United States District Court, Southern District of New York
October 18, 1991
KAY N. BROWN, ET AL., PLAINTIFFS,
THE HUTTON GROUP, ET AL., DEFENDANTS.
The opinion of the court was delivered by: William C. Conner, District Judge.
OPINION AND ORDER
Plaintiff investors charge defendants with fraudulent conduct
in connection with the sale of interests in an oil and gas
limited partnership. Plaintiffs allege as a first cause of
action "Prospectus and Brochure Fraud" under § 10(b) of the
Securities Exchange Act of 1934 ("Exchange Act"). Second
Amended Complaint ¶¶ 6-35. Plaintiffs also assert claims of
common law fraud against all defendants and a breach of
fiduciary duty against defendant E.F. Hutton Group. Defendants
have moved to dismiss plaintiffs' claims under § 10(b) of the
Exchange Act as time-barred. Defendants also move to dismiss
for failure to state a claim pursuant to Fed.R.Civ.P. ("Rule")
12(b)(6) and for failure to plead fraud with particularity
pursuant to Rule 9(b), or, in the alternative, for summary
judgment pursuant to Rule 56(b).
Plaintiffs are investors in the Hutton/Indian Wells 1983
Energy Income Fund, Ltd., a limited partnership designed to
generate income through the purchase and management of oil and
gas producing properties. The partnership has failed to produce
any real profits, and plaintiffs brought suit, originally
before Judge Walker, against the corporate parties allegedly
responsible for organizing and promoting the Partnership and
selling interests therein. Defendants include: Hutton Energy
Services II, Inc., one of the co-general partners; E.F. Hutton
Co., Inc.; The E.F. Hutton Group, parent of E.F. Hutton Co.,
and Hutton Energy, Shearson Lehman Hutton, Inc., recent
acquirer of Hutton and its subsidiaries, as well as the
partnership, Indian Wells Production Company, the co-general
partner, and its parent company, Indian Wells.
In the earlier proceeding, Judge Walker granted defendants'
motions for summary judgment and for dismissal pursuant to Rule
9(b) and dismissed the Amended Complaint.*fn1 Plaintiffs were,
however, granted a limited right to replead in order to allege
facts supporting their "fatal flaw" claim which would satisfy
the requirements of Rule 9(b).
Plaintiffs aver that as a result of defendants' wrongful
conduct, their investments are worthless, and consequently seek
judgment in the amount of their investments (less cash
distributions), consequential damages, interest, costs and
disbursements and punitive damages.
This Court presumes familiarity with the comprehensive
recitation of facts provided in Judge Walker's opinion. Because
this Court today dismisses the instant case on statute of
limitations grounds, a more detailed recitation of the facts
alleged in the Second Amended Complaint is not provided. At
this juncture, the Court notes only that plaintiffs made the
purchases that give rise to the present claim in the latter
part of 1983 whereas the first complaint was not filed until
January 26, 1989.
The Supreme Court has recently decided that the limitations
period applicable to implied private claims under § 10(b) of
the Exchange Act and under Rule 10b-5 is the one-and-three-year
structure applicable to express causes of action under the
Exchange Act. Lampf, Pleva, Lipkind, Prupis Petigrow v.
Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 115 L.Ed.2d 321
(1991). Thus, the Court held that "litigations instituted
pursuant to § 10(b) and Rule 10b-5 therefore must be commenced
within one year after the discovery of the facts constituting
the violation and within three years after such violation." See
id., 111 S.Ct. at 2782. Significantly, the Supreme Court
applied its holding retroactively in Lampf, thereby making the
plaintiff-respondents' lawsuit untimely. See id. at 2782.
In James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, 111
S.Ct. 2439, 115 L.Ed.2d 481 (1991), decided the same day as
Lampf, the Court addressed the issue of retroactivity with
respect to newly announced rules of law, declaring that it is
error to refuse to apply a rule of federal law retroactively
after the case announcing the rule has already done so and that
"[o]nce retroactive application is chosen for any assertedly
new rule, it is chosen for all others who might seek its
prospective application." See id., 111 S.Ct. at 2447-2448.
Following Beam, a number of cases have applied Lampf
retroactively.*fn2 See Boudreau v. Deloitte, Haskins & Sells,
942 F.2d 497 (8th Cir. 1991) (per curiam); Berning v. A.G.
Edwards & Sons, Inc., No. 89-6483, 1991 WL 192315, 1991 U.S.
Dist. LEXIS 12662, (N.D.Ill. Sept. 12, 1991); Khindri v. Yogel,
No. 87-6121, 1991 WL 175483, 1991 U.S. Dist. LEXIS 12596,
(E.D.Pa. Sept. 5, 1991); Haggerty v. Comstock Gold Co.,
770 F. Supp. 216 (S.D.N.Y. 1991); Barr v. McGraw-Hill, 770 F. Supp. 855
(S.D.N.Y. 1991); Klein v. Goetzmann, 770 F. Supp. 78
(N.D.N.Y. 1991); Vito v. Prudential-Bache Securities, Inc., No.
90-7662, 1991 WL 131186, 1991 U.S. Dist. LEXIS 9519, (E.D.Pa.
July 11, 1991); Sanders v. Keefe, No. 90-4310, 1991 WL 133706,
1991 U.S. Dist. LEXIS 9503, (N.D.Ill. July 11, 1991). While
defendants urge this Court to follow these cases in applying
Lampf retroactively, plaintiffs argue that this Court should
defer its consideration of the issues raised by Lampf because
the Supreme Court elected to vacate and remand Welch v. Cadre
Capital, 923 F.2d 989 (2d Cir. 1991), vacated, Northwest
Savings Bank v. Welch, ___ U.S. ___, 111 S.Ct. 2882, 115
L.Ed.2d 1048 (1991), instead of simply reversing the
decision.*fn3 This Court finds plaintiffs' argument
unpersuasive. In Welch, the Second Circuit refused to apply
retroactively the one-and-three-year limitations period for
Rule 10b-5 actions it had announced earlier in Ceres Partners
v. GEL Associates, 918 F.2d 349 (2d Cir. 1990). Far from
signalling its approval of the decision, in vacating and
remanding Welch the Supreme Court was suggesting that its
decisions in Lampf and Beam compel a different result on the
issue of retroactivity from that reached by the Second Circuit
in Welch. See Barr, 770 F. Supp. at 861 n. 5. Accordingly,
Exchange Act claims are dismissed as time-barred.
Plaintiffs acknowledge that there is not complete diversity
with defendants. Second Amended Complaint ¶ 1. Thus, this Court
cannot exercise diversity jurisdiction of over plaintiffs'
remaining state law claims. Nor does this Court choose to
exercise pendent jurisdiction over plaintiffs' remaining claims
since the federal-law claims have been dismissed at an early of
the litigation. See Carnegie-Mellon Univ. v. Cohill,
484 U.S. 343, 350, 108 S.Ct. 614, 618, 98 L.Ed.2d 720 (1988); United
Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139,
16 L.Ed.2d 218 (1966); Mayer v. Oil Field Systems Corp.,
803 F.2d 749, 756-757 (2d Cir. 1986); Goldman v. McMahan,
Brafman, Morgan & Co., 706 F. Supp. 256, 263 (S.D.N.Y. 1989);
Goodman v. Shearson Lehman Bros. Inc., 698 F. Supp. 1078, 1087
(S.D.N.Y. 1988); Roebuck v. Guttman, 678 F. Supp. 68, 69
For the reasons stated, the action is dismissed without