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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1981
- **Citation:** 454 U.S. 838

## Text

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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2387%3A1. Public record. Not legal advice.