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BORDEN v. SPOOR BEHRINS CAMPBELL & YOUNG

November 15, 1991

BORDEN, INC., ALFRED S. CUMMIN, A.S. D'AMATO, ANN FORRESTAL AND W. DONALD NYLAND AS EXECUTORS OF THE ESTATE OF FRANK
v.
FORRESTAL, DECEASED, ROBERT GUTHEIL, JON HETTINGER, DAVID KELLY, WALTER KOCHER, AUGUSTINE MARUSI, RUTH MARUSI, ALLAN MILLER, BERNARD NEMTZOW, HERMAN PEED, EDWARD I. PIERNICK, JOSEPH SAGGESE, EUGENE SULLIVAN AND GLORIA SULLIVAN, PLAINTIFFS, V. SPOOR BEHRINS CAMPBELL & YOUNG, INC.; FIRST INTERSTATE BANK, LTD.; FIRST INTERSTATE SERVICES, INC.; KENNETH R. BEHRINS, T. RICHARD SPOOR, ROBERT L. CAMPBELL AND MICHAEL D. YOUNG, DEFENDANTS.



The opinion of the court was delivered by: Conner, District Judge.

OPINION AND ORDER

Plaintiff investors charge defendants with fraud in connection with the sale of securities. This action is currently before the Court on the motion of defendants First Interstate Bank, Ltd. and First Interstate Services, Inc. ("First Interstate") for summary judgment pursuant to Rule 56(b) Fed.R.Civ.P. as to the claims brought against them by plaintiff Augustine R. Marusi, the retired Chief Executive Officer of plaintiff Borden, Inc., a consumer products and chemical company. Plaintiff has cross-moved for leave to file a second amended complaint under Rule 15.

BACKGROUND

The amended complaint in this action alleges, inter alia, various fraudulent and corrupt practices in connection with the sale of securities in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder. The amended complaint identifies as the primary wrongdoer in this action, Spoor Behrins Campbell & Young, Inc. ("SBCY"), a firm of investment advisors. The amended complaint identifies the moving defendants as successive parent corporations and sole stockholders of SBCY from May, 1983, to December 31, 1987, and asserts their liability under Section 10(b) and Rule 10b-5; the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.; and Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). The amended complaint further alleges claims against the moving defendants for the imposition of a constructive trust and for aiding and abetting SBCY's alleged commission of common law fraud and breach of fiduciary duty.

The genesis of this action can be traced back to 1978, when members of SBCY approached executives of plaintiff Borden offering to establish a program pursuant to which it would provide key Borden executives, including Marusi and the other individuals named above, with investment advice to be paid for by Borden on an annual per capita fee basis. Am. Cmplt. ¶ 26. According to the amended complaint, SBCY represented to Borden and Borden officials, that it was independent and was acting only in the best interests of the Borden executives who were the beneficiaries of its service. Am. Cmplt. ¶ 27. The gravamen of this action is the alleged failure of SBCY to disclose to Marusi and the other plaintiffs payments allegedly made to SBCY by organizers and promoters of investment ventures as consideration for SBCY's recommendations and sales of security interests to Marusi and the other named plaintiffs. Am. Cmplt. ¶ 34.

From 1979 through 1984, Marusi made a series of twelve investments through SBCY, ten of which he challenges in this action. Plaintiff asserts that no pre-investment materials he received disclosed any commission or payments to SBCY for selling to Marusi.*fn1 Op.Mem. at 18. Plaintiff further asserts that SBCY affirmatively denied receiving payments in offeree representative questionnaires issued in four of the ten subject transactions. Op.Mem. at 26. Moreover, plaintiff avers that subsequent to the challenged investments, in numerous filings with the SEC and Federal Reserve Board and in conversations with Borden officials, defendants actively concealed the commission payments received. Am. Cmplt. ¶¶ 46-63, 79.

Plaintiff made the last investment he challenges here on August 13, 1984, and he filed the complaint commencing this lawsuit more than five years later on December 28, 1989.

DISCUSSION

1. Applicable Legal Requirements

A party seeking summary judgment must demonstrate that "there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c); Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987); see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). It must establish that there is a "genuine issue for trial." Id. at 587, 106 S.Ct. at 1356. "In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight, 804 F.2d at 11. The inquiry under a motion for summary judgment is thus the same as that under a motion for a directed verdict: "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).

2. Plaintiffs' Section 10(b) Claim

Defendants move for summary judgment on plaintiff's § 10(b) claim on the grounds that this claim is time-barred. The Supreme Court has recently decided that the limitations period applicable to implied private claims under § 10(b) of the Exchange Act and 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. In light of Beam, the Second Circuit has recently confirmed that Lampf will be applied retroactively in this Circuit. See Welch v. Cadre Capital, 946 F.2d 185 (2d Cir. 1991).*fn2

In the instant case plaintiff does not contest Lampf's retroactive effect. Instead, plaintiff insists that the doctrine of equitable estoppel survived Lampf and bars First Interstate from invoking Lampf's three-year statute of repose. Plaintiff's argument derives in large part from the Court's failure in Lampf to comment explicitly on the availability of equitable estoppel to avoid the three-year period of repose established by the Court. The Court noted only that the three-year period is "a period of repose inconsistent ...


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