# Petition — Peat, Marwick, Mitchell & Co. v. Wachovia Bank & Trust Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1588%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1981 - **Citation:** 452 U.S. 954 ## Text ? 198) K Prat, Marwick, Mircuent & Co., Antuony M. Naren and JoszpH ScansaRolt, Petitioners, Vv. Wacnovia Bank anv Trust Oo., N.A., Matton Bank, N.A., Fmst Wisconsin Trust Co., Toe Dreyrus OrrsHore Trust, N.V., and Nationan Fire Insurance Co. or Hanrtrorp, Respondents. _ PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT Wuuium FE. Heaarry 80 Pine Street New York, New York 10005 (212) 825-0100 Counsel of Record Viotor M. Earzz, II 345 Park Avenue New York, New York 10022 | Attorneys for Petitioners Of Counsel: Maruias BE. Mone JosePH W. Mucor CaHILL Gorpon & RernpeL 80 Pine Street New York, New York 10005 April 1981 - ‘+ i el ll i li il ll Questions Presented 1. May a federai court create a damage remedy under §17(a) of the Securities Act of 1933 or §10(b) of the Securities Exchange Act of 1934 for purchasers of secu- rities who cannot establish the elements of any of the ‘ express causes of action which those Acts provide injured securities purchasers? 2. May a litigant avoid the retroactive effect of a pre- vious decision when he is unable to show that all three factors of Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), favor prospective-only effect? Parties Below Plaintiffs-appellants-cross appellees in the court of ap- peals were Wachovia Bank and Trust Co., N.A., Mellon Bank, N.A., First Wisconsin Trust Co., The Dreyfus Off- shore Trust, N.V., and National Fire Insurance Co. of Hartford. The defendants-appellees-cross-appellants were Cortes W. Randell, James F. Joy, Roger O. Walther, Peat, Marwick, Mitchell & Co., Anthony M. Natelli, Joseph Scan- saroli, Donald A. Fergusson, Robert A. Fergusson, White & Case and Marion J. Epley, III. The defendants-appellees were John G. Davies, Bernard J. Kurek and Dennis M. Kelly: il TABLE OF CONTENTS PAGE Questions Presented i i RSE RL ISLS IR OAS i SERIE GE RPMNODD osaces soccstoccescrinssthcrscetsbonclbissaceossadepalciaeciedatt ii ne Fi ETE SS RCRD CLE INES Mey ili eens GOW cc hs 1 TR i a eee 1 SN op dasessnuesti 2 OINOING, (OE I CNB sia ik ns en ceccssenscdannnctichledapesentalitasesninicn 2 The express causes Of action .2..............cececeeeeeeee 3 I MONS NO i Sn ak a emsaiieene 6 Reasons for Granting the Writ -...2.2.222..2....2.2...-c-cccseceoeeoee 9 1. The “implied” remedy .............: 9 2. Retroactivity ................ 17 ConcLusion ie | APpPpENDIX— Opinion of the United States Court of Appeals for the District of Columbia Cireuit, dated De- cember 5, 1980 ; la Opinion of the United States District Court for the District of Columbia, dated November 20, 1978 .. 38a iii PAGE Order, dated March 4, 1981, denying petition for rehearing .................--. 64a Order, dated March 4, 1981, denying rehearing OH IRE ONG ant Uae MORITA NEON: 55 SOAR RUE IS eo 7 66a Provisions of the Securities Act of 1933, 15 U.S.C. § 77a et seq. (1976) . : 66a ROOOCUOIN By SO Cee COW cociccccetcpesscntisespecieelogtoen 66a EP et eB fe OA Sy y | SR ae REE E RRC 69a BB Be AS SG RL Gy Wy § SERN mea On enor eA CORN 75a Section 13, 15 U.S.C. § 77m ..................0cceceeseeeee 76a Section 16, 16 GiB $770 so scica....sae 77a a Be AB MRS OR: oR A 77a Provisions of the Securities Exchange Act of 1934, 15 U.S.C. §$ 78a et seq. (1976) -........2....0.-ccicencocssanese 79a eS Se (| i nea 79a RBOGEIOM By DO URIs © 1) ovcccnececcscessscccccccdsiuncnors 83a ection: $6; 16.6.0 5G TB ee isnccccisscccssescneninsesesies 84a Section 28(a), 15 U.S.C. § 78bb(a) .................... 85a TaBLE oF AUTHORITIES Cases: Aaron v. SEC, 446 U.S. 680 (1980) 2... eee seeeeee 10, 14 Abrams v. Johns-Manville Corp., [1979-80] CCH Fed. Sec.L.Rep. 97,305 (S.D.N.Y. 1980) 2.0... 10n Adams v. Standard Knitting Mills, Inc., 623 F.2d 422 (6th Cir.), cert, denied, 101 S.Ct. 795 (1980) ............ 10n Affiliated Ute Citizens v. United States, 406 U.S. 128 CA EME ibismcsicbipee aa iat oe Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 123 (1975) «.:... a 10-11 Burks v. Lasker, 441 U.S. 471 (1979) 10 iv PAGE Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) ........ 8-9, 17,18 City of Philadelphia v. Westinghouse Electric Corp., 210 F.Supp. 483 (E.D. Pa.), petition for mandamus _ and prohibition denied, 312 F.2d 742 (3d Cir, 1962), cert. dented, 372 U.S. 943 (1963) nu... cceceeeeeceeeeee 14n Clayton v. Skelly Oil Co., [1977-78] CCH Fed.Sec.L. BEC FPO CREP. MOTE D piven eecteseckececsessecesanaunctponss 10n Ernst &@ Ernst v. Hochfelder, 425 U.S. 185 (1976) 12, 14n Forrestal Village, Inc. v. Graham, 551 F.2d 411 (D.C. CBRE AW ic cessicvictsnsendsareradanartdlecironaputbynsmnbiccibasatalih 6, 8,17 Heizer Corp. v. Ross, 601 F.2d 330 (7th Cir. 1979) ........ 10n International Brotherhood of Teamsters v. Daniel, 439 IRIN SUE oa iki audits aki. Acco shceabuintallasbdaetacecncbucoacbiabcgian 10 _ Kardon v. National Gypsum Co., 69 F.Supp. 512 (E.D. Be ence ots aeestiicoaicedpebagtiinlis cc ahavDoriaaetunss celeste loa sltila 14n Kissinger v. Reporters Committee, 445 U.S. 136 (1980) 14 Leist v. Simplot, 638 F.2d 564 (2d Cir. 1980), cert. granted sub nom. New York Mercantile Exchange v. Leist (No. 80-757), 49 U.S.L.W. 3617 (U.S. Feb. 23, Poller v. First Virginia Mortgage and REIT, [1978] CCH Fed.Sec.L.Rep. { 96,564 (E.D. Va. 1978) .......... 9n Ross v. A.H. Robins Co., 607 F.2d 545 (2d Cir. 1979), cert. denied, 446 U.S, 946 (1980) ..........000...... sovtanttoctoces 10n Mirch: «Samael ioe) PAGE Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977) 10 Seiffer v. Topsy’s International, Inc., 487 F.Supp. 653 fo ET oN One ee a ee a ROO eA AIMOEE eS HE 10n Superintendent of Insurance v. Bankers Life and Cas- aptly’ Cé., 408-U SB: 6 (3078) ee a 10-11 Touche Ross & Co. v. Redington, 442 U.S. 560 (1979) 7, 9, 11,13, 14n Transamerica Mortgage Advisors, Inc. v. Lewis, 444 Tee a8 Te ee 13, 15 Upjohn Co. v. United States, 101 S.Ct. 677 (1981) ........ 14n Valencia v. Anderson Brothers Ford, 617 F.2d 1278 (7th Cir.), cert. granted (No. 80-84), 49 U.S.L.W. I Arts BUNT BOR, RINUOOD cides. cnc uiindanshcsundecotecdiccees 17 Congressional Documents: H.R. Conf. No. 1838, 734 Cong., 2d Sess. (1934) ......... 13 H.R. Rep. No. 2513, 84th Cong., 2d Sess. (1956) ............ 15 Remarks of Rep. Rayburn, 78 Cong. Ree. 7701 (1934) 12 Remarks of Sen. Fletcher, 78 Cong. Rec. 2271 (1934) .. 14n Stock Exchange Practices: Hearings on S.Res, 84, S.Res. 56 and S.Res. 97 Before Senate Comm. on Banking and Currency, 73d Cong., 2d Sess. (1934) | 12, 12n Stock Exchange Regulation: Hearing on H.R. 7852 and H.R. 8720 Before House Comm. on Interstate and Foreign Commerce, 73d Cong., 2d Sess. (1934) .. 12n §.2693, 73d Cong., 2d Sess. (1934) .cccocceccesnccsseeeneen 11 vi PAGE Statutes: at Judicial Code, 28 U.S.C. § 1254(1) (1976) 2 Securities Act of 1933 § 3(b), 15 U.S.C. § 77e(b) (Supp. IIT 1979) ............ 15 CO 1 UAE 6776: (I0Tee as 2, 3-4 $11; 15 U.8.C. $ 77k (1976) .................... 2, 4, 7, 13, 14, 15 RR RUe MocM Oe. © TCL CAME OD nacenkcsierepenarcalnentnlcpins 2,4, 7,13 § 18,15 U.S.C. § 77m (1976) ...................... 2,5 yk Ele So eg |: RRR non manne 2,5 Ts Be Tite Te CIT hectic ccenscpescccmnsvneovnny passim § 22, 15 U.S.C. § 77v (1976) ....... dncsclsildiesi sis cnltibdesciell 3 Securities Exchange Act of 1934 ARP AANA CO CRIN icin steers ceakennccccicsocnone 2,4, 5,8 §10(b), 15 U.S.C. § 78j(b) (1976) ......-..002 passim §13(d), 15 U.S.C. §78m(d) (1976 & Supp. TI I ci shales eRe alicia tnptpcindtebtnenecetiiehacnis 3n §13(e), 15 U.S.C. § 78m(e) (1976) once 9 § 14(a), 15 U.S.C. § 78n(a) (1976) 2 ee eeeeee 3n §14(e), 15 U.S.C. § 78n(e) (1976) on tee y $18, 15 U.S.C. § 78r (1976). .......................0-. 2,5, 8,11, 14 © BT BG Ua, BA OMO CEI O) vcs ccccrcsiccscnceesnsncecsinsss ines 3 § 28(a), 15 U.S.C. § 78bb (9) (1976) 000.022 2,5 SEC—Regulation - 17 CBB. §240.10b-16 (1980) ....2.....cnecccoseccneecneeoneeee 9 Other Authorities: Brooks, The Go-Go Years (1973) 2 NO: 806i s0s hie In THE Supreme Court of the United States Octoser Term, 1980 Pgat, Marwick, Mitrcuety & Co., AntuHony M. Narerii and Joszpx Scansarou, Petitioners, v. Wacnovia Bank anv Trust Oo., N.A., Metton Bank, N.A., Fmst Wisconsin Trust Co.,. Taz Dreyrus OrrsHore Trust, N.V., and Nationa Free Insurance (Co. or Hartrorp, Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT Opinions Below The opinion of the court of appeals (set forth beginning at page la of the appendix to this petition) is not yet officially reported; it is unofficially reported at [1980] CCH Fed.Sec.L.Rep. 1 97,712. The opinion of the district court (set forth beginning at page 38a of the appendix) is re- ported at 461 F.Supp. 999. ’ Jurisdiction The judgment of the court of appeals was entered De- cember 5, 1980, Petitioners’ timely petition for rehearing, with suggestion for rehearing en banc, was denied without opinion on March 4, 1981 (Circuit Judges Robb and Mac- Kinnon would have heard the case en banc and Circuit Judge Wright did not participate) (66a-67a). This peti- tion is filed within 90 days of that denial. The jrrisdiction of this Court is invoked under 28 U.S.C. § 1254(1) (1976). Statutory: Provisions Sections 5, 11, 12, 13, 16 and 17 of the Securities Act of 1933 (the “1933 Act”), 15 U.S.C. §§ 77e, 77k. 771, 77m, 77p, 77q (1976), and Sections 9, 10, 18 and 28(a) of the Secu- rities Exhange Act of 1934 (the “1934 Act” ), 15 U.S.C. §§ 781; 78], 78r, 78bb(a) (1976), are set forth in the ap- pendix beginning at page 68a. Statement of the Case National Student Marketing Corporation (“NSMC”) was one of the “hot new issues” of the 1968-1969 stock market, chronicled in Brooks, The Go-Go Years (1973). Its stock was offered to the public in April 1968 at $6 and sold at $14 the same day. By December 1969, the stock, which had been split 2 for 1, was selling at $70, or 100 times earnings. Mr. Brooks explains that NSMC’s president was able to fool “the ‘whole brains trust of institutional investing” be- cause “he was plausible and they were gullible as well as greedy; that, in times of speculative madness, the wisdom and experience of the soundest and soberest may yield to a hysteria induced by the glimpse of fool’s gold dished by a young man with a smile on his lips and a gleam in his eye” (id. at 285). In December 1969, Wachovia Bank and Trust Co., N.A., Mellon Bank, N.A., First Wisconsin Trust Co., The Drey- a Sey Tes ane 3 fus Offshore Trust, N.V., and National Fire Insurance Co. of Hartford (collectively “Wachovia Bank”) purchased some 130,000 shares of NSMC’s stock from NSMC and two of its controlling persons. The purchase was made at a 37% discount from the market price of the stock. Within days, the market price began a precipitous decline and by the end of March 1970 had dropped by over 90%. Peat, Marwick, Mitchell & Co. (“PMM”) was the inde- pendent auditor of NSMC. PMM examined and reported upon the financial statements of NSMC which NSMC filed with the Securities and Exchange Commission (“SEC”).* Wachovia Bank sued NSMC, the selling shareholders, PMM and others in January 1973 and in 1975 added White & Case, counsel for NSMC in connection with the Wachovia Bank purchase, and its partner Epley as defendants. Wachovia Bank alleged that financial disclosures by NSMC including the financial statements examined and reported upon by PMM overstated NSMC’s financial position and results of operations. The action asserted causes of action “implied” under §17(a) of the 1933 Act and § 10(b) of the 1934 Act. The district court was alleged to have jurisdic- tion by reason of § 22 of the 1933 Act and § 27 of the 1934 Act.** The express causes of action Section 5 of the 1933 Act requires that securities sold by an issuer (including, for this purpose, controlling per- sons of an issuer) be registered with the SEC by a regis- * Petitioners Natelli and Scansaroli were, respectivel , & partner and an employee of PMM. r ** Wachovia Bank also alleged causes of action “implied” under §§ 13(d) and 14(a) of the 1934 Act. The § 13(d) c’uim was aban- doned (43a n.10), and Wachovia Bank not appeal from the dismissal of the §14(a) claim (8a n.6). 4 tration statement containing prescribed information includ- ing financial statements. Section 11(a)(3) provides an express’ damage remedy for purchasers of securities against the independent auditor in the event the financial statements contained in the registration statement are mis- leading. Wachovia Bank contracted away that remedy. Wachovia Bank made representations in its stock purchase agreement concerning investment intent so that the transaction, as a “private placement”, would be exempt from the registra- tion requirement. Accordingly, no registration statement was filed. Section 12(2) of the 1933 Act provides an express dam- age or rescission remedy for purchasers of securities (whether or not registered pursuant to § 5) if the securities are sold by means of a misleading statement. The pur- chaser’s remedy is against the seller, not against other persons such as the independent auditor. Other purchasers of NSMC stock brought a rescission action pursuant to §12(2) against NSMC in March 1970. That action was later settled and the purchasers received back the stock they had exchanged for NSMC stock. Wachovia Bank did not utilize the 4 12(2) remedy against NSMC or the selling stockholders from whom it purchased. _ Section 9(a)(4) of the 1934 Act prohibits misleading statements by brokers and by sellers which are made for the purpose of inducing purchases of a security listed on an exchange, and §9(e) provides an express damage remedy for persons who purchase such securities at a price affected by the misstatement. The stock of NSMC was not listed on a stock exchange. ‘Section 18 of the 1934 Act riveieines an express damage remedy for purchasers of securities, whether or not-listed 5 on an exchange, against those, including the independent auditor, who make or cause to be made misleading state- ments which are contained in documerts filed with the SEC. Reliance upon the misleading statem lh 35a Opinion of United States Court of Appeals tion 10(b) is particularly appropriate here. That provision is concerned with the type of fraud alleged by plain- tiffs—“a complex market manipulation rather than indi- vidual misstatements or omissions.” Wachovia, 461 F. Supp. at 1007; see Blackie v. Barrack, 524 F.2d 891, 903 n.19, 907 (9th Cir. 1975), cert. denied, 429 U.S. 816 (1976). Appellants should, therefore, be able to maintain a cause of action under section 10(b), the only true relief available to them. We hold that appellants may pursue their claims under that section, regardless of whether an alternative remedy is available to them under some other section of the 1933 or 1934 Act. It has become fashionable to challenge the existence of any implied remedies, as evidenced by the ever-increasing frequency with which the question has been presented to the Supreme Court and to other courts. See Redington, 442 U.S. at 562. We find nothing in the opinions of either the Supreme Court or of the other courts of appeals to warrant the suggestion that implied remedies no longer exist. Most recently, the Court of Appeals for the Second Circuit found a private remedy implied by the Commodity Exchange Act, 7 U.S.C. §§ 1-24 (1976). See Leist v. Sim- plot, 49 U.S.L.W. 2056 (July 22, 1980). That case arose out of the notorious Maine potato futures default. The de- fendants urged the court to deny a private remedy because Congress had amended the Commodity Exchange Act in 1974 and had failed to include an express private remedy in the sections pertinent to the case. The court pointed out: The existence of an implied right of action under the Act as it stood in 1974 was repeatedly called to the attention of, and implicitly approved by, Congress. When a principle has become settled through court 7. 36a Opinion of United States Court of Appeals decisions, there is no occasion for Congress to speak unless it wishes a change. Id. As we noted above, the securities laws have been ad- dressed by Congress on numerous occasions since 1934, most recently in 1975. Obviously, if Congress had wished to disapprove the judicial implication of a private remedy under section 10(b), it had an opportunity to do so. The silence is significant. Cf. Power Reactor Development Co. v. International Union of Electrical, Radio & Machine W orkers, 367 U.S. 396, 409 (1961). The court in Leist also addressed the argument that the Supreme Court has changed the law of implied remedies. After reviewing the Court’s recent opinions, which we have discussed above, the Second Circuit rejected the ar- gument, saying [t]he effect of these decisions is simply to emphasize that the ultimate touchstone is congressional intent and not judicial notions of what would constitute wise policy. 49 U.S.L.W. at 2057. We read those cases alike. Just as it would be lawmaking for the courts to decide what good policy is in the first instance, so too the courts ought not retract for policy reasons a longstanding doctrine of legis- lative interpretation, especially one impliedly approved by Congress. It is the prerogative of Congress, presumed to be aware of how its enactments have been treated, to sound the call for a new direction. ee ree + eh “ 37a Opinion of United States Court of Appeals TV. Conciusion It is more than a decade since the collapse of NSMC stock, and long past time that appellants be given an op- portunity to pursue the substance of their claims and, if appropriate, to recover for losses incurred as NSMC shareholders and alleged victims of securities fraud. We reverse the holding of the court below that it is the two- year statute of limitations for the District of Columbia’s blue sky law that applies here and the holding that the doctrine of equitable tolling is unavailable to appellants. Accordingly, we find that this action is not time-barred under the District’s three-year limitations period for gen- eral fraud claims. We hold further that appellants may rely on a remedy implicit under section 10(b) of the 1934 Act, irrespective of the possibility of overlap between that implied cause of ac- tion and express remedies provided by other sections of the securities laws. Section 10(b) is peculiarly appropriate to the allegations of fraud made by appellants, and we find nothing in the legislative history of the securities laws or . in recent Supreme Court opinions inconsistent with an im- plied right of action under section 10(b). Reversed and remanded. 38a Opinion of United States District Court UNITED STATES DISTRICT COURT For tHE District or CoLumBIA M.D.L. No. 105 Civil Action No. 166-73 ‘Wachovia Bank Anp Trust Co., N.A., ef al., Plaintiffs, v. Nationa Stupent Marxetine Corp., et al., Defendants. APPEARANCES Juan A. Dex Rear, Esquire Ricuarp M. Purmurres, Esquire Hu, CHrisTopHER AND Pures, P.C. Washington, D. C. 20036 Attorneys for Plaintiffs Mizton V. Freeman, Esquire Tuomas D. Nurmi, Esquire Rosert H. Winter, Esquire Arnoip & Porter Washington, D. C. 20036 Attorneys for Defendants White & Case and Marion Jay Epley, II 39a Opinion of United States District Court Wuuium FE. Heearry, Esquire Maruis KE. Monz, Esquire Harvey J. Gouusock, Esquire JosepH W. Muccia, Esquire CaHILL Gorpon & RernpEL New York, New York 10005 Attorneys for Defendants Peat, Marwick, Mitchell & Co., Anthony M. Natelli and Joseph Scansaroh Before Barrineton D. Parker United States District Judge Decided: November 20, 1978 MeEMoRANDUM OPINION Barrington D. Parker, District Judge: In this private federal securities laws litigation, filed by the Wachovia Bank and Trust Company and other plain- tiffs’ (the Wachovia plaintiffs), two questions are presented for the Court’s resolution. First, do the plaintiffs have im- plied causes of action under §17(a) of the Securities Act of 1933 (1933 Act)? and §§10(b), 13(a) and 14(a) of the Securities Exchange Act of 1934 (1934 Act)?* Second, is this private action, brought under these statutory sections, 1This is one of several private law suits growing out of the National Student Marketing Corporation stock fraud scheme. M.D.L. No. 105. The plaintiffs in this proceeding are Wachovia Bank and Trust Co., First Wisconsin Trust Co., The Dreyfus Off- shore Trust, and the National Fire Insurance Company of Hart- ford. See note 7 infra. 715 U.S.C. §77q(a). 15 U.S.C. §§ 78j(b), 78m(a) and 78n(a). 40a Opinion of United States District Court barred by the applicable statute of limitations and, if so, is there an independent cause of action based on common law fraud, breach of fiduciary duty and legal malpractice? These issues have been raised by the law firm of White & Case, Marion J. Epley, a partner, and the accounting firm of Peat, Marwick, Mitchell & Co. (Peat Marwick). The defendants have moved for judgment on the pleadings under Rule 12(c), Federal Rules of Civil Procedure, or alternatively to dismiss the complaint with prejudice under Rule 12(b) (6). The Court has considered the various memoranda, affi- davits and exhibits filed as well as the oral argument of counsel. For the reasons set forth herein the Court finds that plaintiffs have stated a private cause of action under §17(a) of the 1933 Act and §10(b) of the 1934 Act and, therefore, defendants’ motion for judgment on the plead- ings on the issue of implied causes of action is denied. How- ever, the Court agrees with the defendants on the statute of limitations issue and concludes that the federal claims as- serted by plaintiffs are time-barred and the remaining claims must be dismissed for lack of pendent jurisdiction. INTRODUCTION In late 1969 when the economic fortunes of the National Student Marketing Corporation (NSMC) were most favor- able and the reports on its financial operations extremely optimistic, the Wachovia plaintiffs purchased at a private placement nearly five million dollars worth of that corpo- ration’s stock. The terms of the purchase were governed by two contracts between the parties, dated December 17, 1969. White & Case, acting as NSMC’s counsel, drafted ‘The defendants also include Anthony M. Natelli and Joseph Seansaroli, members of Peat Marwick. 4la Opinion of United States District Court a Common Stock Purchase Agreement and issued a legal opinion to plaintiffs. Peat Marwick, the independent audi- tor of NSMCO, certified the annual financial statements and played a role in preparation of interim financial reports and documents filed with the Securities and Exchange Com- mission (SEC). ! | In February of 1970, almost immediately following the Wachovia transaction, NSMC’s fortunes suffered a sharp reversal and the stock’s market price dropped markedly.® Shortly thereafter, in early 1970, two civil actions arising out of the collapse were filed in the Southern District of New York federal court. Garber v. 2andell, (March 2, 1970) ; Lipsig v. National Student Marketing Corp., (May 15, 1970) (naming Peat Marwick as defendant). In early 1972, a third action was filed in the Southern District, Natale v. National Student Marketing Corp., (February 18, 1972) (naming White & Case as defendant).* Also, on March 19, 1970, a civil complaint was filed in the Southern District of Texas federal court. Stuckey v. National Stu- dent Marketing Corp., (March 19, 1970). While White & Case and Peat Marwick were not parties in either Garber or Stuckey, the complaints outlined the alleged fraudulent scheme and financial manipulation that underlie the Wach- 5 The low bid price fell from 6914 on December 17, 1969, to 26 on February 17, 1970 (after giving effect to a two-for-one stock split). National Quotation Bureau Report, Dec. 1, 1976, at 16, 18. * Marion J. Epley, III, was first named as a defendant in the - Consolidated, Amended and Supplemental Complaint, Garber v. Randell, No. 70-835 (S.D.N.Y. June 2, 1972). Taken together, the New York class action filings were com- plaints brought on behalf of all purchasers of NSMC stock who made their purchases between April 1, 1968, and February 17, 1972, and therefore included the Wachovia group as “asserted” class members. On November 29, 1972, following formal class certification and notice, the Wachovia plaintiffs officially “opted out” of the class. => 42a Opinion of United States District Court ovia complaint. A complaint was also filed in October 1971 in the Southern District of Ohio, Monroe v. Peat, Marwick, Mitchell @ Co., alleging that the accountants aided and abetted others in misrepresenting Student Marketing’s financial condition. In February 1972, the SEC filed an enforcement and in- junctive action against the major participants in the corpo- rate acquisition and merger of National Student Marketing and Interstate National Corporation.’ White & Case and Peat Marwick, among others, were named as defendants in that proceeding. Despite this turn of events, more than three years elapsed after their December 1969 purchase before the Wachovia plaintiffs sought relief. On January 29, 1973, their original complaint was filed seeking damages from NSMC, several of its officers and employees; Peat Marwick, the partner in charge of the Washington, D.C., office, Anthony M. Natelli; and the auditor, Joseph Scansaroli. The complaint charged those named defendants with a conspiracy to defraud and violations of applicable federal securities laws in connection with plaintiffs’ purchase of NSMC common stock in 1969.° The complaint did not include any common law counts. On January 27, 1973, two days before this suit was filed, the Wachovia plaintiffs and the attorney-defendants en- tered into a letter agreement that the statute of limitations would be tolled for two years from that date as to them.’ 78SEC v. National Student Marketing Corp., 457 F.Supp. 682 (D.D.C. 1978). * The plaintiffs have since settled and dismissed their claims against NSMC and various named defendants. ® The tolling letter, dated January 27, 1973, provides that: White & Case and Mr. Epley are agreeable to the tolling of the statute of limitations for a period of two years from the date of this letter as to claims of [the plaintiffs] against White 3 43a Opinion of United States District Court By its terms, however, no claims could be asserted which were then barred by any applicable provision of law. It was not until May 28, 1975, that the Wachovia plain- tiffs amended their original complaint to include White & Case and Epley as defendants. The amended complaint charges those attorneys with various securities laws viola- tions in addition to common law fraud, breach of fiduciary duty and legal malpractice. In addition to the motions of the attorney and accountant defendants addressed in this opinion, the Wachovia plain- tiffs seek to amend the original complaint, largely to raise common law fraud claims aga’nst Peat Marwick and the other remaining origina] defendants. Also before the Court is a motion of the defendant Roger O. Walther, a principal executive officer of NSMC and a major participant in its operations. He seeks to amend his answer to raise the statute of limitations defense. Tue ImMpiiep Causes or Action Issuz In seeking dismissal of all claims asserted under §17(a) of the 1933 Act and §§ 10(b) or 14(a) of the 1934 Act,’® the & Case and Mr. Epley arising out of the purchase of NSMC securities . . . in December, 1969. .. . In any such litigation or snit brought by [the plaintiffs] after termination or expiration of the tolling period, if White & Case and Mr. Epley plead the statute of limitations as to any claims by [the plaintiffs], it is further understood that any period during which the statute of limitations is tolled pursu- ant to this letter shall be excluded from the computation of the running of the limitation period. This letter shall not a ply to and shall not revive any claims which [the plaintiffs), as of the date of this letter, are already barred from asserting by any applicable provisions of law. 1° Plaintiffs’ claim under §13(a) of the 1934 Act has been abandoned. 44a Opinion »f United States District Court defendants contend in substance that since certain provi- sions of the securities laws expressly provide private reme- dies for the conduct alleged here, the Wachovia plaintiffs cannot bypass the substantive and procedural limitations of those provisions by basing their claims for relief on judicially implied causes of action under the above-cited provisions. Resort to the express remedies is now time- barred and thus dismissal of the present implied claims would effectively foreclose any recovery under the federal securities laws. Plaintiffs strenuously object that their al- legations encompass conduct which is not covered by the express provisions and which clearly falls within the recog- nized scope of implied causes of action. The Court concludes that plaintiffs have stated a claim under §17(a) of the 1933 Act and §10(b) of the 1934 Act. However, even assuming an implied action would be appro- priate under §14(a) of the 1934 Act, they have failed to state a claim under that provision. Initially, it should be noted that defendants do not contest the implication of a private remedy under all circumstances, and for good reason, since an implied right of action has been recognized repeatedly under §10(b), see, e.g., Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196, 96 S.Ct. 1375, 47 L. Ed. 2d 668 (1976); Blue Chip Stamps v. Manor Drug Stores, 421 U.C. 723, 730, 95 S.Ct. 1917, 44 L. Ed. 2d 539 (1975). With less frequency and certitude, such an action has also been sanctioned under § 17(a), see, e.g., Daniel v. International Brotherhood of Teamsters, 561 F.2d 1223, 1244-45 (7th Cir. 1977), cert. granted, 434 U.S. 1061, 98 S.Ct. 1232, 55 L.Ed. 2d 761 (1978); Forrestal Village, Inc. v. Graham, 179 U.S. App. D.C. 225, 551 F.2d 411, 413 (1977); but see Shull v. Dain, Kalman 4 Quail, Inc., 561 F.2d 152, 159 (8th Cir. 1977), cert. denied, 434 U.S. 1086, N x 45a Opinion of United States District Court 98 S.Ct. 1281, 55 L.Ed. 2d 792 (1978). Rather, the defen- dants urge that where an express remedy covers the conduct alleged, judicial implication of a cause of action is not nec- essary to effectuate the goals of the securities laws. See Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 477, 97 S.Ct. 1292, 51 L.Ed. 2d 480 (1977); Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 41, 97 S.Ct. 926, 51 L.Ed. 2d 124 (1977). Thus, they do not appear to argue that implied actions under §17(a) or §10(b) are inapplicable to the conduct alleged, but only that such implied remedies are unnecessary under the facts and circumstances here pre- sented since express remedies were available if the plain- tiffs had chosen to use them. Defendants contend that §18(a) of the 1934 Act and §12(2) of the 1933 Act*® provide remedies for the mis- 1 Section 18(a), 15 U.S.C. § 78r, provides: Any person who shall make or cause to be made any state- ment in any application, report, or document filed pursuant to this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 780 of this title, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. A person seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attor- neys’ fees, against either party litigant. 12 Section 12(2), 15 U.S.C. §771, provides: Any person who— (2) offers or sells a security ... by the use of any means or instruments of transportation or communication in interstate *-*.% 46a Opinion of United States District Court statements and omissions alleged by plaintiffs. Specifically, they assert that most, if not all, of the materially false and misleading statements are substantially contained in docu- ments filed with the SEC and are thus subject to the rem- edy provided by §18(a). Insofar as certain statements may not be contained in such filed documents, they urge that § 12(2) provides an adequate remedy. This Court is not persuaded that these express remedies suffice to effectuate congressional intent, as indicated by the securities laws, to proscribe the type of fraudulent conduct alleged here. With limited exceptions, plaintiffs do not allege reliance upon documents filed with the SEC and, contrary to the position of defendants, such reliance is essential to recovery under 4 18(a). Heit v. Weitzen, 402 F.2d 909, 916 (2d Cir. 1968), cert. denied, 395 U.S. 903, 89 S.Ct. 1740, 23 L.Ed.2d 217 (1969); Gross v. Diversified Mortgage Investors, 438 F. Supp. 199, 195 (S.D.N.Y. 1977). The fact that statements similar to those alleged by plain- tifis were also contained in documents filed with the SEC is ine icient; absent reliance upon the filing of the state- commerce or of the mails, by means of a prospectus cr oral communication, which includes an untrue statement of a mate- rial fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sus- _ tain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person p such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the con- sideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security. 7 =. ie ae hc ee ey 47a Opinion of United States District Court ments with the Commission, 418(a) is inapplicable.** In addition, plaintiffs have alleged materially false statements which were never contained in a document filed with the SEC and thus are clearly exempt from § 18(a) liability. Defendants respond that the remedy for such nonfiled statements rests with §12(2). That provision, however, contains a number of restrictions, based in large part on the fact that it reaches even negligent misstatements and omissions, and is not directed solely at the intentional fraud alleged here. It appears doubtful that Congress intended victims of intentional fraud to be limited to the negligence remedy provided by §12(2). Moreover, there is some question whether the section applies to the present defen- dants since they were not “sellers” of the securities in question. See e.g., In re Equity Funding Corp. of America Securities Litigation, 416 F. Supp. 161, 181 (C.D. Cal. 1976). While such a restriction is appropriate in a negli- gence context, it clearly is unwarranted here where the participants are charged with intentional fraud. In short, it appears that neither § 18(a) nor § 12(2) pro- vides the plaintiffs with adequate remedies. If the Court were to recognize defendants’ solution, the plaintiffs would be relegated to state courts to pursue their claims based on common law fraud. Such a suggestion needs little discus- sion. The gravamen of plaintiffs’ complaint is that de- fendants participated in a scheme to manipulate the na- tional market for NSMC stock through the broad dissemination of materially false and misleading state- 18 Tt is unclear whether reliance must be on the actual document filed with the SEC, or whether reliance on a copy of such document would suffice. The latter seems to be the more reasonable position since it is the knowledge that it has been filed with the Commission that justifies reliance on the document. 48a Opinion of United States District Court ments concerning NSMC. Such conduct is clearly a matter of federal, not state, concern. See 15 U.S.C. § 78b.** Since this is not a case where the allegations in the com- plaint fall entirely within the scope of express provisions of the securities laws,’* and since the allegations primarily 14 Section 78b, 15 U.S.C., provides: transactions in securities as commonly conducted upon securi- ties exchanges and over-the-counter markets are affected with a national public interest which makes it necessary to provide for regulation . . . in order to protect interstate commerce, the national credit, .. . and to insure the maintenance of fair and honest markets in such transactions: (3) ‘Frequently the prices of securities on such exchanges and markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive specula- tion: .... 15 An implied cause of action should be available even where the alleged misconduct also falls completely within the confines of an express remedy. “The fact that there may well be some overlap is neither unusual nor unfortunate,’ SEC v. National Securities, Inc., 393 U.S. 4538, 468, 89 S.Ct. 564, 573, 21 L.Ed.2d 668 (1969), especially since recent developments have properly restricted such implied remedies to the scope authorized by specific statutory pro- visions. See TSC Industries, Inc. v. Northway, Inc., 426 U.S. 488 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976) (materiality); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1875, 47 L.Ed.2d 668 (1976) (scienter) ; Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 728, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975) (purchaser/seller). Moreover, to conclude that express and implied causes of action should not overlap would require a case-by-case determination of the applicability of implied remedies under the particular factual situation presented. Such a procedure, especially in a pretrial stage when the factual bases for the various claims have not been . ee would significantly burden an already complex area of the law. But see Kulchock v. Government Employees Insurance Co., [Transfer Binder ’77-78 Decisions] Fed. See. L. Rep. (CCH) { 96,002 (D.D.C. 1977) (complaint dismissed on ground that there is no implied cause of action for misstatements in documents filed with the SEC because § 18 of the 1934 Act provides express remedy = Sigs : Se eee . nF) ’ . 49a Opinion of United States District Court concern a complex market manipulation rather than in- dividual misstatements or omissions, see Blackie v. Bar- rack, 524 F.2d 891, 907 (9th Cir. 1975), cert. demied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976), the Court con- cludes that plaintiffs have stated a claim under §10(b) of the 1934 Act and §17(a) of the 1933 Act.*® A different conclusion is reached with respect to plain- tiffs’ asserted cause of action under §14(a) of the 1934 Act. To support such a claim, plaintiffs must allege an injury to their corporate suffrage rights or an injury re- sulting from a corporate transaction whose approval was obtained by a misleading proxy statement. In re Penn Central Securities Litigation, 347 F. Supp. 1327, 1342 (E.D. Pa. 1972), aff'd, 494 F.2d 528 (8rd Cir. 1974). In an attempt to meet the second part of the test, the Wachovia plaintiffs allege that the stock they purchased was authorized on the basis of the misleading NSMC proxy material concerning the Interstate transaction. The Court does not read the test so broadly. Plaintiffs’ injury did not result from the authorization of the stock, but from their later purchase of it at an allegedly inflated price. To state a claim under the second part of the test, the alleged stock transaction must be part of the merger itself and not a subsequent trans- action. Therefore, plaintiffs have failed to state a claim under §14(a) and defendants’ motion to dismiss claims for same) ; appeal of this dismissal Order withdrawn in light of _ —o and settlement, C.A. No. 76-206 (D.D.C. July 28, 1978). 16 Since defendants’ motions are primarily directed to the dis- tinction between express and implied remedies, the Court need not consider the relationship between the two implied causes of action. Defendants make other minor arguments in support of their motions to dismiss, none of which have merit. Fs 50a Opinion of United States District Court asserted under that provision must be granted. Of course, to the extent allegations contained in these claims are also applicable to the alleged manipulative scheme, they are properly brought under §10(b) and §17(a). Bee 347 F. Supp. at 1342. Tue Srature or Limitations Issuer A. Motion of White & Case and Epley The District of Columbia Securities Act, the so-called “blue sky law,” includes a statute of limitations which in part provides that: No person may bring an action under this section after two years from the contract of sale... .” Only recently our Circuit ruled that when a private action is brought under § 10(b) of the 1934 Act and §17(a) of the 1933 Act, this two-year blue sky period is the applicable statute of limitations. Forrestal Village, Inc. v. Graham, 179 U.S. App. D.C. 225, 551 F.2d 411 (1977). Since the Wachovia plaintiffs allege violations of §§ 10(b) and 17(a), and their other claims concern securities fraud, Forrestal Village mandates application of the two-year statute of limitations, The pending claims against the attorney-defendants were not filed until May 1975, though, by virtue of the toll- ing letter, it must be assumed that theses claims were filed on January 27, 1973.% Both of these dates are more than two years after the December 17, 1969, contracts of sale. The defendants accordingly urge that the securities laws 17T).C. Code § 2-2413(e) (1978). 18 See p. 1004 and note 9. 5la Opinion of United States District Court claims are untimely filed under the blue sky law and should be dismissed with prejudice. Because plaintiffs’ common law claims are allegedly dependent upon the time-barred securities claims, defendants contend that the Court should not exercise pendent jurisdiction over the state law claims. - Plaintiffs argue initially that Forrestal Village should not be applied retroactively and that they are entitled to the benefits of the D.C. three-year statute of limitations for common law fraud actions.’® Citing the criteria of Chevron Oi Co. v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), they allege that Forrestal Village overrules the only precedent in the District and therefore creates a new principle of law which cannot fairly be ap- plied retroactively. The Court, in agreement with defendants, cannot accept this argument. Indeed, White & Case point out the’ prior law is by no means unequivocal, consisting largely of three unreported United States District Court cases, all of which barred actions under the three-year general fraud limita- tions period.”” The Forrestal Village court did not an- nounce a new general principle of law, but “join[ed] the majority of circuits” in applying a local blue sky law stat- ute of limitations in securities frand cases. 551 F.2d at 413. Lastly, this Court has already applied the decision retroactively. Houlihan v. Anderson-Stokes, 434 F. Supp. 1324 (D.D.C. 1977). Having adopted the blue sky provision, the Court must next determine when the two-year period commenced to run. Plaintiffs’ principal opposition to defendants’ motion 19D.C. Code § 12-301(8) (1973). 2 See Reply by Defendants White & Case and Marion J. Epley, III, to Plaintiffs’ Memorandum in Opposition to Motion to Dismiss the Complaint, August 26, 1977, at 18-22. veg. ay Soa: a La a a any tt 52a Opinion of United States District Court to dismiss is that the federal common law tolling doctrine is applicable and held the limitations period in abeyance until such time as the alleged fraud was or should have been dis- covered. They identify the relevant date as February 3, 1972, when the SEC filed its injunction action before this Court.* Only then, they contend, was it that “[t]he first hint of any participation by White & Case in the massive NSMC stock fraud surfaced... .”” The federal] tolling doctrine appears in Bailey v. Glover, where the Supreme Court announced that: the decided weight of authority is in favor of the proposition that where the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party. 88 U.S. (21 Wall.) 342, 348, 22 L.Ed. 636 (1875) (emphasis added). Where federal securities laws violations are al- leged, as here, this time-honored doctrine has been recog- nized to mean that the statute of limitations cannot be said to run until a plaintiff, in the exercise of reasonable dil- igence, discovered or should have discovered the fraudulent activity underlying his cause of action.** The law is also 21 See note 7 supra. 22 Plaintiffs’ Memorandum in Opposition to Motion by Defen- dants White & Case and Marion J. Epley, III, July 29, 1977, at 2. 23 Cook v. Avien, Inc., 573 F.2d 685, 694-95 (1st Cir. 1978); Arneil v. Ramsey, 550 F.2d 774, 780-01 (2d Cir. 1977) ; Newman v. Prior, 518 F.2d 97, 100 (4th Cir. 1975); Tomera v. Galt, 511 F.2d 504, 509 (7th Cir. 1975); Hudak v. Economic Research sie ie : 53a Opinion of United States Distrirt Court clear that the statutory period will not await a plaintiff's leisurely discovery of the full details of the fraudulent scheme, but begins to run when plaintiff possesses sufficient information, which in the exercise of due diligence, war- rants further inquiry.” White & Case and Epley do not contend that the Wacho- via plaintiffs had actual knowledge of their participation in the fraudulent scheme. Instead, they allege that the facts were such that plaintiffs, four large sophisticated institu- tional investors, should have formulated some suspicion against the law firm shortly after the private placement in 1969. Defendants label the following uncontroverted occurrences, established and known to the public in early 1970, as “code blue” alert notices of fraud: a. The precipitous decline of NSMC stock within sixty days after the plaintiffs’ purchase, from 69% on December 17, 1969, to 26 on February 17, 1970;*5 Analysts, Inc., 499 F.2d 996, 1001-02 (5th Cir. 1974), cert. denied, 419 U.S. 1122, 95 S.Ct. 805, 42 L.Ed.2d 821 (1975) ; Vanderboom v. Sexton, 422 F.2d 1233, 1240 (8th Cir. 1970), cert. denied, 400 U.S. 852, 91 S.Ct. 47, 27 L.Ed.2d 90 (1970); Janigan v. Taylor, 344 F.2d 781, 784 (1st Cir. 1965), cert. denied, 382 U.S. 879, 86 8.Ct. 163, 15 L.Ed.2d 120 (1965) ; Long v. Abbott Mortgage Corp., 459 F.Supp. 108 (D. Conn. 1978). *4 Cook v. Avien, Inc., supra note 23, at 696; Klein v. Bower, 421 F.2d 338, 343 (2d Cir. 1970). 26 See p. 2 and note 5 supra and affidavit of Thomas D. Nurmi, filed October 26, 1977. See also Hupp v. Gray, 500 F.2d 993, 996-97 (7th Cir. 1974) (dramatic fall in market price from $47 per share to $17.50 per share, rather than the $75 predicted to the purchaser, sufficient to put wholly unsophisticated investor on notice that “something was amiss”) ; Robertson v. Seidman & Seidman, [Current] Fed.Sec.L. Rep. (CCH) {96,420 (S.D.N.Y. May 3, 1978) (85% decline in value of stock over less than a year, among other signs, should have led plaintiff to suspect fraud). See also Cook v. Avien, Inc., supra note 23, at 696. 54a Opinion of United States District Court b. The loss, ranging from 1.2 to 1.7 million dollars, reported in early 1970 by NSMC for the quarter ended November 30, 1969 ;7* and c. News articles reporting NSMC financial difficul- ties in Barron’s (December 12, 1969) and The Wall Street Journal (February 17, 1970). In addition to the above, it is established that in early 1970, key officials of two plaintiffs, The Dreyfus Offshore Trust (general counsel and vice president) and First Wisconsin Trust Company (investment analyst), commenced investi- gation and contemplated suit.” The Court agrees that these facts, coupled with the sev- eral lawsuits filed in 1970, provided a clearly marked trail which, if pursued with diligence, would have led the plain- tiffs to the fraud of the NSMC officials and to the attorney- defendants and their involvement in the stock sale. A statute of limitations does not become operative when a 26 This loss was reported in the national press, including the February 17, 1970, Wall Street Journal. 27 Lawrence M. Greene, general counsel and vice president of Dreyfus, began investigating in January 1970. When questioned concerning the Barron’s article of December 12, 1969, his deposi- tion at p. 118 reads: Q. Is it your understanding that upon your review of the Barron’s article in January of 1970 that any subsequent in- vestigations you made with respect to National Student Marketing were in contemplation of litigation? A. I was greatly concerned when I read the article. ... , and, in fact, I was rather upset about it and I therefore began to investigate the situation more deeply. Whatever I did fol- lowing that in connection with looking into the facts is all part and parcel of my turning the matter over to our counsel for litigation. (emphasis added). Robert G. Steffel, an investment analyst, testified that First Wisconsin Trust was contemplating suit in late 1970 or early 1971. , 55a Opinion of United States District Court plaintiff discovers all aspects of a fraudulent scheme, but rather from the time when a clue to the facts, if pursued diligently, would lead to an uncovering of the general fraudulent scheme. Berry Petroleum Co. v. Adams & Peck, 518 F.2d 402, 410 (2d Cir. 1975); Klein v. Bower, 421 F.2d 338, 343 (2d Cir. 1970). This situation is virtually indistinguishable from that in the recent § 10(b) case of Robertson v. Seidman ¢ Seidman, [Current] Fed. Sec. L. Rep. (CCH) {96,420 (S.D.N.Y. May 3, 1978). In that proceeding an investor asserted that the defendant-accountants certified false and misleading financial statements in a stock sale. The district court granted summary judgment and dismissed the complaint ag time-barred, holding that the investor should have dis- covered the fraud more than two years before suit was filed. The investor relied upon the federal tolling doctrine, claim- ing ignorance of the accountants’ role until a later time when the SEC announced proceedings against them. The court found that the investor should have discovered the fraud far earlier, because the evidence showed that in the intervening period: the stock dropped markedly in value; he had suspected fraud and had discussed it with his broker; and was aware of a class action suit arising out of the same stock offering, charging price inflation through dissemination of false and misleading information. While that class complaint did not specifically name the accoun- tants, the court found that “the plaintiff should at least have been on notice that further inquiry into the fraudulent practices surrounding . . . the public offering would be prudent,” Robertson at 93,518, and there were public facts available indicating the accountants’ role. There is no difference between Robertson and this action except for the involvement of accountants rather than oy ees vm 56a Opinion of United States District Court attorneys. That of course is of no consequence. The Wachovia plaintiffs knew that White & Case had drafted the Stock Purchase Agreement as well as the legal opinion to secure their purchase. Their blanket claim that before the SEC injunctive action was filed in 1972 they had no reason to suspect this “reputable and prestigious” law firm of any unlawful role in a stock sale is rejected. As respon- sible money managers and investors, they had a duty to pursue every aspect of the transaction, including the role of the legal counsel in such a suspect sale. Their experi- ence and their access to highly specialized personnel and consultants imposed an obligation of reasonable diligence commensurate with their sophistication and standing in the financial community. Whatever is notice enough to excite attention and put the party on his guard and call for inquiry, is notice of everything to which such inquiry might have led. When a person has sufficient information to lead him to a fact, he shall be deemed conversant of it.... The presumption is that if the party affected by any frau- dulent transaction or management might, with ordi- nary care and attention, have seasonably detected it, he seasonably had actual knowledge of it. Wood v. Carpenter, 101 U.S. 135, 141, 25 L.Ed. 807 (1879). Plaintiffs argue that the question as to when they had knowledge of White & Case’s fraud and the issue of reason- able care as grounds for tolling the statute are disputed factual issues and cannot be disposed of without a trial. The Court disagrees. See Jones v. Rogers Memorial Hos- pital, 143 U.S. App. D.C, 51, 53, 442 F.2d 773, 775 n.2 (1971). The National Student Marketing matters were consolidated for pretrial discovery and have been pending for more than chal ah mk a 57a Opinion of United States District Court five years. All parties in this proceeding have conducted expensive, time consuming and exhaustive discovery. The papers, exhibits and argument on these motions have been especially thorough and, in this Court’s opinion, if there are any undisclosed facts at this stage, their relevancy and materiality are minimal. Taken as a whole, the record is more than sufficient to show that plaintiffs should have investigated the attorney- defendants’ potential role in the suspicious sale and should have known of the fraud within the two-year statute of limitations, running immediately after the sale. Plaintiffs’ complaint as to White & Case and Epley is untimely filed and the motion of these defendants to dismiss must be granted. With dismissal of the federal claims at this time, the pendent state common law claims fall as well. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Hd.2d 218 (1966); Robertson v. Seidman & Seidman, supra, at 93,519; Hupp v. Gray, 500 F.2d 993, 997 (7th Cir. 1974). B. Motion of Peat Marwick, Natelli and Scansaroli In seeking dismissal, the accountant-defendants adopt in large measure the White & Case and Epley argument that Forrestal Village controls and that, in this private action under §§17(a) and 10(b) of the federal securities laws, the applicable statute of limitations is the two-year pro- vision of the District of Columbia blue sky law. To counter the federal tolling doctrine urged by the Wachovia in- vestors, they point to the several private actions filed in the New York federal courts, particularly the Lipsig class action of May 15, 1970, the first to name Peat Marwick as a defendant. The accountant-defendants also argue that those law suits, together with other events and devel- opments widely publicized in the financial community, were = 58a Opinion of United States District Court yellow caution lights, all ignored by Wachovia. Since the complaint under consideration was not brought until Janu- ary 29, 1973, the federal tolling doctrine does not protect the plaintiffs. The plaintiffs on the other hand allege and urge that filing of the several New York class actions, of which they were asserted members, tolled the running of the limita- tions period. The Lipsig, Garber and Natale complaints were filed on behalf of NSMC shareholders who made their stock purchases between April 1968 and February 1972, and did indeed include plaintiffs as purported members. These actions were consolidated in April 1972 and later transferred by the Judicial Panel on Multidistrict Litiga- tion to this Court for pretrial proceedings. The New York actions were certified as class actions and, during October 1973, notice of class action determination was sent to the various class members including the Wachovia plaintiffs. In January 1973, however, the Wachovia plaintiffs had filed the present complaint naming Peat Marwick, Natelli and Scansaroli among the defendants. In justification for their course of action they asserted that their status as institutional purchasers made their complaint dissimilar to the earlier class actions. On November 29, 1973, they “opted o«t” to pursue their independent claims. Peat Murwick argues that the Wachovia plaintiffs should have filed an action within two years of the 1969 purchase and that the January 1973 complaint is therefore time- barred. The accountant-defendants contend that the statute of limitations was not tolled by the various class actions, because by opting out, the plaintiffs forfeited any benefits accruing to the class members. As members in the earlier filed class action proceedings the Wachovia plaintiffs could bl si ot >» la ee ee 59a Opinion of United States District Court not exclude themselves from the class and then file law suits which otherwise would be time-barred. The class action tolling doctrine is best illustrated in American Pipe & Construction Co. v. Utah, 414 U.S. 538, 94 8.Ct. 756, 38 L.Ed.2d 713 (1974), where the Supreme Court held that filing of a class action complaint tolls the running of the statute of limitations for all purported class members who timely seek intervention after the lower court has found the asserted class too small to certify. According to the Court, a contrary rule allowing participation only by those potential class members who had earlier filed motions to intervene would deprive class actions of the efficiency and economy of litigation which they are designed to pro- mote. This rule is not inconsistent with the functional operation of a statute of limitations, since the policies of ensuring fairness to defendants and of barring plaintiffs who have slept on their rights are satisfied when a named plaintiff “notifies the defendants not only of the substan- tive claims being brought against them, but also of the num- ber and generic identities of the potential plaintiffs who may participate in the judgment.” 414 U.S. at 554-55, 94 S.Ct. at 767. In light of these policy considerations, this Cirenit has called for a “broad, functional” reading of American Pipe.” McCarthy v. Kleindienst, 562 F.2d 1269, 1274 (D.C. Cir. 1977). The court there extended the American Pipe tolling doctrine to a case where a motion for class certification had been denied not because of size but on grounds of untimeli- 8 See also United Airlines, Inc. v. McDonald, 482 U.S. 385, 97 S.Ct. 2464, 53 L.Ed.2d 423 (1977) (potential class members could intervene after final judgment for the purpose of ap the a 4g of class certification, even though the limitations had run). 60a Opinion of Uniied States District Court ness and nonpredominance of common questions. The court found that a motion to intervene brought by 266 asserted class members four years after the events at issue, but one day after denial of class certification, was timely, because there was no evidence of manipulative behavior by the plaintiffs and the defendants had received “sufficient notice of the contours of potential claims to toll the running of the statute of limitations.” 562 F.2d at 1275. See also Umited Airlines, Inc. v. McDonald, 432 U.S. 385, 97 S.Ct. 2464, 53 L.Ed.2d 423 (1977). The American Pipe line of cases concerns the propriety of intervention following denial of class certification. Here, there has been certification of a class which includes the Wachovia plaintiffs. Before that certification decision, plaintiffs filed a separate action. Following certification, they opted out of the class rather than pursuing class relief. The broad issue here, therefore, is whether the policy con- siderations of American Pipe operate to toll the limitations period for all purported class members until certification is decided. The (curt finds that, under the circumstances presented here, the class action tolling doctrine does not protect the Wachovia complaint brought against the accountant-defen- dants, Preliminarily, the doctrine cannot operate against defendants Natelli and Scansaroli. Since they were not named in the original New York actions, they cannot fairly be charged with the notice requisite for class action tolling. Notice considerations also mean that the consolidated amended complaint naming them, filed on June 2, 1972, does not relate back for tolling purposes. Arneil v. Ramsey, 550 F.2d 774, 782 n. 10 (2d Cir. 1977).** **The amendment came more than two years after the Lipsig action naming Peat Marwick. Therefore, even if the latter suit 6la Opinion of United States District Court Insofar as Peat Marwick is concerned, plaintiffs base their opposition to the motion largely on a footnote in a Supreme Court class action decision following American Pipe. In Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 §.Ct. 2140, 40 L.Ed.2d 732 (1974), a case concerning notice to potential class members, the Court referred to American Pipe as establishing that commencement of a class action tolls the applicable statute of limitations as to all members of the class. 417 U.S. at 176 n.13, 94 S.Ct. at 2152. While at least one court has found that this dictum “ap- pears to have... eliminated” the general tolling question,” this Court is not so persuaded. There is precedent sup- porting an interpretation opposite to plaintiffs’ in the Second Circuit. In Arneil v. Ramsey, supra, that court refused to toll the running of the statute of limitations for a separate action brought by two plaintiffs who were not asserted members of a class action as originally filed. See also Stull v. Bayard, 561 F.2d 429, 433 (2d Cir. 1977), cert. denied, 434 U.S. 1035, 98 S.Ct. 769, 54 L.Ed.2d 783 (1978). For the Court to find otherwise, that the class action filings tolled the limitations period for plaintiffs’ separate suit, would sanction duplicative suits and violate the poli- cies behind American Pipe. Even assuming that this action should have put plaintiffs on notice that individual accountants at Peat Marwick were involved in the fraud, the federal tolling doctrine cannot be added to the class action tolling doctrine to protect the suit against Natelli and Scansaroli. ° Agostine v. Sidcon Corp., 69 F.R.D. 487, 448 n.13 (E.D. Pa. 1975) (Truth in Lending case). See also McAlpine v. AAMCO Automatic Transmissions, Inc., 1977-1 Trade Cases | 61,359 (E.D. Mich. 1977) (antitrust case—court found dicta sive” and tolled the statute of limitations for damage purposes). 62a Opinion of United States District Court and the original class actions raise identical issues, the filing of a class action should not cause Peat Marwick to be responsible for meeting separate independent actions by class members after their statute of limitations has run. If different issues are raised, there is even less reason to credit Peat Marwick with notice. The Court also finds it noteworthy that the plaintiffs filed this action before class certification had been decided. If, following certification, they had determined that the class action strategy would not protect their rights and had then promptly filed a separate action, their arguments might be more persuasive. By filing their action before a certification decision, opting out of the class after certifica- tion, and then claiming the benefits of tolling, they appear to have been manipulating the tolling doctrine and other class action procedures. While the Court is aware that American Pipe had not been decided as of January 29, 1973, when plaintiffs filed this action, their delay is not justifiable in light of the traditional purposes of a statute of limita- tions. Since the Wachovia plaintiffs are not protected by the class action tolling doctrine, their complaint against Peat Marwick was not timely filed and must be dismissed. In light of this disposition, it is not necessary for the Court to address Peat Marwick’s contention that the instant action does not involve the same issues raised in the New York actions. Oruer Motions a. In light of the Court’s dismissal of the Wachovia plaintiffs’ complaint against the accountant-defendants, the motion of the plaintiffs to amend the complaint to add com- mon law fraud claims against Peat Marwick, Natelli and 63a Opinion of United States District Court Scansaroli is denied. The Court would not exercise pendent jurisdiction over such state claims if the amendment were allowed. See p. 12 supra. The motion to amend will also be denied insofar as plain- tiffs seek to amend the caption to reflect the parties who have not settled, given that various cross-claims are pend- ing and such a technical change is not necessary. The motion will be granted, at this time, only insofar as plain- tiffs seek to delete references to §$13(a) of the 1934 Act under the Count I heading. b. The Court finds that defendant Walther’s motion to amend his answer to raise a statute of limitations defense is appropriate. In light of the pleadings that have been filed on this issue, the plaintiffs will not be prejudiced by the amendment. ce. The motion of the Wachovia plaintiffs to compel White & Case and Epley to produce documents, memoranda allegedly prepared for counsel, does not bear on the factual issues involved in these motions and will be denied as moot. OxpERED accordingly. Entered: November 20, 1978 Barrineton D. Parker United States District Judge 64a Order Denying Rehearing UNITED STATES COURT OF APPEALS For tHe District or CotumsBia Crrcurr No. 79-1595 September Term, 1980 Argued 12-13-79 Wacnovia Bank anv Trust Co., N.A. (as Trustee and Agent for various trust accounts), et al. Appellants v. NationaL Stupent Marxetine Corporation, et al., And consolidated cases Before: Rosrnson and Mrixva, Circuit Judges; Fuannery, Judge, United States District Court for the District. of Columbia ORDER This matter is before the Court for consideration of the petitions for rehearing of Peat, Marwick, Mitchell & Co., Anthony M. Natelli and Joseph Scansaroli, White and Case and Marion Jay Epley, III, Joy Walther, Donald A. — Fergusson and Robert A. Fergusson, and the motion of Cortes W. Randell for leave to file petition for rehearing y out of time, it is a . a ss i i i ; PS * ye? Orr. “ s e . " , Ce ae es 65a Order Denying Rehearing OrpErep by the Court that the motion of Cortes W. Ran- dall for leave to file out of time is denied, and, it is FurrHer Orperep by the Court that all of the aforesaid petitions for rehearing are denied. Per Curiam a : For tHe Court: George A. Fisher, Clerk By: /s/ Roserrt A. Bonner Robert A. Bonner Chief Deputy Clerk Fiuzp Maron 4, 1981 Grorce A. Fisuer, Clerk 66a Order Denying Rehearing En Banc UNITED STATES COURT OF APPEALS For tHe District or CoLumBm Crrcuir No. 79-1595 September Term, 1980 Civil Action No. 166-73 Argued 12-13-79 Wacnovia Bank anv Trust Co., N.A. (as Trustee and Agent for various trust accounts), e¢ al. Appellants Vv. Nationa, Stupent Marxetine Corporation, et al., And consolidated cases Before: MoGowan, Chief Judge; Wricut, Tamm, Rosrnson, MacKinnon, Ross, WI.Key, Wap, Mrxva, Epwarps and Grxssurc, Circuit Judges OrpErR This matter is before the Court for consideraticn of the suggestions for rehearing en banc of Peat, Marwick, Mitch- ell & Co., Anthony M. Natelli and Joseph Scansaroli, White and Case and Marion Jay Epley, III, Joy Walther, Donald A. Fergusson and Robert A. Fergusson. These suggestions 67a Order Denying Rehearing En Banc have been circulated to the full Court. A majority of the judges have not voted in favor of rehearing this matter en banc. On consideration of the foregoing, it is Orperep by the Court en banc, that all of the aforesaid suggestions are denied. Circuit Judges MacKinnon and Robb would rehear these cases en banc. Circuit Judge Wright did not participate in the foregoing order. | Per Curiam For THE Court: George A. Fisher, Clerk By: /s/ Rosert A. Bonner Robert A. Bonner Chief Deputy Clerk Frrzep Maron 4, 1981 Grorce A. FisHer, Clerk 68a Securities Act of 1933 § 5, 15 U.S.C. § 77e (1976) §77e. Prohibitions relating to interstate commerce and the mails (a) Sale or delivery after sale of unregistered securities Unless a registration statement is in effect as to a secu- rity, it shall be unJawful for any person, directly or indi- rectly— (1) to make use of any means or instruments of transportation or communication in interstate com- merce or of the mails to sell such security through the _ use or medium of any prospectus or otherwise; or - (2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instru- ments of transportation, any such security for the purpose of sale or for delivery after sale. (b) Necessity of prospectus meeting requirements of section 77j of this title. It shall be unlawful for any person, directly or in- directly— (1) to make use of any means or instruments of transportation or communication in interstate com- merce or of the mails to carry or transmit any prospec- tus relating to any security with respect to which a registration statement has been filed under this sub- chapter, unless such prospectus meets the requirements of section 77j of this title; or (2) to carry or cause to be carried through the mails or in interstate commerce any such security for the 69a Securities Act of 1933 purpose of sale or for delivery after sale, unless ac- companied or preceded by a prospectus that meets the requirements of subsection (a) of section 77} of this title. (c) Necessity of filing registration statement It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a regis- . tration statement has been filed as to such security, or while the registration statement is the subject of a refusal order or stop order or (prior to the effective date of the registration statement) any public proceeding or examina- tion under section 77h of this title. Sal * * § 11, 15 U.S.C. § 77k (1976) § 77k. Civil Liabilities on account of false registration statement (a) Persons possessing cause of action; persons liable In case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact re- quired to be stated therein or necessary to make the state- ments therein not misleading, any person acquiring such . security (unless it is proved that at the time of such acquisition he knew of such untruth or omission) may, either at law or in equity, in any court of competent juris- diction, sue— vt (1) every person who signed the registration state- ment; 70a Securities Act of 1933 (2) every person who was a director of (or person performing similar functions) or partner in the issuer at the time of the filing of the part of the registration statement with respect to which his liability is as- serted ; (3) every person who, with his consent, is named in the registration statement as being or about to become a director, person performing similar func- tions, or partner; (4) every accountant, engineer, or appraiser, or any person whose profession gives authority to a state- ment made by him, who has with his consent been named as having prepared or certified any part of the registration statement, or as having prepared or certi- fied any report or valuation which is used in connec- tion with the registration statement, with respect to the statement in such registration statement, report, or valuation, which purports to have been prepared or certified by him; (5) every underwriter with respect to such security. If such person acquired the security after the issuer has made generally available to its security holders an earn- ing statement covering a period of at least twelve months beginning after the effective date of the registration state- ment, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the se- curity relying upon such untrue statement in the registra- tion statement or relying upon the registration statement and not knowing of such omission, but such reliance may be established without proof of the reading of the regis- tration statement by such person, ou °° 7_ ae mo .. q 71a Securities Act of 1933 (b) Persons exempt from liability upon proof of issues Notwithstanding the provisions of subsection (a) of this section no person, other than the issuer, shall be liable as provided therein who shall sustain the burden of proof— (1) that before the effective date of the part of the registration statement with respect to which his lia- bility is asserted (A) he had resigned from or had taken such steps as are permitted by law to resign from, or ceased or refused to act in, every office, ca- pacity, or relationship in which he was described in the registration statement as acting or agreeing to act, and (B) he had advised the Commission and the issuer in writing that he had taken such action and that he would not be responsible for such part of the registration statement; or (2) that if such part of the registration statement became effective without his knowledge, upon becoming aware of such fact he forthwith acted and advised the Commission, in accordance with paragraph (1) of this subsection, and, in addition, gave reasonable pub- lic notice that such part of the registration statement had become effective without his knowledge; or (3) that (A) as regards any part of the registration statement not purporting to be made on the authority of an expert, and not purporting to be a copy of or extract from a report or valuation of an expert, and not purporting to be made on the authority of 2 public official document or statement, he had, after reason- able investigation, reasonable ground to believe and did believe, at the time such part of the registration statement became effective, that the statements there- in were true and that there was no omission to state 72a Securities Act of 1933 a material fact required to be stated therein or neces- sary to make the statements therein not misleading; and (B) as regards any part of the registration state- ment purporting to be made upon his authority as an expert or purporting to be a copy of or extract from a report or valuation of himself as an expert, (i) he had, after reasonable investigation, reasonable ground to believe and did believe, at the time such part of the registration statement became effective, that the statements therein were true and that there was no omission to state a material fact required to be stated therein or necessary to make the statements therein - not misleading, or (ii) such part of the registration statement did not fairly represent his statement as an expert or was not a fair copy of or extract from his report or valuation as an expert; and (C) as regards any part of the registration statement purporting to be made on the authority of an expert (other than himself) or purporting to be a copy of or extract from a report or valuation of an expert (other than him- self), he had no reasonable ground to believe and did not believe, at the time such part of the registration statement became effective, that the statements there- in were untrue or that there was an omission to state a material fact required to be stated therein or nec- essary to make the statements therein not misleading, or that such part of the registration statement did not fairly represent the statement of the expert or was not a fair copy of or extract from the report or valuation of the expert; and (D) as regards any part of the registration statement purporting to be a state- ment made by an official person or purporting to be a copy of or extract from a public official document, tig oY uh 73a Securities Act of 1933 he had no reasonable ground to believe and did not believe, at the time such part of the registration state- ment became effective, that the statements therein were untrue, or that there was an omission to state a material fact required to be stated therein or neces- sary to make the statements therein not misleading, or that such part of the registration statement did not fairly represent the statement made by the official person or was not a fair copy of or extract from the public official document. (c) Standard of reasonableness In determining, for the purpose of paragraph (3) of subsection (b) of this section, what constitutes reasonable investigation and reasonable ground for relief, the stan- dard of reasonableness shall be that required of a prudent man in the management of his own property. (d) Effective date of registration statement with regard to underwriters If any person becomes an underwriter with respect to the security after the part of the registration statement with respect to which his liability is asserted has become effective, then for the purposes of paragraph (3) of sub- section (b) of this section such part of the registration statement shall be considered as having become effective with respect to such person as of the time when he became an underwriter. (e) Measure of damages; undertaking for payment of costs The suit authorized under subsection (a) of this section may be to recover such damages as shall represent the dif- . wr, £ i 74a Securities Act of 1933 ference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and (1) the value thereof as of the time such suit was brought, or (2) the price at which such security shall have been disposed of in the market before suit, or (3) the price at which such security shall have been dis- posed of after suit but before judgment if such damages shall be less than the damages representing the difference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and the value thereof as of the time such suit was brought: Provided, That if the defendant proves that any portion or all of such damages represents other than the deprecia- tion in value of such security resulting from such part of the registration statement, with respect to which his lia- bility is asserted, not being true or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading, such portion of or all such damages shall not be recoverable. In no event shall any underwriter (unless such underwriter shall have knowingly received from the issuer for acting as an underwriter some benefit, directly or indirectly, in which all other underwriters similarly situated did not share in proportion to their respective interests in the underwrit- ing) be liable in any suit or as a consequence of suits authorized under subsection (a) of this section for dam- ages in excess of the total price at which the securities underwritten by him and distributed to the public were offered to the public. In any suit under this or any other section of this subchapter the court may, in its discretion, require an undertaking for the payment of the costs of such suit, including reasonable attorney’s fees, and if judgment shall be rendered against a party litigant, upon 75a Securities Act of 1933 the motion of the other party litigant, such costs may be assessed in favor of such party litigant (whether or not such undertaking has been required) if the court believes the suit or the defense to have been without merit, in an amount sufficient to reimburse him for the reasonable ex- penses incurred by him, in connection with such suit, such costs to be taxed in the manner usually provided for tax- ing of costs in the court in which the suit was heard. (f) Joint and several liability All or any one or more of the persons specified in sub- section (a) of this section shall be jointly and severally - liable, and every person who becomes liable to make any payment under this section may recover contribution as in cases of contract from any person who, if sued sep- arately, would have been liable to make the same payment, unless the person who has become liable was, and the other was not, guilty of fraudulent misrepresentation. (g) Offering price to public as maximum amount recov- erable In no case shall the amount recoverable under this sec- tion exceed the price at which the security was offered to the public. § 12, 15 U.S.C. § 771 (1976) § 771. Civil liabilities BE in connection with prospec- tuses and communications Any person who— (1) offers or sells a security in violation of section 77e of this title, or 76a Securities Act of 1933 (2) offers or sells a security (whether or not ex- empted by the provisions of section 77c of this title, other than paragraph (2) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate com- merce or of the mails, by means of a prospectus or oral communication, which includes an untrue state- ‘ment of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exer- cise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such se- curity, or for damages if he no longer owns the security. § 13, 15 U.S.C. § 77m (1976) §77m. Limitation of actions No action shall be maintained to enforce any liability created under section 77k or 771(2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under sec- tion 771(1) of this title, unless brought within one year after the violation upon which it is based. In no event 77a Securities Act of 1933 shall any such action be brought to enforce a liability created under section 77k or 77/(1) of this title more than three years after the security was bona fide offered to the public, or under section 77/(2) of this title more than three — years after the sale. § 16, 15 U.S.C. § 77p (1976) §77p. Additional remedies The rights and remedies provided by this subchapter shall be in addition to any and all other rights and remedies that may exist at law or in equity. § 17, 15 U.S.C. § 77q (1976) §77q. Fraudulent interstate transactions (a) Use of interstate commerce for purpose of fraud or deceit It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly— (1) to employ any device, scheme, or artifice to de- fraud, or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. 78a Securities Act of 1933 (b) Use of interstate commerce for purposes of offering for sale It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to pub- lish, give publicity to, or circulate any notice, circular, ad- vertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a considera- tion received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such considera- tion and the amount thereof. (c) Exemption of section 77¢ not applicable to this section The exemptions provided in section 77c of this title shall not apply to the provisions of this section. es re z ea 79a Securities Exchange Act of 1934 § 9, 15 U.S.C. § 78i (1976) | § 78i. Manipulation of security prices (a) Transactions relating to purchase or sale of security It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national se- curities exchange, or for any member of a national secu- rities exchange— (1) For the purpose of creating a false or mislead- ing appearance of active trading in any security regis- tered on a national securities exchange, or a false or misleading appearance with respect to the market for any such security, (A) to effect any transaction in such security which involves no change in the beneficial own- ership thereof, or (B) to enter an order or orders for the purchase of such security with the kncwledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different par- ties, ér (C) to enter any order or orders for the sale of any such security with the knowledge that an order or orders of substantially the same size, at substan- tially the same time, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties. (2) To effect, alone or with one or more other per- sons, a series of transactions in any security regis- tered on a national securities exchange creating actual or apparent active trading in such security or raising my 80a Securities Exchange Act of 1934 or depressing the price of such security, for the pur- - pose of inducing the purchase or sale of such security by others. (3) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to puchase the security, to induce the purchase or sale of any security registered on a national securities exchange by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall be- cause of market operations of any one or more persons conducted for the purpose of raising or depressing the prices of such security. (4) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to pu- chase the security, to make, regarding any security registered on a national securities exchange, for the purpose of inducing the purchase or sale of such secu- rity, any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which he knew or had reasouable ground to believe was so false or misleading. (5) For a consideration, received directly or indi- rectly from a dealer or broker, or other person selling or offering for sale or purchasing or offering to pur- chase the security, to induce the purchase or sale of any security registered on a national securities ex- change by the circulation or dissemination of informa- tion to the effect that the price of any such security will or is likely to rise or fall because of the market (b) 8la Securities Exchange Act of 1934 operations of any one or more persons conducted for the purpose of raising or depressing the price of such security. (6) To effect either alone or with one or more other persons any series of transactions for the purchase and/or sale of any security registered on a national securities exchange for the purpose of pegging, fixing, or stabilizing the price of such security in contraven- tion of such rules and regulations as the Commission may prescribe as necessary or appropriate in the pub- lic interest or for the protection of investors. Transactions relating to puts, calls, straddles, or options It shall be unlawful for any person to effect, by use of any facility of a national securities exchange, in contra- vention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors— (1) any transaction in connection with any security whereby any party to such transaction acquires any put, call, straddle, or other option or privilege of buying the security from or selling the security to another without being bound to do so; or (2) any transaction in connection with any security with relation to which he has, directly or indirectly, any interest in any such put, call, straddle, option, or privilege; or (3) any transaction in any security for the account of any person who he has reason to believe has, and who actually has, directly or indirectly, any interest pate rt 82a Securities Exchange Act of 1934 in any such put, call, straddle, option, or privilege with relation to such security. (c) Endorsement or guarantee of puts, calls, straddles, or options . It shall be unlawful for any member of a national securi- ties exchange directly or indirectly to endorse or guarantee the performance of any put, call, straddle, option, or privi- lege in relation to any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (d) Registered warrant, right, or convertible security not included in “put”, “call”, “straddle”, or “option” The terms “put”, “call”, “straddle”, “option”, or “privi- lege” as used in this section shall not include any registered warrant, right, or convertible security. (e) Persons liable; suits at law or in equity Any person who wilfully participates in any act or trans- action in violation of subsections (a), (b), or (c) of this section, shall be liable to any person who shall purchase or sell any security at a price which was affected by such act or transaction, and the person so injured may sue in law or in equity in any court of competent jurisdiction to recover the damages sustained as a result of any such act or transaction. In any such suit the court may, in its dis- cretion, require an undertaking for the payment of the costs of such suit, and asse=3 reasonable costs, including reasonable attorneys’ fees, against either party litigant. 83a Securities Exchange Act of 1934 Every person who becomes liable to make any payment under this subsection may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. No action shall be maintained to enforce any liability cre- ated under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation. § 10, 15 U.S.C. § 78j (1976) § 78j. Manipulative and deceptive devices It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange— (a) To effect a short sale, or to use or employ any stop- loss order in connection with the purchase or sale, of any security registered on a national securities exchange, in contravention of such rules and regulations as the Commis- sion may prescribe as necessary or appropriate in the pub- lic interest or for the protection of investors. (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipu- lative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may pre- scribe as necessary or appropriate in the public interest or for the protection of investors. ae - uy Securities Exchange Act of 1934 § 18, 15 U.S.C. § 78r (1976) § 78r. Liability for misleading statements (a) Persons liable; persons entitled to recover; defense of good faith; suit at law or in equity; costs, ete. Any person who shall make or cause to be made any state- ment in any application, report, or document filed pursuant to this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as pro- vided in subsection (d) of section 780 of this title, which statement was at the time and in the light of the cireum- stances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. A person seeking to enforce such liability may use at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an under- taking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys’ fees, against either party litigant. (b) Contribution Every person who becomes liable to make payment under this section may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. 85a Securities Exchange Act of 1934 (c) Period of limitations No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the couse of action and within three years after such cause of action accrued. & oe 7 § 28(a), 15 U.S.C. § 78bb(a) (1976) §78bb. Effect existing law (a) The rights and remedies provided by this chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity; but no person permitted to maintain a suit for damages under the provisions of this chapter shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained of. Nothing in this chapter shall affect the jurisdiction of the securities commission (or any agency or officer performing like fune- tions) of any State over any security or any person insofar as it does not cou.lict with the provisions of this chapter or the rules and regulations thereunder. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1588%3A1. Public record. Not legal advice.