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POMEROY v. SCHLEGEL CORP.

December 19, 1991

ANDREW G. POMEROY, PLAINTIFF,
v.
SCHLEGEL CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Telesca, Chief Judge.

DECISION AND ORDER

INTRODUCTION

Plaintiff Andrew Pomeroy filed this action on March 8, 1991, alleging that the defendant, Schlegel Corporation ("Schlegel") engaged in securities fraud in violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), (the "1934 Act") and in addition, alleging pendant state law claims of common law fraud and breach of contract. Defendant Schlegel now moves for summary judgment on the grounds that the plaintiff's securities fraud claim is barred by the applicable statute of limitations. For the reasons discussed below, the defendant's motion for summary judgment is granted.

BACKGROUND

The following facts are undisputed. Andrew Pomeroy was an employee of Schlegel from 1981 until 1989. (Defendant's Local Rule 25 Stmt., ¶ 1; Plaintiff's Local Rule 25 Stmt., ¶ 1). In 1985, he purchased 700 shares of Schlegel stock under Schlegel's Executive Stock Plan for $21.70 per share. (Complaint, ¶ 8). On May 11 and 12, 1988, plaintiff sold his 700 shares back to Schlegel at $93.60 per share. (Complaint, ¶ 16). Approximately a month and a half later, Schlegel's Board of Directors issued a press release announcing that it was planning to explore "a variety of strategic alternatives, including merger." (Affidavit of R. Calihan, sworn to on July 30, 1991, Exhibit C) (hereinafter "Calihan Aff."). A copy of that press release and a letter explaining the decision was mailed to all Schlegel employees, including the plaintiff. (Affidavit of A. Pomeroy, sworn to on August 27, 1991, ¶ 5) (hereinafter "Pomeroy Aff."). Plaintiff admits that he was aware of the Board's decision to consider sale or merger shortly after it was made. (Calihan Aff., Exhibit A at 55). After the announcement, the value of Schlegel common stock rose to $140 per share. (Calihan Aff., Exhibit A at 55; Complaint, ¶ 19).

Plaintiff disputes the defendants' characterization of this increase "because it implies that Schlegel stock was publicly traded," when, in fact, "defendant set the price on its stock." (Plaintiff's Local Rule 25 Stmt., ¶ 3). Plaintiff does not, however, challenge defendants' assertion that shortly after the Board's announcement that it would consider a merger or sale of the company, any shareholder wishing to sell back his stock would have received $140 per share, nor does he dispute that he became aware of this increase in value shortly after it occurred. (Calihan Aff., Exhibit A at 55).

On December 22, 1991, Schlegel publicly announced that it had entered into a merger agreement with BTR Dunlop, Inc. (Pomeroy Aff., ¶ 3-6). Pursuant to that agreement, BTR Dunlop purchased Schlegel stock at $165.40 per share. Plaintiff was aware of this announcement. (Pomeroy Aff., ¶ 6).

On January 12, 1990, two other former Schlegel employees filed an action in federal court alleging that they had sold shares of stock back to Schlegel shortly before Schlegel announced that it had decided to explore the possibility of a merger. (Calihan Aff., Exhibit B). The plaintiffs in Hickman v. Schlegel Corp. alleged, among other claims, that the defendant had committed securities fraud by failing to disclose that the company might be sold before it bought back the shares of stock from plaintiffs. (Calihan Aff., Exhibit B).

In his deposition, Pomeroy stated that he read about the Hickman complaint in the newspaper in January of 1990, and at that time became aware that the Hickman case alleged securities fraud and other wrongdoing on the part of Schlegel. (Calihan Aff., Exhibit A at 57-59). Mr. Pomeroy further testified in his deposition that although he did not contact an attorney about pursuing a claim at that time, he did see "that there was a possibility that there should have been more disclosure prior to that point in time." (Calihan Aff., Exhibit A at 58). This was the first time that Mr. Pomeroy thought about the possibility that information may have been withheld from him in connection with the sale of his stock. (Calihan Aff., Exhibit A at 55-59).

In a subsequent affidavit, filed in opposition to defendant's motion for summary judgment, Mr. Pomeroy states that the first time he learned of the Hickman action was in February 1990, when his attorney, Scott Forsyth, sent him a newspaper article about the action. (Pomeroy Aff., ¶ 8). He further states that later in May of 1990, his attorney sent him copies of portions of memoranda filed in the Hickman action, which described the factual and legal bases of the action. Finally, he states that: "I made no decision on retaining Scott Forsyth, Esq. formally because the defendants had made a motion to dismiss the [Hickman] litigation for failure to state a claim which, if granted, could have weakened any possible claim by me. When the court denied the defendants' motion, I then retained Scott A. Forsyth, Esq. and contacted the defendant in a futile effort to learn how much was known about the various `alternatives' and when." (Id.). Mr. Pomeroy filed his law suit on March 8, 1991.

DISCUSSION

A.  The Applicable Statute of Limitations:

Defendant Schlegel moves for summary judgment on the grounds that plaintiff's federal securities fraud action is barred by the statute of limitations. In a decision issued June 20, 1991, the United States Supreme Court ruled that the appropriate statute of limitations in a securities fraud action alleging violation of section 10(b) of the 1934 Act, is three years from the date the fraud was perpetrated or one year from the date the plaintiff discovers the "facts constituting the violation." Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991). In a companion decision issued the same day, the Court held that "once retroactive application is chosen for any assertedly new rule, it is chosen for all others . . .," not just for the litigants presently before the court. James B. Beam Distilling Co. v. Georgia, ___ U.S. ___, 111 S.Ct. 2439, 2447-48, 115 L.Ed.2d 481 (1991). Because the Lampf Court applied the new statute of limitations to the litigants before it, that limitations period also must be applied retroactively to all other plaintiffs alleging a securities fraud claim, whether or not that claim was already pending on the date of the Lampf decision. See Jim Beam, 111 S.Ct. at 2448; Lampf, 111 S.Ct. at 2782. Accordingly, in order to maintain an action, plaintiff must have filed his complaint within one year of discovering the fraud, and in any event, no more than three years from the date the fraudulent conduct occurred. Lampf, 111 S.Ct. at 2782.

I note that in early December 1991, both the House of Representatives and the United States Senate voted to approve an amendment to ...


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