Opposition Brief — Texas Commerce Bancshares, Inc. v. Grossman

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No. 93-1583 | MAY ~6 i994

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In The ‘ata

Supreme Court of the United States

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October Term, 1993

TEXAS COMMERCE BANCSHARES, INC.,

Petitioner,

VS.

STANLEY M. GROSSMAN,

Respondent.

On Petition for a Writ of Certiorari to the United States Court

of Appeals for the Second Circuit

RESPONDENT’S BRIEF IN OPPOSITION

GREGORY K. ARENSON

Counsel of Record

WENDY M. ZELLER

KAPLAN, KILSHEIMER *% FOX

Attorneys for Respondent

685 Third Avenue

New York, New York 10017

(212) 687-1980

Lk te (800) 3 APPEAL « (800) 5 APPEAL * (800) BRIEF 21

BBonices, inc

QUESTION PRESENTED

Did the court of appeals have jurisdiction under the collateral

order doctrine over an appeal from an interlocutory district court

decision reinstating under section 27A of the Securities Exchange

Act a conditionally dismissed securities class action after

determining it had been timely commenced within the applicable

limitations period?

ii

TABLE OF CONTENTS

Page

CI TORING 6 kc cccccceccedeccécaleneaeeee i

PERO GHOED oes ccccccoucesvcstadeuhineaeeuel ii

PeTE CO occ vinnies 6dbencsveudéaauneases ili

Statutory Provisions Involved ..............e00e0e0: ]

eg it PPT er eee 2

A. Plaintiff Commences This Action In August 1987

After The SEC Found TCB Had Violated § 13(a).

PUTT TTTTT eT Pee rr ee ere 3

B. TCB Delays Its Day Of Reckoning. ............ 3

C. The Limitations Period Applicable To § 10(b)

Actions Is Significantly Changed. ............ 4

D. The District Court Enters An Order Conditionally

EINE TOG sc ocucdccadesunadaneneas 5

E. Congress Enacts §27A And Plaintiff Seeks

POE, is kk ive dss chweennne exes. 5

F. The District Court Reinstates This Action. ...... 7

G. The Court Of Appeals Dismisses TCB’s Attempted

PRG ccrductatddscecesceetacthcesecseas 7

Summary of the Argument ..........ccccccsccccvece 8

iti

Contents

Page

Reasons for Denyingthe Writ ...................... 9

The Collateral Order Doctrine Does Not Permit

TCB’s Appeal From The District Court’s

ee 9

A. The District’s Court’s Determination Of The

Constitutionality Of § 27A And Of The

Applicable Limitations Period May Be

Reviewed After Final Judgment. ......... 9

B. TCB Is “Playing Word Games” In Attempting

To Contrive A _ Right Justifying An

Interlocutory Appeal. .................. 1]

IY SU Sree uy OS sk oo nase... 15

TABLE OF CITATIONS

Cases Cited:

Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483

I 2

Axel Johnson, Inc. v. Arthur Andersen & Co., 6 F.3d 78 (2d

ES GS eens 5,6,7,8

Bankers Trust Co. v. Mallis, 435 U.S. 381 a 5

Blonder-Tongue Lab., Inc. v. Univ. of Illinois Found., 402

ESE ee an amn

iv

Contents

Page

Board of Regents of Univ. of State of New York v.

Tomanio, 446 U.S. 478 (1980) ................ 8,10, 12,13

Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir.

DU ibceeer ces ededdacesnde been sieeedaewea 4,7

Chevron Oil Co. v. Huson, 404 U.S.97 (1971) .......... 4,7

Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541

CORSE: Ghd vcuyceedSeebrenscuksaecseddeeeer ces 7

Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978) ....9, 10, 11

In re Data Access Sys. Sec. Litig., 843 F.2d 1537 (3d Cir.),

cert. denied, 488 U.S. 849 (1988) ................. 4

DeWeerth v. Baldinger, 836 F.2d 103 (2d Cir. 1987) ..... 8,10

Desktop Direct, Inc. v. Digital Equip. Corp., 993 F.2d 755

(10th Cir.), cert. granted, 114S.Ct.379 (1993) ...... 11,13

Edmonson v. Leesville Concrete Co., Inc., 500 U.S. 614

CEE bee so eendsh br bbd0dbblsieennnes* oes xe 10

Gray v. First Winthrop Corp., 989 F.2d 1564 (9th Cir. 1993)

TTT PETE CPE CTE TET CP eT TET TT ee 8

Gulfstream Aerospace Corp. v. Mayacamas Corp., 485

EE dens dewdasceeneeereceretrseus 10

James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 111

EE caccndussreciesenadeacweenne 4,5,10

Vv

Contents

Page

Janneh v. GAF, 887 F.2d 432 (2d Cir. 1989), cert. denied,

beac trrea tei, sco ag, BEET ee 13

Johann Maria Farina Gegenuber dem Neumarkt y. Roger

& Gallet, 296 F.2d 119 (2d Cir. ME Stevesebdccicc 5

Koester v. American Republic Inv., Inc., 11 F.3d 818 (8th

ara caion REE Te TE Pe a) 8,10

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,

501 U.S. 350, 111 S. Ct. 2773 eee are 4,5

McDonald v. City of West Branch, Michigan, 466 U.S. 284

WE Aetuihevsenniaabesctereneie enti 12

Micromedia v. Automated Broadcast Controls, 799 F.2d

IE eh dv ectnpevsecss ui 10, 13

Midland Asphalt Corp. v. United States, 489 U.S. 794

WE hh as deneindccsstdssadauseee ee 8,9, 11

Migra v. Warren City School Dist. Bd. of Educ., 465 U.S.

FOIE Add Sede danbibieeed cates isctic 12

Mitchell v. Forsyth, 472 U.S. 511 SS ee eee ore 14

Pacific Mut. Life Ins. Co. v. First Republic Bank Corp., 997

F.2d 39 (Sth Cir.), cert. granted sub nom. Morgan

Stanley & Co. v. Pacific Mut. Life Ins. Co., 114 S. Ct.

CIGD Vis asdasetedcdedeccosses bite. 5,9

vi

Contents

Page

San Francisco Arts & Athletics, Inc. v. United States

Olympic Committee, 483 U.S.522 (1987) .......... 10

Van Cauwenberghe v. Biard, 486 U.S. 517 (1988) ....... 14

Welch v. Cadre Capital, 923 F.2d 989 (2d Cir.), vacated and

remanded sub nom. Northwest Sav. Bank PaSA v. Welch,

501 U.S. _, 111 S. Ct. 2882, opinion after

remand, 946 F.2d 185 (2d Cir. 1991) ............45. 4,5,7

Woods v. Rhodes, 994 F.2d 494 (Sth Cir. 1993) ......... 10,13

Statutes Cited:

Securities Exchange Act § 10(b), 15 U.S.C. § 78j(b)(1988)

ove dadek Cid cwenend héetdbeeiaweee 1,2,3, 4,5, 6, 8, 11

Securities Exchange Act § 13(a), 15 U.S.C. § 78m(a)(1988)

ie utivhe ad ia6abn $0sand takes e tenes 2,3

Securities Exchange Act § 27A, 15 U.S.C. § 78aa-1 (Supp.

+ Ey een peters i, 1,5,6,7,8,9, 10, 11,13

BP ten SREP OCU EY EDU) ccccccsenescecevess 1,2

ee ie eee oe cee 8

I oad te eas on tne aiinae es aan 2

I ens oss win hen ceebeaneenee 2

os cine es abeesbacuneeceleladewen 2

ne

vii

Contents

Page

EN Ss ncldu si-o0s sbebdedssceciksekcacas 8, 12,13

United States Constitution Cited:

WIE, Sc ewepewnsddcccevscssecveecececas 10

oe 6

FourteenthAmendment ........................... 10

Rules and Regulations Cited:

17C.F.R. § 240.10b-5 (1993) ......0..0.0 000. 2

Se 11,12

Treatises Cited:

Restatement (Second) of Judgments (1982) ........... 12,13

18 C. Wright, A. Miller, & E. Cooper, Federal Practice and

Procedure § 4402(1981) ........................ 12

l

STATUTORY PROVISIONS INVOLVED

Securities Exchange Act section 27A, Pub. L. No. 102-242,

§ 476, 105 Stat. 2236, 2387 (1991), codified at 15 U.S.C. § 78aa-1

(Supp. III 1991), provides:

(a) Effect on pending causes of action

The limitation period for any private civil

action implied under section 78j(b) of this title

that was commenced on or before June 19,

1991, shall be the limitation period provided by

the laws applicable in the jurisdiction,

including principles of retroactivity, as such

laws existed on June 19, 1991.

(b) Effect on dismissed causes of action

Any private civil action implied under section

78j(b) of this title that was commenced on or

before June 19, 1991 —

(1) which was dismissed as time barred

subsequent to June 19, 1991, and

(2) which would have been timely filed under

the limitation period provided by the laws

applicable in the jurisdiction, including

principles of retroactivity, as such laws existed

on June 19, 1991,

shall be reinstated on motion by the plaintiff

not later than 60 days after Dec. 19, 1991.

The entire text of 28 U.S.C. § 1291 (Supp. IV 1992) is:

2

The courts of appeals (other than the United

States Court of Appeals for the Federal Circuit)

shall have jurisdiction of appeals from all final

decisions of the district courts of the United

States, the United States District Court for the

District of the Canal Zone, the District Court of

Guam, and the District Court of the Virgin

Islands, except where a direct review may be

had in the Supreme Court. The jurisdiction of

the United States Court of Appeals for the

Federal Circuit shall be limited to the

jurisdiction described in sections 1292(c) and

(d) and 1295 of this title.

STATEMENT OF THE CASE

Following the release by the Securities and Exchange

Commission (the “SEC”) on August 17, 1987 of an opinion and

order finding that petitioner Texas Commerce Bancshares, Inc.

(“TCB”) had violated section 13(a) of the Securities Exchange

Act' by materially understating its loan loss reserve during the first

quarter of 1985, respondent commenced this securities class action

asserting violations of section 10(b) of the Securities Exchange

Act,’ and rule 10b-5 promulgated thereunder.’ Taking advantage

of doctrinal developments regarding the appropriate limitations

period to apply to § 10(b) actions, foreshadowed by this Court’s

Malley-Duff opinion in June 1987,‘ petitioner has delayed for

1. 15U.S.C. § 78m(a) (1988).

2. 15U.S.C. § 78j(b) (1988).

3. 17C.F.R. § 240.10b-5 (1993).

4. Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143,

154 (1987).

3

almost seven years, and by this petition seeks to delay further,

substantive consideration and determination of this securities class

action. TCB’s petition raises no special or important issue worthy

of this Court’s review and seeks merely to prolong consideration of

what would be a meritless interlocutory appeal.

A. Plaintiff Commences This Action In August 1987 After

The SEC Found TCB Had Violated § 13(a).

As the district court found, plaintiff considered bringing this

action in 1985 when the possibility that TCB had misrepresented

its financial condition was first disclosed. (Pet. App.’ 17a.)

However, plaintiff, in an exercise of caution and relying on the

then-existing six-year limitations period applied to § 10(b)

securities actions commenced in New York (Pet. App. 13a, 14a,

17a), did not file his complaint until shortly after the SEC issued its

August 1987 opinion and order. In its opinion and order, the SEC

found that TCB had violated Securities Exchange Act § 13(a) by

filing a report on Form 10-K for the period ending December 31,

1984, “which contained financial statements which materially

understated the ALLL [the allowance for loan and lease losses] by

$28.2 million and overstated the earnings and Net Income Before

[Taxes by 12%) and After Taxes [by 8%] for the year.” The SEC

did not obtain evidence of scienter, because that is not a

requirement to show a violation of § 13(a).

B. TCB Delays Its Day Of Reckoning.

TCB’s response to the complaint was to file motions to

dismiss for untimeliness and improper venue. Plaintiff moved for

certification of the class. Discovery was taken confined to the

5. “Pet. App.” refers to the appendix filed with TCB’s Petition for a Writ of

Certiorari to the United States Court of Appeals for the Second Circuit (“TCB’s

Petition”).

4

issues on these motions, and, following the Third Circuit’s

decision in Jn re Data Access Sys. Sec. Litig.,° the parties and the

district court restricted the initial motion practice (heard in late

1988) to the limitations issue. The district court reserved decision

and then placed the case on its suspense calendar while awaiting

doctrinal developments.

C. The Limitations Period Applicable To § 10(b) Actions Is

Significantly Changed.

On November 8, 1990, the Court of Appeals for the Second

Circuit in Ceres Partners v.GELAssociates’ determined that there

should be a uniform limitations period for § 10(b) actions requiring

suit to be filed within one year from the date of discovery and not

more than three years from accrual of the claim. However, on April

30, 1991, in Welch v. Cadre Capital,* the Second Circuit held that

the new Ceres Partners limitations period would not be applied

retroactively under this Court’s standards established in Chevron

Oil Co. v. Huson.’ This Court on June 20, 1991, then decided

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson” and

James B. Beam Distilling Co. v. Georgia."' Lampf Pleva adopted

the one-year/three-year uniform limitations period for § 10(b)

6. 843 F.2d 1537 (3d Cir.), cert. denied, 488 U.S. 849 (1988).

7. 918 F.2d 349, 352-53 (2d Cir. 1990).

8. 923 F.2d 989, 995 (2d Cir.) (“Welch I’), vacated and remanded sub nom.

Northwest Sav. Bank PaSA v. Welch, 501 U.S. __, 111 S. Ct. 2882, opinion after

remand, 946 F.2d 185 (2d Cir. 1991).

9. 404 U.S. 97, 106-107 (1971).

10. 501 U.S. 350, __, 111 S. Ct. 2773, 2781 (1991).

11. 501 U.S. 529, __, 111 S. Ct. 2439, 2448 (1991).

‘

5

actions, and James Beam held that new rules announced by this

Court should be applied to all pending cases. In addition, this Court

remanded Welch to the Second Circuit for reconsideration in light

of its decisions in Lampf Pleva and James Beam."

D. The District Court Enters An Order Conditionally

Dismissing This Case.

On September 20, 1991, the district court signed an order (Pet.

App. 2a-4a) conditionally dismissing this action, pending the

outcome of the remand of Welch. However, as conceded by TCB’s

Petition at 6 in n. 3, no judgment or final order was ever entered!

Therefore, under long-standing Second Circuit law,” this

conditional order was not appealable. 4

E. Congress Enacts § 27A And Plaintiff Seeks Reinstatement.

On December 19, 1991, Congress enacted Securities

Exchange Act § 27A. In pertinent part, § 27A provides that implied

12. 501 U.S. ___, 111 S. Ct. 2882 (1991).

13. Johann Maria Farina Gegenuber dem Neumarkt v. Roger & Gallet,

296 F.2d 119 (2d Cir. 1961) (Friendly, Marshall and Clark, CJJ. per curiam)

(appeal dismissed as premature from conditional order where no final judgment

was entered); cf. Bankers Trust Co. v. Mallis, 435 U.S. 381, 382 (1978) (appeal

permitted from unconditional final order where parties and court proceeded on

the assumption that there was an adjudication of dismissal), relied on in TCB’s

Petition at 6, n. 3, and 12, n. 4.

14. The unappealability of the conditional September 20 order places this

case on all fours with Axel Johnson Inc. v. Arthur Andersen & Co., 6 F.3d 78, 84

(2d Cir. 1993), and creates a crucial distinction with Pacific Mut. Life Ins. Co. v.

First Republic Bank Corp., 997 F.2d 39, 46 (Sth Cir.), cert. granted sub nom.

Morgan Stanley & Co. v. Pacific Mut. Life Ins. Co., 114 S. Ct. 680 (1993)

(“[eJach of the defendants in these cases . . . possessed final, nonappealable

judgments dismissing the plaintiffs’ § 10(b) claims”).

6

actions under § 10(b) — which had been dismissed as time-barred

after June 19, 1991 (such as this action), but which would have

been considered timely filed “under the limitation period provided

by the laws applicable in the jurisdiction, including principles of

retroactivity, as such existed on June 19, 1991” — could be

reinstated on a motion filed within 60 days. Plaintiff filed such a

motion on February 14, 1992.

TCB opposed the motion, arguing, among other things, that

§ 27A was unconstitutional. The district court again delayed

decision until the issue was clarified by the Second Circuit. On

September 27, 1993, the Second Circuit decided Axel Johnson, Inc.

v. Arthur Andersen & Co." The Second Circuit upheld the

constitutionality of § 27 A(a) in the face of a “separation of powers”

challenge,'* and rejected a “vested rights” challenge to section

27A(b) because, as here, the time for appeal of the district court’s

decision, there denominated an order, had not begun to run.'’ The

Second Circuit reasoned:

[Not all judgments that are final for purposes

of res judicata are final for Fifth Amendment

and separation of powers purposes. Rather, a

case remains “pending,” and open to

legislative alteration, so long as an appeal is

pending or the time for filing an appeal has yet

to lapse."*

15. 6 F.3d 78 (2d Cir. 1993).

16. 6F.3d at 81-83.

17. 6 F.3d at 83-84.

18. 6 F.3d at 84 (citations omitted). Ci TCB's Petition at 12, n. 4.

7

F. The District Court Reinstates This Action.

After the Second Circuit’s decision in Axel Johnson, the

district court on December 22, 1993 issued its opinion and order

reinstating this action. The court followed the Second Circuit’s

determination on the constitutionality of § 27A (Pet. App. 9a- 10a)

and then applied Second Circuit limitations and retroactivity

principles as they existed on June 19, 1991, which had been stated

in Welch I (Pet. App. 10a-12a). In particular, the district court

found that (i) Ceres Partners had established a new principle of

law (Pet. App. 12a-13a), (ii) retrospective application of Ceres

Partners would not further the effective operation of the new rule it

stated (Pet. App. 13a-14a), and (iii) the specific equities in this case

weighed in favor of permitting plaintiff to proceed (Pet. App. 14a-

17a).'9

G. The Court Of Appeals Dismisses TCB’s Attempted Appeal.

Pursuing its strategy of delay, TCB sought to appeal under the

collateral order doctrine, first enunciated in Cohen v. Beneficial

Indus. Loan Corp.,” the district court’s interlocutory

determination reinstating this conditionally dismissed action. On

respondent’s motion, the court of appeals summarily dismissed the

attempted appeal (Pet. App. 1a). TCB now seeks certiorari from

this Court.

19. TCB’s Petition is significantly inaccurate at 6, n. 3, where it claims

that the district court did not weigh the equities as required by Chevron Oil Co. v.

Huson, 404 U.S. 97, 107 (1971), and, in particular, did not consider whatever

equities there were in TCB’s favor from its purportedly having contributed to the

development of a new rule of law (see Pet. App. 16a where the district court

rejected this very argument).

20. 337 U.S. 541, 546-47 (1949).

8

SUMMARY OF THE ARGUMENT

There is no special and important issue presented by

petitioner.

¢ Section 27A affects only a limited number of cases, Axe/

Johnson, Inc. v. Arthur Andersen & Co., 6 F.3d 78, 82 (2d Cir.

1993); Gray v. First Winthrop Corp., 989 F.2d 1564, 1572 (9th Cir.

1993), and the number of those cases must diminish as the last date

to reinstate a case under § 27A — February 17, 1992 — recedes.

¢ There is no conflict among the circuits, as there is no

reported decision on the applicability of the collateral order

doctrine to an interlocutory decision reinstating a § 10(b) action

under § 27A.?!

¢ The collateral order doctrine is inapplicable. Section 27A

only modified a limitations period; it does not contain “an explicit

statutory or constitutional guarantee that trial will not occur,”

Midland Asphalt Corp. v. United States, 489 U.S. 794, 801 (1989).

The validity of TCB’s limitations defense to this action may be

reviewed on appeal from any final judgment in favor of

respondent. See Board of Regents of Univ. of State of New York v.

Tomanio, 446 U.S. 478, 482-83 (1980) (upholding a limitations

defense to reverse a judgment for plaintiff on a civil rights claim

under 42 U.S.C. § 1983); Koester v. American Republic Inv., Inc.,

11 F.3d 818, 820 (8th Cir. 1993) (reversing a judgment on a verdict

against one defendant because the breach of fiduciary duty claim

was time-barred); DeWeerth v. Baldinger, 836 F.2d 103, 104 (2d

Cir. 1987) (reversing a judgment directing recovery of a stolen

painting because the claim was time-barred).

21. For example, the appeal in Axel Johnson Inc. v. Arthur Andersen &

Co., 6 F.3d 78, 81 (2d Cir. 1993), was certified under 28 U.S.C. § 1292(b), and

the three appeals in Gray v. First Winthrop Corp., 989 F.2d 1564, 1567 (9th Cir.

1993), were all from final judgments.

9

REASONS FOR DENYING THE WRIT

THE COLLATERAL ORDER DOCTRINE DOES NOT

PERMIT TCB’S APPEAL FROM THE DISTRICT

COURT’S DETERMINATION.

To come within the “narrow exception to the normal

application of the final judgment rule [that] has come to be known

as the collateral order doctrine,” Midland Asphalt, supra, 489 U.S.

at 798, an “order must [1] conclusively determine the disputed

question, [2] resolve an important issue completely separate from

the merits of the action, and [3] be effectively unreviewable on

appeal from a final judgment,” Coopers & Lybrand v. Livesay, 437

U.S. 463, 468 (1978). The third condition cannot be met by

petitioner.”

A. The District’s Court’s Determination Of The

Constitutionality Of § 27A And Of The Applicable

Limitations Period May Be Reviewed After Final J udgment.

The district court’s opinion and order that TCB seeks to appeal

decided two issues — (1) the constitutionality of § 27A and (2) the

appropriate limitations period to be applied to this action. Neither

issue can possibly justify an interlocutory appeal.

If this Court in the pending Morgan Stanley case” should

22. Contrary to TCB’s Petition at 3, respondent did not concede in the

court of appeals that TCB had satisfied the first two conditions of the collateral

order doctrine. Respondent noted that the court of appeals need not have

addressed those conditions because the third condition was dispositive, but

respondent also presented arguments relating to the first two conditions.

23. Pacific Mut. Life Ins. Co. v. First Republic Bank Corp., 997 F.2d 39, 46

(Sth Cir.), cert. granted sub nom. Morgan Stanley & Co. v. Pacific Mut. Life Ins.

Co., 114. Ct. 680 (1993).

10

determine that § 27 A(a) is unconstitutional, then surely the district

court, following James Beam, supra, will apply the new law.™ If

this Court should uphold the constitutionality of § 27A, then surely

TCB would be well advised not to pursue a then frivolous appeal of

this issue. In either event, the constitutionality of § 27A may be

raised by TCB on any appeal from a final judgment in favor of

plaintiff. See, e.g., Edmonson v. Leesville Concrete Co., Inc., 500

U.S. 614 (1991) (plaintiff's Equal Protection challenge to jury

selection reviewed on appeal from a final judgment for defendant);

San Francisco Arts & Athletics, Inc. v. United States Olympic

Committee, 483 U.S. 522 (1987) (defendant’s First Amendment

challenge to statute reviewed on appeal from final judgment for

plaintiff).

Similarly, the issue of the appropriate limitations period

applicable to this specific action is reviewable on appeal from a

final judgment, Board of Regents of Univ. of State of New York v.

Tomanio, 446 U.S. 478, 482-83 (1980); Koester v. American

Republic Inv., Inc., 11 F.3d 818, 820 (8th Cir. 1993); DeWeerth v.

Baldinger, 836 F.2d 103, 104 (2d Cir. 1987), as would be any other

defense that fails during the course of an action, Woods v. Rhodes,

994 F.2d 494, 496 (Sth Cir. 1993) (defense of release); Micromedia

v. Automated Broadcast Controls, 799 F.2d 230, 231 (Sth Cir.

1986) (statute of frauds defense).”

24. To this extent, the district court did not conclusively determine the

disputed question, and the first Coopers & Lybrand condition has not been met.

See Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 278 (1988)

(order denying stay during pendency of state court action “inherently

tentative”); cf. id., at 291 (Scalia, J., concurring: “A categorical order otherwise

qualifying for Cohen treatment does not necessarily lose that status, and become

‘nonfinal,’ merely because the court may contemplate — or even, for that matter,

invite — renewal of the aggrieved party's request for relief at a later date”

{emphasis added)]).

25. A limitations defense, as any other affirmative defense that must be

(Cont'd)

FF —_— —

ll

B. TCB Is “Playing Word Games” In Attempting To Contrive

A Right Justifying An Interlocutory Appeal.

Nowhere in the district court opinion is there a determination

of TCB’s “right not to undergo any further litigation” (TCB’s

Petition at 3) or “right not to stand trial” (TCB’s Petition at 8) or

“right to avoid trial” (TCB’s Petition at 9), because no such right

was ever in issue or adjudicated. Nowhere is such a right granted in

§ 27A, which only speaks about “limitation periods” and

“principles of retroactivity” in regard to § 10(b) actions. The

inescapable conclusion is that TCB is “play[(ing) word games with

the concept of a ‘right not to be tried.’ ” Midland Asphalt Corp. v.

United States, 489 U.S. 794, 801 (1989).

TCB seeks to create a rationale justifying appeal (where none

exists) by recasting the events in the district court as implicating

the res judicata effect of the district court’s conditional order of

September 20, 1991 (which order could not have been” and is not

the subject of this or any other appeal) and as somehow falling

within, while still being distinguishable from, the line of cases that

is under review by this Court in Desktop Direct, Inc. v. Digital

Equip. Corp., 993 F.2d 755 (10th Cir.), cert. granted, 114S. Ct. 379

(1993). These verbal gymnastics do not avail petitioner.

For all the wondrous praises of res judicata in TCB’s Petition

at 12-14, it is still, pedestrianly, only a defense of claim or issue

(Cont'd)

pleaded under Fed. R. Civ. P. 8(c), should not be considered “completely

separate from the merits.” To this extent the second Coopers & Lybrand

condition is not satisfied.

26. TCB’s different formulations of its purported right indicate how

slippery the notion is.

27. Seen. 13 above.

12

preclusion in a subsequent action. Blonder-Tongue Lab., Inc. v.

Univ. of Illinois Found., 402 U.S. 313, 350” (1971); Migra v.

Warren City School Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1”

(1984); Fed. R. Civ. P. 8(c). As such, it, like other affirmative

defenses raised during the course of an action, is reviewable on an

appeal at the end of the case. McDonald v. City of West Branch,

Michigan, 466 U.S. 284, 285-87 (1984) (preclusive effect of prior

arbitral decision reviewed after verdict for plaintiff on a civil rights

claim under 42 U.S.C. § 1983); Board of Regents of Univ. of State

28.

Id.

29.

Res judicata and collateral estoppel are affirmative

defenses that must be pleaded. Fed.Rules Civ.Proc. 8(c).

The purpose of such pleading is to give the opposing party

notice of the plea of estoppel and a chance to argue, if he

can, why the imposition of an estoppel would be

inappropriate.

The preclusive effects of former adjudication are

discussed in varying and, at times, seemingly conflicting

terminology, attributable to the evolution of preclusion

concepts over the years. These effects are referred to

collectively by most commentators as the doctrine of “res

judicata.” See Restatement (Second) of Judgments,

Introductory Note before ch. 3 (1982); 18 C. Wright, A.

Miller, & E. Cooper, Federal Practice and Procedure

§ 4402 (1981). Res judicata is often analyzed further to

consist of two preclusion concepts: “issue preclusion” and

“claim preclusion.” Issue preclusion refers to the effect of

a judgment in foreclosing relitigation of a matter that has

been litigated and decided. See Restatement, supra, § 27.

This effect also is referred to as direct or collateral

estoppel. Claim preclusion refers to the effect of a

judgment in foreclosing litigation of a matter that never

has been litigated, because of a determination that it

should have been advanced in an earlier suit. Claim

(Cont'd)

13

of New York v. Tomanio, 446 U.S. 478, 482-83 (1980) (limitations

defense reviewed after judgment for plaintiff on a civil rights claim

under 42 U.S.C. § 1983); Woods v. Rhodes, 994 F.2d 494, 496 (Sth

Cir. 1993) (denial of summary judgment based on defense of

release reviewed after verdict for plaintiff on a civil rights claim

under 42 U.S.C. § 1983); Micromedia v. Automated Broadcast

Controls, 799 F.2d 230, 231 (Sth Cir. 1986) (statute of frauds

defense raised in answer and motion for a directed verdict

| reviewed after verdict for plaintiff on a breach of contract claim).

Thus, a denial of claim or issue preclusion (even if the district

court’s December 22 order could conceivably be so

mischaracterized) does not provide a ground for invoking the

collateral order doctrine permitting interlocutory appeals.

Nor does Desktop require that this Court grant certiorari in this

case. TCB’s Petition itself at 8-9 distinguishes Desktop and at 15

distinguishes Janneh v. GAF, 887 F.2d 432 (2d Cir. 1989), cert.

denied, 498 U.S. 865 (1990), the case on which it relied below.

Consequently, TCB fatally undercuts its argument that, because

Desktop is pending for decision in this Court, its petition for

certiorari purportedly raising similar issues should be granted. In

fact, neither Desktop nor Janneh, which at most involve the

rescission or enforcement of settlement agreements, are related in

any way to a determination under Securities Exchange Act § 27A

of the appropriate limitations period to be applied in reinstating a

conditionally dismissed action. Neither case supports the verbal

alchemy used by petitioner to transmute a decision on the

limitations period applicable in this action into a determination of

“a right not to undergo any further litigation.”

(Cont'd)

preclusion therefore encompasses the law of merger and

bar. See id., Introductory Note before § 24.

Id.

14

The critical question, following Mitchell [v.

Forsyth, 472 U.S. 511 (1985)], is whether “the

essence” of the claimed right is a right not to

stand trial. This question is difficult because in

some sense, all litigants who have a

meritorious pretrial claim for dismissal can

reasonably claim a right not to stand trial. But

the final-judgment rule requires that except in

certain narrow circumstances in which the

right would be “irretrievably lost” absent an

immediate appeal, litigants must abide by the

district court’s judgments, and suffer the

concomitant burden of a trial, until the end of

proceedings before gaining appellate review.

Van Cauwenberghe v. Biard, 486 U.S. 517, 524 (1988) (citations

omitted). TCB is no different from any other defendant whose

affirmative defense has been rejected on a motion to dismiss. The

“essence” of a limitations defense is not “a right not to undergo any

further litigation.” TCB has no right to an immediate interlocutory

appeal in this case.

15

CONCLUSION

For all the reasons stated above, this Court should deny TCB’s

petition for a writ of certiorari.

Respectfully submitted,

GREGORY K. ARENSON

Counsel of Record

WENDY M. ZELLER

KAPLAN, KILSHEIMER & FOX

Attorneys for Respondent

685 Third Avenue

New York, New York 10017

(212) 687-1980

Dated: May 6, 1994