullen relied on the "Copeland
Report," an investment publication, dated May 15, 1987, in recommending
to the plaintiffs that they purchase shares of THS. The Copeland Report
represented that THS would have:
"a. Gross revenues for 1987 of $118,000,000 (it was
not stated whether 1987 was the calendar year or
[THS]'s fiscal year for 1987 ending June 30, 1987);
b. Earnings of $1.15/share for 1987 or approximately
c. 104,000 commercial members and 38,000 Medicare
members for 1987 (the Copeland Report stated that
[THS] currently had 7,000 members and a potential
acquisition, CoMed, Inc. a non-profit HMO in New
Jersey, had 60,000 members)" (Amended Complaint
The amended complaint contains one cause of action under Section 10(b)
of the Securities Exchange Act and S.E.C. Rule 10b-5. Subject matter
jurisdiction is based on 15 U.S.C. § 78aa ("The district courts of
the United States . . . shall have exclusive jurisdiction of violations
of this chapter or the rules and regulations thereunder, and of all suits
in equity and actions at law brought to enforce any liability or duty
created by this chapter or the rules and regulations thereunder").
The relevant allegations stated in the amended complaint are as
"11. [THS] and its then chief executive officer,
Fabrikant, among other representatives, and Copeland
and its then chief executive officer, Germain, among
other representatives, knew that the information set
forth in the Copeland Report was false and misleading
in the following aspects, among others:
a. Gross revenues were grossly exaggerated. Gross
premium revenues for the three months ending March
31, 1987, were $307,512. For the fiscal year ending
June 30, 1987, or 45 days after issuance of the
Copeland Report, gross premium revenues were
b. Net earnings before tax were grossly misleading.
Net losses for the fiscal year ending June 30, 1987,
or 45 days after issuance of the Copeland Report, were
$8,600,000 of which $3,000,000 was non-recurring
(including $2,035,000 of compensation to the officers
and directors in the form of issuance of [THS] shares
to them at prices substantially below market sale). No
reference was made in the Copeland Report to the
statement made by [THS] in a prospectus dated March
18, 1987, that [THS] `anticipates that it will
continue to sustain operating losses for at least one
year from the date hereof' or March, 1988.
c. Existing enrollment figures were misstated and
enrollment predictions were without basis in fact.
Enrollment as of the May 15, 1987 date of the Copeland
Report was approximately 3,500 members, not 7,000
members as represented. As of the date of the Copeland
Report, [THS] had not qualified under federal
regulations for Medicare members.
Even if the CoMed acquisition was consummated,
enrollment for 1987 would have been substantially less
than predicted. . . .
19. [THS] and Fabrikant knowingly aided and abetted
Copeland and Germain and other Copeland
representatives including Anthony Correra, in the
violation of section § 10b of the Securities
Exchange Act of 1934, 15 U.S.C. 78j, and Rule 10b-5
promulgated thereunder, by knowingly making untrue
statements of material facts and omitting to state
material facts necessary in order to make the
statements made, in light of the circumstance under
which they were made, not misleading, by the use of
means or instrumentalities of interstate commerce or
of the mails. In particular [THS] and Fabrikant
knowingly provided Anthony J. Correra, on or before
May 15, 1987, untrue and misleading information on the
business and financial condition of [THS]. [THS] and
Fabrikant knew that Mr. Correra's purpose in gathering
such information was to prepare a report on [THS] to
be issued through Copeland to the securities industry
and potential investors of [THS] to further [THS] and
Fabrikant's plan in concert with Copeland and Germain
to induce purchases of [THS]'s common stock and
thereby increase its price."
As a result of the defendants' violations, counsel for the plaintiffs
contends, the Hirschfelds were damaged in "an amount not less than
$222,323 plus pre-judgment interest computed at market rate" (Amended
Complaint ¶ 20).
In moving to dismiss the complaint under Rule 12(b)(6), the defendants
claim that the plaintiffs have failed to state a cause of action upon
which relief can be granted. According to the defendants, the sole cause
of action enunciated in the complaint is barred by the applicable statute
of limitations. In addition, the defendants maintain that the complaint
fails to plead fraud with the particularity required by Rule 9(b).
As noted, the plaintiffs purchased the THS stock in May, 1987. In
mid-July, Mr. Cullen advised them to "lighten up" their holdings of THS,
whereupon Mr. Hirschfeld sold 7,000 shares in two transactions on July 14
and 17, 1987 (Amended Complaint ¶ 16). When the market price of THS
stock drastically declined in Fall 1987, the plaintiffs sold their
remaining shares. According to the amended complaint, "Hirschfeld caused
the sale of his and his wife's [THS] stock in September and October
1987, solely as a result of the substantial decline in the market price"
The last sale took place on October 15, 1987 (¶ 17). The
plaintiffs then requested financial reports, including SEC information, on
November 30, 1987. The time frame is significant because the plaintiffs
"[t]he first time that Mr. Hirschfeld can recall being
suspicious of fraudulent activity by [THS] or
Fabrikant or Copeland or Germain was in mid-1988 when
Mr. Lambergs told him by telephone that there may have
been intentional misrepresentations made in connection
with the sale of [THS]'s stock in May, 1987. Also,
Mr. Hirschfeld received a copy of [THS]'s 10K filing
with the SEC dated May 11, 1988, which covered the
calendar year 1987" (¶ 18).
In support of their motion to dismiss the complaint, the defendants
claim that the complaint does not indicate when the plaintiffs discovered
the purported misstatements, "nor have they even alluded to any good
faith effort on their part to discover such misstatements" (Defendant's
Memorandum of Law at p. 4).
Looking to the date of the plaintiff's last sale of THS stock, the
defendants maintain that
". . . . . since their economic loss was suffered as
of October 15, 1987, this Court can reasonably assume
that they discovered the purported misstatements or
should have discovered the misstatements at that
time. This lawsuit was not instituted until October of
1990, over three years from the date of the
Hirschfelds original purchase of THS stock and
well over one year from the time they should have
learned of the purported misstatements" (id. at p.
Consequently, the defendants aver that the statute of limitations is a
viable defense. In particular, the defendants rely upon the holding in
Ceres Partners v. GEL Associates, 918 F.2d 349
(2d Cir. 1990) and contend
that the Second Circuit's determination in that case should be applied
retroactively to bar the plaintiff's claim.
Conversely, the plaintiffs rely upon the Second Circuit's subsequent
holding in Welch v. Cadre Capital 923 F.2d 989 (2d Cir. 1991) wherein the
court determined that the holding in Ceres would not have retroactive
application. Further, the plaintiffs argue that this Court should apply
the traditional rule for determining the retroactive application of a
judicial decision as enunciated by the Supreme Court in Chevron Oil Co.
v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 355-56, 30 L.Ed.2d
296(1971). Significantly, the plaintiffs agree that their claim is barred
under the three year limitations period adopted by the court in Ceres if
that limitations rule is applied retroactively (Plaintiff's Memorandum in
Opposition at p. 1).
A. The Statute of Limitations
The Second Circuit recently clarified the appropriate statute of
limitations for Section 10(b) and Rule 10b-5 claims to be one year after
discovery of the conduct alleged to constitute the violation but no more
than three years after the occurrence of such conduct (Ceres Partners v.
GEL Associates, supra, at pp. 359-61). The plaintiffs argue that since
the complaint was filed on October 15, 1990, and Ceres was decided on
November 8, 1990, the rule pre-dating Ceres should apply to this action.
At the time the instant motion was filed, under the law in the Second
Circuit, the statute of limitations may not have been a bar to this
action. Applying the "borrowing statute," New York C.P.L.R. § 202
provides that the New York court must look to the place where the cause of
action accrued to determine the appropriate statute of limitations. The
Second Circuit has construed this statutory provision to mean that the
cause of action accrues where its economic impact is felt, normally the
plaintiff's residence (Ceres Partners v. GEL Associates, supra, at p.
353, citing Arneil v. Ramsey, 550 F.2d 774, 779 [2d Cir. 1977]). The
plaintiffs reside in Indiana and placed the calls to purchase the subject
securities from their residence in Indiana. Therefore, the economic
injury occurred in that State.
As the Ceres court noted, "if a suit brought in the `place of
plaintiff's residence would be time-barred, the suit in a New York federal
court is time-barred'" (id.). Under Indiana law, a securities fraud
action must be commenced within three years "after discovery by the
person bringing the action of a violation of this chapter" (see IND.CODE
ANN. § 23-2-1-19[g]). In the instant case, there is a factual dispute
as to when the discovery of the fraud took place. If the discovery
occurred on October 15, 1987 or thereafter, the action would not be
barred under Indiana law.
However, the Court is also cognizant of the fact that if this suit were
brought in Federal District Court in Indiana, the Seventh Circuit would
apply the law it set forth in (Short v. Belleville Shoe Manufacturing
Company, 908 F.2d 1385 [7th Cir. 1990]). The Seventh Circuit decided
Short in July, 1990, three months before the Hirschfelds filed their
complaint. In Short, the court held that the one year/ three year period
of limitations drawn from other sections of the Securities Exchange Act
of 1934 should apply — a position adopted shortly thereafter by the
Second Circuit in the Ceres case. Under the Short decision, the
plaintiffs' action would be time-barred.
The plaintiffs rely on the Second Circuit's holding in Welch v. Cadre
Capital, 923 F.2d 989 (2d Cir. 1991), wherein the court declined to apply
the rule of Ceres retroactively. However, the Supreme Court granted a
petition for writ of certiorari in the Welch case, and on June 28,
1991, the Court vacated the judgment and remanded the case to the Second
Circuit for further consideration in light of James B. Beam Distilling
Company v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 115 L.Ed.2d 481(1991)
and Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S.
___, 111 S.Ct. 2773, 115 L.Ed.2d 321(1991) (Welch v. Cadre Capital,
923 F.2d 989 [2d Cir. 1991], vacated and remanded sub nom. Northwest
Savings Bank, PaSA v. Welch, ___ U.S. ___, 111 S.Ct. 2882, 115 L.Ed.2d
1048 ). The impact of these two recent Supreme Court decisions upon
the instant motion is discussed below.
The accrual date of an action for statute of limitations purposes in a
securities fraud case is determined by federal law, and is an objective
standard which "begins to run when a person of ordinary intelligence
would have suspected that he or she was being defrauded." (Farley v.
Baird, Patrick & Co., Inc., 750 F. Supp. 1209, 1213 [S.D.N.Y. 1990]
[relying on 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 ]).
According to the complaint, the alleged misrepresentations occurred "on
or before May 15, 1987" (¶ 17). The plaintiffs first bought THS
stock on May 15, 1987, and also made purchases on May 19, 1987 (¶
14). They sold shares on July 14, 1987, on the advice of Mr. Cullen to
"lighten up" their holdings of THS (¶ 16). By October 15, 1987, the
Hirschfelds had sold all of their remaining shares. Applying the rule of
Ceres, it is clear that the conduct giving rise to the claim — the
purchase of THS common stock — took place between May 15 and May
19, 1987, more than three years prior to the filing of the complaint on
October 15, 1990. On that basis, if the Ceres rule is applied
retroactively, the action is time-barred and it is unnecessary to resolve
the parties' dispute over the actual date of discovery of the fraud.
B. Recent Supreme Court Decisions
While this action was pending, the Supreme Court reviewed the question
of whether a uniform federal limitations period for § 10(b) and Rule
10b-5 claims should be adopted and if the one year/ three year period
outlined in Ceres Partners v. GEL Associates, 918 F.2d 349, 359-61 (2d
Cir. 1990) should be followed.
(i) The Lampf Case
The Supreme Court has now determined that litigation instituted
pursuant to § 10(b) and Rule 10b-5 must be commenced within one year
after the discovery of the facts constituting the violation and, in any
event, within three years after such violation, as provided in the 1934
Act and the Securities Act of 1933 (Lampf, Pleva, Lipkind, Prupis &
Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 2775, 115 L.Ed.2d
In reviewing the historical approach to statutes of limitations, the
Supreme Court noted that
"It is the usual rule that when Congress has failed to
provide a statute of limitations for a federal cause
of action, a court `borrows' or `absorbs' the local
time limitation most analogous to the case at hand.
Wilson v. Garcia, 471 U.S. 261, 266-267, 105 S.Ct.
1938, 1941-1942, 85 L.Ed.2d 254 (1985); Auto Workers
v. Hoosier Cardinal Corp., 383 U.S. 696, 704 [86
S.Ct. 1107, 1112, 16 L.Ed.2d 192] (1966); Campbell v.
Haverhill, 155 U.S. 610, 617, 15 S.Ct. 217, 220, 39
L.Ed. 280 (1895)" (Lampf, Pleva, Lipkind, Prupis &
Petigrow v. Gilbertson, supra, [___ U.S. at ___, 111
S.Ct.] at p. 2778).
However, the Court also determined that when the operation of a state
limitations period would frustrate policies embraced by a federal
enactment, the Court will look to federal law for a suitable limitations
period (id. ___ U.S. at ___, 111 S.Ct. at p. 2778).
Although the Court explained that the "state borrowing doctrine" was
not to be lightly abandoned, it recognized that the case before it was
"complicated by the nontraditional origins of the § 10(b) cause of
action" (id. ___ U.S. at ___ - ___, 111 S.Ct. at pp. 2778-2779).
Consequently, the Court held that the proper statute of limitations
to be applied to a claim under § 10(b) of the Securities Exchange Act
is the analogous one-and-three-year limitations and repose structure
provided for other causes of action under the Securities Exchange Act and
Securities Act (id. ___ U.S. ___, ___, 111 S.Ct. at pp. 2775, 2781).
(ii) James B. Beam Distilling Company v. Georgia
The remaining issue then is whether Lampf is to be applied
retroactively. Although the decision does not explicitly mention
retroactive application, it is clear from the language of the concluding
section of the majority opinion, as well as from Justice Sandra Day
O'Connor's dissent, that the decision was being applied retroactively to
the litigants in Lampf It is not coincidental that the Lampf case and
James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, ___, 111 S.Ct.
2439, 2443, 115 L.Ed.2d 481(1991) were handed down the same day, nor that
both decisions make clear the present Supreme Court's preference for
retroactive application of a new rule of law.
When a court is asked to address a challenge to a particular rule's
retroactive application, it begins with the assumption that "the rule of
law in force at the time a decision is rendered is the law to be applied"
(Lund v. Shearson/Lehman/American Exp., Inc., 852 F.2d 182, 183 [6th
Cir. 1988]). The Supreme Court has stated that this practice is
"overwhelmingly the norm, and is in keeping with the traditional function
of the courts to decide cases before them based upon their current
understanding of the law" (James B. Beam Distilling Co. v. Georgia,
supra, ___ U.S. ___, 111 S.Ct. at p. 2443).
Until recently, most courts have applied the three-factor test set out
in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349 (1971):
"First, the decision to be applied nonretroactively
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 . . . Second, it has been stressed that
`we must * * * weigh the merits and demerits in each
case by looking to the prior history of the rule in
question, its purpose and effect, and whether
retrospective application will further retard its
operation' . . . Finally, we have weighed the inequity
imposed by retroactive application for `[w]here a
decision of this Court could produce substantial
inequitable results if applied retroactively, there is
ample basis in our case for avoiding the "injustice or
hardship" by a holding of non retroactivity'" Id. at
pp. 106-107 [92 S.Ct. at 355-56] [citation omitted].
In the Chevron Oil case, the Court held that the Louisiana one-year
statute of limitations in a personal injury case should not be applied
retroactively because the case was one of first impression (concerning
the Lands Act), which, in effect, overruled a long line of decisions by
the Court of Appeals for the Fifth Circuit. Id. at p. 107, 92 S.Ct. at
355-56. Chevron Oil made it clear that that there were circumstances in
which it would be appropriate to apply a decision in a completely
In accordance with the Chevron Oil decision, it has generally been held
that the "new pronouncement of a legal principle must be a `clear break'
from past precedent or with what is recognized as settled authority"
(Lund, supra, 852 F.2d at 183), otherwise, the rule will automatically be
applied retrospectively (United States v. Johnson, 457 U.S. 537, 550 n.
12, 102 S.Ct. 2579, 2587 n. 12, 73 L.Ed.2d 202 ).
The Supreme Court narrowed the Chevron Oil test in James B. Beam
Distilling Co. v. Georgia, supra, (O'Connor, J., dissenting). In the Beam
Distilling case, a strongly divided Court ruled 6-3, with three
concurring opinions, that its ruling in Bacchus Imports, Ltd. v. Dias,
468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200(1984), should apply
retroactively to claims arising on facts antedating that decision (id.
___ U.S. at ___, 111 S.Ct. at 2441).
In Bacchus, the Court held that a Hawaii law which imposed an excise
tax on imported
liquor at a higher rate than that imposed on liquor manufactured from
home-grown products violated the Commerce Clause (Bacchus Imports, Ltd.
v. Dias, supra). Georgia had a similar law which the petitioner in Beam
Distilling sought to have declared unconstitutional. The petitioner was
seeking a refund of taxes it had paid under Georgia's law for the
preceding three years (James B. Beam Distilling Co. v. Georgia, supra, ___
U.S. at ___, 111 S.Ct. at p. 2442). The state court declared the statute
unconstitutional but refused to apply its ruling retroactively based on
the Chevron Oil test. The Supreme Court reversed and remanded the case,
stating that "retroactivity is properly seen in the first instance as a
matter of choice of law, `a choice . . . between the principle of forward
operation and that of relation backward.'" (James B. Beam Distilling v.
Georgia, supra, quoting Great Northern R. Co. v. Sunburst Oil & Refining
Co., 287 U.S. 358, 364, 53 S.Ct. 145, 148, 77 L.Ed. 360 ).
In writing for the majority, Justice Souter, joined by Justice
Stevens, discussed retroactivity in the context of choice of law and
outlined three ways in which the choice of law problem may be resolved:
"First, a decision may be made fully retroactive,
applying both to the parties before the court and to
all others by and against whom claims may be pressed,
consistent with res judicata and procedural barriers
such as statutes of limitations. This practice is
overwhelmingly the norm
. . . and is in keeping with the traditional function
of the courts to decide cases before them based upon
their best current understanding of the law . . .
Second, there is the purely prospective method of
overruling, under which a new rule is applied neither
to the parties in the law-making decision nor to those
others against or by whom it might be applied to
conduct or events occurring before that decision. . .
. This Court has, albeit infrequently, resorted to
pure prospectivity, see Chevron Oil Co. v. Huson,
404 U.S. 97 [92 S.Ct. 349] (1971); . . .
Finally, a court may apply a new rule in the case in
which it is pronounced, then return to the old one
with respect to all others arising on facts predating
the pronouncement. This method, which we may call
modified or selective, prospectivity, enjoyed its
temporary ascendancy in the criminal law during a
period in which the Court formulated new rules,
prophylactic or otherwise, to insure protection of the
rights of the accused." Id. [___ U.S. at ___, 111
S.Ct.] at 2443-2444 [citation omitted; emphasis
Comparing the criminal context, Justice Souter went on to comment that
the Court "abandoned the possibility of selective prospectivity" in
Griffith v. Kentucky, 479 U.S. 314
, 328, 107 S.Ct. 708, 716, 93 L.Ed.2d
649(1987), "even where the new rule constituted a `clear break' with
previous law" (id.). Though the issue of retroactivity in the civil area
was not disposed of in Griffith, Justice Souter notes that "selective
prospectivity appears never to have been endorsed in the civil context
"(James B. Beam Distilling v. Georgia, supra, citing American Trucking
Associations Inc. v. Smith, 496 U.S. 167
, 110 S.Ct. 2323, 110 L.Ed.2d 148
In the case of the Georgia statute, the Supreme Court held that it was
error to refuse to apply a rule of federal law retroactively after the
case announcing the rule had already done so (id.). The Court noted that
"[b]ecause the Bacchus opinion did not reserve the
question whether its holding should be applied to the
parties before it . . . it is properly understood to
have followed the normal rule of retroactive
application in civil cases. . . . Bacchus thus applied
its own rule, just as if it had reversed and remanded
without further ado, and yet of course the Georgia
courts refused to apply that rule with respect to the
litigants in this case" (id.).
In finding that the Georgia courts were in error, the Supreme Court
maintained that principles of equality and stare decisis prevailed over
any claim based on a Chevron Oil analysis.
Referring again to Griffith v. Kentucky, supra, the Court found that
"Griffith cannot be confined to the criminal law. Its equality
principle, that similarly situated litigants should be treated the same,
carries comparable force in the civil context" (id.). In effect, the
Court in Beam Distilling has substantially limited the third prong of the
Chevron Oil test:
"Because the rejection of modified prospectivity
precludes retroactive application of a new rule to
some litigants when it is not applied to others, the
Chevron Oil test cannot determine the choice of law by
relying on the equities of the particular case" (id.
[___ U.S. at ___, 111 S.Ct.] at p. 2447 [citation
However, the Court did note that it was not speculating as to the "bounds
or propriety of pure prospectivity" (id. ___, U.S. at ___, 111 S.Ct. at
In a lengthy dissent, joined by Justices Rehnquist and Kennedy, Justice
Sandra Day O'Connor criticized the majority for discarding the Chevron
Oil analysis (id. ___ U.S. at ___, 111 S.Ct. at p. 2451). According to
Justice O'Connor, to hold that all decisions must be applied
retroactively in all cases "ignores a well-settled precedent in which
this Court has refused repeatedly to apply new rules retroactively in
civil cases" (James B. Beam Distilling Co. v. Georgia, supra, ___ U.S. at
___, 111 S.Ct. at 2451). In concluding that nonretroactivity was the
correct choice in this case, Justice O'Connor stated that "a proper
application of the Chevron Oil test" to the Beam Distilling case would
clearly have established that the Bacchus rule "should not be applied
retroactively" because it established a new principle of law (id. ___
U.S. at ___, 111 S.Ct. at p. 2453).
Justice O'Connor dissented as well in the Lampf case, another 5-4
decision, again objecting to the majority's failure to consider the
Chevron Oil criteria in determining whether to apply the new rule
retroactively. In maintaining that the Lampf case is "indistinguishable
from Chevron Oil and retroactive application should be denied," — a
significant factor in the context of the instant case — Justice
"In holding that respondent's suit is time-barred
under a limitations period that did not exist before
today, the Court departs drastically from our
established practice and inflicts an injustice on the
respondents. The Court declines to explain its
unprecedented decision, or even to acknowledge its
unusual character" (id. [___ U.S. at ___, ___, 111
S.Ct.] at pp. 2785, 2787).
These two Supreme Court decisions have been applied in a flurry of
subsequent § 10(b) cases resulting in the dismissal of claims as
being time-barred (see, e.g., Boudreau v. Deloitte, Haskins & Sells,
942 F.2d 497
[8th Cir. 1991]; Dimplex v. Scovill, Inc., No. 88 Civ.
7983, 1991 WL 168041, at *6 [S.D.N.Y. August 22, 1991]; Haggerty v.
Comstock Gold Company, L.P., 770 F. Supp. 216
, 218 [S.D.N.Y. 1991]; Duke
v. Touche Ross & Co., No. 90 Civ. 5610, 1991 WL 137493 [S.D.N.Y. July
24, 1991]; Barr v. McGraw-Hill, 770 F. Supp. 855
, 860 [S.D.N.Y. 1991];
Klein v. Goetzmann, 770 F. Supp. 78
The plaintiffs in the instant case have conceded that if Ceres is found
to be applicable retroactively, their securities fraud claim would be
barred by the statute of limitations. Accordingly, because the
plaintiffs' federal securities fraud claim was not filed within the one
year/three year period, it must be dismissed on the ground of
For the foregoing reasons, the defendants' motion to dismiss the
complaint pursuant to Rule 12(b)(6) is granted. In light of the
dismissal, it is unnecessary for the Court to address the defendants'
motion to dismiss for failure to plead fraud with the requisite
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