The opinion of the court was delivered by: KENNETH CONBOY
KENNETH CONBOY, DISTRICT JUDGE:
This case arises from the sale of common stock pursuant to a July 1990 Initial Public Offering ("IPO") by a company called In-Store Advertising, Inc. ("In-Store"). Plaintiffs are a putative class of purchasers who claim that they were induced into buying In-Store securities through misrepresentations in In-Store's IPO Prospectus.
Plaintiffs commenced this action on August 29, 1990 ("August 29, 199 Complaint"), one day following In-Store's announcement that its operating results were substantially below prior projections. The original defendants consisted of: (1) Individual senior officers and directors of In-Store who are alleged to have controlled In-Store and who signed the Company's registration statement; (2) Institutions, including Chemical Venture, Wind Point, ML, and CapCities, which are alleged to have been beneficial owners of a majority of In-Store stock and therefore to have had control directly or indirectly over In-Store and its Board of Directors; and (3) Lead underwriters for the IPO, Alex, Brown & Sons, Inc. and Bear, Steam & Co., Inc.
The August 29, 1990 complaint alleged violations of Sections 11 and 12(2) of the Securities act and Section 10(b) of the Exchange Act, as well as state claims for fraud and negligent misrepresentation. . This complaint alleged that the Registration Statement and Prospectus contained misrepresentations concerning, among other things, In-Store's true prospects for revenues and income during 1990, and its portrait as an established company. August 29, 1990 Complaint PP 24-31, 34, 35, 39.
Plaintiffs filed a Consolidated Class Action Complaint on January 14, 1991 ("January 1991 Complaint"), adding several individual and institutional defendants. The January 1991 Complaint alleged the failure of In-Store's financial statements to address deferred billing and extended payment terms that affected the Company's true prospects for revenues. January 1991 Complaint PP 48, 49, 50, 58, 59, 65-69, 71(c), 85, 86. The same complaint also contained allegations that the final prospectus "misrepresented In-Store's financial condition by failing to create a reserve for uncollectible amounts receivable." Id. P 71(h).
As a result of discovery undertaken pursuant to these complaints, In-Store produced to plaintiffs in early 1991 documents including the "Board books." Affidavit of Ellen Wahl Parker, sworn to September 10, 1993 P 5. In addition, on or about May 1, 1991, Peat Marwick produced, in response to a non-party subpoena, all of its workpapers (excluding its proprietary audit programs) for its audit of In-Store's 1989 financial statements and its review of In-Store's first three 1990 quarterly financial statements. Id. P 4. During this time, plaintiffs retained an accounting expert to explore the potential of claims against Peat Marwick, who found an insufficient basis at that time to press such claims. Plaintiffs' Br. at 9.
On August 27, 1991, plaintiffs filed a First Amended Consolidated Class Action Complaint ("August 1991 Amended Complaint" or "FAC"). This complaint alleges, based on plaintiffs' review of all of In-Store's Board books and other produced documents, that between March 1990 and July 19, 1990, defendants "entered into a course of conduct to misrepresent In-Store's historical operating results and future prospects for growth and earnings in order to achieve maximum valuation for In-Store in an initial public offering . . . ." FAC P 64. This complaint further alleged that information contained in the Board books put the then-named defendants on notice of the alleged misrepresentations. See, e.g., FAC P 52 ("As a result of the information contained in the Board books, [each defendant] had actual knowledge of the true state of In-Store's operations both on an absolute term and as compared to prior projections . . . Accordingly, all defendants had actual knowledge of the true state of In-Store's commitments from advertisers prior to the Offering.")
On June 11, 1993, In-Store publicly announced that its financial statements for fiscal 1989, which had been included in the prospectus for the IPO, were materially false and misleading. Thereafter, on July 16, 1993, plaintiffs filed a Second Amended Complaint, which added Peat Marwick as a defendant. ("Second Amended Complaint" or "SAC"). This complaint alleges, with respect to Peat Marwick, alleges that "the financial statements for year end 1989 certified by Peat and the financial statements for the first quarter of 1990 reviewed by Peat, all included in the Prospectus, were materially false and misleading." SAC P 122(a). The Second Amended Complaint further alleges that the financial statements were misstated because the results were based on altered advertising contracts which recognized revenues in advance of performance. SAC PP 122(a), 123-130, 135. Plaintiffs contend that Peat Marwick knew or should have known of the alleged misstatements because "Peat was required to examine In-Store's Board books in the course of reviewing all evidential matter which would corroborate and support the financial statements" and "had Peat properly performed such examination, it would have detected the irregularities contained therein." SAC P 132.
The Statute of Limitations in Federal Securities Law Claims
The applicable limitations period for actions brought under Section 11 of the Securities Act is provided in ...