Petition for Writ of Certiorari — Harris v. Sentry Corp.
Supreme Court brief1987
Ask Donna
What actually matters in this document.
Text
86 - -1314 ——---—
Dt ) vit
1. sA0Q7
eB ¢ 18
In THE FES
Supreme Court of the Gnited States coe |
Octoser TERM, 1986
——
———
ETHEL R. HARRIS, as Trustee under the
Trust Agreement dated March 1, 1973, et al.,
Petitioners,
Vv.
THE SENTRY CORPORATION and
SNE CORPORATION,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Rosert L. GraHamM
Laura A. KastTer *
JENNER & BLOCK
One IBM Plaza
Chicago, Tllinois 60611
(312) 222-9350
Attorneys for Petitioners
Of Counsel:
Brapy C. WILLIAMSON
Brett A. THompson
LAFoutiette & Sinykry
222 West Washington Avenue
Suite 300
Madison, Wisconsin 53701-2719
(608) 257-3911 :
* Counsel of Record
Midwest Law Printing Co., Chicago 60611, (312) 321-0220
i
QUESTION PRESENTED
In Walker v. Armco Steel Corp., 446 U.S. 740, 751 n.11
(1980), this Court specifically reserved the question whether
Rule 3 of the Federal Rules of Civil Procedure is a toll-
ing provision for a statute of limitations borrowed from
state law in a cause of action based on federal law.
After Walker, a conflict in the Circuits developed. This
case presents the following question: whether, in light of
the Fifth Circuit’s directly conflicting ruling in Checki v.
Webb, 785 F.2d 534 (5th Cir. 1986), the Seventh Circuit
erred by holding that the filing of a federal cause of ac-
tion under Rule 3 tolls a borrowed state statute of limita-
tions which mandates both filing and service of process
within the limitations period.
il
PARTIES TO THE PROCEEDINGS
IN THE COURT OF APPEALS
In the Seventh Circuit, The Sentry Corporation and the
SNE Corporation were plaintiffs-appellants. The peti-
tioners in this Court are identical to the defendants-
appellees in the Seventh Circuit; they are all the indi-
vidual shareholders of Harris-Crestline Corporation on
October 30, 1981:
ETHEL R. HARRIS, as Trustee under Trust Agreement
dated March 1, 1973; ETHEL R. HARRIS, Successor Trustee
under Mortimer B. Harris Trust Agreement dated De-
cember 26, 1979; JEANNE HARRIS HANSELL; HELEN
HARRIS BRANDT; MARY HARRIS MARKS; WILLIAM M.
REDFIELD; NANCY BARRY; NANCY JO BARRY, as Cus-
todian for Anita Barry, a Minor under the Idaho Uniform
Gifts to Minors Act; NANCY JO BARRY, as a Custodian
for Julie E. Barry, a Minor under the Idaho Uniform Gifts
to Minors Act; NANCY JO BARRY, as a Custodian for
Michelle Barry, a Minor under the Idaho Uniform Gifts
to Minors Act; NANCY JO BARRY, as a Custodian for
Phillip Barry, a Minor under the Idaho Uniform Gifts to
Minors Act; NANCY JO BARRY, as a Custodian for Sean
Patrick Barry, a Minor under the Idaho Uniform Gifts
to Minors Act; MICHELLE BARRY; EDWARD S. SEIM;
PHILLIP BARRY; BONNIE DWYER, as a Custodian for
Richard J. Dwyer, a Minor under the Illinois Uniform
Gifts to Minors Act; BONNIE DWYER, as a Custodian
for Sheila Marie Dwyer, a Minor under the Illinois Uni-
form Gifts to Minors Act; BONNIE DWYER, as a Cus-
todian for Kristy Dwyer; BONNIE DWYER, as a Cus-
todian for Robert P. Dwyer; HERB DWYER; BONNIE
DWYER; DANIEL L. GRAY, as a Custodian for Jean Ann
Gray, a Minor under the Illinois Uniform Gifts to Minors
Act; DANIEL L. GRAY, as a Custodian for Karen Gray,
a Minor under the Illinois Uniform Gifts to Minors Act;
ill
DANIEL L. GRAY, as a Custodian for Thomas J. Gray,
a Minor under the Illinois Uniferm Gifts to Minors Act:
JOSEPHINE GRAY; MARY GRIMES, as a Custodian for
Anna M. Grimes, a Minor under the Uniform Gifts to Minors
Act; MARY GRIMES, as a Custodian for John Grimes, a
Minor under the Uniform Gifts to Minors Act; MARY
GRIMES, as a Custodian for Mary E. Grimes, a Minor
under the Uniform Gifts to Minors Act; MARY GRIMES,
as a Custodian for Kathleen Grimes, a Minor under the
Uniform Gifts to Minors Act; MARY GRIMES, as a Cus-
todian for Therese Grimes, a Minor under the Uniform
Gifts to Minors Act; MARY GRIMES, as a Custodian for
William Grimes, a Minor under the Uniform Gifts to
Minors Act; MARY GRIMES, as a Custodian for Michelle
F. Grimes, a Minor under the Uniform Gifts to Minors
Act; THOMAS J. MANEY, as Trustee under the Anne
Mary Riordan Trust dated January 2, 1973; THOMAS J.
MANEY, as Trustee under the Mary T. Riordan Trust dated
June 28, 1972; THOMAS J. MANEY, as Trustee under the
Patrick Jogues Riordan Irrevocable Trust; THOMAS J.
MANEY, as Trustee under the Thomas L. Riordan Trust
dated June 28, 1972; LORRAINE McCAHILL, as Cus-
todian for Mary Jo McCahill; LORRAINE McCAHILL,
as Custodian for William F.X. McCahill; THOMAS E.
McCAHILL, JR. and MRS. LORRAINE McCAHILL, as Joint
Tenants with the Right of Survivorship and not as Tenants
in Common; SANDRA PRENDERGAST; LAWRENCE T.
RIORDAN; VIRGINIA A. RIORDAN; LOUISE B. MYERS;
WAYNE HUMMER & CO. by PHILIP M. BURNO; DANA
LYNN HARRIS, by THOMAS NEW HARRIS, her guar-
dian; ELLEN D.A. HARRIS: HELAN N. HARRIS, as Ex-
ecutor of the Will of Francis L. Harris, deceased; HELEN
H. HARRIS; JODY LEIGH HARRIS, by THOMAS NEW
HARRIS, her guardian; JULIET M. HARRIS; KEITH W.
HARRIS; KENNETH A. HARRIS; KENNETH A. HARRIS,
JR.; LYNN HARRIS MERLO; S.H. HARRIS; HELEN M.
WILLNER; THOMAS NEW HARRIS; JANE STADELMAN
BARNES; EVELYN E. STADELMAN; LEONA T. STADEL-
MAN; and LYNN A. STADELMAN.
1V
TABLE OF CONTENTS
QUESTION PRESENTED .......0.scscce0se
PARTIES TO THE PROCEEDINGS
IN THE COURT OF APPEALS ...........
TABLE OF AUTHORITIES .................
bogie 8 eee rr. rT ee
PEE 6b 5 5 Kew kenevateeetansindens
RULES AND STATUTES INVOLVED ......
STATI OF Thee GABE .ccseccccscenns
The District Court’s Decision ............
The Seventh Cirecuit’s Decision ...........
REASONS FOR GRANTING THE WRIT ....
3
THE SEVENTH CIRCUIT’S RULING CON-
FLICTS WITH THE FIFTH CIRCUIT'S DECI-
SION IN CHECKI v. WEBB ..............
A. Wilson v. Garciu And Johnson v. Rail-
way Express Agency, Inc. Support The
Fifth Circuit’s Decision That Rule 3 Does
Not Toll State Limitations Statutes
Which Require Service ..............
B. The Seventh Circuit’s Decision Conflicts
With This Court’s Decision In Walker v.
ee a rrr Tre
cht ff -& NW HW WW
10
V
Il.
THE SEVENTH CIRCUIT’S DECISION IM.-
PROPERLY COMPLICATES THE LIMITA-
TIONS RULES AND IS CONTRARY TO THE
GOAL OF INTRASTATE UNIFORMITY IN
THE APPLICATION OF LIMITATIONS STAT-
«Lage AEE EE PE ONS: sin
COURANT esac aschvidds pepe
APPENDIX A—Opinion of the United States
Court of Appeals for the Seventh Circuit .
APPENDIX B—Order of the United States
Court of Appeals for the Seventh Circuit
Denying the Petition for Rehearing with
a Suggestion for Rehearing En Banc ..
APPENDIX C—Order and Decision of the
United States District Court for the West-
ern District of Wisconsin .............
s 14
Gs 17
vi
TABLE OF AUTHORITIES
Cases PAGE
Board of Regents v. Tomanio, 446 U.S. 478 (1980) . 12
Bomar v. Keyes, 162 F.2d 136 (2d Cir.), cert.
denied, 332 U.S. 825 (1947) ............... 10
Chardon v. Fumero Soto, 462 U.S. 650 (1983) ... 9
Checki v. Webb, 785 F.2d 534 (5th Cir. 1986) ... 8, 10
DelCostello v. Teamsters, 462 U.S. 151 (1983) ... 13, 15
Ellenbogen v. Rider Maintenance Corp., 794 F.2d
TOO Ghd Chr. TOUR cnc ctccccccvccdocbesecs 15
Gallon v. Levin Metals Corp., 779 F.2d 1439 (9th
Cr, WORD oc civcccctssccactdunssauaeaeaes 15
Guaranty Trust Co. v. York, 326 U.S. 99 (1945) .. 12
Holmberg v. Armbrecht, 327 U.S. 392 (1946) .. 12
Howard v. Lockheed-Georgia Co., 742 F.2d 612
CREED GTR occ cccccnccowncsutgueunnes< 13, 14
Johnson v. Railway Express Agency, Inc., 421
Chas: GO CEDGEE eh iceacusovéonsnceethsves 5, 6, 9, 10
Lak v. Richardson-Merrell, 100 Wis.2d 641, 302
es & 8: | arr errs 13
Lyons v. Goodson, 787 F.2d 411 (8th Cir. 1986) .. 10
= v. ITT Continental Baking Co., 779 F.2d
§ 1166 (th Cir. 1965) ... 2... ccc ccccccccccees 15
Mohler v. Miller, 235 F.2d 153 (6th Cir. 1956) .. 10
Ragan v. Merchants Transfer & Warehouse Co.,
See UB. GED CGD cc ccdiceccvcecnsestuaces 12
vii
Schiavone v. Fortune, 106 S. Ct. 2379 (1986) .. 11, 14
Walker v. Armco Steel Corp., 446 U.S. 740 (1980) .
Ne ieewkaveakebndewus destsveseanseesaseus passim
West v. Conrail, 780 F.2d 361 (3d Cir. 1985), cert.
denied, 106 S. Ct.3293 (1986) .............. 15, 16
Wilson v. Garcia, 471 U.S. 261 (1985) ........
[exe MeCANUH Oke Ubheae0NRes09<K8kseb aus 5, 8, 9, 10, 14
Constitutional Provisions And Statutes
Rule 3 Federal Rules of Civil Procedure ..... passim
Rule 4(j) Federal Rules of Civil Procedure .. 3, 7,8, 11
Wis. Stat. Ann. § 551.595) (West 1982) ........ 2,3, 4
Wis. Stat. Ann. § 801.02(1) (West 1982) ........ 3,4, 5
Wis. Stat. Ann. § 893.02 (West 1982) .......... 3, 4,5
Oe I ee ees ees beatae ie 4
Pe A EE ad cca tickdunncaveva due oeecss i)
Pe ee isin iat ieee ccs va ok 2
Sy EE Ga chee ka Sikheeenddutdivak es 12
a I in ws Kh kG Raia ba bse koe kis 13
oe ences ti ile enL i a )
Other Authorities
4 C. Wright & A. Miller, Federal Practice and Pro-
comme § IOGT (IBGR) won ccc ancccccccccacee 11
In THE
Supreme Court of the Cited States
Octoser Trrm, 1986
ETHEL R. HARRIS, as Trustee under the
Trust Agreement dated March 1, 1973, et al.,
Petitioners,
Vs
THE SENTRY CORPORATION and
SNE CORPORATION,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Ethel R. Harris, as Trustee under the Trust Agreement
dated March 1, 1973, and all of the other individual
shareholders of Harris-Crestline Corporation on October
30, 1981,' respectfully petition for a writ of certiorari to
review the judgment of the United States Court of Appeals
for the Seventh Circuit.
supra.
me we
OPINIONS BELOW
———_—_——_——
The opinion of the United States Court of Appeals for
the Seventh Circuit is reported at 802 F.2d 229 and ap-
pears at App. 1.2 The order of the Uniied States Court
of Appeals for the Seventh Circuit denying the petition
for rehearing with a suggestion for rehearing en banc is
not reported and appears at App. 35. The order and opin-
ion of the United States District Court for the Western
District of Wisconsin is not reported and appears at App.
36.
JURISDICTION
——
The judgment of the court of appeals was entered on
September 16, 1986. The petition for rehearing with sug-
gestion for rehearing en banc was denied on November
12, 1986. The jurisdiction of this Court is invoked under
28 U.S.C. § 1254(1).
RULES AND STATUTES INVOLVED
———<——-
Wisconsin Uniform Securities Law, Wis. Stat. Ann.
§ 551.59(5) (West 1982) provides:
No action shall be maintained under this section
unless commenced before the expiration of three
2 “App.” refers to the Appendix to this Petition.
= a
years after the act or transaction constituting the
violation or the expiration of one year after the dis-
covery of facts constituting the violation, whichever
first expired.
Wis. Stat. Ann. § 893.02 (West 1982) provides:
An action is commenced, within the meaning of any
provision of law which limits the time for the com-
mencement of an action, as to each defendant, when
the summons naming the defendant and the complaint
are filed with the court, but no action shall be deemed
commenced as to any defendant upon whom service
of authenticated copies of the summons and complaint
has not been made within 60 days after filing.
Wis. Stat. Ann. § 801.02(1) (West 1982) provides:
A civil action in which a personal judgment is sought
other than certiorari, habeas corpus, mandamus or
prohibition, is commenced as to any defendant when
a summons and a complaint naming the person as
defendant are filed with the court, provided service
of an authenticated copy of the summons and of the
complaint is made upon the defendant under this
chapter within 60 days after filing.
Rule 3 of the Federal Rules of Civil Procedure provides:
A civil action is commenced by filing a complaint with
the court.
Rule 4) of the Federal Rules of Civil Procedure pro-
vides in relevant part:
If a service of the summons and complaint is not
made upon the defendant within 120 days after the
filing of the complaint and the party on whose behalf
such service was required cannot show good cause
why such service was not made within that period,
the action shall be dismissed as to that defendant
without prejudice upon the court’s own initiative with
notice to such party or upon motion... .
a
STATEMENT OF THE CASE
On October 30, 1981, the shareholders of Harris-Crestline
Corporation sold all of their stock to Sentry Corporation
(“Sentry”). On October 26, 1984, four days before the
third anniversary of the sale, Sentry filed this action in
the United States District Court for the Western District
of Wisconsin. Sentry charged the shareholders with a vio-
lation of section 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. §78(b), and with pendent Wisconsin
securities, fraud, and negligent misrepresentation claims
arising out of the sale.
Under Wisconsin law, in order to meet the applicable
limitations requirement, Sentry was required to file and
serve its complaint within three years of the date of sale
or, alternatively, it was required to file within three years
and serve within sixty days thereafter. Wis. Stat. Ann.
§§ 893.02, 801.02(1) (West 1982). Sentry did not comply.
Instead, Sentry waited to serve process until January 30,
1985 (App. 44)—over 90 days after filing its complaint.
Sentry has never explained its delay in affecting service.
The District Court’s Decision
The petitioners filed a motion to dismiss Sentry’s claims
on the grounds that Sentry had failed to meet the appli-
cable Wisconsin limitation requirements. The district court
granted the motion, ruling that because there is no appli-
cable federal limitations period, both Sentry’s federal
securities claim and its state securities claim are governed
by the three-year Wisconsin securities limitation statute.
Wis. Stat. Ann. § 551.59(5) (West 1982). (App. 43, 48.)
a ee
Recognizing that under Wisconsin law the service of
process requirement is an integral part of the limitations
statute, the district court held that, for purposes of the
Wisconsin securities limitations statute, an action is com-
menced when the filed complaint is served on the defen-
dant. Wis. Stat. Ann. §§ 893.02, 801.02 (West 1982). (App.
44.) The district court also held that the Wisconsin limita-
tions period may be tolled for up to 60 days after the
three-year period if the complaint is filed within the limita-
tions period and service is made within 60 days of filing
the complaint. Wis. Stat. Ann. § 893.02 (West 1982). (App.
44.) In light of the undisputed fact that Sentry served
its compiaint 30 days beyond the last day of the period
within which a securities suit may be brought under Wis-
consin law, the district court ruled that Sentry’s federal
and state securities claims were both barred by the Wis-
consin limitations statute. (App. 43, 44, 49-50.)
In reaching this result, the district court relied heavily
on two decisions of this Court, Wilson v. Garcia, 471 U.S.
261 (1985), and Johnson v. Railway Express Agency, Inc.,
421 U.S. 454 (1975). The district court cited this Court’s
recent approval of the rule that “ ‘the length of the limita-
tions period, and closely related questions of tolling and
application, are to be governed by state law.’”’ Wilson
v. Garcia, 471 U.S. at 269. (App. 45.) The district court
also relied on this Court’s analysis that, in borrowing a
limitations period, the federal courts should adopt the
value judgment of the state legislature which enacted the
statute, and must therefore employ all calculation provi-
sions which define the length of the period:
Any period of limitation ... is understood fully
only in the context of the various circumstances that
suspend it from running against a particular cause
of action. Although any statute of limitations is neces-
idles
sarily arbitrary, the length of the period allowed for
instituting suit inevitably reflects a value judgment
concerning the point at which the interests in favor
of protecting valid claims are outweighed by the in-
terests in prohibiting prosecution of stale ones. In
virtually all statutes of limitations the chronological
length of the limitation is interrelated with provisions
regarding tolling, revival, and questions of applica-
tion. In borrowing a state period of limitation for ap-
plication to a federal cause of action, a federal court
is relying on the State’s wisdom in setting a limit,
and exceptions thereto, on the prosecution of a closely
analogous claim.
Johnson v. Railway Express Agency, Inc., 421 U.S. at
463-64. (Quoted at App. 45.)
The Seventh Circuit’s Decision
The Seventh Circuit specifically recognized that it was
faced with a complex issue on which there was a conflict
among the Circuits. (E.g., App. 1, 33.) In a lengthy opin-
ion, it affirmed the district court judgment in part and
reversed in part. The Seventh Circuit recognized that the
district court’s rulings were correct on the applicable
Wisconsin limitations provision and on the integral nature
of the Wisconsin service requirement. (App. 2, 8, 13.)
Nevertheless, the Seventh Circuit ruled that Wisconsin
law requiring filing and service in order to toll the limita-
tions period was not controlling. (App. 33.) The Seventh
Circuit dismissed as dicta this Court’s statement in
Wilson v. Garcia requiring the borrowing of all rules that
affect the calculation of the limitations period, and held
that state calculation rules apply cnly when federal law
is silent. (App. 12.)
The Seventh Circuit recognized that this Court’s deci-
sion in Walker v. Armco Steel Corp., 446 U.S. 740 (1980),
oS
established that Rule 3 was not intended to be a tolling
provision. (App. 10, 25-29.) Nevertheless, the Seventh Cir-
cuit held that this Court’s explanation of its own intent
in drafting Rule 3 was limited to diversity cases and pen-
dent state claims, and that in all other federal cases in
which a state statute of limitations is borrowed the plain
meaning of Rule 3 was different—in federal question cases
Rule 3 was intended to affect the calculation of the limita-
tions periods. (App. 26, 28.)8
Despite the Seventh Circuit’s holding that in federal
question cases Rule 3 is a tolling provision, the Seventh
Circuit also held that Rule 3 is purely “procedural” and
not “substantive.” It based this conclusion on the rationale
that the tolling of the limitations period affects only the
“remedy” and does not achieve a “substantive objective’’
of federal law. (App. 9.)
The Seventh Circuit reversed the district court’s rul-
ing dismissing the federal securities count. At the same
time, however, the Seventh Circuit affirmed the district
court’s dismissal of the state securities claim, which turned
on the application of precisely the same Wisconsin limita-
tions statute. (App. 33-34.)
3 In addition to holding that Rule 3 is a tolling provision, the Seventh
Circuit noted that Rule 4(j) may also extend the limitations period.
(App. 7-8 n.7.)
~
REASONS FOR GRANTING THE WRIT
_ The ruling of the Seventh Circuit in this case—that Rule
3 acts as a tolling provision—directly conflicts with the
decision of the Fifth Circuit in Checki v. Webb, 785 F.2d
534 (5th Cir. 1986), and involves an issue specifically left
open by this Court in Walker v. Armco Steel Corp., 446
U.S. at 751 n.11. The Seventh Circuit’s ruling is also ir-
reconcilable with the principle expressed in Wilson v.
Garcia, 471 U.S. at 269, that when the federal courts
borrow state limitations periods, they adopt a state legis-
lative judgment and must therefore measure the period
in the way mandated by the state legislature.
As this Court recognized in Walker v. Armco Steel
Corp., limitations periods reflect a balance between the
plaintiff's right to sue and the defendant’s rights to repose
and to protection from stale claims. 446 U.S. at 751. The
federal courts borrow state legislatures’ evaluations of this
balance when federal statutes do not provide a limitations
period. The federal courts should not legislate by impos-
ing limitations periods which they independently decide
to be fair.
However, the Seventh Circuit did legislate here by ex-
tending the limitations period mandated by the Wisconsin
legislature by up to the four months allowed for service
under Rule 4(j). This ruling will have a radical impact on
the length of the limitations periods mandated by state
legislatures, affect the outcome of litigation, and foster
inconsistent applications of identical statutes.
In Wilson v. Garcia, 471 U.S. at 270, this Court ex-
pressly noted the need for clearly defined rules which will
foster uniform intrastate application of limitations rules.
™ i
stiles
This Court also cited with approval Justice Rehnquist’s
statement that “(flew areas of the law stand in greater
need of firmly defined easily applied rules than does the
subject of periods of limitations.’ Wilson v. Garcia, 471
U.S. at 266 (quoting Chardon v. Fumero Soto, 462 U.S.
650, 667 (1983) (Rehnquist, J., dissenting)). Thousands of
cases filed under federal statutes which have no limita-
tions provisions, including, for example, cases filed under
the federal securities acts, the Racketeer Influenced And
Corrupt Organizations Act, 18 U.S.C. § 1961, and section
1983 of the Civil Rights Acts, 42 U.S.C. § 1983, are af-
fected by the existing conflict among the Circuits on the
proper application of Rule 3.
The issue presented is well developed and urgent. It
was expressly noted and reserved for decision by this
Court in Walker v. Armco Steel Corp., 446 U.S. at 751,
n.11. This Court should issue a writ of certiorari to resolve
the conflict among the Circuits which has arisen since
Walker and to establish a uniform rule consistent with
this Court’s prior holdings.
I.
THE SEVENTH CIRCUIT’S RULING CONFLICTS WITH
THE FIFTH CIRCUIT’S DECISION IN CHECKI v. WEBB.
A. Wilson v. Garcia And Johnson v. Railway Express Agency,
Inc. Support the Fifth Circuit’s Decision That Rule 3
Does Not Toll State Limitations Statutes Which Require
Service.
In Wilson v. Garcia, a federal civil rights action in
which a borrowed state limitations statute applied, this
Court stated that “‘ ‘the length of the limitations period,
and closely related questions of tolling and application, are
to be governed by state law.’”’ 471 U.S. at 269. This
Court has also repeatedly stated that: “ijn virtually all
ee ee
=
statutes of limitations the chronological length of the
limitations period is interrelated with provisions regarding
tolling, revival, and questions of application.”’ Johnson v.
Railway Express Agency, Inc., 421 U.S. at 464, quoted
in Wilson v. Garcia, 471 U.S. at 269 n.17.
Following this analysis, the Fifth Circuit held, in Checki
v. Webb, 785 F.2d at 536, that, in section 1983 cases, Rule
3 does not toll borrowed limitations statutes which require
service of process. Contra, Lyons v. Goodson, 787 F.2d
411 (8th Cir. 1986).4 Checki properly follows Wilson v.
Garcia’s direction that, once an analogous state limitations
period is chosen, “federal law incorporates the state’s
judgment on the proper balance between policies of repose
and substantive policies of enforcement embodied in the
state cause of action.” 471 U.S. at 271.
The direct conflict among the Circuits over the proper
interpretation of Rule 3 should be resolved by this Court.
The uncertainty perpetuated by these conflicting rulings
should be eliminated.
B. The Seventh Circuit’s Decision Conflicts With This
Court’s Decision In Walker v. Armco Steel Corp.
The Seventh Circuit’s decision is bottomed on its holding
that Rule 3 was intended to be a tolling provision in non-
diversity cases. Under the Seventh Circuit’s syllogism, if
Rule 3 is a tolling provision, it is a directly controlling
federal rule and supersedes state law. (App. 7.) However,
this syllogism is false, because its central premise is
4 In two cases which antedate Wilson v. Garcia, the Second and
Sixth Circuits held that filing under Rule 3 tolls the borrowed
limitations statute. Mohler v. Miller, 235 F.2d 153, 155 (6th Cir.
1956); Bomar v. Keyes, 162 F.2d 136, 140 (2d Cir.), cert. denied,
332 U.S. 825 (1947).
a
squarely contrary to this Court’s holding in Walker v.
Armco Steel Corp., 446 U.S. 740 (1980), that Rule 3 is
not a tolling provision.
Walker was a diversity case which, as the Seventh Cir-
cuit recognized, is ‘‘virtually indistinguishable” from this
case. (App. 25.) In Walker, the complaint was filed within
the limitations period but served four months later. Under
the applicable Oklahoma statute, the action was not “com-
menced”’ for purposes of the limitations statute until ser-
vice of summons upon the defendant. 446 U.S. at 742. In
Walker, as in this case, the action would have been
deemed “commenced”’ within the period if the complaint
had been filed within the limitations period and if the
defendant had been served within sixty days of filing. 446
U.S. at 740.
In Walker, this Court expressly rejected the contention,
at the heart of the Seventh Circuit’s ruling, that Rule
3 was intended to affect the calculation of limitations
periods:
Rule 3 simply provides that an action is commenced
by filing the complaint and has as its primary pur-
pose the measuring of time periods that begin run-
ning from the date of commencement; the rule does
not state that filing tolls the statute of limitations.
Walker, 446 U.S. 750, n.10. (quoting 4 C. Wright & A. Miller,
Federal Practice and Procedure § 1057, p. 191 (1969).5 The
plain meaning of Rule 3 cannot vary from case to case.
The cathe Circuit’s ruling is patently unsound.
* Similarly in Schiavone v. Fortune, 106 S. Ct. 2379, 2385 (1986),
this Court rejected the contention that Rule 4 had any effect on
limitations statutes: ‘“‘Rule 4 deals only with process.” Id.
= =
The Seventh Circuit compounded its erroneous interpre-
tation by holding that Rule 3 is “procedural” because it
affects only the remedy. This ruling directly conflicts with
this Court’s repeated holdings that, because limita*ions
statutes can bar recovery, they are vital substantive rules.
See, e.g., Guaranty Trust Co. v. York, 326 U.S. 99, 109
(1945); Ragan v. Merchants Transfer & Warehouse Co.,
337 U.S. 530 (1949); see also Board of Regents v.
Tomanio, 446 U.S. 478, 484 (1980). (“In § 1983 actions,
_..a state statute of limitations and the coordinate toll-
ing rules ... are binding rules of law.”) If Rule 3 acts
as a tolling provision, it has a substantive impact.®
In Walker, this Court reserved precisely the question
raised here: whether Rule 3 might be applied to affect
borrowed state limitations periods or federal limitations
periods. Walker, 446 U.S. at 751, n.11. However, nothing
in Walker suggests that the plain meaning of Rule 3 differs
from case to case. On the contrary, this Court recognized
in Walker that in a diversity case Rule 3 determines only
when a suit is commenced. The filing of a suit may affect
6 The Seventh Circuit’s erroneous characterization of procedure
and substance is also demonstrated by its misplaced reliance on
Holmberg v. Armbrecht, 327 U.S. 392 (1946). In Holmberg, which
involved a borrowed state limitations statute, the Court reasoned
that there is a supervening federal policy which requires federal
courts to toll limitations periods in fraud cases where a diligent
plaintiff has been prevented from discovering the fraud. See
Guaranty Trust v. York, 326 U.S. at 105-106. Holmberg would sup-
port the Seventh Circuit's paveag es | if Rule 3 reflects a substan-
tive federal tolling policy, see of Regents v. Tomanio, 446
U.S. at 487-88, a proposition which Walker rejected, and which
would render Rule 3 vulnerable to challenge under the Rules
Enabling Act which provides in relevant part that the federal
rules: “shall not abridge, enlarge, or modify any substantive right
... .” 28 U.S.C. § 2072 (1982).
=
the calculation of the limitations period only when ser-
vice of process is not integral to a iimitations period.?
This is the analysis adopted by the Eleventh Circuit in
Howard v. Lockheed-Georgia Co., 742 F.2d 612 (11th Cir.
1984) (per curiam). In Howard, the court held that, under
the federal limitations statute borrowed from section 10(b)
of the National Labor Relations Act, the failure to serve
a federal complaint for a breach of a duty of fair repre-
sentation within the six month period of limitations de-
feated the claim.* The court relied on the Walker rationale
that Rule 3 establishes only that an action is “commenced” —
not that the limitations period is tolled by the filing of
the complaint. /d. at 613. Therefore, if the federal limita-
tions statute requires only that the action be brought or
commenced, Rule 3 defines when it is brought. But if
the limitations statute requires both filing and service,
service is required to toll the limitations period. Jd. at
614.9
In Walker, this Court specifically recognized that, as a
matter of policy, a legislature may require notice to the
defendant by service of process within a fixed limitations
period:
The statute of limitations establishes a deadline after
which the defendant may legitimately have peace of
mind; it also recognizes that after a certain period
7 Under Wisconsin law, the running of the limitations period extin-
guishes the right of action. Lak v. Richardson-Merrell, 100 Wis.2d
641, 302 N.W.2d 483 (1981).
8 In DelCostello v. Teamsters, 462 U.S. 151 (1983), this Court held
section 10(b) of the National Labor Relations Act, 29 U.S.C.
§ 160(b), applied to this type of hybrid federal claim.
® There is a conflict among the Circuits on the construction of
section + of the NLRA in these cases, which is discussed below,
at p. 15.
scallion
of time it is unfair to require the defendant to at-
tempt to piece together his defense to an old claim.
A requirement of actual service promotes both those
functions of the statute.
Walker, 446 U.S. at 751 (emphasis added).'°
The rule in Howard is clear and properly harmonizes
the Walker decision with the cases which apply Rule 3
to statutes that have no service requirement. If a legis-
lature determines that service within the limitations period
is required, that legislative determination is controlling.
If the legislature does not express any intent, Rule 3
governs the time of the commencement of the suit and
for calculating the limitations period.
THE SEVENTH CIRCUIT'S DECISION IMPROPERLY
COMPLICATES THE LIMITATIONS RULES AND IS CON-
TRARY TO THE GOAL OF INTRASTATE UNIFORMITY
IN THE APPLICATION OF LIMITATIONS STATUTES.
Firmly defined and easily applied limitations rules are
needed in order to assure the effective administration of
justice. In Wilson v. Garcia, this Court recognized that
when limitations statutes are borrowed, there can never
be nationwide uniformity. The Court therefore elected to
follow a rule which wonld ensure that limitations statutes
were applied uniformly within each state. 471 U.S. at 275.
1© Both filing and service may also be required under some cir-
cumstances in federal cases. For example, under Rule 1c), the
initial complaint must be both filed and served upon a defendant
within the limitations period in order that the amended complaint
may relate back to that defendant. Schiavone v. Fortune, 106 S.
Ct. 2379 (1986).
es
The Seventh Circuit’s decision in this case creates the
very anomaly this Court denounced; it has established con-
flicting applications of limitations statutes. Under the
Seventh Circuit’s decision, the Wisconsin securities claim
was held to be untimely and was dismissed, while the fed-
eral securities claim—which was governed by the same
borrowed Wisconsin limitations statute—was held to be
timely and was not dismissed.
When litigants bring suit under the securities acts, the
civil rights acts, and numerous other federal statutes
which require the federal courts to borrow state statutes
of limitations, they need to have uniform and simple rules
to apply. It makes no sense for the federal courts to borrow
the state limitations period and then perform radical surgery
on its term by adding up to four months to the time
period the state legislature chose. The Seventh Circuit’s
analysis undercuts the borrowed legislative judgment.
In West v. Conrail, 780 F.2d 361 (3d Cir. 1985), cert.
granted, 106 S. Ct. 3293 (1986), this Court accepted cer-
tiorari to resolve the division among the Circuits on the
application of section 10(b) of the National Labor Rela-
tions Act to breach of duty of fair representation claims."!
Because the issue in West v. Conrail may be limited to
a construction of this Court’s decision in De/Costello v.
Teamsters, 462 U.S. 151 (1983), or to resolving the in-
‘1 West v. Conrail adopts the rule that the service oye pogo)
of section 10(b) applies, and filing does not toll running of the limi-
tations period. Accord, Gallon v. Levin Metal Corp., 779 F.2d 1439
(9th Cir. 1986); contra, Ellenbogen v. Rider Maintenance Corp.,
794 F.2d 768, 772 (2d Cir. 1986) (the date of filing controls because
section 10(b) of the NLRA is not a true limitations period); Macon
v. [TT Continental Baking Co., 779 F.2d 1166 (6th Cir. 1985) (the
service requirement of section 10(b) was designed for administra-
tive proceedings only).
Ss
terplay between two federal provisions, Rule 3 and sec-
tion 10(b), this Court’s decision is not likely to resolve
the issue squarely presented by this Petition. There is
an urgent need for guidance on the application of Rule
3 to borrowed state limitations statutes. This Court should
grant certiorari to resolve the conflict in the Circuits by
addressing the issue specifically reserved in Walker, 446
U.S. 751 at n.11., and to establish a clear and uniform
rule.
In the alternative, if this Court anticipates that West
v. Conrail may address whether Rule 3 tolls state limita-
tions statutes, it should defer ruling on this Petition pend-
ing the decision in West v. Conrail.
ait.
CONCLUSION
A large number of litigants are affected by the existing
conflict over the application of Rule 3 to borrowed state
limitations periods. There is a pressing need to clarify and
simplify the law. The Petition for Certiorari should be
granted. In the alternative, this Court should defer ruling
on this Petition pending the decision in West v. Conrail.
Respectfully submitted,
Ropert L. GRAHAM
Laura A. KasTer *
JENNER & BLOCK
One IBM Plaza
Chicago, Illinois 60611
(312) 222-9350
Attorneys for Petitioners
Of Counsel:
Brapy C. WILLIAMSON
Brett A. THOMPSON
LAFo.uetreE & SINYKIN
222 West Washington Avenue
Suite 300
Madison, Wisconsin 53701-2719
(608) 257-3911 * Counsel of Record
APPENDIX
TABLE OF CONTENTS
TO APPENDIX
Opinion of the United States Court of Appeals
for the Seventh Circuit, September 16, 1986 .
Order of the United States Court of Appeals
for the Seventh Circuit Denying Petition for
Rehearing and Suggestion for Rehearing E'n
Bane, November 12, 1966 ..............
Order and Opinion of the United States District
Court for the Western District of Wisconsin,
ORT BO, Se 6s se ccacthnaececas
PAGE
App. 1
App. 35
App. 1
IN THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
No. 85-2824
SENTRY CORPORATION and SNE CorPoRATION,
Plaintiffs-Appellants,
Vv.
ETHEL R. HARRIS, as Trustee Under
Trust Agreement dated March 1, 1973, et al.,
Defendants-A ppellees.
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 84-C-855-C—Barbara B. Crabb, Judge.
ARGUED May 28, 1986—DeEcIDED SEPTEMBER 16, 1986
Before CUDAHY and RIPPLE, Circuit Judges, and
SWYGERT, Senior Circuit Judge.
SWYGERT, Senior Circuit Judge. This is yet another in
a long line of cases in which the courts have sought with
enormous difficulty to unravel the complexities created
by Congress’ failure to provide statutes of limitations to
govern all federal causes of action. In this case the plain-
tiffs appeal from an order of the district court dismissing
their federal securities claim as barred by the applicable
state statute of limitations. The district judge held that
when a federal court borrows a state statute of limitations
to apply to a federal cause of action it must also borrow
App. 2
those provisions relating to when the action is commenced
and when service of process must be effectuated to toll
the statute of limitations. We affirm in part, reverse in
part, and remand for further proceedings.
I
The facts of this case, relevant to the issue presented
on appeal, are not in dispute. The plaintiffs, Sentry Cor-
poration and SNE Corporation, brought a federal 10b-5
securities claim, alleging that the defendants, Ethel R.
Harris, as Trustee under Trust Agreement dated March
1, 1973, et al., had defrauded them in the sale of the stock
of the Harris-Crestline Corporation. To that federal claim,
the plaintiffs appended various state law claims. The plain-
tiffs’ cause of action accrued on October 30, 1981, the date
on which the stock purchase agreement containing the al-
leged misrepresentations was executed. The plaintiffs filed
their complaint on October 26, 1984 and served the defen-
dants with the complaint on January 30, 1985, ninety days
later.
The defendants moved to dismiss the action on the ground,
inter alia, that it was barred by the statute of limitations.
Below both parties agreed that 10b-5 actions, which do
not have their own federal limitations period, are gov-
erned by the most analogous state statute of limitations.
See Sperry v. Barggren, 523 F.2d 708, 710 n.1 (7th Cir.
1975).1 Both parties also agreed that Wis. Stat. § 551.595)
1 Several commentators have argued that such an action should
be governed by one of the express limitations periods in the
Securities and Exchange Act because a 10b-5 action is judicially-
implied, not expressly provided for by Congress. See, e.g., Note,
A Cry for Help: The Ninth Circuit and the Statute of Limitations
in Rule 10b-5 Actions, 22 UCLA L. Rev. 947, 950-51 (1975) and
authorities cited therein. They argue that as a result, it cannot
be assumed that the congressional failure to set a limitations
period means that Congress intended the courts to look to state
law. Cf. DelCostello v. International Brotherhood of Teamsters,
462 U.S. 151 (1983) (judicially-implied cause of action subject to
(Footnote continued on following page)
App. 3
(1983), which was in effect at the time of the allegedly
fraudulent transaction and which provided for a limitations
period of three years, governed. The parties disagreed,
however, whether state or federal law governed the ques-
tions of when the action was “commenced” for purposes
of the statute of limitations and if and when service of
process had to be completed in order to toll the statute
of limitations.
Relying on recent Supreme Court civil rights cases, see
Wilson v. Garcia, 471 U.S. 261, 105 S. Ct. 1938 (1985);
Chardon v. Fumero Soto, 462 U.S. 650 (1983); Board of
Regents of University of New York v. Tomanio, 446 U.S.
478 (1980); Johnson v. Railway Express Agency, Inc., 421
U.S. 454 (1975), and a diversity case, Walker v. Armco
Steel Corp., 446 U.S. 740 (1980), the district judge held
that the issue of when the action was “commenced” should
be governed by state law. She observed that under Wis-
consin law, an action is “commenced” when the complaint
is filed and the defendant is served with a copy of the
complaint. See Wis. Stat. § 893.02 (1983). The district judge
also observed that the plaintiff is given some leeway if
he fails to serve the complaint within the applicable limita-
tions period, here three years. If the defendant is served
with a copy of the complaint within sixty days of filing,
even though service occurs outside the limitations period,
the action is deemed “commenced” as of the date of filing.
Wis. Stat. § 801.02 (1983). The district judge concluded that
this service limitation was an “integral part’’ of the Wis-
consin statute of limitations period. She noted that in this
1 continued
analogous federal, not state, limitations period). In addition, they
argue that because Congress did provide two express limitations
periods in the Act, it can be assumed that Congress would have
intended those provisions to cover all implied causes of action aris-
ing under the Securities and Exchange Act. Finally, they argue
that a 10b-5 implied cause of action is more analogous to private
rights of action expressly provided for in the Act than to state
securities claims, and therefore the Act’s express limitations
periods should govern.
App. 4
case the complaint was filed four days before the expira-
tion of the three-year limitations period, but service was
not made until Jan 30, 1985, thirty days after the
sixty-day grace sarod tad expired. She held that the ac-
tion was therefore not “commenced” under Wisconsin law
until January 30, 1985, more than three years after the
cause of action had accrued, and it was therefore barred.
The district Judge also dismissed the pendent claims under
United Mine Workers of America v. Gibbs, 383 U.S. 715
(1966), which holds that dismissal of the federal question
claim prior to any lengthy pretrial proceedi uires,
absent extraordinary circumstances, dismi of all pen-
dent claims.
Il
Our analysis of the present case begins with two pre-
liminary observations. First, in cases involving federal
rights for which Congress has expressly provided a federal
limitations period, Fed. R. Civ. P. 3 directly governs the
issue of when an action is commenced for statute of limita-
tions purposes, unless Congress has expressly provided
otherwise. See ly 4 C. Wright & A. Miller, Federal
Practice and edure § 1056, at 177 (1969) and cases
cited therein. The Supreme Court has held that when a
federal rule (promulgated by the Court pursuant to the
Rules Enabling Act) directly applies, its validity is to be
tested under the Rules Enabling Act, 28 U.S.C. § 2072
(1982).2 Hanna v. Plumer, 380 U.S. 460, 463-64, 470-71 (1965).
2 The Rules Enabling Act provides:
The Supreme Court shall have the power to prescribe by
general rules, the forms of process, writs, pleadings, and mo-
tions, and the practice and procedure of the district courts and
courts of appeals of the United States in civil actions, including
admiralty and maritime cases, and appeals therein, and the
practice and procedure in proceedings for the review by the
courts of appeals of decisions of the Tax Court of the United
States and for the judicial review or enforcement of orders
of administrative agencies, boards, commissions, and officers.
* * *
(Footnote continued on following page)
App. 5
The test to be applied is whether the rule “abridge{s],
enlarge{s] or modifies) any substantive right.” This test
applies in both diversity and non-diversity actions.’ See,
e.g., Chesny v. Marek, 720 F.2d 474, 479-80 (7th Cir. 1983),
rev'd on other grounds, ___. U.S. ___., 105 S. Ct. 3012
(1985); see also Ely, The Irrepressible Myth of Erie, 87
Harv. L. Rev. 693, 737 n.226 (1974). To date, no court
has ruled that, in the context of non-diversity cases
verned by express federal limitations periods, Fed. R.
iv. P. 3 violates the Rules Enabling Act, 28 U.S.C.
§ 2072, and hence cannot be applied.‘
Second, in cases involving a federal right for which there
is no express limitations period, federal courts ordinarily
borrow state limitations periods. They are not compelled
to do so, however. Although the Supreme Court early on
appeared to adhere to the view that the Rules of Deci-
sion Act, 28 U.S.C. § 1652 (1982),5 compelled the applica-
2 continued
Such rules shall not abridge, enlarge, or modify any substan-
tive right and shall preserve the right of trial by jury as at
common law and as declared by the Seventh Amendment to
the Constitution.
28 U.S.C. § 2072 (1982).
% Hanna also calls for consideration of whether the rule, if ap-
plied, would be beyond the power of Congress under the Constitu-
tion. It is too obvious to merit extended discussion that Congress
could constitutionally prescribe when federal causes of action are
deemed commenced for purposes of the statute of limitations.
* In Bomar v. Keyes, 162 F.2d 136, 141 (2d Cir. 1947), cert.
denied, 332 U.S. 825 (1948), the court, speaking through Judge
Learned Hand, found that in cases such as the one at bar, Fed. R.
Civ. P. 3 does not violate the Rules Enabling Act. See also DiVer-
niero v. Murphy, 635 F. Supp. 1531 (D. Conn. 1986) (implicitly
i the same result) (“However, Rule 3 promulgated pursuant
to the Rules Enabling Act, 28 U.S.C. § 2072, does provide federal
law sufficient to determine when a suit brought under section 1983
is commenced for statute of limitations purposes.’’).
5 The Rules of Decision Act provides:
The laws of the several states except where the Constitu-
tion or treaties of the United States or Acts of Congress other-
(Footnote continued on following page)
App. 6
tion of a state law (and therefore state limitations periods)
where federal law was silent, see McCluny v. Silliman,
28 U.S. 270, 277 (1830), the Court su uently modified
its view. See, e.g., Holmberg v. Armbrecht US. 392,
394 (1946); Board of County Commissioners v. United
States, 308 U.S. 343, 347-50 (1939); Campbell v. Haverhill,
155 U.S. 610, 614-15 (1895). In each of those cases, the
Court made clear that the Rules of Decision Act did not
compel the application of state law in federal causes of
action, even thee federal law was silent. The Court re-
cently reaffirmed that conclusion in Wilson, 471 U.S. at
___, 105 S. Ct. at 1944 & n.22; DelCostello v. Interna-
tional Brotherhood of Teamsters, 462 U.S. 151, 159-60 n.13
(1983); Occidental Life Ins. Co. v. EEOC, 432 U.S. 355,
367 (1977); Johnson, 421 U.S. at 465, noting that there
is only a presumption in favor of the application of state
law and that the federal courts still retain discretion to
fill gaps in federal statutory law by formulating federal
common law or by looking to other analogous law.* See
5 continued
wise require or provide, shall be regarded as rules of deci-
sion in civil actions in the courts of the United States, in cases
where they apply.
28 U.S.C. § 1652 (1982).
6 When the gap in the federal statutory law is the lack of an
express limitations period, the federal courts traditionally have not
exercised their discretion to formulate a limitations period. See
DelCostello, 462 U.S. at 151 (Even though the Sunk rn
found that state limitations periods unduly burden federal
it did not formulate a federal limitations period; rather, it
on express limitations periods found in another analogous federal
statute.). The reason for this is that the courts have
that legislatures, not courts, are the ; oy formulators of
arbitrary rules such as limitations pe e.g., Campbell v.
Haverhill, 155 U.S. 610 (1895); see ; oie Note, A Limitation on
Actions, 68 Colum. L. Rev. 763, 771 (1981); Note, Limitation Bor-
rowing in Federal Courts, 77 Mich. L. Rev. 1127, 1131 (1979).
As one commentator has observed, however, the courts are “less
hesitant to create uniform federal rules governing subsidiary issues
related to the process of applying state statutes of limitations, such
as tolling, characterization of the cause of action and definition of
(Footnote continued on following page)
App. 7
also American Pipe & Construction Co. v. Utah, 414 US.
538, 556 n.27 (1974). It is beyond cavil, however, that state
law is only applied when there is no valid federal law di-
rectly governing the issue. See, e.g., Hanna, 380 U.S. at
465. And even when state law is applied, it becomes a
part of the federal law and retains no independent sig-
nificance. See Wilson, 471 U.S. at __, 105 S. Ct. at
1943. |
The question presented for review in the instant case
then is whether Fed. R. Civ. P. 3, which directly controls
when an action is commenced in cases involving federal
rights expressly governed by federal limitations periods,
directly controls when an action such as the one at bar
is commenced. If it does control this issue, it must be ap-
plied notwithstanding contrary state law, unless, of course,
it violates the Rules Enabling Act’s prohibition inst
rules that would modify, abridge, or enlarge any substan-
tive rights of the parties.
We now hold that Fed. R. Civ. P. 3 governs when cases
such as the one at bar are commenced for statute of lim-
itations purposes and that this rule is a valid exercise of
the Supreme Court’s rulemaking authority.? We therefore
® continued
the time of accrual.” Special Project, Time Bars in Specialized
Federal Common Law: Federal Rights of Action and State Stat-
utes of Limitations, 65 Cornell L. Rev. 1011, 1055 (1980); accord
Note, Federal Statutes Without Limitations Provisions, 53 Colum.
L. Rev. 68, 72 (1953) (‘The failure of a federal statute to provide
a limitations period is difficult to remedy by judicial action, but
the courts are well situated to write federal iaw on the subsidiary
issues involved in the limitation of actions.”).
7 In so doing, we need not reach the =, other argument
that Fed. R. Civ. P. 4(j) directly controls when service of process
must be effectuated to toll the limitations period. The plaintiffs
clearly served the complaint within the 120-day period and thus
the issue does not arise whether a are failure to comply with
both Fed. R. Civ. P. 3 and 4(j) should result in a dismissal for
untimeliness.
(Footnote continued on following page)
App. 8
find that it should be applied regardless of whether Wis-
consin’s service requirement is an integral provision of
Wisconsin’s statute of limitations.
There does not appear to be much dispute that Fed.
R. Civ. P. 3 “passes muster” under the Rules Enabling
Act. As the Court in Hanna observed:
[T]he test must be whether a rule really regulates
procedure, . . . the judicial process for enforcing
rights and duties recognized by substantive law and
for justly administering remedy and redress for dis-
regard or infraction of them.
Id., 380 U.S. at 464 (quoting Sibbach v. Wilson & Co., 312 U.S.
1, 14 (1941)); see also Marek v. Chesny, __. U.S. ___., 105
S. Ct. 3012, 3031 (1985) (Brennan, J., dissenting). When,
as here, we are not “deal{ing] with a case in which the
limitation is annexed as a condition to the very right of
action created, . . . the statute of limitations is treated
as going to the remedy.” Bomar v. Keyes, 162 F.2d 136,
140-41 (2d Cir. 1947), cert. denied, 332 U.S. 825 (1947).
7 continued
We merely acknowledge that in federal question cases governed
by express limitations periods, Fed. R. Civ. P. 4G) might operate
as a tolling provision. See, e.g., Siegel, Supplementary Practice
Commentaries on Rule 4, 28 U.S.C.A. Fed. R. Civ. P. 1 to 11,
at C4-37 (West Supp. 1986); Walker, 1983 Amendments to Federal
Rules of Civil Procedure 4—Process Jurisdiction and Erie Prin-
ciples Revisted, 19 Wake Forest L. Rev. 957, 976-77 (1983). But
see 2 J. Moore & J. Luca, Moore’s Federal Practice, ¢ 4.46 at 4-574
(2d ed. 1986). It may not, however, operate as a tolling provision
in cases such as the one at bar. Compare Siegel, supra, at C4-37,
C4-31, with Walker, supra, at 978, and the Supreme Court has
apparently taken the view that at least in diversity actions, Fed.
R. Civ. P. 4(j) does not operate as a tolling provision. Schiavone
v. Fortune, ___. U.S. ___, ___; 106 S. Ct. 2379, 2385 (1986); see
also Morse v. Elmira Country Club, 752 F.2d 35 (2d Cir. 1984);
Siegel, supra, at C4-37. We further observe that the application
of Fed. R. Civ. P. 4(j) to a case such as the one at bar would
not have to meet the requirements of the Rules Enabling Act
because the rule was passed by Congress, not the Supreme Court.
Flaminio v. Honda Motor Co., 733 F.2d 463, 470 (7th Cir. 1984).
App. 9
The substantive federal right therefore is not abridged
by tolling the limitations period upon filing of the com-
plaint because tolling in this case merely affects the
remedy,® and is not “designed to achieve a substantive
objective—such as compliance with the . . . [securities
laws.]” Marek, __._ ~ U.S. at ___, 105 S. Ct. at 3031
(quoting Chesny, 720 F.2d at 479). Thus, at least in this
limited context, Fed. R. Civ. P. 3 is procedural both in
nature and as applied. Cf. Walker, The 1983 Amendments
8 In American Pipe & Construction Co. v. Utah, 414 U.S. 538
(1974), the Court held that in a case in which Congress had fur-
nished both the federal right and the limitations period the prop-
er test of whether a rule which tolls the statute of limitations im-
permissibly abridges a substantive right is “whether tolling the
limitation is consonant with the legislative scheme.” Jd. at 557-58.
See also Burnett v. New York Central R.R., 380 U.S. 424, 426-27
(1965). In American Pipe & Construction Co., the Court held that
the commencement of a class action, pursuant to Fed. R. Civ. P.
23(aX1), suspends the so statute of limitations as to all
members of the class. It found that the “mere fact that a federal
statute providing for substantive liability also sets a time limita
tion upon the institution of suit does not restrict the power of the
federal courts to hold that the statute of limitations is tolled under
certain circumstances not inconsistent with the legislative pur-
pose.”’ Id. at 559.
In the instant case, the application of Fed. R. Civ. P. 3 would, of
course, have to be consistent with the congressional scheme, not
the state legislative scheme, since we are dealing with a federal
right cognizable only in the federal courts and the state law
becomes federal law for purposes of this particular case. Assum-
ing, however, that this test is applicable to the case at bar, it is
difficult to determine whether application of Fed. R. Civ. P. 3 is
consonant with the legislative scheme because a 10b-5 action is
judicially implied, not expressly created by Congress. Nevertheless,
because Congress expressly provided for limitations periods for
other causes of action arising under the Securities oe Exchange
Act, which are subject to the tolling effect of Fed. R. Civ. P. 3,
it is not unreasonable to assume that application of Fed. R. Civ.
P. 3 in this context would be ‘consonant with the legislative
scheme.” In this vein, it is significant that in the Notes of the
Advisory Committee to Fed. R. Civ. P. 3, it was conceded that
the rule might operate as a tolling provision. See also Walker v.
Armco Steel Corp., 446 U.S. 740, 750 .10 (1980).
App. 10
to Federal Rule of Civil Procedure 4—Process, Jurisdic-
tion and Erie Principles Revisited, 19 Wake Forest L.
Rev. 957, 976-77 (1983) (suggesting that the problem in
Walker v. Armco Steel Co., 446 U.S. 740 (1980)—a diver-
sity case—was that Fed. R. Civ. P. 3 was not procedural
as applied).
The more difficult issue, disputed by the parties, is
whether Fed. R. Civ. P. 3 directly speaks to the issue
of tolling in the particular case before us. Although there
is some suggestion to the contrary in Walker, 446 U.S.
740, which we discuss infra at 25-29, we believe that Fed.
R. Civ. P. 3 applies here. Initially, we observe that Fed.
R. Civ. P. 1 provides that “(t]hese rules govern the pro-
cedure in the United States district courts in all suits of
a civil nature whether cognizable as cases at law or in
equity or in admiralty, with the exceptions stated in Rule
81,” and that none of the exceptions of Rule 81 apply.
The Court in Hanna relied expressly and solely on this
provision to sustain its conclusion that Fed. R. Civ. P.
4(dX1) applied to the facts of that case. 380 U.S. at 463
n.3.
In addition, in our view, the language of Fed. R. Civ.
P. 3 could not be much plainer. It states that the suit
is “commenced” once the complaint is filed. “Commenced”
as defined by Black’s Law Dictionary means “‘to initiate
by performing the first act,” to “institute or start.” Al-
though the language of Fed. R. Civ. P. 3 does not ex-
pressly state that filing the lawsuit “tolls” the statute of
limitations, the import of the language is clear that once
the plaintiff has filed the complaint, he has done all that
is necessary to “get the ball rolling’ not only in terms
of the other timing rules to which Fed. R. Civ. P. 3
relates, see, e.g., Fed. R. Civ. P. 15(c), but also in terms
of the statute of limitations. Indeed, the Supreme Court
has recognized in Schiavone v. Fortune, ___. U.S. ___.,
106 S. Ct. 2379 (1986), that the word ‘‘commence”’ car-
ries with it tolling connotations even in the diversity con-
text. See id. at ___, 106 S. Ct. at 2385.
It is also significant that Wisconsin law employs the
phrase “commence”’ in its limitation provision, without ex-
App. 11
pressly stating “tolling” to mean the limitations provision
is tolled, see Wis. Stat. § 551.595) (1983). It also uses that
phrase in its procedure provisions to mean tolling without
express reference to tolling or the statute of limitations,
yet there is evidently no dispute that “commencement”
under Wisconsin law constitutes tolling. We therefore be-
lieve that, Walker notwithstanding, the plain meaning of
Fed. R. Civ. P. 3 is that filing the complaint tolls the
statute of limitations.1° See also Note, Commencement
Rules and Tolling Statutes of Limitations in Federal
Court, 66 Cornell L. Rev. 842, 850-51 & nn.51, 54 (1981)
and cases cited therein.
The defendants argue that the result we reach today
has been foreclosed by two Supreme Court decisions: Wil-
son, 471 U.S. at ___, 105 S. Ct. at 1938, and Walker,
446 U.S. at 740. The defendants assert that in Wilson the
Supreme Court determined that in non-diversity cases in
which there is no governing federal statute of limitations,
the question of when an action commences is a question
of tolling that is governed by state law so long as the
commencement provision is an integral part of the state’s
statute of limitations. They argue that because the Wis-
consin service of process requirement which tolls the stat-
ute of limitations for sixty days is an integral part of
Wisconsin’s statute of limitations, it must be applied to
bar the instant action. They therefore reject plaintiffs’
reliance on civil rights cases which have held that Fed.
R. Civ. P. 3 governs commencement for tolling purposes
either as having been overruled by Wilson or as having
been incorrectly decided in light of Wilson. They further
assert that, in any event, state law should control because,
® To be sure, Wis. Stat. § 893.02 defines “commence” in terms
of a limitation provision, but it too relies on the inextricable in-
terrelatedness of the legal meaning of the word ‘‘commence”’ and
the statutes of limitations.
10 At least, of course, to the extent that Fed. R. Civ. P. 4(j) has
been complied with insofar as it operates as a tolling provision.
See supra note 7.
App. 12
in their view, in Walker the Supreme Court decided that
Fed. R. Civ. P. 3 does not directly control the issue of
commencement in cases such as the one at bar.
The defendants’ interpretation of Wilson is based on two
observations made by the Supreme Court. In that case,
the Court stated that although the issue of the character-
ization of a federal claim for limitations purposes is a ques-
tion of federal law, “the length of the limitations period,
and closely related questions of tolling and application, are
to be governed by state law.” Id. at ___, 105 S. Ct. at
1948 (citing Chardon, 462 U.S. at 657; Tomanio, 446 U.S.
at 484; Johnson, 421 U.S. at 464). The Court also stated
that the reason that questions of tolling are governed by
state law is that the state’s calculation of the proper
length for a limitations period is ordinarily inextricably
intertwined with the state’s application of tolling provi-
sions. Wilson, 471 U.S. at ___, 105 S. Ct. at 1948 n.17.
These statements do not support the interpretation that
the defendants place upon them.!! These are nothing more
than restatements made in passing of the general rule ap-
plicable in civil rights cases and some other federal ques-
tion cases that when federal law is silent, state law is
presumptively applied. As we have already observed, this
rule is not an imperative to be applied in all federal ques-
11 Even if they did, they would not compel a different outcome.
Defendants concede, as they must, that these two statements are
dicta. This court has so recognized. See Bailey v. Faulkner, 765
F.2d 102, 104 (7th Cir. 1985). The Court in Wilson held only that
in actions based on 42 U.S.C. § 1983, the federal courts should
borrow the state limitations period applicable to personal injury
actions. It did not hold that in any case in which a court borrows
a state limitations period it must also always borrow all tolling
provisions as well. In fact, this court in Bailey expressly relied
on Tomanio, not Wilson, in deciding that the state tolling rule
should be applied. And although the Bailey court appeared to give
a broad interpretation to the rule set forth in Tomanio, see Bailey,
765 F.2d at 104, a closer examination of the case reveals that the
court found that Tomanio controlled because the facts of the two
cases were virtually indistinguishable.
App. 13
tion cases not governed by a federal limitations period,
or in fact, even in all civil rights actions. In the passage
so heavily relied upon by the defendants, the Court makes
clear that reference to state law in section 1983 actions
occurs only after “principles of federal law are exhausted,”
id. at ___, 105 S. Ct. at 1943 (citing 42 U.S.C. § 1988),
and even then the state rule is adopted only as “ ‘a fed-
eral rule responsive to the need whenever a federal right
is impaired.’” Jd. at ___, 105 S. Ct. at 1943 (quoting
Sullivan v. Little Hunting Park, Inc., 396 U.S. 229 (1969)).
Our conclusion that these statements in Wilson do not
stand for the proposition that all integral tolling provi-
sions apply even when there is directly applicable federal
law is supported by several considerations. First, the Su-
preme Court has previously recognized that federal iaw
governs the issue of tolling in federal equity actions, see
Holmberg, 327 U.S. at 395; see also State of Ohio v. Peter-
son, Lowry, Rall, Barber & Ross, 651 F.2d 687 (10th Cir.),
cert. denied, 454 U.S. 895 (1981); Tomera v. Galt, 511 F.2d
504, 509 (7th Cir. 1975), a ruling that has been extended
by the lower courts to actions at law. See, e.g., Movie-
color, Ltd. v. Eastman Kodak Co., 288 F.2d 80, 83-84 (2d
Cir.), cert. denied, 368 U.S. 821 (1961); see also Hobson
v. Wilson, 737 F.2d 1, 33 & n.100 (D.C. Cir. 1984), cert.
denied, ___ U.S. ___., 105 S. Ct. 1843 (1985); cf. Burnett
v. New York Central R.R., 380 U.S. 424, 4385 (1965) (adopt-
ing uniform tolling rule in FELA action).
In addition, prior to Wilson and after Walker, the
federal courts consistently held that Fed. R. Civ. P. 3 ap-
plies to determine when an action brought pursuant to
42 U.S.C. § 1983 has been commenced for limitations pur-
poses. Hobson, 737 F.2d at 44 n.131; Caldwell v. Martin-
Marietta Corp., 632 F.2d 1184, 1188 (5th Cir. 1980); Hoff-
man v. Halden, 268 F.2d 280, 302 (9th Cir. 1959); Jackson
v. Duke, 259 F.2d 3 (5th Cir. 1958); Bomar, 162 F.2d at
140; Wells v. City of Portland, 102 F.R.D. 796, 779, 801
(D. Ore. 1984); Cohen v. Board of Education, 536 F. Supp.
486, 493-95 (S.D.N.Y. 1982); Gutierrez v. Vergari, 499
F. Supp. 1040, 1049 (S.D. N.Y. 1980); Fitzgerald v. Ap-
App. 14
polonia, 323 F. Supp. 1269 (E.D. Pa. 1971); Von “lemm
v. Smith, 204 F. Supp. 110, 113 (S.D.N.Y. 1962). Many
courts have continued to adhere to the view even after
Wilson. See, e.g., DiVerniero v. Murphy, 635 F. Supp.
1531 (D. Conn. 1986); Williams v. Allen, 616 F. Supp. 653
(E.D.N.Y. 1985); Ruley v. Nelson, 106 F.R.D. 514 (D.
Nev. 1985). But see Checki v. Webb, 785 F.2d 534, 536-37
(5th Cir. 1986). And, at least one court has decided that
federal law governs when causes of action accrue in sec-
tion 1983 cases. See Singleton v. City of New York, 632
F.2d 185, 191 (2d Cir. 1980), cert. denied, 450 U.S. 920
(1981).
Courts, including this one, have also found Fed. R. Civ.
P. 3 to be controlling in federal question cases, other than
civil rights, which are not governed by a federal statute
of limitations. See, e.g., Appleton Electric Co. v. Graves
Truck Lines, Inc., 635 F.2d 603, 608-09 (7th Cir. 1980),
cert. denied, 451 U.S. 976 (1981) (filing of complaint in
literal compliance with Fed. R. Civ. P. 3 is sufficient to
interrupt a federal statute of limitations); Fitzgerald, 323
F. Supp. at 1270, Meredith v. Glamorene Products Corp.,
55 F.R.D. 397 (E.D. Wis. 1972); see also 128 Cong. Rec.
H 9850 n.14 (daily ed. Dec. 15, 1982); Note, Federal Stat-
utes Without Limitations Provisions, 53 Colum. L. Rev.
68, 72 (1953) and cases cited therein (“{Rlelated issues... .
need not be decided in accordance with state law despite
the fact that it is a state statute which has fixed the
period of limitation.’’); cf Hanna, 380 U.S. at 470 (pre-
sumption that, when a situation is covered by one of the
Federal Rules, that rule governs, displacing any state
rule). This has also been the view taken by most com-
mentators. See, e.g., C. Wright, The Law of Federal
Courts § 64, at 412 (1983); 4 C. Wright & A. Miller, supra,
§ 1056, at 179; 2 J. Moore & J. Lucas, Moore’s Federal
Practice 4¢ 3.07[1}{3], 3.07[4.-3-2], 3.07[5[8] (1977); Walker,
supra, 19 Wake Forest L. Rev. at 975; Ely, supra, 87
Harv. L. Rev. at 729; Wheaton, Federal Rules of Civil
Procedure Interpreted, 25 Cornell L.Q. 28, 30 (1939);
Special Project, Time Bars in Specialized Federal Com-
App. 15
mon Law: Federal Rights of Action and State Statutes
of Limitations, 65 Cornell L. Rev. 1011, 1091 & n.380
(1980); Note, supra, 66 Cornell L. Rev. at 850-51. But see
Hill, State Procedural Law in Federal Nondiversity Liti-
gation, 69 Harv. L. Rev. 66, 91-92 (1955).
We do not believe that in making this passing reference
to the general rule to be applied in such cases, the Su-
preme Court in Wilson intended to overrule, sub silen-
tio, this long line of consistent authority, especially when
all precedents relied upon by the Court in Wilson were
civil rights cases. Cf. Walker, 446 U.S. at 749 (“Stare
decisis does not mandate that earlier decisions be en-
shrined forever, but it does counsel that we use caution
in rejecting established law.”’).
This is particularly true when one considers that the
Supreme Court in Wilson used the ambiguous phrase
“tolling provisions.” Although the Court in Walker did
refer to the commencement provision as a tolling provi-
sion, for purposes of analysis, courts and commentators
have generally distinguished between those provisions
relating to traditional tolling doctrines (fraudulent conceal-
ment, minority, other legal disabilities) and commencement
provisions. See, e.g., Note, supra, 53 Colum. L. Rev. at
72. With regard to the former, the traditional rule has
been that state law controls; with regard to the latter,
federal law controls. Id. We therefore believe that it would
be inappropriate to interpret an ambiguous statement by
the Court in a manner that contradicts long-adhered-to
prior practice by the courts, including that of the Supreme
Court. See also Ely, supra, 87 Harv. L. Rev. at 730
(Courts should be reluctant to overturn procedural rules
whi, Lave previously been adhered to, even if technically
they may be legally deficient. “(MJuch of the point of a
set of procedural rules is to let people get used to and
rely on the routine of doing things in a certain way.’’)
The dicta in Wilso.., of course, did not arise in isola-
tion. It was based on the Supreme Court’s rulings in other
App. 16
recent civil rights cases in whicl. the Court gave effect
to the state tolling provisions. See, e.g., Chardon, 462 U.S.
at 650; Tomanio, 446 U.S. at 478; Johnson, 421 U.S. at
454. We cannot therefore reject the defendants’ reliance
on Wilson without also demonstrating why none of those
other cases compel the result urged by the defendants.
The key to the result in each of those cases, as other
courts have recognized, was that there was no federal toll-
ing law directly on point. See, e.g., DiVerniero, 635 F.
Supp. at 1535-36; Cohen, 536 F. Supp. at 495. In Tomanio,
for example, the Supreme Court held that state law deter-
mined whether a plaintiff's civil rights action was tolled
pending a state lawsuit arising from the same operative
facts. In so doing, the Court referred to 42 U.S.C. § 1988
in which ‘“‘Congress quite clearly instructs [federal courts]
to refer to State statutes when federal law provides no rule
of decision for actions brought under § 1983.” Id., 446 U.S. at
484 (quoting Robertson v. Wegmann) (er phasis added).12
12 Section 1988 provides:
The jurisdiction in civil and criminal matters conferred on
the district courts by the provisions of this Title, and of Title
“CIVIL RIGHTS,” and of Title “CRIMES,” for the protec-
tion of all persons in the United States in their civil rights,
and for their vindication, shall be exercised and enforced in
conformity with the laws of the United States, so far as such
laws are suitable to carry the same into effect; but in all cases
where they are not adapted to the object, or are deficient in
the provisions necessary to furnish suitable remedies and
punish offenses against law, the common law, as modified and
changed by the constitution and statutes of the State wherein
the court having jurisdiction of such civil or criminal cause is
held, so far as the same is not inconsistent with the Constitu-
tion and laws of the United States, shall be extended to and
govern the said courts in the trial and disposition of the cause,
and, if it is of a criminal nature, in the infliction of punish-
ment on the party found guilty. In any action or proceeding
to enforce a provision of sections 1981, 1982, 1983, 1985, and
1986 of this title, Title IX of Public Law 92-318, or Title VI
of the Civil Rights Act of 1964, the court, in its discretion,
may allow the prevailing party, other than the United States,
a reasonable attorney’s fee as part of the costs.
42 U.S.C. § 1988.
App. 17
The Court observed that the Second Circuit had formu-
lated an ad hoc federal tolling rule because, in the Sec-
ond Circuit’s view, the state rule improperly burdened
federal rights, inconsistent with the federal law, and there-
fore could not be applied under the express terms of 42
U.S.C. § 1988. The majority of the Court in Tomanio re-
jected the Second Circuit’s view and found that state law
should be applied. Tomanio therefore was not a case in
which there was a pre-existing uniform federal law direct-
ly on point which the Supreme Court rejected in favor
of the state tolling provision. Rather, it was a classic case
of application of state law where federal law was silent
and where the state law was found not to unduly burden
or discriminate against federal rights.
In Chardon, the Court held that state law applied to
toll the individual plaintiff’s section 1983 claims pending
litigation of a related class action. The Court rejected the
defendant’s argument that the federal tolling rule an-
nounced by the Court in American Pipe & Construction
Co., rather than the state rule, governed on the ground
that the federal rule was not sufficiently broad to govern
the issue presented in Chardox. It held “{ilIn American
Pipe, federal law defined the basic limitations period,
federal procedural policies supported the tolling of the
statute during the pendency of the class action, and a par-
ticular federal statute [Fed. R. Civ. P. 23] provided the
basis for deciding that the tolling had the effect of sus-
pending the limitations period. . . . [It did not] establish[ ]
a uniform federal rule of decision that mandates suspen-
sion rather than renewal whenever a federal class action
tolls a statute of limitations.’”’ Jd., 462 U.S. at 660-62.
Justice Rehnquist’s dissent in Chardon makes clear that
even in section 1983 actions, state tolling law does not
govern when there is a directly controlling uniform federal
tolling provision. Justice Rehnquist took the view that the
American Pipe & Construction Co. rule, derived from Fed.
R. Civ. P. 28, directly governed the issue presented and
should be applied, notwithstanding the fact there was
App. 18
a state tolling rule directly on point. He observed that
“the [Supreme] Court has recognized that federal tolling
rules apply to state statutes of limitations’ and that “{a]
single, uniform federal rule of tolling would provide de-
sirable certainty to both plaintiffs and defendants in § 1983
class actions.” Jd. at 666-67 (Rehnquist, J., dissenting).'*
Finally, in Johnson, 421 U.S. 474, the Supreme Court
decided that the timely filing of a charge of employment
discrimination with the Equal Employment Opportunity
Commission pursuant to 42 U.S.C. § 2000e-5 does not toll
the running of the period of limitations applicable to an
action, based on the same facts, instituted under 42 U.S.C.
§ 1981. Johnson, like Tomanio and Chardon, was a case
in which there were no directly controlling uniform federal
tolling provisions. Thus, the issue was whether it was ap-
propriate for the federal courts to develop such an ad hoc
tolling law on the ground that the state tolling provision
unduly burdened federal rights. Jd. at 465. As in Tomanio
and Chardon, the Court, in Johnson, found that the state
tolling rule did not unduly burden the petitioner’s section
1981 rights. It also rejected the petitioner’s reliance on
American Pipe & Construction Co. and Burnett for the
proposition that the federal court should exercise its pow-
er to formulate federal tolling rules in that case. The
Court found neither case helpful because in both “(tJhe
—, periods of limitation . . . were derived direct-
ly from federal statutes rather by reference to state law.
Moreover, in each case there was a substantial body of
relevant federal procedural law to guide the decision to
toll the limitation period, and significant underlying federal
policy that would have conflicted with a decision not to
suspend the running of the statute.” Jd. at 466. Thus
13° The district court judge thought it irrelevant that Fed. R. Civ.
P. 3 is a uniform rule. In her view, the “rule” announced in Wil-
son, derived from Chardon, Tomanio, and Johnson made no dis-
tinction between uniform and nonunif rm tolling provisions. Char-
dom makes clear, however, that whether the rule is uniform is of
critical significance.
App. 19
Johnson, like Tomanio and Chardon, makes clear that
state tolling rules only apply in the absence of express
federal tolling rules.
Even if the Supreme Court in Wilson, Tomanio, Char-
don, and Johnson did adopt the per se rule proposed by
the defendants, we believe that the rule is applicable only
to actions brought under the Reconstruction Civil Rights
Act. In that Act, Congress has expressly provided that
gaps in federal law are to be filled by analogous state
law. See 42 U.S.C. § 1988; see also Burnett v. Gratten,
468 U.S. 42 (1984); Tomanio, 446 U.S. at 483 (“{F]Jederal
courts are obligated to apply . . . the analogous New York
statute of limitations to respondent’s federal constitutional
claims.”’); Special Project, supra, 65 Cornell L. Rev. at
1041 n.138. It can be argued that section 1988, in effect,
imports the Rules of Decision Act analysis back into this
limited class of federal question cases and, much like in
diversity actions, requires the court to apply state sub-
stantive law. Under such a scheme, the broad rationale
of Walker, 446 U.S. at 740, might compel a federal court
to adopt the rule proposed by defendants for civil rights
actions, but not for federal securities claims.’ See, e.g.,
Marek, ___. U.S. at ___., 105 S. Ct. at 3017-18 (reject-
ing lower court’s narrow construction of Fed. R. Civ. P.
68 so as not to result in perceived direct, unavoidable con-
flict with section 1988). Chardon, 462 U.S. at 650 (nar-
rowly construing federal tolling rule announced in Ameri-
can Pipe & Construction Co., 414 U.S. 538, such that
state tolling rule applies).
4 Alternatively, section 1988 might be nothing more than a con-
grescional codif ication of the judicial presumption to apply state
law to fill in federal law. See Wilson v. Garcia, 471 U.S.
261, 105 S. Ct. 1938, 1944 (1985); Robertson v. Wegmann, 436
U.S. 584 (1978); Johnson v. Railway Express Agency, Inc., 421
U.S. 454 (1975); Note, Civil Rights: Determining the A late
Statute of Limitations for Section 1983 Claims, 51 ieee Teme
L. Rev. 440, 442 (1986). If this is true, it supports our conclusion
that the application of analogous state law is discretionary, not
mandatory.
App. 20
In addition, in Wilson the Supreme Court
that section 1988 was conce with the need to a
vide intrastate uniformity in all civil rights actions. The
reasons for the need for intrastate, as opposed to inter-
state, uniformity in civil rights actions are largely absent
in cases such as the one at bar.'5 The Reconstruction Civil
Rights Act was designed to give citizens a remedy, not
substantive rights, against their state officials for what
were largely perceived as “ancient common-law”’ torts.
Wilson, ___ U.S. at ___., 105 S. Ct. at 1945. Thus, states
have a strong interest in having their officials subject to
uniform limitations periods and in having their state law
torts which have been “constitutionalized” subject to the
same procedures. But states have no such definable inter-
est in 10b-5 cases that is sufficient to require nonunifor-
mity of procedures among the federal courts.'* This con-
8 In fact, some commentators have argued that even in the civil
rights context there is a paramount federal interest in national
uniformity. See, 9 7 Note, supra, 61 Notre Dame L. Rev. at 452;
Note, A Cail for Uniformity: Statutes of Limitations in Federal
Civil Rights Actions, 26 ~~ L. Rev. 61 (1979); cf. DelCostello,
462 U.S. at 151. Even in Wilson, the Court relied on the need
for national uniformity when deciding how best to characterize sec-
tion 1983 claims.
6 To the extent that the states do have any interest, the appli-
cation of Fed. R. Civ. P. 3 does not unduly compromise their right
to set certain limitations periods. Cf. Walker, 446 U.S. at 751-52
n.12 (service requirement does little to keep stale claims out of
court); see Note, Federal Practice, 32 S.C.L. Rev. 627, 633 (1981).
The action must be filed in federal court before the state statute
of limitations expires, and it must be served within 120 days
thereafter or the action will abate. See Fed. R. Civ. P. 4(j). Defen-
dants thereby are provided with reasonable notice of the claim
and are protected inst stale claims when they reasonably be-
lieved their liability ceased. In the instant case, for example,
the defendants were served within one month of when they would
have had to have been served under state law, and they do not
claim that this one month delay prejudiced them in any way. be
Hanna, 380 U.S. at 462-63 (federal rule controls over state rule
when rules directly conflict and when no c in outcome
results); Sylvestri v. Warner & Swasey Co., 398 F.2d 598, 606 (2d
(Footnote continued en following page)
App. 21
clusion is particularly appropriate in cases such as the one
at bar which are cognizable only in the federal courts.
ial Project, ~—. 65 Cornell L. Rev. at 1033 n.102;
cf. Burnett, 380 U.S. at 433 (Rejecting application of vari-
ous state — statutes because they “would defeat the
aim of a federal limitation provision designed to produce
national uniformity.”); Holmberg, 327 U.S. at 392 (sug-
gesting that the policy of uniformity with the probable
outcome in the courts of the forum state was inapplicable
in a non-diversity case where the plaintiff asserted an
equitable right created by federal law.). But see Aldrich
v. McCulloch Properties, Inc., 627 F.2d 1036, 1041 (10th
Cir. 1980) (“For reasons equally applicable to implied se-
curities fraud actions, the Supreme Court has recent
held that coordinate state tolling rules apply along wit
state statutes of limitations in suits brought under 42
U.S.C. § 1983.”). |
The defendants correctly observe that the Supreme
Court has rejected the argument that uniformity of pro-
16 continued
Cir. 1968) (When compliance with both state and federal commence-
ment requirements is still possible at the time the action is in-
stituted, the outcome is not determined ultimately by filing in
federal rather than state court.). See Ely, supra, 87 Harv. L. Rev.
at 710. In that article, Professor Ely observed:
The point of Hanna dictum is that it is difficult to find un-
fairness of a sort that would have troubled the framers of the
Rules of Decision Act, or of a sort whose elimination would
— i ing a federal court’s routine, when the difference
tween the federal and state rules is trivial, when their re-
quirements are essentially fungible. . . . Thus, whenever the
sanction for noncompliance is dismissal, there is a sense in
which “enforcement” of the rule can be outcome determinative.
But it is a backhanded sense, and one that implicates the con-
cerns that gave rise to the Rules of Decision Act only when
the underlying mandate thus enforced is sufficiently more or
less burdensome than its state counterpart to support a plausi-
ble claim of unfairness.
Id. at 713-14 (footnotes omitted).
App. 22
cedure in the federal courts is a sufficient basis upon
which to reject application of state limitations periods. See,
e.g., Wilson, 471 U.S. at __, 105 S. Ct. at 1947;
Tomanio, 446 U.S. at 489. But see, e.g., DelCostello, 462
U.S. at 151. In our view, the rejection of that argument
is based, in part, on the courts’ reluctance to undertake
to formulate limitations periods. But as we have previous-
ly observed, the courts have been less reluctant to adopt
or formulate federal tolling rules, see supra note 6, and
they have done so on the ground of promoting uniformity
of procedure among the federal courts. See, e.g., Movie-
color, Ltd., 288 F.2d at 80; cf. Hanna, 380 U.S. at 462-63
n.1 (adopting section 4(dX1) on the ground, inter alia, of
the promotion of uniformity, even though the Court ap-
parently recognized that the state service rule that was
ultimately rejected, operated, at least in part, as an in-
tegral tolling provision).!7
In Moviecolor, Ltd., for example, Judge Friendly found
uniformity a persuasive reason for employing a uniform
federal tolling doctrine in cases at law under the Clayton
Act. He reasoned that there was a paramount federal in-
terest in the uniform administration of rights cognizable
only in the federal courts, such that “the state statute
of limitations should be tolled during the defendant’s
fraudulent concealment of the alleged wrongful act.”’ 288
F.2d at 84 (citing Holmberg, 327 U.S. at 392) (introduc-
ing fraudulent concealment doctrine into federal suits at
equity); see Newman v. Prior, 518 F.2d 97, 100 (4th Cir.
17 In Hanna, the Court observed:
One of the shaping purposes of the Federal Rules is to bring
about uniformity in the federal courts by getting away from
local rules. This is especially true of matters which relate to
the administration of legal proceedings, an area in which fed-
eral courts have traditionally exerted strong inherent power,
completely aside from the powers of Congress pushes con-
ferred in the Rules.
380 U.S. at 472-73 (quoting Lawmbermen’s Mutual Casualty Co.
v. Wright, 322 F.2d 759, 764 (5th Cir. 1963)).
App. 23
1975) (In federal securities claim, ‘{[e]ven when state law
furnishes the period of limitation, federal law controls its
commencement.”); see also Special Project, supra, 65 Cor-
nell L. Rev. at 103] n.91 (“Mandatory application of state
law on these subsidiary issues could seriously undermine
federal interests involved in suits on federal claims.”’);
Note, Limitation Borrowing in Federal Courts, 77 Mich.
L. Rev. 1127, 1136 (1979) (Even when federal courts bor-
row state statutes of limitations, courts must consider the
problem of maintaining uniformity among federal courts
in different states enforcing the same right.); cf. Mishkin,
The Variousness of “Federal Law”: Competence and Dis-
cretion in the Choice of National and State Rules for
Decision, 105 U. Pa. L. Rev. 797, 804 (1957) (‘(TJhere
remains a freedom, after decision to incorporate local law,
to control the extent and methods of that adoption which
is not present when a determination has been made that
state law will apply because the court has not competence
to do otherwise.”). But cf. Tomanio, 446 U.S. at 483 (fed-
eralism favoring absorption not only of state period, but
also subsidiary issue of tolling); Johnson, 421 U.S. at
463-65 (state period incomprehensible without absorbing
integrally-related tolling rules).
The defendants argue that if uniformity of procedure
is a decisive factor, it should operate against the applica-
tion of Fed. R. Civ. P. 3 in these cases. They assert that
nonuniformity, rather than uniformity, is promoted be-
cause actions will be subject not only to different limita-
tions periods in each jurisdiction, but to a separate federal
tolling rule as well.
We do not agree. In our view, application of Fed. R. Civ.
P. 3 will promote greater uniformity because the com-
mencement of all federal causes of action will be governed
by the same rule. Although the causes of action may
be subject to different state limitations periods, all such
cases in every jurisdiction will be deemed commenced as
App. 24
of the date of filing.!® In this vein, it is significant that
the application of state commencement rules might unduly
complicate procedures in the federal system. As one com-
mentator has observed, the problems created by applying
state statutes of limitations when cases are, for example,
transferred within the federal system because of improper
venue or lack of personal jurisdiction would be substan-
tially compounded by applying state commencement rules.
See Note, supra, 66 Cornell L. Rev. at 858 n.94. These
procedural complications would not be counterbalanced by
any definable state interest. This nonuniformity also might
lead to serious inequities as plaintiffs who had successfully
complied with all tolling requirements under one state law
might have failed to achieve it under the new forum law
and hence would be barred.
Based on the foregoing discussion, we believe that the
Supreme Court did not hold in Wilson, Tomanio,
Chardon, or Johnson, that when a state statute of limita-
tions is borrowed, all of its integral tolling provisions must
also be borrowed even in the face of directly controlling
uniform federal law.!9
‘8 Furthermore, we note this is not a situation in which the ap-
plication of the federal tolling rule renders the state limitations
_— a ‘‘meaningless number.” See Note, supra, 22 UCLA L.
ev. at 961 (criticizing federal tolling rule announced in Holm-
berg for eviscerating state limitations period). The complaint still
must be filed within the limitations period and served within 120
days thereafter. See supra note 16.
‘9 Some commentators have observed that it might be difficult
for a court to rule that Fed. R. Civ. P. 3 tolls the applicable state
statute of limitations in cases such as the one at bar under the
broad interpretation of Walker. They argue that “{ilf the plain
meaning of the rule controls, then the scope of rule 3 should not
differ [from diversity actions] in actions to enforce federal rights.”
Note, supra, 66 Cornell L. Rev. at 851; see also Fed. R. Civ. P.
3 advisory committee note 4, 28 U.S.C. App. at 394-95 (1976); H.R.
7154, 97th Cong., 2d Sess. n.14, reprinted in 1982 U.S. Code Cong. &
Ad. News 4437, 4441 n.14. In their view, such an approach avoids
the need to make the same phrase mean one thing in one legal
(Footnote continued on following page)
App. 25
This brings us to what we believe is the defendants’
stronger argument—i.e., that under Walker, 446 U.S. at
749, Fed. R. Civ. P. 3 does not operate as a tolling provi-
sion in cases such as the one at bar. Most of the relevant
facts of Walker are virtually indistinguishable from the facts
here. The state statute of limitations period provided that
a lawsuit was not commenced until the complaint was filed
and the defendant was served with a copy of the com-
plaint. Service could be effectuated after the limitations
expired, but it had to be completed within sixty days of
filing. The plaintiffs filed suit within the relevant state
statute of limitations period, but failed to effectuate ser-
vice of process within the requisite sixty-day period. The
plaintiffs argued that Fed. R. Civ. P. 3 controlled the
19 continued
context and another in another legal context. They argue that the
better route for a court to follow is to fashion a federal common
law from Fed. R. Civ. P. 3 in much the same way that a federal
court fashions federal common law by looking to the most anal-
ogous state limitations period. Note, supra, 66 Cornel) L. Rev.
at 855. The commentators also choose this common-law rule over
others such as tolling upon the filing of the complaint and the is-
suance of service or upon the obtaining of service because it com-
rts with almost prior uniform practice in nondiversity action and
cause it is merely an extension of a longstanding practice in
equity. Jd. at 856 n.90.
Although we recognize that a federal court is empowered to
devise rules eecuek federal common law, see Special Project,
supra, 65 Cornel! L. Rev. at 1034; Note, supra, 66 Cornell L. Rev.
at 857 n.92, we decline to adopt that approach. Our decision that
Fed. R. Civ. P. 3 directly applies in this case does not require
us to make a heretofore unheard of distinction between the “plain
meaning” of the rule in non-diversity cases and its “plain mean-
ing” in diversity cases. There is no doubt that Fed. R. Civ. P. 3
operates as a tolling provision in federal causes of action express-
ly governed by federal limitations periods unless Congress has
otherwise provided a commencement provision. Thus, there is
already a pre-existing distinction between these “plain meanings”
of the rule in some non-diversity and all diversity cases. Our ap-
proach merely draws the line between non-diversity and diversity
actions, rather than categorizing a large category of non-diversity
actions as diversity actions.
App. 26
issue of when an action was commenced for purposes of
tolling the statute of limitations. The Supreme Court re-
jected this argument, finding that the federal rule did not
control.
The defendants argue that this analysis controls this
case. We disagree. To be sure, in Walker, the Court found
that “the scope of . . . Federal Rule [3] . . . [was not]
sufficiently broad to control the [tolling] issue before the
Court,” 446 U.S. at 750, and that there was nothing in
that rule to indicate that Congress intended it to toll a
statute of limitations, “much less that it purported to
displace state tolling rules for purposes of state statutes
of limitations.” Jd. at 751. But see Schiavone, ____ US.
at ___, 106 S. Ct. at 2385 (In a diversity case, the Su-
preme Court stated “{rjule 3 concerns the ‘commencement’
of a civil action. Under Rule 15(c), the emphasis is upon
‘the period provided by law for commencing the action
against’ the defendant. An action is commenced by the
filing of a complaint and, so far as Time is concerned, no
complaint against it was filed on or prior to May 19,
1983.””). Walker, however, was based on diversity jurisdic-
tion involving only state-created rights. As such, it was
governed by Erie v. Tompkins, 304 U.S. 64 (1938), and
the Rules of Decision Act, and the Court in Walker ex-
pressly recognized that its decision did not necessarily con-
trol cases such as the one at bar. See id., 446 U.S. at 751 n.11;
see also Guaranty Trust Co. v. York, 326 U.S. 99, 101 (1945):
C. Wright & A. Miller, supra, § 1057 at 191; Note, supra,
66 Cornell L. Rev. at 851. In fact, it recognized that in
a previous case it had suggested “that in suits to enforce
rights under a federal statute Fed. R. Civ. P. 3 means
that filing of the complaint tolls the applicable statute of
limitations.” Walker, 446 U.S. at 751 n.11 (citing Ragan
v. Merchants Transfer & Warehouse Co., 337 U.S. 530,
533 (1949)).2° In Ragan, the Court observed:
20 In Walker, the Court observed that in the original advisory
committee notes on Fed. R. Civ. P. 3 committee members recognized
(Footnote continued on following page)
App. 27
[T]he argument [is] that the Federal Rules of Civil
Procedure determine the manner in which anly] ac-
tion is commenced in the federal courts—a matter of
procedure which the principle of Erie R. Co. v. Tomp-
kins does not control. It is accordingly argued that
since the suit was properly commenced in the federal
court before the Kansas statute of limitations ran,
it tolled the statute.
That was the reasoning and result in Bomar v.
Keyes, 162 F.2d 136, 141 [(2d Cir. 1947), a civil rights
case]. But that case was a suit to enforce rights un-
der a federal statute. Here, as in that case, there can
be no doubt that the suit was properly commenced
in the federal court.
337 U.S. at 532-33 (footnote omitted). But see Hanna, 380
U.S. at 470 (characterizing Ragan as involving a federal
rule that did not govern the tolling of statutes of limita-
tions).
The rationale of Walker, of course, is broader than
Ragan. In Ragan, the Court applied state law because the
state commencement procedure was substantive and an
integral part of the state statute of limitations. Walker,
however, appeared to go beyond this by constricting the
plain meaning of “ed. R. Civ. P. 3, in order to avoid an
“unavoidable” direct conflict with the state commence-
ment rule. Walker, 446 U.S. at 749 (quoting Hanna, 380
U.S. at 470). In fact, some commentators have argued that
20 continued
that the tolling of a statute of limitations might affect substan-
tive rights. It observed that the Note “does not indicate, however,
that Rule 3 was intended to serve as a tolling provision for statute
of limitations purposes, it only suggests that the Advisory Com-
mittee thought the Rule might have that effect.” 446 U.S. at 750
n.10. In the House Report, H.R. 7154, 97th Cong., 2d Sess. n.14,
reprinted in 1982 U.S. Code Cong. & Ad. News, 4441 n.14, on
Rule 3, the Representatives recognized the ambiguity caused by
the broad rationale of the Supreme Court’s decision in Walker,
but refused to conclude that Walker would mandate application
of the state tolling provision in a federal question case.
App. 28
the Court awkwardly construed Fed. R. Civ. P. 3 in
Walker in order to avoid a serious Rules Enabling Act
problem, see Walker. supra, 19 Wake Forest L. Rev. at
977-78; Note, supra, 32 S.C.L. Rev. at 625; Note, supra,
66 Cornell L. Rev. at 852 n.62, a problem that, as we
have demonstrated, does not exist in this case. See discus-
sion, supra, at 8-10.
In addition, in reaching this result, the Court in both
Walker and Ragan reasoned that any other result would
give the state claim longer life in the federal court than
it would enjoy in the state court. Walker, 446 U.S. at 746,
748; Ragan, 337 U.S. at 533-34. But see Hanna, 380 U.S.
at 466-69 (In analyzing the scope of a federal rule in a
diversity case the “outcome-determinative” test is not con-
trolling and must be viewed in light of discouragement
of forum-shopping and avoidance of inequitable administra-
tion of the laws.). The Court’s main focus in Walker and
Ragan therefore was with the possibility that the state
claim might have longer life in the federal court than in
the state court. The reasoning of Walker is simply inap-
posite here. Even assuming that all commencement pro-
cedures are an integral part of the state’s statute of
limitations, in cases such as the one at bar, courts are
simply not confronted with the possibility that failure to
adopt the state commencement procedure would substan-
tially alter the enforcement of a state-created right. Com-
pare the civil rights case where the failure to adopt the
state commencement procedure would give a ‘“‘constitu-
tionalized”’ tort claim longer life than an ordinary tort
claim in state court.
Thus, even Walker makes clear that the rationale ap-
plicable to diversity cases is inapposite in federal ques-
tion cases because the federalist considerations, including
the Rules of Decision Act analysis, are absent. See DiVer-
niero, 635 F. Supp. at 1535; Special Project, supra, 65
Cornell L. Rev. at 1091 n.380 (“If Walker is not simply
an interpretation of rule 3, but an ‘Erie case,’ the applica-
tion of state commencement law may be a product of lim-
itations upon the scope of the federal rules imposed by
Nae Sw lille
App. 29
the Rules Enabling Act, 28 U.S.C. § 2072 (1976). Under
this view the application of rule 3 might be broader in
nondiversity cases than in diversity cases.”); Note, supra,
66 Cornell L. Rev. at 851 (“The opinion in Walker sug-
gests that the Court looked beyond the plain meaning of
Rule 3... . [bly focusing on the substantive component
of state law. .. .’’); cf. Levison v. Deupree, 345 U.S. 648
(1953) (In admiralty action, federal law controls the issue
of relation back of amendments.); Jones & Laughlin Steel
v. Mon River Towing, Inc., 772 F.2d 62, 65-66 (3d Cir.
1985) (In admiralty action, Fed. R. Civ. P. 4G), not 42
cr § 742, governs when service of process must be
made.).
Several recent labor cases support the result we reach
today. See Macon v. I.T.T. Continental Baking Co., 779
F.2d 1166 (6th Cir. 1985); Berthelot v. Martin Marietta
Corp., 630 F. Supp. 929 (E.D. La. 1986); Thomsen v.
United Parcel Service, 608 F. Supp. 1244 (S.D. Iowa 1985).
Section 10(b) of the National Labor Relations Act, 29
U.S.C. § 160(b) (1982), is the statute of limitations ap-
plicable to unfair labor practice claims. It provides that
“no complaint shall issue based upon any unfair labor
practice occurring more than six months prior to the fil-
ing of the charge with the [National Labor Relations]
Board and the service of a copy thereof upon the person
against whom such charge is made.” In DelCostello, the
Supreme Court considered which statute of limitations
should be applied to a “hybrid” claim that an employer
had breached a provision of a collective bargaining agree-
ment, see 29 U.S.C. § 185 (1982), and that the union had
breached its duty of fair representation by mishandling
the grievance proceedings, a claim for which Congress has
not provided a limitations period. The Court overruled
prior cases in which it had held that state statutes of
limitations for vacation of arbitration awards should
govern, borrowing instead the six-month period set forth
in section 10(b) of the Act. The Court noted that the gen-
eral rule is that federal courts borrow a limitations period
from the state in cases such as these, but that federal
courts are not obligated under the Rules of Decision Act,
App. 30
28 U.S.C. § 1652, to borrow a state, rather than a federal,
limitations period. 462 U.S. at 159-61 n.13. It found that
state statutes of limitations were “unsatisf ictory vehicles
for the enforcement of’ this federal “hybrid” cause of ac-
tion. It thus looked to federal law and decided that sec-
tion 10(b) should be applied because it was ‘‘actually de-
signed to accommodate a balance of interests very similar”
to that presented in the section 301/fair representation
setting. Id. at 169.
In Macon, Berthelot, and Thomsen, each of the defen-
dant unions argued that the employee’s “hybrid” suit was
untimely because, although the complaint was filed with-
in the six-month period of section 10(b), it was not also
served on them within that six-month period as required
by section 10(b). In the unions’ view, in ruling that sec-
tion 10(b) applied to these types of actions, the DelCostello
Court intended to adopt both its filing and service require-
ments.
All of those lower courts rejected this interpretation of
DelCostello, employing the same rationale. They observed
that in DelCostello, the Supreme Court focused its analy-
sis on “discover{ing] . . . the appropriate length of time
within which to commence a hybrid . . . action,’’ and not
on the interrelated issue of the application of tolling pro-
visions. Thomsen, 608 F. Supp. at 1245; accord Macon,
779 F.2d at 1170 & n.2; Berthelot, 630 F. Supp. at 930.
The courts further observed that although “limitations
periods and tolling provisions are closely interrelated,” it
did not compel a court “‘to deviate from the general rule
that in a federal suit to enforce a federal right, the filing
of the complaint tolls the limitations period.” Thomsen,
608 F. Supp. at 1245; accord Macon, 779 F.2d at 1170
n.2. In the courts’ view, following a contrary rule would
promote nonuniformity among suits brought in federal
courts. In reaching this result, the courts also relied on
Fed. R. Civ. P. 4a), providing for service of process, and
on cases which held that even when a state limitations
period is borrowed, tolling occurs upon filing (in accord-
App. 31
ance with Fed. R. Civ. P. 3) notwithstanding the fact that
the state’s law requires service on the defendant to toll
the statute of limitations. Macon, 779 F.2d at 1170 n.2,
1171; Thomsen, 608 F. Supp. at 1245-46.
Finally, relying on Justice White’s dissent from the
denial of certiorari in Simon v. Kroger Co., _. US.
___, 105 S. Ct. 2155, 2156 (1985),21 a case in which the
Eleventh Circuit had reached precisely the opposite result,
see also Williams v. Greyhound Lines, Inc., 756 F.2d 818,
820 (11th Cir. 1985) and cases cited therein; West v. Con-
rail, 780 F.2d 361 (3d Cir. 1985), cert. granted, _____ U.S.
___, 106 S. Ct. 3293 (1986), the courts noted that the
rule proposed by the unions would drastically reduce the
six-month limitations period since the plaintiffs would have
to effectuate service of process in the manner prescribed
by the Federal Rules. On these grounds the courts con-
cluded, as did Justices White, Brennan, and Marshall, that
tolling was governed by the Federal Rules and that the
21 In dissent, Justice White, joined by Justices Brennan and Mar-
shall, stated:
The lower courts agree that a suit in federal court on a
federal cause of action is commenced, and the statute of limita-
tions tolled, upon the filing of the complaint. See, e.g., Hobson
v. Wilson, 737 F.2d 1, 44 (CADC 1984); Fed.Rule Civ.Proc.
3.; 2 J. Moore & J. Lucas, Moore’s Federal Practice ¢ 3.07
(4.-3-2] (1984). While the time for service of process is not open-
ended, see Fed.Rules Civ.Proc. 4(a), 443), it need not occur
within the limitations period. Ordinarily federal practice thus
conflicts with the specific terms of this borrowed statute of
limitations. In light of this inconsistency, the brevity of the
limitations period, and the fact that § 10(b) was not intended
to apply to judicial proceedings, the result below is obviously
incorrect. In practical effect, the Eleventh Circuit’s ruling
shortens the 6-month period by the amount of time necessary
to effect service under the Federal Rules. Section 10(b) does
not have a similar impact in administrative proceedings, in
which service is accomplished merely by placing a copy of the
charge in the mail. Compare Fed.Rule Civ.Proc. 4 with 29
CFR § 102.113(a) (1984).
Simon v. Kroger Co., ___. U.S. ___, 105 S. Ct. at 2156.
App. 32
result reached by the Eleventh Circuit was “obviously in-
correct.”
These cases support the view that Wilson and Walker
notwithstanding, cases such as the one at bar are gov-
erned by Fed. R. Civ. P. 3 and 4. They recognize that
when a federal court borrows a limitations period, it is not
required to adopt all in tolling provisions, particular-
ly when there is a federal rule which directly controls the
issue. Although each of these cases was decided after the
Supreme Court decided Wilson,22 in none of them did the
court address the applicability of or believe they were
barred by the dictum of Wilson that the defendants in
this case assert is controlling. And, the Sixth Circuit found
neither Wilson or Walker to be controlling on the same
grounds that we have set forth above. Macon, 779 F.2d
at 1172 & n.5.
In sum, although the result urged by the defendants
is not without some support, the overwhelming weight
of both judicial and scholarly authority supports the ap-
plication of Fed. R. Civ. P. 3 to cases such as the instant
one. The passing dicta of the Supreme Court in Wilson
is too slender a reed upon which to reject this weight
of authority, particularly in light of other Supreme Court
dicta in Ragan, Walker, and Hanna which counsel a con-
trary result. The difficult issue raised by this case would,
of course, have been obviated had Congress provided a
federal limitations period. We join the growing number
of commentators and courts who have called upon Con-
gress to eliminate these complex cases, that de much to
consume the time and energies »* judges but that do lit-
tle to advance the cause of jusuce, by enacting federal
limitations periods for all federal causes of action. See,
e.g., Special Project, supra, 65 Cornell L. Rev. at 1105;
Note, supra, 61 Notre Dame L. Rev. 440, 452-53 (1986):
22 Justice White's dissent in Simon was also filed after Wilson
was decided.
App. 33
Note, supra, 77 Mich. L. Rev. at 1146; Note, supra, 53
Colum. L. Rev. at 77-78. Until such time as Congress
of an express federal limitations period.
Ill
The defendants also argue that even if we find that the
federal claim was timely, we should affirm the dismissal
with prejudice of the related state law securities claim
that was subject to the same three-year Wisconsin statute
of limitations.22 We agree. Under the rationale of Walker
and Ragan, no other result is permissible. The plaintiffs
at oral argument suggested that they could circumvent
this result by amending the complaint to allege the state
law claim and have that amendment relate k to the
date of filing such that the state securities claim would
be timely. This suggestion ignores the fact that even un-
der the relation-back doctrine the amendment is timely
only if the amended claim would have been timely “com-
menced” had it been filed on the date to which the
amendment relates back. Walker and Ragan demonstrate
that in this case the amended securities claim would not
have been properly commenced as of that date and hence
it is therefore barred.
Regarding the plaintiffs’ negligence and fraud claims,
we also agree with the defendants that those claims were
properly dismissed without prejudice because, although
23 Alt h the district ju dismissed the state law claims
under Gibbs, this court can affirm that dismissal on any ground
that the record supports and that was properly preserved by the
parties. Those criteria have been met in this case.
App. 34
the six-year limitations period has not yet expired, the
plaintiffs failed to serve the defendants within sixty days
of filing. Wis. Stat. § 801.02(1) (1983). However, because
use aides are not yet time-barred, the plaintiffs reserve
the right to amend the complaint and comply with state
service requirements. Relation-back is of no consequence
because the actions are not yet time-barred.
The judgment of the district court is affirmed in part,
reversed in part, and remanded for further proceedings.
A true Copy:
Teste:
Clerk of the United States Court of
Appeals for the Seventh Circuit
App. 35
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
Chicago, Illinois 60604
November 12, 1986.
Before
Hon. RicHarp D. Cupany, Circuit Judge
Hon. KENNETH F. RIppLe, Circuit Judge
Hon. LuTHeR M. SwyGert, Senior Circuit Judge
SENTRY CORPORATION and SNE CORPORATION,
Plaintiffs-Appellants,
No. 85-2824 vs.
ETHEL R. HARRIS, as Trustee under the Trust Agreement
dated March 1, 1973, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Western Distrie* of Wisconsin.
No. 8&4 C 855 C—Barba_ 8B. Crabb, Judge.
ORDER
On consideration of the petition for rehearing and sug-
gestion for rehearing en banc in the above-entitled mat-
ter filed by the defendants-appellees and the opposition
thereto filed by eee ee oe no judge in reg-
ular active service called for a vote on the suggestion that
it be reheard en banc, the members of the panel voted
to deny the petition.
IT IS THEREFORE ORDERED that said petition for
rehearing be and the same is hereby DENIED.
App. 36
IN THE UNITED STATES DISTRICT COURT
FOR THE
WESTERN DISTRICT OF WISCONSIN
SENTRY CORPORATION, SNE CORPORATION,
Plaintiffs,
No. 84-C-855-C v.
ETHEL R. HARRIS, as Trustee under Trust Agreement dated
March 1, 1973, ETHEL R. HARRIS, Successor Trustee under
Mortimer B. Harris Trust Agreement dated December 26, 1979,
JEANNE HARRIS HANSELL, an individual, HELEN HAR-
RIS BRANDT, an individual MARY HARRIS MARKS, an
individual, WILLIAM M. REDFIELD, an individual, NANCY
BARRY, an individual, NANCY JO BARRY, as a Custodian
for Anita Barry, a Minor under the Idaho Uniform Gift to
Minors Act, NANCY JO BARRY, as a Custodian for Julie E.
Barry, a Minor under the Idaho Uniform Gift to Minors Act,
NANCY JO BARRY, as a Custodian for Michelle Barry, a
Minor under the Idaho Uniform Gift to Minors Act, NANCY
JO BARRY, as a Custodian for Phillip Barry, a Minor under
the Idaho Uniform Gift to Minors Act, NANCY JO BARRY,
as a Custodian for Sean Patrick Barry, a Minor under the Idaho
Uniform Gift to Minors Act, MICHELLE BARRY, an individ-
ual, EDWARD S. SEIM, an individual, PHILLIP BARRY, an
individual, BONNIE DWYER, as a Custodian for Richard J.
Dwyer, a Minor under the Illinois Uniform Gift to Minors Act,
BONNIE DWYER, as a Custodian for Sheila Marie Dwyer,
a Minor under the Illinois Uniform Gift to Minors Act, BON-
NIE DWYER, as a Custodian for Kristy Dwyer, BONNIE
DWYER, as a Custodian for Robert P. Dwyer, HERB
DWYER, an individual, BONNIE DWYER, an individual,
DANIEL L. GRAY, as a Custodian for Jean Ann Gray, a
Minor under the Illinois Uniform Gift to Minors Act, DANIEL
L. GRAY, as a Custodian for Karen Gray, a Minor under the
Illinois Uniform Gift to Minors Act, DANIEL L. GRAY, as
a Custodian for Thomas J. Gray, a Minor under the Illinois
App. 37
Uniform Gift to Minors Act, JOSEPHINE GRAY, an individ-
ual, MARY GRIMES, as a Custodian for Anna M. Grimes, a
Minor under the Uniform Gift to Minors Act, MARY GRIMES,
as a Custodian for John Grimes, a Minor under the Uniform
Gift to Minors Act, MARY GRIMES, as a Custodian for Mary
E. Grimes, a Minor under the Uniform Gift to Minors Act,
MARY GRIMES, as a Custodian for Kathleen Grimes, a Minor
under the Uniform Gift to Minors Act, MARY GRIMES, as
a Custodian for Therese Grimes, a Minor under the Uniform
Gift to Minors Act, MARY GRIMES, as a Custodian for
William Grimes, a Minor under the Uniform Gift to Minors Act,
MARY GRIMES, as a Custodian for Michelle F. Grimes, a
Minor under the Uniform Gift to Minors Act, THOMAS J.
MANEY, as Trustee under the Anne Mary Riordan Trust
dated January 2, 1973, THOMAS J. MANEY, as Trustee under
the Mary T. Riordan Trust dated June 28, 1972, THOMAS J.
MANEY, as Trustee under the Patrick Jogues Riordan Ir-
revocable Trust, THOMAS J. MANEY, as Trustee under the
Thomas L. Riordan Trust dated June 28, 1972, LORRAINE
McCAHILL, a Custodian for Mary Jo McCahill, c/o Thomas
McCahill, LORRAINE McCAHILL, as Custodian for Patrick
M. McCahill, c/o Thomas E. McCahill, Jr.. LORRAINE
McCAHILL, as Custodian for William F. X. McCahill, c/o
Thomas E. McCahill, THOMAS E. McCAHILL, JR., and MRS.
LORRAINE McCAHILL, as Joint Tenants with the Right of
Survivorship and not as Tenants in Common, SANDRA
PRENDERGAST, an individual, LAWRENCE T. RIORDAN,
an individual, VIRGINIA A. RIORDAN, an individual,
LOUISE B. MYERS, an individual WAYNE HUMMER &
CO. by PHILIP M. BURNO, DANA LYNN HARRIS, by
THOMAS NEW HARRIS, her guardian, ELLEN D. A. HAR-
RIS, an individual, HELEN N. HARRIS, as Executor of the
Will of Francis L. Harris, deceased, HELEN H. HARRIS, an
individual, JODY LEIGH HARRIS, by THOMAS NEW HAR-
RIS, her guardian, JULIET M. HARRIS, an individual,
KEITH W. HARRIS, an individual KENNETH A. HARRIS,
an individual KENNETH A. HARRIS, JR., an individual,
LYNN HARRIS MERLO, an individual, S.H. HARRIS, an in-
dividual HELEN M. WILLNER, an individual, THOMAS
NEW HARRIS, an individual, JANE STADELMAN
App. 38
BARNES, an individual, EVELYN E. STADELMAN, an in-
dividual, LEONA T. STADELMAN, an individual, LYNN A.
STADELMAN, an individual,
Defendants.
ORDER
This is an action for equitable relief and money damages
based on certain misrepresentations defendants allegedly
made in selling their controlling shares of the Harris-
Crestline Corporation to plaintiffs. Plaintiffs bring Count
I of the complaint pursuant to Section 10(b) of the Securi-
ties Exchange Act of 1934 as amended in 15 U.S.C. 78j(b)
and Securities and Exchange Commission Rule 10b-5, with
jurisdiction asserted under Section 27 of the Securities
Exchange Act, 15 U.S.C. §78aa. Plaintiffs invoke the doc-
trine of pendent jurisdiction over Counts II, III and IV
of their complaint, which include state law claims of com-
mon law intentional fraud, negligent misrepresentation,
and violation of Wisconsin securities law, Wis. Stat.
§§551.41, 551.59(1) (1981-82). Plaintiffs seek indemnifica-
tion for all costs arising out of chemical contamination of
the soil underlying the facilities of the business they pur-
chased from defendants, contending that defendants know-
ingly or negligently misrepresented the condition of the
facilities before the stock sale.
Defendants have moved to dismiss plaintiffs’ complaint
on the grounds that 1) suit is barred by the stock pur-
chase agreement under which plaintiffs obtained control
of Harris-Crestline Corporation; 2) the action should be
dismissed or stayed pending the resolution of prior pend-
ing state proceedings on parallel questions involving the
same agreement; 3) plaintiffs’ complaint fails to state a
claim under federal securities law; 4) plaintiffs failed to
plead fraud or knowledge on the part of defendants with
sufficient particulari*y; 5) suit is premature; and 6) the
complaint is barred by the applicable statute of limita-
tions.
App. 39
FACTS
Taking the allegations of the complaint as true for the
sole purpose of deciding this motion, I find the following
as fact: On October 30, 1981, defendants, then sharehold-
ers of Harris-Crestline Corporation, an Illinois Corpora-
tion, sold their controlling shares of stock in Harris-
Crestline to plaintiff, Sentry Corporation, a Texas corpora-
tion operating primarily as a holding company with head-
quarters in the Western District of Wisconsin. SNE cor-
poration is a wholly owned subsidiary of Sentry organized
under Wisconsin law. In selling the stock, the selling
en made the following representations to plain-
tiffs:?
(a) Harris-Crestline as of the date of the sale of
stock was in eompliance, in all material respects, with
all statutes, laws, rules, regulations, governmental
permits and governmental authorizations then appli-
cable to the Company, or to its subsidiary Crestline
International Sales Corporation, or to either of their
properties;
(b) that all real property improvements on Harris-
Crestline’s or its subsidiary’s properties as of the
date of the sale were in operating condition and re-
pair and conformed in all material respects to all ap-
plicable ordinances, regulations and other laws;
(c) that the financial statements delivered to Sentry
“fairly” represented the financial condition of the
company and its subsidiary as of the date of the
statements;
(d) that during the interim period before closing,
Harris-Crestline and its subsidiary had not undergone
any change in their conditions, financial or otherwise,
1 In their briefs, defendants assert and piaintiffs concede that
these representations were contained in the Stock Purchase Agree-
ment between the selling shareholders and plaintiffs, executed on
October 30, 1981.
App. 40
including changes in assets, liabilities, businesses or
operations not in the ordinary course of business;
(e) that during the interim period before closing,
they would cause Harris-Crestline and its subsidiary
to comply in all material respects with all statutes,
laws, rules or regulations applicable to the corpora-
tion or its subsidiary or to either corporation’s busi-
ness; and
(f) that during the interim period before closing, they
would promptly advise Sentry, in writing, of any
materially adverse change in Harris-Crestline’s or its
subsidiary’s financial condition, operations, business
or properties.
From 1978 onwards (and for an unspecified time before
1978) Harris-Crestline stored a chemical substance known
as pentachlorophenol (penta) in three underground tanks
with capacities ranging from 3000 to 15,000 gallons.
Harris-Crestline used the chemical, which is classified as
a hazardous substance, to treat the wood components of
its windows. In 1978, when Harris-Crestline was planning
certain improvements on its property, the corporation di-
rected a civil engineer to take core samples from the
underlying soil. These samples revealed the presence of
penta contamination up to 20 feet below the surface. Upon
discovery of the contamination in 1978, Harris-Crestline
sent the core samples to St. Louis for further tests by
the Coppers Corporation, a manufacturer of pentachloro-
phenol. The results of these tests, which were communi-
cated to Harris-Crestline, confirmed the presence of the
hazardous substance.
Under Wisconsin law in effect at the time of plaintiffs’
stock purchase, any entity responsible for discharging
hazardous substances into the environment was under a
duty to inform the Wisconsin Department of Natural Re-
sources (DNR) of the discharge and to bear all the costs
of restoring the environment and minimizing any harm-
ful effects. Prior to the sale of the Harris-Crestline stock,
the selling shareholders never informed plaintiffs that core
oct
e
'
App. 41
samples taken from Harris-Crestline’s property had indi-
cated pentachlorophenal leakage; never informed the DNR
of the discharge; took no steps to eliminate or control the
discharge; and never informed plaintiffs that Harris-
Crestline would be responsible for the clean-up.
Plaintiffs first discovered the existence of the penta con-
tamination in September, 1984. Those selling shareholders
who were also officers and directors of Harris-Crestline
knew of the chemical spill before they sold their stock
to plaintiffs. Even if the remaining defendants did not
have actual knowledge of the penta contamination, they
knew that they did not have adequate factual grounds on
which to represent that the corporation was in sound con-
dition and in compliance with all laws and regulations. The
selling shareholders’ failure to disclose the existence of
the chemical spill was material to plaintiffs’ decision to
purchase the stock. Had they known of the spill, plain-
tiffs either would not have purchased the stock or would
have bargained for financial provisions compensating for
the situation or for measures correcting it. Plaintiffs have
suffered a loss due to the presence of the chemical sub-
stance on the property they acquired from Harris-Crest-
line. |
RECORD FACTS
Plaintiffs filed this action on October 26, 1984. Service
of process was not effected until January 30, 1985.
OPINION
Ripeness
As a thresnold matter, defendants claim that plaintiffs’
complaint is not ripe for review because Harris-Crestline
has not been found to be in violation of any environmen-
tal law.
‘R}ipeness turns on the fitness of the issues for judi-
cial determination’ and ‘the hardship to the parties of
withholding court consideration.’ ” Pacific Gas & Electric
App. 42
Co. v. State Energy Resources Conservation and Develop-
ment Comm’n, 461 U.S. 190, 201 (1983), quoting Abbott
Labs. v. Gardner, 387 U.S. 136, 149 (1967). Central to the
determination of ripeness is whether a case involved spec-
ulative or contingent events which may never occur. Al-
can Aluminum v. Department of Revenue of Oregon, 724
F.2d 1294, 1295 n. 1 (7th Cir. 1984). Defendants assert
that plaintiffs’ claims hinge upon an adjudicated finding
of non-compliance with applicable laws and regulations,
and that it is not the role of this court to determine
whether any violations have occurred. Plaintiffs contend
that the injury they allege is independent of any admin-
istrative finding of environmental violation, and that the
injury is immediate rather than speculative or remote.
As the owners of property on which a leak of hazard-
ous substances has occurred, defendants were under an
immediate statutory duty to remedy the problem. As suc-
cessors to defendants in the ownership of the Harris-
Crestline facilities, plaintiffs have inherited that same
duty. Wis. Stats. §144.76 (1983-1984) provides in pertinent
part that:
A person who possessts or controls a hazardous sub-
stance or who causes the discharge of a hazardous
substance shall notify the department immediately of
any discharge .
A person who possesses or controls a hazardous sub-
stance which is discharged or who causes the dis-
charge of a hazardous substance shall take the ac-
tions necessary to restore the environment to the ex-
tent practicable and minimize the harmful effects
from the discharge to the air, lands or water of this
state.
Wis. Stats. §144.76(2), §144.76(3) (1983-1984). No separate
adjudication is necessary to compel plaintiffs to undergo
the expenses of clean-up. Furthermore, the selling share-
holders’ representations to plaintiffs were not limited to
assertions that Harris-Crestline was in compliance with
the law. They also represented that ‘‘all real property im-
App. 43
provements on Harris-Crestline’s or its subsidiary’s prop-
erties as of the date of sale were in operating condition
and repair. . . .” Clearly, the extensive penta contamina-
tion in core samples taken from Harris-Crestline’s prop-
erty indicates a defect in the operation and repair of the
company’s underground chemical tanks. Plaintiffs allege
in their complaint that they have already suffered a loss
as a result of the contamination. While the complaint does
not identify a particular loss, taking plaintiffs’ allegations
as true as I must on a motion to dismiss, I find that plain-
tiffs have suffered harms sufficient to render this action
ripe for consideration.
Statute of Limitations
Because I find that this action is barred by the appli-
cable statute of limitations, it is unnecessary to address
the remaining grounds for defendants’ motion to dismiss.
Defendants contend that this action is barred by both
the three-year and the one-year statute of limitations set
out in the Wisconsin Uniform Securities Law, Wis. Stats.
§§551.01-551.57 (1982), which provides, in pertinent part,
that “No action shall be maintained under this section
unless commenced before the expiration of three years
after the act or transaction constituting the violation or
the expiration of one year after the discovery of facts con-
stituting the violation, whichever first expires . . .”’ Wis.
Stats. §551.59 (1982).2 Section 10(b) of the Securities Act
of 1934, on which federal jurisdiction in this case is based,
does not provide its own statutory limitations period. In
this situation, the limitations period is determined by ref-
erence to the most closely analogous state statute. Sperry
v. Barrgren, 523 F.2d 708, 710 n.1 (7th Cir. 1975).
2 The Wisconsin legislature amended §551.595) on April 26, 1984
to delete the one-year limitations period. See 1983 Wisconsin Act
216. However, the earlier version of §551.59(5) controls this ac-
tion, because the amendment was not retroactive.
App. 44
There is no disagreement between the parties as to
which state statute determines the limitations period.
However, there is disagreement whether state or federal
law determines when an action is commenced in a case
brought under a federal statute that provides no limita-
tions period of its own.
Defendants argue that Wisconsin law governs. In Wis-
consin, an action is not deemed commenced until the com-
plaint has been filed and the defendant has been served.
Wis. Stats. §893.02(1). Wisconsin requires service of the
defendant within sixty days of filing the complaint. Wis.
Stats. §801.02(1). The three-year limitations period began
to run on October 30, 1981, the date of execution of the
stock purchase agreement containing the alleged misrepre-
sentations. Plaintiffs filed this action on October 26, 1984,
four days before the expiration of the three-year period,
but they did not serve the defendants until January 30,
1985, some 90 days later.* Defendants argue that under
Wisconsin law, this action was not commenced until well
after the expiration of the three-year limitations period.
Plaintiffs argue that it is federal law that determines
the commencement of the case for statute of limitations
purposes. They cite Rule 3, Federal Rules of Civil Proce-
dure, which provides that “a civil action is commenced
by filing a complaint with the court.” In addition, they
contend that the service of process is governed by federal
law and, specifically, by Rule 4(j) of the Federal Rules
of Civil Procedure, which requires service of process with-
in 120 days of filing. Under these rules, plaintiffs contend,
their action is timely.
At the heart of defendants’ argument is the proposition
that if, in the absence of its own enunciated limitations
period, a federal court is required to borrow a statute
of limitations from an analogous state statute, the court
3 Had they served defendants within 60 days, the suit would be
deemed to have been commenced as of the date of filing. Wis.
Stats. §80L02(1).
ee S
App. 45
should similarly borrow the state provisions concerning
the tolling of the statute: “‘. . . the length of the limita-
tions period, and closely related questions of tolling and
application, are to be governed by state law.” Wilson v.
Garcia, ___ U.S. ___, 105 S.Ct. 1938 (1985) (slip opin-
ion at 7). In its discussion of a statute of limitations ques-
tion different from the one at issue here,4 the Supreme
Court made reference to the following principle, enun-
ciated in Johnson v. Railway Express Agency, Inc., 421
U.S. 454 (1975):
Any period of limitation . . . is understood fully only
in the context of the various circumstances that sus-
pend it from running against a particular cause of
action. Although any statute of limitations is neces-
sarily arbitrary, the length of the period allowed for
instituting suit inevitably reflects a value judgment
concerning the point at which the interests in favor
of protecting valid claims are outweighed by the in-
terests in prohibiting prosecution of stale ones. In vir-
tually all statutes of limitations the chronological
length of the limitation is interrelated with provisions
regarding tolling, revival, and questions of applica-
tion. In borrowing a state period of limitation for ap-
plication to 2 federal cause of action, a federal court
is relying on the State’s wisdom in setting a limit,
and exceptions thereto, on the prosecution of a closely
analogous claim.
421 U.S. at 463-464.
In Johnson, the Court rejected an argument that federal
law governed the tolling of the statute of limitations in
4 In Garcia, the Court held that federal law governed the char-
acterization of an action for purposes of identifying the analogous
state statute for statute of limitations purposes and that other mat-
ters such as the measurement of the statutory period itself are
governed by state law.
App. 46
an action brought under 42 U.S.C. §1981.5 This is consis-
tent with a line of cases in which the Court has rejected
the application of federal tolling rules in actions brought
under statutes with borrowed limitations periods. See, e.g.,
Chardon v. Fumero Soto, 462 U.S. 650, 657 (1983); Board
of Regents v. Tomanio, 446 U.S. 478, 484 (1980) (42 U.S.C.
$1983). In each of these cases, the clash was between a
clear state statute and a non-uniform federal judicial rule.
Chardon v. Fumero Soto, 462 U.S. at 662 (no uniform fed-
eral rule of decision mandating suspension rather than
renewal of statute of limitations when a federal class ac-
tion is filed); Board of Regents v. Tomanio, 446 U.S. at
491-92 (rejecting ‘‘ad hoc federal rule” that tolled statute
of limitations for §1983 action during pendency of state
court Title VII suit); Johnson v. Railway Express Agen-
cy, 421 U.S. at 467 (no relevant body of federal procedural
law on whether filing of Title VII suit tolls statute of
limitations for §1983 action). By contrast, Rule 3 of the
Federal Rules of Civil Procedures is an unequivocal rule
of universal application. However, the distinction is of in-
sufficient consequence to prevent the application to the
present case of the rule favoring state tolling provisions.
In Johnson and the other cases, the Supreme Court did
not merely balance the weight of clear state statutory lan-
guage against less uniform judicial practice; it set forth
the principle that a state’s tolling rules are an integral
part of its statute of limitations and should be applied in
ayy under a federal statute with no limitations period
of its own.
To support their argument that Rule 3 controls the com-
mencement of this action, plaintiffs cite a line of cases
including Walker v. Armco Steel Corp., 446 U.S. 740
(1980) and Wells v. City of Portland, 102 F.R.D. 796 (D.
Oregon 1%). In Walker v. Armco Steel Corp., the Su-
preme Court determined that state service of process
5 42 U.S.C. §1988 requires federal courts to refer to state statutes
when federal law provides no rule of decision for actions brought
under the federal civil rights statutes, 42 U.S.C. §1981 et seg.
App. 47
rules govern in federal cases based upon diversity; but
reserved the question whether Rule 3 operated to toll the
statute of limitations in federal question cases. 446 U.S.
740, 751 n. 11. Plaintiffs argue that Walker should not
be extended to federal question cases. They point out that
the policy behind adopting state service of process rules
in diversity actions is to prevent forum shopping and to
avoid giving state claims longer lives in federal court than
they would have in state court. In plaintiffs’ view, the
same policies do not apply in federal question cases, es-
pecially to an action under Section 10b of the 1938 Secu-
rities Act, which can be brought only in federal court.
It is true that the prevailing rule in the federal courts
of appeals is to apply Rule 3 in non-diversity cases where
a federal cause of action is involved. See the cases cited
in Wells v. City of Portland, 102 F.R.D. 796 at 800. How-
ever, the controlling factor in this case is not simply
whether a federal cause of action is involved, but whether
the statute of limitations is established by federal law or
borrowed from state law. Although plaintiffs are correct
in arguing that Wells is factually very similar to the sit-
uation in the present case, the opinion in that case does
not address this distinction. In Wells, the plaintiff filed
her complaint pursuant to 42 U.S.C. §1983 two days be-
fore the borrowed state statute of limitations ran, but
did not effect service until after the state mandated 60
day period. Although the district court cited Board of
Regents v. Tomanio, 446 U.S. 478, as authority for bor-
rowing the state limitations period in the absence of a
federal one, it failed to follow that case’s more important
ruling that state tolling rules are integral parts of the
state’s statute of limitations. In its opinion, the court cited
a number of federal appeais court decisions. However,
each of the cited cases involved federal question cases in
which the limitations period was established by federal
law.® None of the decisions involved federal statutes which
6 Jordan v. United States, 694 F.2d 833 (D.C. Cir. 1982) (28
U.S.C. §2401(b); 6 month time period for tort claims against the
(Footnote continued on following page)
App. 48
rely on a state’s judgment in setting limitations periods
and interrelated tolling provisions. In deciding Johnson
v. Railway Express Agency, 421 U.S. 454, the Supreme
Court explicitly rejected as inapposite cases cited by the
petitioner involving limitations periods set by federal stat-
utes. 421 U.S. at 466. Because Wells v. City of Portland
fails to note the distinction between federal statutes with
specific periods of limitation and those without such peri-
ods, it is not persuasive. I conclude that Wisconsin's three-
year statute of limitations bars plaintiffs from bringing
this suit.
Defendants’ alternative argument that plaintiffs’ suit is
barred by the one-year statute of limitations requires lit-
tle discussion. The Wisconsin statute sets the limitations
period for securities actions at “3 years after the act or
transaction constituting the violation or . . . one year after
the discovery of facts constituting the violation, whichever
first expires. .. .”” Wis. Stats. §55L59(5) (1982) (emphasis
added).
Defendants contend that plaintiffs were in possession
of facts that would have a them to an early discovery
of the violation had they exercised due diligence. Defen-
dants allege that plaintiffs had full access to Harris-
Crestline’s records prior to the execution of the stock pur-
chase agreement in 1981, and should have discovered the
penta spill in 1981, so that the statute would have run
in 1982. Plaintiffs contend that they did not learn of the
pentachloropenal contamination until September of 1984.
It is unnecessary to resolve this dispute. Even if defen-
dants were unable to establish that plaintiffs knew of the
® continued
United States); Caldwell v. Martin Mamietta Corp., 632 F.2d 1184
(5th Cir. 1980) (42 U.S.C. §2000e-5(f1); 90 day period for claims
under Title VII of the Civil Rights Act of 1964); United States
v. Wahl, 583 F.2d 285 (6th Cir. 1978) (28 U.S.C. §2415(a); six year
period for government contracts actions.
App. 49
violation before September, 1984, the three-year statute
of limitations running from the date of the acts consti-
tuting the violation would have expired well before the
expiration of the one-year statute and this action would
be barred.
Pendent State Claims
It is a well-established rule of law that when federal
claims are dismissed before trial, pendent state claims
should also be dismissed. United Mineworkers of America
v. Gibbs, 383 U.S. 715, 726 (1966); Metz v. Tootsie Roll
Industries, 715 F.2d 299, 307 (7th Cir. 1983); Continen-
tal Assurance Co. v. American Bankshares Corp., 601 F.
Supp. 277, 280 (E.D. Wis. 1984). As the Court stated in
United Mineworkers of America,
It has consistently been recognized that pendent jur-
isdiction is a doctrine of discretion, not of plaintiff's
right. Its justification lies in considerations of judicial
economy, convenience and _ fairness to litigants.
383 U.S. at 726.
If the pendent state law claims would be vulnerable to
motions to dismiss on statute of limitations grounds were
they brought again in state court, the court could main-
tain jurisdiction over them even though the federal claim
has been dismissed. O’Brien v. Continental Illinois Na-
tional Bank & Trust, 593 F.2d 54, 65 (7th Cir. 1979). In
this instance, however, plaintiffs’ state fraud and negligent
wrong: ag ogy claims are governed by a six-year stat-
ute, Wis. Stats. §893.93(b), and can go forward in state
court. Moreover, those claims will necessarily involve in-
terpretation of the Stock Purchase Agreement between
the selling shareholders and plaintiffs under state law.
Thus, a state court is the most appropriate place for
them.
App. 50
ORDER
Therefore, IT IS ORDERED that Counts I and IV of
plaintiffs’ cornplaint are DISMISSED as barred by the
statute of limitations, and Counts II and III are DIS-
MISSED under the doctrine of pendent jurisdiction.
Entered this 30th day of September, 1985.
BY THE COURT:
/s/ Barbara B. Crabb
District Judge
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.