Petition — Industrial Consultants, Inc. v. H. S. Equities, Inc.

peers © oo.

Office Supreme Court, U.S.

FILED

80-2221 JUL 2 1981

Ho. : ALEXANDER L. STEVAS,

LENT Se RAR ENS REL NRE nt

IN THE

Supreme Court of the United States

OCTOBER TERM, 1980

INDUSTRIAL CONSULTANTS, INC.,

Petitioner,

-against-

H.S. EQUITIES, INC.,

Respondent.

——

—

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

ZISSU, BERMAN, HALPER, BARRON

& GUMBINGER

Attorneys for Petitioner

450 Park Avenue

New York, New York 10022

(212) 371-3900

Ira M. Berman

Alan M. Epstein,

Of Counsel.

(11087)

QUESTIONS PRESENTED

1. Whether the courts below

failed to apply the federal rule of non-

retroactivity with respect to the

petitioner?

| 2. Whether the courts below

failed to apply the Oklahoma rule of non-

retroactivity with respect to the

petitioner?

ii

TABLE OF CONTENTS

Page

Opinion Below eeeeeeeneeeeeneeneeeneeeneeeneeeene

Jurisdiction. eeeeeeeeneeneneeeneneeeneeeeeee

Statement of FACUGc cccccecceveessseeoce

Jurisdiction BOSON So dics s 6 bas Seanes

on -& NN N

Reasons for Granting the Writ........

CORSE, b\0'a:6 6s C661 Ble Ee 6 oe eke wee

TABLE OF CITATIONS

Action for Children's Television v.

v. F.C.C., 564 F.2d 458

(D.C.CIx.1977) .cscccsecccceccceseeel6—

Ba v. Martin, 247 ‘P.404 18

la.l eeeeteeeeeeeeeeeeeeeneeeenene

Board of Com'rs of Pottawatomie Count

v. A.C.Davis & Sons, 86 P.2d 782

(CURR LOUNT ccbabareetsvanedeasoneeceal

Board of Equalization v. Tulsa Pythian

~Benev. Assoc., 158 P.2d 904

0 a. i366 00000 vO bCoub ce 60685

Chevron Oil Compan - Huson, 404 U.S.97

CITED vecc ccOs: WO, Ads tay 2, 28s

“tas v. City of Huma, 395 U.S.701

poseeserssevecetieovsecesecossine

iii

City of Ehoeni ys Arizona v. Kolodziejski,

99 U.S. RR Ne se ee a Se

DeMatteis v. Eastman Kodak, 520 F.2d

409 (24 Ton hn) NORTE DS Ey

Fidelity-Phoenix Fire Ins. Co. v.

Sen ick 401 P.2d 594 (Okla.1965)

baie tmebecbeoceataceal

Gibson v. Phillips University,

158 P.2d r@) a. ine aeee eens

Gordon v. Conner, 80 P.2d 322

0 ae SR en oe eae 8

Harness v. Meyers, 228 P.285

te RS se ae Pr |

Home Box Office, Inc. v. F.C.C.,

F. Discs Gat 2 2) Bmp

Jarchow v. Eder, 433 P.2d 942

(Okla. DUCT ose ocisontuendekeesd 23

Jerry Vogel Music Co. v. Fdaward B.Marks

Music Corps. 425 F.2d 834

Cir. UN ait a oa a re oe a Re

Kirk v. Rockwell International Corp.,

578 F.2q 614 (9th Cir. 1978)..... 16

Kramer v. Caribbean Mills, Inc.,

ee) Laan avcess 4% obdens 14

Lemon V. Kurtzman, 411 U.S.192 (1972)

Pere ee Peres | FF 17

Mid-Continent Casualty company v.

P & H Supply, Inc., 490 P. 1358

iv

(Okla. ho go eee Perr Ter eT ee ee |

Oklahoma County v. Queen City Lodge

No. 197, ist P.2d 340

(Okla. BOGGS an tanker oseskiveonbvesae

Rodrigue v. Aetna Casualty & Surety Co.,

Datla SOE SADE? vcdéics eodukvans 640

Sampson v. Union Oil of California,

U.S.13 (1969) (ue seen eb abeneceoas

State ex rel Comm. of Land Office v.

Keller, P.

La} meses OS ark 60.6 beso ee ee ene

State v. Board of County Com'rs. of

Creek County, 107? a 542

(Okla. 340%

re ee rey ee ee

Tehan v. United States, 382 U.S. 406

C6) cosccccccdcecvvcvececocccoscak

Tucker v. McCrory, 266 P.2d 433

(Ok1 1554)

0 a. FT I Pa Gy OT re

United States v. Estate of Donnelly,

U. * ASTER ics cbc tnediese ol

Wade v. Board of Com'rs. of Harmon

County 17 P.2d 690

r@) ng OT SE ea aa 22

Walton v. State, 565 P.2d 716

0 a. Cr. DUE cadescddnceesévedovae

Wolfe v. Phillips, 172 F.2d 481

th Cir. Webteebeceesecnreceone

Woods v. Phillips Pet. Co., 251 P2d 505

(Okla. CL eo cress os One as eee le

Hiri ght V. iser, 568 P.2d 1262

a. 1 stdeslievcocenehle 11,12, 23

Yarbrough v. Oklahoma Tax Commn.,

P. da 1017 (CLs LOST i's ccccvec dO

APPENDIX

United:.States Court of Appeals for

the Second Circuit Decision.......la

United States District Court

EE TE OE re nee by) |

IN THE

SUPREME COURT OF THE UNITED STATES

INDUSTRIAL CONSULTANTS, INC.,

Petitioners,

-against-

H.S. EQUITIES, INC.,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

The petitioner, H.S. Equities,

Inc., prays that a Writ of Certiorari

issue to review the opinion and judg-

ment of the United States Court of

Appeals for the Second Circuit rendered

on April 3, 1981.

OPINION BELOW

The opinion of the United

States Court of Appeals for the Second

Circuit, not yet officially reported

appears at Appendix A, infra, pp. la-

léa. The order of the United States

District Court for the Southern District

of New York, Griesa, J. not officially

reported,appears at Appendix A, pp. 17a-

29a.

JURISDICTION

The judgment of the United

States Court of Appeals for the Second

Circuit was entered on April 3, 1981.

See Appendix A pp. la-l6a. The

jurisdiction of this Court is invoked

under 28 U.S.C.§ 1254 (i).

RELATED STATUTES

Section 98 of Title 12 of the

Oklahoma Statutes at the time of the

accrual of the subject cause of action

provided:

"If, when a cause of action

accrues against a person, he

be out of the state, or has

absconded or concealed himself,

the period limited for the com- .:.

mencement of the action shall

not begin to run until he comes

into the state; or while he is so

absconded or concealed; and if,

after the cause of action accrues,

he depart from the state or

abscond, or conceal himself, the

time of his absence or conceal-

ment shall not be computed as

any part of the period within

which the action must be brought,

notwithstanding the provisions

of Title 12, §§141, 187 and

1701.01 to 1706.04, inclusive,

and title 47, §§391, 392 and

393 to 403, inclusive, of the

Oklahoma Statutes, or any other

statutes extending the exercise

of personal jurisdiction of

courts over a person or corpor-

ation based upon service outside

this state, or based upon

substituted service upon an

official of this or any other

state of nation."

STATEMENT OF FACTS

Petitioner, Industrial

Consultants, Inc. ("Industrial") is an

Oklahoma corporation. On February 6,

1970, representatives of H.S. Equities,

a New York Stock Exchange member firm,

then known as Hayden, Stone, Inc. met with

a group of Oklahoma investors in

Oklahoma City, one of whom was petition-

er's president, Jack Golson. The purpose

of the meeting was to induce the invest-

ors to become subordinate lenders to H.S.

Equities.

On March 13, 1970, petitioner

through its president, agreed to purchase

a subordinated debenture of H.S. Equities

in the amount of $720,000. The consid-

eration for the debenture was to be a

demand note secured by a pledge of

200,000 shares of the common stock of

L.S.B. Industries, Inc. (L.S.B.). Mr.

Golson executed the agreement and an

amended agreement in Oklahoma and also

delivered the promissory note in that

State. In April 1970, appellant deliver-

ed the L.S.B. stock to appellee in

New York.

At the end of April, 1970,

petitioner's president learned about

certain false and misleading represent-

ations which were made at the March 13,

1970 meeting. In negotiations that

followed, petitioner was able to substi-

tute $378,000 in cash for the L.S.B.

stock pledged as collateral. Petition-

er's demand note was called in August,

1970, and the cash collateral was applied

towards its payments.

Petitioner commenced this

action on March 11, 1976, alleging

common law fraud and violations of

section 17(a) of the Securities Act of

1933, 15 U.S.C. §77q(a), section 10(b) of

the Securities Exchange Act of 1934, 15

U.S.C. §78j3(b), and Rule 10b-5, 17 C.R.F.

§240.10b-5 (1980). The district court

entered an order on April 16, 1980 which

granted H.S. Equities’ motion for summary

judgment on the ground that the action

was barred by Oklahoma's two-year

statute of limitations. (See Appendix

pp.a 17-aa9.

Petitioner appealed and, on

April 3, 1981, the United States Court

of Appeals for the Second Circuit affirm-

ed the order of the district court. The

appellant court held that the Oklahoma

two year statute of limitations applied,

and further that the statute of limita-

tions was not tolled pursuant to a

tolling provision relied upon by the

petitioner but declared unconstitutional

by the Oklahoma Supreme Court in Wright

v. Keiser, 568 P. 2d 1262 (Okla. 1977)

one year after the instant action was

commenced.

JURISDICTION BELOW

The jurisdiction of the

district court was based upon Section 22

of the Securities Act of 1933, as amended,

15 U.S.C. §78v, Section 27 of the

Securities Exchange Act of 1934, as

amended, 15 U.S.C. §78aa and principles

of pendant jurisdiction.

REASONS FOR GRANTING THE WRIT

I. The Lower Courts Failed to Apply the

Federal Rule of Nonretroactivity.

In 1971, this Court in Chevron Oil

Company v. Huson, 404 U.S. 97 (1971)

reviewed the history of the doctrine of

nonretroactivity and set forth three

separate factors to be applied when decid-

ing cases dealing with nonretroactivity.

"First, the decision to be applied

nonretroactively must establish

a new principle of law, either

by overruling clear past precedent

on which litigants may have relied,

see e.g., Hanover Shoe, Inc. v.

United Shoe Machine Corp., supra,

-S., at 496, 33 FP ce, at

2233, or by deciding an issue of

first impression whose resolution

was not clearly foreshadowed, see,

e.g., Allen v. State Board of

Elections, supra, 393 U.S., at 572,

o, a 5. Second, it has

been stressed that ‘we must * * *

weigh the merits and demerits in

each case by looking to ‘the prior

history of the rule in question,

its purpose and effect and whether

retrospective operation will fur-

ther or retard its operation.'

Linkletter v. Walker, supra, 381

U.5., at 629, 55 5. ct., at 1738.

Finally, we have weighed the

inequity imposed by retroactive

application, for '[w]Jhere a dec-

ision of this Court could produce

substantial inequitable results

if applied retroactively, there

is ample basis in our cases for

avoiding the"injustice or hard-

ship" by a holding of nonretro-

activity.' Cipriano v. City of

supra, U.S., at /06,

of Houma

89 S. Ct., at 1900." Id. at 107

These three tests have been met by

the petitioner herein. The transaction

at issue took place in 1970. At that

time, and for sixty years prior thereto,

the law of the State of Oklahoma was that

a cause of action would not run against

a person or entity if the alleged wrong-

doer was outside the state. 12 Okla.

Stats. §98.

In response to the growing trend

of long-arm jurisdiction, see, e.g.

Jarchow v. Eder, 433 P. 2d 942 (Okla.1967)

(holding a defendant "present" if service

10

could be effected even outside the state)

the Oklahoma legislature amended section

98 through emergency legislation, see S.

Bill No. 558, ch. 76, §1, Regular Session

(Okla. 1970). This amendment nullified

the rationale of Jarchow. This new amnend-

ment remained unchallenged and uninter-

preted until 1977. Relying upon this

statute Petitioner commenced this action

in 1976. Fifteen months later the

Supreme Court of Oklahoma held that this

tolling provision was unconstitutional in

Wright v. Keiser, 568 P. 2d 19262 (Okla.

1977). Thus, the first test of Chevron

Oil is satisfied - the establishment

of new law overruling clear past prece-

dent. 404 U.S. 97 at 107.

The second prong of the Chevron

Oil three prong test deals with the hist-

ory and purpose of the prior rule and

whether retroactive application would be

11

useful. The prior history of the tolling

provision makes clear that the Oklahoma

legislature was seeking to protect its

citizens from the tortious acts within

the state by non residents by tolling the

statute of limitations so long as the

tortfeasor was not in the state. To

apply Wright v. Kesier, supra, retro-

actively would be contrary to the very

intent of the Legislature which sought

to protect the time within which resid-

ents could bring suit. Underscoring

this is the subsequent enactment by the

Oklahoma Legislature on March 26, 1980,

some three years after the Wright deci-

sion, of legislation codifying the

Wright rationale. Most persuasive is

effective date of this legislation -

October 1, 1980. If the Oklahoma legis-

lature wanted pre-existing cause of

action to be affected it would have made

12

the effective date, June 14, 1977, the

date when Wright v. Keiser was decided.

On the contrary, the effective date of

the legislation was in the future and

prospective.

The third prong of the test impos-

ed by this Court in Chevron Oil, requires

a litigant to show “injustice or hard-

ship" or “substantial inequitable results"

if retoractivity was applied. In the

matter at bar the petitioner's right to

bring suit would be retroactivity time-

barred. No greater hardship could be

imposed on this petitioner - denying it,

retroactively, the right and access to

seek redress of alleged wrongs.

The factual similarity between

Chevron Oil v. Huson and the matter at

bar hears mention. In Chevron Oil an

injured offshore oil driller brought suit

for damages sustained in 1965 in federal

district court in 1968. In 1969, this

13

Court held in Rodrigue v. Aetna Casualty

& Surety Co., 395 U.S. 352 (1969) that

the adjacent state's statute of limita-

tions and not the federal admiralty law

would apply to personal injury actions.

If the Rodrigue decision were given

retroactive effect the injured driller in

Chevron Oil - injured three years before

the Rodrigue decision and who commenced

suit more than one year before the

Rodrigue decision - would be time-barred

more than two years before the Rodrigue

case was ever decided. This Court recog-

nized this inequity and ruled that

Rodrigue should be applied prospectively.

So too for this petitioner - if Wright v.

Keiser is given retroactive effect, the

petitioner injured seven years before

Wright and who commenced suit more than

one year before Wright - would be time-

barred more than four years before Wright

14

was decided. This is clearly not a

rational or equitable result.

The failure of the Court of

Appeals below to even make reference to

this Court's holding in Chevron Oil v.

Huson, supra, is inexplicable. As this

Court acknowledged, the doctrine of non-

retroactivity is not new and first

appeared in decisions of the Supreme

Court more than a century ago in cases

involving nonconstitutional and civil

state law. Id. at 107; City of Phoenix,

Arizona v. Kolodziejski, 399 U.S. 212

(1970); United States v. Estate of

Donnelly, 397 U.S. 286 (1970); Simpson v.

Union Oil of Calif., 396 U.S. 13 (1969);

Cipriano v. City of Houma, 395 U.S. 701

(1969); Tehan v. United States, 382 U.S.

406 (1966); Jerry Vogel Music Co. v.

Edward B. Marks Music Corp., 425 F. 2d

834 (2d Cir. 1969); cf. Kramer v.

Caribbean Mills, Inc., 394 U.S. 823, 830

n. 12 (1969).

The vitality of the Chevron Oil v.

Huson decision is without question. A

most notable example can be seen in

Lemon v. Kurtzman, 411 U.S. 192 (1973)

wherein this Court ruled that payments

to non-public schools did not have to be

refunded despite a prior decision by the

Court in the same matter that such pay-

ments violated the First Amendment.

"Claims that a particular

holding of the Court should be

applied retroactively have been

pressed on us frequently in

recent years. Most often, we

have been called upon to decide

whether a decision defining new

constitutional rights of a

defendant in a criminal case

should be applied to convictions

of others that predated the new

constitutional development.

(citations omitted) But ‘in the

last few decades, we have recog-

nized the doctrine of non-retro-

activity outside the criminal

area many times, in both constitu-

tional and nonconstitutional

cases." Chevron Oil Co. v. Huson,

16

404 U.S. 97, 106, 92 S. Ct. 349,

355, 30 L. Ed. 2d 296 (1971);

Hanover Shoe v. United Shoe Machin-

e Corp., 392 U.S. 481, 88 S. Ct.

5550, 3 L. Ed. 2d 1231 (1968);

Simpson v. Union Oil Co., 377

UsBe 255 64. Bs COs EUSL,: 12

L. Ed. 2d 98 (1964); England v.

Louisiana State Board of Medical

Examiners, 375 U.S. 411, 84

S. Ct. 461, 11 L. Ed. 2d 440

(1964). . .. In each of these

cases, the common request was

that we should reach back to

disturb or to attach legal conseq-

uence to patterns of conduct

premised either on unlawful

statutes or on a different under-

standing of the controlling of

judge-made law from the rule that

ultimately prevailed. ...

Statutory or even judge-made rules

of law are hard facts on which

people must rely in making deci-

sions and in shaping their conduct.

This fact of legal life underpins

our modern decisions recognizing

a doctrine of nonretroactivity."

Id. at 197-199.

See also Kirk v. Rockwell International

Corp., 578 F. 2d 814 (9th Cir. 1978);

Home Box Office, Inc. v. F.C.C., 567

F. 2d 9 (D.C. Cir. 1977); Action for

Children's Television v. F.C.C., 564 F,

2d 458 (D.C. Cir. 1977); DeMatteis v.

17

Eastman Kodak, 520 F. 2d 409 (2d Cir.

1975).

The petitioner as an individual

was entitled to the same considerations

as the injured driller in Chevron Oil

and the nonpublic schools in Lemon v.

Kurtzman. If petitioner is given those

considerations a finding of nonretro-

activity would result.

18

II. The Lower Courts Failed to APPLY

Oklahoma Law of Nonretroactivity.

Under Oklahoma law, an accrued

cause of action or right to sue is a con-

stitutionally protected right. Mid-Con-

tinent Casualty Company v. P & H Supply,

Inc., 490 P. 2d 1358, 1361 (Okla. 1971).

Accordingly, a new statute of limitations

rule can be constitutionally applied to

accrued causes of action only if affected

parties are given a reasonable time to

bring suit. Wolfe v. Phillips, 172 F. 2d

481, 485 (10th Cir. 1949); Tucker v.

McCrory, 266 P. 2d 433, 434-35 (Okla.

1954); Woods v. Phillips Pet. Co., 251

P. 2d 505 (Okla. 1952). This rule applies

whether the change in the stataute of

limitations occurred by statutory or con-

stitutional interpretation or by amendment

by the legislature. As the Oklahoma

Supreme Court noted in Bagby v. Martin,

« 247 P.

There,

19

404, 406 (Okla. 1926):

"The law of our state is defined

by statute to be the Constitu-

tion, the statutes, and common

law as modified by judicial

decisions. A judicial construct-

ion of a statute by the Supreme

Court of a state becomes a part

of the statute, and operates on

property and personal rights

with the same degree of force as

an unambiguous statute, which

does not require judicial

construction."

the Supreme Court further noted:

"As to whether a decision by the

highest appellate court of a

statute should be given retro-

active or prospective effect, the

Supreme Court of the United States

in the case of Douglas v. Pike

County, 101 U.S. 677, 25 L. Ed.

968, said:

‘The true rule is to give a change

of judicial construction in

respect to a statute the same

effect in its operation on

contracts and existing contract

rights that would be given to a

legislative amendment; that is to

say, make it prospective, but not

retroactive.'" Id. at 407.

The Oklahoma Supreme Court re-

affirmed the nontretroactive rule most

20

recently in the criminal area in Walton

v. State, 565 P.2d 716 (Okla. Cr. 1977)

where it stated:

"It is a general rule of law that

decisions of the highest court

overruling a prior decision are

prospective in application unless

specifically declared to have

retroactive effect. See Wrone v.

Page, Okla. Cr. 481 P. 2

1) and West v. State, Okla.

Cr. 503 P. 2d 221 (1972)."Id at

718.

Petitioner's cause of action

accruing in 1970, after §98 was amended

(see p.10 supra) was entitled to

constitutional protection until 1977.

This action having been commenced in 1976,

the suit was timely brought.

In State v. Board of County

Com'rs. of Creek County, 107 P. 2d 542

(Okla. 1940) the OklJahoma Supreme Court

held that when a court rules that a

statute is unconstituional the statute

is treated as voided ab initio. However,

21

the court then acknowledged that there

are “established exception[s] to this

general rule." Id. at 547.

Petitioner comes within a recog-

nized exception. One such exception

recognized by the Oklahoma Supreme Court

is the reliance by the affected party

upon the validity of the statute. Id. at

550-51. Illustrative is Board of Com'rs

of Pottawatomie County v. A. C. Davis &

Sons, 86 P. 2da782 (Okla. 1939) in which

A.C. Davis & Sons, architects, sued to

recover on claims for services rendered.

The Board of County Commissioners contend-

ed that the contract made with the archi-

tects was void because the statute author-

izing the appropriation of funds to pay

the architects was unconstitutional. The

Oklahoma Supreme Court held that such

defense would not be sufficent to destroy

the plaintiff's cause of action:

22

",...-The presumption is that a law

is constitutional until its un-

constitutionality is judicially

established (State ex rel. Cruse

v. Cease, 1911, 28 Okl. 271, 114

P. 251, Ann Cas. 1912D, 151) and

the [parties were] entitled to

rely on that stat ute as authority

for [the Board's] official acts

until such time as the statute was

declared unconstitutional or until

the Board was advised by the

proper official of its unconsti-

tutionality.

Id. at 783. Accord, Gordon v. Conner,

80 P. 2d 322 (Okla. 1938); Wade v. Board

of Com'rs of Harmon County, 17 P. 2d 690

(Okla. 1932).

Clearly, petitioner was entitled

to rely on the validity of the Oklahoma

tolling statute. Indeed, the Oklahoma

Supreme Court stated in Wright that

"[flor sixty years, this Court has held

that within the meaning of §98 (the

amendment was added to the original

statute adopted in 1910), a defendant was

out of the state only when he could not

23

be served." 568 P. 2d at 1264. With the

growth of long arm statutes and commenc-

ing in 1967, the Oklahoma Supreme Court

tried to limit the tolling effects of

Section 98 by Holding that the absence

of a defendant would not toll the statute

where the defendant could be served

despite physicial absence. See, e.g.

Jarchow v. Eder, 433 P. 2d 942 (Okla.

1967).

Unhappy with this trend, the

Oklahoma legislature amended Section 98

through emergency legislation (see S.

Bill No. 558, ch. 76, §1, Regular

Session (Okla. 1970)). It is this

statute that petitioner properly relied

upon. This new enactment remained

unchallenged for seven years and was

never interpreted in a reported decision

until Wright v. Keiser, 568 P. 2d 1262

(Okla. 1977). As noted by Vice Chief

24

Justice Lavendar, in his dissentin Wright:

This amendment made ineffective

the rational of Jarchow. Public

policy was expressed contra to

Jarchow by the legislative branch

of government. Tolling was allow-

ed under §98 based on one being

absent from the state, notwith-

standing amenability to service ,

and personal jurisdiction through

the ‘non-resident motorist act'

and the ‘long arm statute.'

568 P. 2d at 1268.

Petitioner commenced this action

in March, 1976, more than one (1) year

prior to Wright.

The Oklahoma Supreme Court has

applied the nonretroactivity rule for

Many years in a variety of factual

circumstances, where, such as here, a

recent decision represents a sharp change

in the law which would have severe impact

if applied retroactively. In Gibson v.

Phillips University, 158 P. 2d 901 (1949);

Board of Equalization v. Tulsa Pythian Benev.

Assoc., 158 P. 2d 904 (1949) the issue

25

was whether charitable organizations

could avoid a recent decision changing

the applicability of an ad valorem tax

after they purchased property. The

court held that the tax should be applied

prospectively because the decision repre-

sented a “sharp change in the rule of

taxable status of such properties."

158 P. 2d 902, 903; 158 P. 24 906. In

Oklahoma County v. Queen City Lodge No.

197, 156 P. 2d 340 (1945) the question

of taxation of real property owned and

partially occupied by the charity was

at issue. The court stated:

",...-the Qverruling of the three

decisions above referred to

constitutes a definite change in

the construction of an important

provision of our Constitution.

Though some courts and legal minds

differ, we find much respectable

authority to the effect that the

overruling decision may, in the

legal and equitable discretion

26

of the court, be made to operate

prospectively only. The rule is

almost universal in the protection

of property and contract rights.

We have heretofore adopted that

rule and practice in cases consid-

ered proper in Bagby v. Martin

118 Okl. 244, 247 P. 404, where

many authorities are cited. Id.

at 354.

The court thereafter at pages 355-358

discussed at great length the doctrine of

retroactivity and concluded not to apply

its ruling retroactively because of the

severe hardship which would ensue. To

the same effect are Yarbrough v. Okla-

homa Tax Comm., 193 P. 2d 1017 (Okla.

1947) [decision changing estate and

inheritance tax denied retrotactive

effect], State ex rel Comm. of Land

Office v. Keller, 264 P. 2d 742 (1953)

{nonretroactive application where right

to property acquired in foreclosure sale],

Harness v. Meyers, 228 P. 285 (1930)

{nonretroactive application as to proper

27

manner to appoint guardian] and Fidilety-

Phenix Fire Ins. Co. v. Penick, 401 P.

2d 514 (1965) [proper manner of service

upon foreign corporation not applied

retroactively].

Thus, under the law of Oklahoma,

petitioner's reliance upon the existing

law at the time this action was commenced

and the hardship which will ensue if

Wright v. Keiser is applied retroactively,

entitles petitioner to relief and to main-

tain this suit.

CONCLUSION

For the reasons stated above, a

Writ of Certiorari should issue to

review the Judgment and Opinion of the

United States Court of Appeals for the

Second Circuit.

28

Respectfully submitted,

ZISSU BERMAN HALPER

BARRON & GUMBINGER

Attorneys for Petitioner

450 Park Avenue

New York, New York 10022

(212) 371-3900

Ira W. Berman

Alan M. Epstein

Of Counsel

art

¥

la

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 410 - September, Term 1980

(Argued December 10, 1980)

(Decided March 31, 1981)

Docket No. 80-7364

INDUSTRIAL CONSULTANTS, INC., SARA L.

voss, As Trustee for W.B.VOSS, under

a Trust Agreement dated June 30, 1971

and WILLIAM SWISHER,

Plaintiffs,

and

INDUSTRIAL CONSULTANTS, INC.,

Plaintiff-Appellant,

pee

H.S. EQUITIES, INC., ALFRED J. COYLE,

DONALD R. STROBEN and NEW YORK STOCK

EXCHANGE, INC.,

Defendants,

H.S. EQUITIES, INC.,

Defendant-Appellee,

Before:

LUMBARD, MULLIGAN and VAN GRAAFEILAND,

Circuit Judges.

2a

Appeal from an order of the United

States District Court for the Southern

District of New York, Griesa, J., which

granted defendant's motion to dismiss

plaintiff's securities fraud action

because it was barred by the running of

Oklahoma's two year statute of limita-

tions. Affirmed.

IRA W. BERMAN, NEW YORK,

N.Y. (BERMAN & ZIVYAK,

NEW YORK, N.Y. of

Counsel), L. ZIVYAK and

JON M. PROBSTEIN, NEW

YORK, N.Y. on the brief,

for Plaintiff-Appellant.

PETER H. MORRISON, NEW

YORK, N.Y. (MORRISON,

PAUL & BEILEY, NEW YORK,

N.Y. of Counsel),

GERALD G. PAUL, NEW

YORK, N.Y. on the brief,

for Defendant-Appellee.

3a

VAN GRAAFEILAND, Circuit Judge:

This is an appeal from an order of

Judge Thomas Griesa of the United States

District Court for the Southern District

of New York. The order granted defend-

ant-appellee's (H.S. Equities, Inc.)

motion for summary judgment on the ground

that plaintiff-appellant's (Industrial

Consultants, Inc.) action seeking

damages for alleged securities fraud was

time-barred. Appellant contends that

the district court erred in applying

Oklahoma's two-year statute of limita-

tions, Okla. Stat. tit. 12,§ 95 (1971),

rather than New York's six-year statute,

N.Y. Civ. Prac. Law § 213 (McKinney 1972).

Assuming for the argument that the dis-

trict court was correct in looking to the

Oklahoma statute, appellant contends that

the court erred in following a decision

handed down by the Oklahoma Supreme Court

4a

one year after this action was begun.

The decision declared unconstitutional

certain provisions of the Oklahoma law

that would have tolled the running of the

limitations statute. Finding no merit in

either argument, we affirm.

There is no serious dispute as to the

facts. Appellant Industrial Consultants

is an Oklahoma corporation. All of its

shareholders, officers, and directors are

soubtents of that State, and its sole

place of business is in Oklahoma City.

On February 6, 1970, representatives of

H.S. Equities, a New York Stock Exchange

member firm, then known as Hayden Stone,

Inc. met with a group of Oklahoma invest-

ors in Oklahoma City, one of whom was

appellant's president. The purpose of

the meeting was to induce the investors

to become subordinate lenders to H.S.

Equities. Appellant contends that false

5a

and mislexding representations concerning

H.S. Equities' financial condition were

made at that meeting.

On March 13, 1970, appellant, through

its president, agreed to purchase a sub-

ordinated debenture of H.S. Equities in

the amount of $720,000. The considera-

tion for the debenture was to be a demand

note secured by a pledge of 200,000

shares of the common stock of L.S.B.

Industries, Inc. (L.S.B.). Appellant's

president executed the agreement and an

amended agreement in Oklahoma and also

delivered the promissory note in that

State. In April 1970, appellant deliver-

ed the L.S.B. stock to appellee in New

York.

Shortly thereafter, appellant's

president learned about the alleged mis-

representations. In negotiations that

followed, appellant was able to substi-

6a

tute $378,000 in cash for the L.S.B.

stock pledged as collateral. Appellant's

demand note was called in August, 1970,

and the cash collateral was applied

toward its payment.

Appellant commenced this action on

March 11, 1976, alleging common law fraud

and violations of section 17(a) of the

Securities Act of 1933, 15 U.S.C. §77q(a),

section 10(b) of the Securities Exchange

Act of 1934, 15 U.S.C. §78j(b), and Rule

10b-5, 17 C.F.R. §240.10b-5(1980. The

district court granted H.S. Equities' motion

for summary judgment on the ground that

the action was barred by Oklahoma's two-

year statute of limitations. This appeal

followed.

In arguing that New York's six-year

statute of limitations should apply,

appellant advances an argument twice

rejected by this Court. Arneil v. Ramsey,

7a

550 F.2d 774, 779-80 (2d Cir. 1977);

Sack v. Low, 478 F. 2d 360, 366-67

(2d Cir. 1973). These cases hold that in

securities fraud litigation the cause of

action for purposes of New York's borrow-

ing statute, N.Y. Civ. Pract. Law § 202

(McKinney 1972), accrues in the state

where the loss resulting from the misrep-

resentation was sustained. The New York

courts are in accord. Knieriemen v.

Bache, Halsey, Stuart, Shields, Inc.,

'

74 App. Div. 2d 290, 296, appeal dismis-

sed, 50 N.Y. 24 1021 (1980); see

Prefabco, Inc. v. Olin Corp., 71 App. Div.

2d 587, 588 (1978). Appellant, an Okla-

homa corporation with Oklahoma sharehold-

ers, entered into a purchase agreement in

Oklahoma and delivered its demand note in

that State. The district court did not

err in holding that appellant's loss was

sustained in Oklahoma and that its action

was governed by Oklahoma's two-year

statute.

Appellant's argument that its action

was kept alive by the tolling of the

Oklahoma statute was rejected by the

district court on the ground that the

tolling provisions upon which appellant

relied had been declared unconstitution-

al by the Oklahoma Supreme Court in

Wright v. Keiser, 568 P.2d 1262 (Okla.

1977). Appellant contends that the

district court erred in following Wright

‘because Wright was decided in 1977 and

this action was begun in 1976. We

disagree.

Until 1970, Oklahoma's statute of

limitations provided in substance that

if a person was out of the state when a

cause of action against him accrued, or

if he left thereafter, the statute would

not run against him during the time he

9a

was absent. For many years prior to 1970,

the Oklahoma Supreme Court had held

consistently that a defendant would be

treated as out of the state only when he

could not be served. Id. at 1264. The

statute would not be tolled if the

defendant could be served with process

upon which a personal judgment could be

rendered. Walker v. L.E. Meyers Con-

struction Co., 53 P. 2d 547, 548 (Okla.

1935). Oklahoma was not alone in so

holding. With the burgeoning of long-

arm statutes, a majority of the states

limited in a smilar manner the tolling

effect of absence from the state. Bond

v. Golden, 273 F.2d 265 (10th Cir. 1959);

Moore v. Dunham, 240 F.2d 198 (10th Cir.

1956); Scorza v. Deatherage, 208 F.2d

660 (8th Cir. 1954); Tublitz v.

Hirschfeld, 118 F.2d 29 (2d Cir. 1941).

See, Annot. Absence as Tolling Statute

10a

of Limitations, 55 ALR. 3d 1158 (1974).

In 1967, the Oklahoma Supreme Court

refused to toll the statute in an action

against a nonresident motorist upon whom

substitute service could have been made

under the State's Nonresident Motorist

Act, Okla. Stat. tit. 12, § 141 and

Okla. Stat. tit. 47, §§ 391-403. Jarchow

v. Eder, 433 P.2d 942 (Okla. 1967).

This holding apparently prompted the

Oklahoma legislature in 1970 to amend

section 98 of its statute of limitations

to make the out-of-the-state tolling pro-

visions applicable even where personal

jurisdiction of the absentee could be

obtained. See Wright v. Keiser, supra,

568 P.2d at 1268 (Lavender, V.C.J.,

dissenting) (quoting 1970 Okla. Sess.

Laws, ch. 76). In amending section 98,

the legislature opened the door to due

process and equal protection challenges

lla

under both the state and federal

constitutions.

Although there are decisions which

uphold the tolling of the statute of

limitations against absent defendants

despite the availability of long-arm

jurisdiction, see Hopkins v. Kelsey~

Hayes, Inc., 463 F. Supp. 539, 542 (D.N.J.

1978), aff'd, 628 F. 2d 801 (3rd Cir.

1980); Vaughn v. Deitz, 430 S.W. 2d

487, 490 (Tex. 1968), the Oklahoma

Supreme Court took a contrary position.

Justice Simms, writing for the majority

of the Court, said:

Absent resident defendants and non-

resident defendants are as amenable

to personal service, or its equiva-

lent, which will subject them to the

personal jurisdiction of our courts,

as are resident defendants.

No legitimate interest of this

State is furthered by denying non-

residents and those absent from the

State the defense of the bar of the

12a

statute of limitations and placing

them at a disadvantage vis a vis

residents.

The classifications of absent and

nonresident defendants inherent in the

statute, as amended, have no relation

to the purpose of the tolling

provision. We conclude that the

portion of the statute added by amend-

ment in 1970 is unconstitutional as

it creates classifications of liti-

gants which are palpably arbitrary.

568 P. 2d at 1265-66.

Justice Simms did not stop there,

however, he also said:

Obviously, in addition to its

equal protection infirmities, this

statutory provision, which denies

certain litigants the benefit of the

running of the statute of limitations,

raises serious questions of denial of

due process under our State

Constitution.

For the above and foregoing

reasons, the protion of 12 0.S. 1971,

§98, added by amendment in 1970, is

unconstitutional and the trial court's

judgment in that regard is affirmed.

Id. at 1267.

Appellant and appellee have argued at

length the question whether Wright should

be applied retroactively, each of them

proceeding on the assumption that a

l3a

decision concerning retroactivity would

determine both the equal protection and

due process issues in the instant case.

This assumption is based upon a miscon-

ception of the binding effect of Wright

on the district court.

The Oklahoma Supreme Court's holding

that the tolling provisions, which it

struck down, violated the due process

clause of the Oklahoma constitution was,

of course, binding upon the district

court. Cohen v. Beneficial Industrial

Loan Corp., 337 U.S. 541, 547 (1949);

Stolberg v. Board of Trustees for the

State Colleges, 541 F.2d 890, 894 (2d

Cir.), cert. denied, 429 U.S. 897 (1976).

If the district court looked only to the

state due process issue in deciding H.S.

Equities’ summary judgment motion, it

would have to consider whether the Okla-

homa court intended its holding in Wright

l4a

to be retroactive.

However, "a federalcourt [will] not

give effect, in either a diversity or

nondiversity case, to a state statute

that violates the Constitution of the

United States." Cohen v. Benefical

Industrial Loan Corp., supra, 337 U.S.

at 547. Accordingly, if that portion of

Wright which found a denial of equal

protection was correctly decided, it

makes no difference when that decision

was made; the district court could

follow its teachings.

The district court was not bound to

adopt the Oklahoma court's interpretation

1 Under Oklahoma law, when a statute is ruled

unconstitutional, it is void ab initio. State

v. Board of Commissioners, 107 P. 2d 542

ties are,

therefore, that if the Oklahoma Supreme Court

was asked to determine whether its holding

eo .

t was

15a

of federal constitutional principles,

even as applied to Oklahoma statutes.

United States v. Bedford, 519 F. 2d 650,

654 n.3 (3d Cir. 1975), cert. denied,

424 U.S. 917 (1976). On the other hand,

the state court's holding was “persuasive

authority", Bittaker v. Enomoto, 586 F.2d

400, 402 n.1 (9th Cir. 1978), cert.

denied, 441 U.S. 913 (1979), entitled to

"great respect", Joseph v. Blair, 482 F.

24 575, 579 n.4 (4th Cir.1973), cert.

denied, 416 U.S. 955 (1974); Smayda v.

United States, 352 F. 2d 251, 253 (9th

Cir. 1965), cert. denied, 382 U.S. 981

(1966). It was particularly persuasive

in the instant case, because it depended

in large part upon the Oklahoma Supreme

Court's intimate knowledge of the opera-

tion of Oklahoma's long-arm statutes. We

are not prepared to say that the district

court erred in following the teaching

16a

of the learned Oklahoma court.

The order appealed from is affirmed.

17a

APPENDIX

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

-— Xx

INDUSTRIAL CONSULTANTS, INC.,

SARAH L. VOSS, As Trustee for

* 76 Civ.

W.B. VOSS Under a Trust Agree-: 1196

ment dated June 30, 1971, and :

WILLIAM SWISHER, :

Plaintiffs, OPINION

Ve

HS EQUITIES, INC., ALFRED J.

COYLE, DONALD R. STROBEN and

NEW YORK STOCK EXCHANGE, INC.

Defendants.

GRIESA, J.

This is an action under Section

17(a) of the Securities Act of 1933, 15

U.S.C § 77a, Section 10(b) of the

Securities Exchange Act of 1934, 15

U.S.C. §784(b), and SEC Rule 10b-5,

17 C.F.R. § 240.10b-5.

There were originally three

plaintiffs -- Industrial Consultants,

18a

Inc. ("ICI"), Sarah L. Voss, and William

Swisher. Four defendants were named in

the complaint -- HS Equities, Inc. Alfred

J. Coyle, Donald R. Stroven, and New York

Stock Exchange, Inc.

HS Equities, Inc. was known as

Hayden, Stone Incorporated at the time of

the relevant events, and will be referred

to in this opinion as “Hayden, Stone."

The claims as to plaintiffs Voss

and Swisher were disposed of at an earl-

ier stage. Defendants Coyle and Stroben

were never served. The claim against the

New York Stock Exchange was dropped.

; The claims remaining to be dispos-

ed of are those of ICI against Hayden,

Stone.

Hayden, Stone has moved for

summary judgment dismissing the complaint

as time barred. The motion is granted.

The action was commenced on March

19a

11, 1976. The cause of action accrued

no later than May 30, 1970. I hold that

a two-year Oklahoma statute of limita-

tions is applicable and bars this action.

I.

The relevant facts are as follows.

In February 1970 representatives of

Hayden, Stone visited Oklahoma City and

met with a group of persons known to

Hayden, Stone through its investment

banking business. Hayden, Stone request-

ed the Oklahoma group to lend Hayden,

Stone $20 million worth of securities.

The group of potential lenders retained

an Oklahoma City attorney, who sent

Hayden, Stone a letter of intent dated

February 6, 1970. The letter of intent

listed the potential lenders, one of whom

was Jack E. Golsen. It was indicated

that Golsen would lend stock of LSB

Industries, Inc. worth $750,000. Golsen

20a

is the principal of plaintiff ICI,

although at this stage he was listed in

the documents in his individual name..

A Loan Agreement dated Feburary 24,

1970 was signed by Hayden, Stone and by

various proposed lenders, including

Golsen. The lenders signed the agree-

ment in Oklahoma City. Hayden, Stone

signed it in New York.

In early March 1970, representa-

tives of the lenders and Hayden, Stone

renegotiated the agreement, in light of

the fact that the then form of the agree-

ment had been rejected by the New York

Stock Exchange.

A modified arrangement was worked

out. The papers submitted on the present

motion contain a form of agreement dated

March 13, 1970.

The actual agreement relating to

Golsen and the LSB shares is not part of

2la

the record on the present motion. The

complaint in this case, and the motion

papers, speak of the party in interest as

being the corporation, ICI, rather than

the individual, Golsen. The precise form

of agreement, according to the motion

papers, was that ICI purchased a_ sub-

ordinated debenture of Hayden, Stone in

the principal amount of $720,000, paid

for by a demand note, which was secured

by 210,000 shares of LSB stock.

The Golsen/ICI agreement was sign-

ed in Oklahoma by the lender and in New

York by Hayden, Stone.

ICI is an Oklahoma corporation and

has its sole place of business in Okla-

homa. Jack E. Golsen, the principal of

IcI, is a resident of Oklahoma. All of

the directors and shareholders of ICI are

residents of Oklahoma.

In April 1970 the 210,000 shares of

22a

LSB stock were delivered to Hayden

Stone in New York.

Apparently other lenders, aside

from ICI, executed the March 13, 1970

agreements and provided securities to

Hayden, Stone.

At the end of April, Golsen

traveled to New York to attend a meeting

at Hayden, Stone. Golsen states in an

affidavit that at this time he found

out that Hayden, Stone was in dire

financial straits and that Hayden,

Stone's prior representations regarding

its financial condition and future

earnings were false. Negotiations in

New York ensued, for the purpose of

revising the March 13 agreements and

keeping Hayden, Stone alive.

Apparently revisions to the March

13, 1970 agreements were arrived at. The

record on the present motion contains

23a

little information about these revisions,

except for the fact that, on June 30,

1970, Golsen delivered to Hayden, Stone

a check for $378,000 in exchange for the

210,000 shares of LSB. The agreement for

the substitution of cash for the stock

was arrived at in New York. The

delivery of the check in exchange for the

stock took place in New York. The check

was drawn on an ICI account at Franklin

National Bank in New York City.

The complaint in this action

alleges misrepresentation by Hayden,

Stone leading to the March 13, 1970

agreement with ICI. ICI requests damages

in the amount of “not less than $362,000"

According to ICI's response to Interroga-

tory 50 of Hayden, Stone, the damages are

calculated by taking the $378,000 cash

payment and deducting $16,000 in interest

which had been paid on the subordinated

24a

debenture by Hayden, Stone.

II.

Since there is no federal limita-

tion governing the federal securities

law claims, the state statute of limita-

tions must be used. The state statute

of limitations obviously also governs

the common law fraud claim.

It is necessary to look first to

the New York “borrowing" statute,

C.P.L.R. §202, which provides in

pertinent part:

"An action based upon a cause

of action accruing without the

state cannot be commenced after

the expiration of the time limited

by the laws of either the state or

the place without the state where

the cause of action accrued,. .. "

The issue under this statute is framed

by the contention of Hayden, Stone that

the cause of action accrued in Oklahoma,

where a two-year limitation would apply,

and by the opposing contention of ICI

25a

that the cause of action accrued in New

York, where a six-year limitation would

apply.

The Oklahoma statute referred to

is 12 Oklahoma Statutes Annotated §95,

which biowides in pertinent part:

"Civil actions other than for

the recovery of real property can

only be brought within the follow-

ing periods, after the cause of

action shall have accrued, and

not afterwards:

x eeek tk

Third. Within two (2) years:. ..

an action for relief on the

ground of fraud -- the cause of

action in such case shall not be

deemed to have accrued until the

discovery of the fraud."

The relevant New York statue is C.P.L.R.

§213(9), which provides:

"The following actions must be

commenced within six years:

x keekreek kt

9. an action based upon fraud;

the time within which the action

must be commenced shall be computed

from the time the plaintiff or the

26a

person under whom he claims dis-

covered the fraud, or could with

reasonable diligence have dis-

covered it."

The federal decisions in this

circuit make it clear that in a securi-

ties fraud case the place where the cause

of action accrues is the place where the

injury is suffered -- that is, where

the economic impact of the fraud is felt,

which is normally the plaintiff's resi-

dence. Sack v. Low, 478 F. 2d 360, 366

(2a Cir. 1973); Arneil v. Ramsey, 550

F.2d 774, 779 (2d Cir. 1977); Bache

Halsey Stuart Inc. v. Namm, 446 F. Supp.

692 (S.D.N.Y. 1978); Posner v. Merrill

Lynch, Pierce, Fenner & Smith, Inc.,

1979 Fed. Sec. L. Rep., CCH ¥ 96,843

(S.D.N.Y¥. 1979).

I hold that the cause of action of

ICI accrued in Oklahoma. The facts in

the present record demonstrate this

27a

sufficiently to justify summary judgment.

As already stated, ICI is incorporated in

Oklahoma and has its only place of busi-

ness in Oklahoma. The principal of

ICI, Jack E. Golsen, is an Oklahoma

businessman. It is perfectly clear that

the economic impact of the loss of ICI's

investment in Hayden, Stone was felt by

ICI and Golsen in Oklahoma. It is true

that certain negotiations took place in

New York, and that the delivery of the

stock and the subsequent delivery of the

$378,000 took place in New York, and

that the check for the latter amount was

drawn on a New York bank. These circum-

stances, however, in no way indicate that

the basic economic injury was not felt in

Oklahoma, where ICI and Golsen were

located. I do not read the discussion in

Sack v. Low, supra at 368, as requiring

a contrary result on the facts in this

28a

case.

Plaintiff relies to some extent on

Paragraph 11 of the March 13 agreement

which provides:

"This Agreement shall be

construed and enforced in accord-

ance with the laws of the State

of New York."

However, this is not an action to con-

strue or enforce the agreement. It is

an action for misrepresentation, governed

mainly by federal securities law.

Paragraph 11 is not applicable in the

present case.

This means that the Oklahoma two-

year statute of limitations governs. This

statute provides for accrual when dis-

covery of the fraud occurs. It is con-

ceded that discovery of the fraud occur-

red in 1970. This was more than two

years before the commencement of this

action in 1976. Thus the action is

29a

barred by the Oklahoma statute.

An argument has been made based

upon 12 Oklahoma Statutes Annotated § 98,

which provides in effect that, if a cause

of action accrues against a person who is

outside of the state, the period for

commencement of the action shall not

begin to run until he comes into the

state. However, this statute has been

delcared unconstitutional by the Okla-

homa courts. Wright v. Keiser, (District

Court, Oklahoma City, 1975), aff'd, 568

P.2d 1262 (Okla. 1977).

For the foregoing reasons the

complaint is dismissed.

So ordered.

Dated: New York, New York

April 14, 1980

/s/

THOMAS P. GRIESA

U.S.D.J.