Opposition Brief — Dennler v. Trippet

Bape Court, U.S. |

FILED

FFB 7 (1995

__No. 92-1099 __} OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

WYNEMA ANNA CROSS, EXECUTRIX, ef al.,

Petitioners,

VS.

THOMAS H. THORNER, ev. al,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Tenth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

WILLIAM A. WINEBERG, ESQ. PETER VAN N. LocKWwoopb, ESQ

MICHAEL R. SIMMONDS, ESQ. ALBERT G. LAUBER, ESQ

BROAD, SCHULZ, LARSON & Jict R. SHELLOW, ESQ

WINEBERG CAPLIN & DRYSDALE,

One California Street CHARTERED

San Francisco, CA 94111 One Thomas Circle, N.W

(415) 986-0300 Washington, DC 20005

1) y 4

*ELIHU INSELBUCH, Esq. (ame) SOS- NN

CAPLIN & DRYSDALE, WILLIAM H. HINKLE, ESQ

CHARTERED Suite 1100

10 East 53rd Street 320 South Boston Avenue

20th Floor Tulsa, Oklahoma 74103

New York, New York 10022 (918) 584-6700

(212) 319-7125 *Counsel of Record

BOWNE OF SAN FRANCISCO. INC . 343 SANSOME ST . &F CA 94104 + 4'5 362. 2 3X

TABLE OF CONTENTS

| Page

COUNTER STATEMENT OF THE CASE ........... l

REASONS FOR DENYING THE PETITION ........ 2

ee PEE CET TEEPE PTET TTT CCT ere TCT Cr eTe 28

::

TABLE OF AUTHORITIES CITED

Cases

Agapitos v. PCM Investment Company, 1992 WL 365643

Cae SOR SBE BEE vn o's eks aes evaeneuee sees

Ahmed v. Trupin, 781 F. Supp. 1017 (S.D.N.Y 1992) ..

Alfadda v. Fenn, {1991-1992 Transfer Binder] Fed. Sec.

L. Rep. (CCH) 4 96,625 (S.D.N.Y., Feb. 21, 1992) ..

Aquilio v. Manaker, 1992 WL 349672 (N.D.N.Y.,

POO, Say SOMERS 64.08 os bana d eee eee

Arioli v. Prudential-Bache paren Inc., 800 F. Supp.

ek ee ere eer rrr ere

Ash v. Dean Witter Reynolds, Inc., 1992 WL 319421 (E.D.

Sk, SR: DE, SOP io sv noesbagesaaneee eee

Ayers v. Sutliffe, [1991-1992 Transfer Binder] Fed. Sec. L.

Rep. (CCH) 4 96,552 (S.D. Ohio, Feb. 11, 1992)....

Baldwin v. Iowa State Traveling Men's Ass'n, 283 U.S. 522

CORO Rs sedate cdunsecehithenieese ee

Bankard v. First Carolina Communications, Inc., 1992 WL

aene CIi.ED. Ei, SO. G TOUR oo ck dec auwssesanass

Bath v. Bushkin, Gaims, Gaines & Jonas, 913 F.2d 817

q. fe Beer re eee

Beckman vy. Local No. 46 Intern. Ass'n of Bridge, S. & O.1.

Wkrs., 314 F.2d 848 (7th Cir. 1963) ...............

Bridgen v. Scott, 456 F. Supp. 1048 (S.D. Tex. 1978) ...

Brookhart v. Janis, 384 U.S. 1 (1966) ................

Burdett v. Miller, 957 F.2d 1375 (7th Cir. 1992) .......

Calhoon v. Harvey, 379 US. 134 (1964)..............

Cannistraci v. Dean Witter Reynolds, Inc., 796 F. Supp.

GED (Ok BR. FO e) i i so cckvetencsreeeeeee ee

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

| ee

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

Chiarella v. United States, 445 U.S. 222 (1980) ........

z

>

1]

TABLE OF AUTHORITIES CITED

CASES

Page

Dendinger v. First Nat. Corp., 1992 WL 318593 (E.D. La.,

8 Se es ee 4

Dupuy v. Dupuy, 551 F.2d 1005 (Sth Cir.), cert. denied,

Rs nee ree 14

Dzenits v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 494

ee EE NPOD i cnccncacuascntseraves 12

Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968), cert.

ce Ge atk a> ie) arr 22

Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982

rate hh kid dba neta enasaanes 24

Federated Department Stores, Inc. v. Moitie, 452 U.S. 394

eer en ee 4

Feldman v. Pioneer Petroleum, Inc., 813 F.2d.296 (10th

Cir.), cert. denied, 484 U.S. 954 (1987) ............ 13

Ferguson v. Lurie, 1992 WL 23486 (N.D. IIL. Feb. 5,

A ES ar ee ee ee 11

Freschi v. Grand Coal Venture, 800 F.2d 305 (2d Cir.)

(per curiam), amended, 806 F.2d 17 (2d Cir. 1986) .. 13

Fullmer v. Wohlfeiler & Beck, 905 F.2d 1394 (10th Cir.

Ea a a 14

Furman vy. United States, 720 F.2d 263 (2d Cir. 1983) .. 19

Granfinanciera S.A. v. Nordberg, 492 U.S. 33 (1989) ... 18

Harris v. American Investment Co., 523 F.2d 220 (8th Cir.

1975), cert. denied, 423 U.S. 1054 (1976)........... 13, 22

Henderson v. Scientific-Atlanta Inc., 971 F.2d 1567

Sata sb ce es easdecesescnccenn en passim

Henley v. Slone, 961 F.2d 23 (2d Cir. 1992)........... 11, 12

Hillsboro National Bank v. Commissioner, 460 U.S. 370

OME a ee ee 15

Hodges v. Snyder, 261 U.S. 600 (1923) .........-...-. 4

iv

TABLE OF AUTHORITIES CITED

CASES

Page

In re Air Crash Disaster Near Chicago, IIl., 701 F.2d 1189

(7th Cir.), cert. denied, 464 U.S. 866 (1983) ........ 14, 15

In re Crazy Eddie Securities Litigation, 802 F. Supp. 804

es SE Cdk ave ch ani nascaunewabinse cise 5

In re Data Access Systems Securities Litigation, 843 F.2d

1537 (3d Cir.), cert. denied, 488 U.S. 849 (1988) .... i0

In re First American Center Securities Litigation, 1992 WL

SIRS TS Cee ee. hn WR, TD, BBP on ccc asscesccacs 4

In re Integrated Resources Real Estate Limited Partner-

ships Securities Litigation, 1993 U.S. Dist. Lexis 195

Ce iy Oe Bik BOE Osc vivawnccnsnnesuexunas 4

Interstate Commerce Com’n v. Louisville & N.R. Co., 227

Nn ee Pirate ee 18

James B. Beam Distilling Co. v. Georgia, _. U.S. —__.,

og fe ae Be: Ree ree re eee 2, 7,9, 10

Jean v. Nelson, 472 U.S. 846 (1985) ................. 5

Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523

0) RR er ar ar rere ep an earner re er 14, 15

Kenney v. Deloitte Haskins & Sells, 1992 U.S. Dist. Lexis

eS ae | eer ree

Koshkonong v. Burton, 104 U.S. 668 (1881)........... 8

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

a ee ee et passim

Lee v. Levenfeld, 1987 WL 7293 (N.D. Ill. 1987) ...... 13

Litton Industries Inc. v. Lehman Brothers Kuhn Loeb, Inc.,

gf eee Le eee rere 3

McCullough v. Virginia, 172 U.S. 102 (1898)..........

Nepera Chemical, Inc. v. Sea-Land Service, Inc., 794 F.2d

Se en EE eae cek haben eek enka uals hs 16

Norfolk & W.R. Co. v. Liepelt, 444 U.S. 490 (1980) .... 14, 15

ae |

Vv

TABLE OF AUTHORITIES CITED

CASES

Page

Nottingham v. General American Communications Corp.,

811 F.2d 873 (Sth Cir.), cert. denied, 484 U.S. 854

fh RRR arene Sem Romar a yw one ie Oma ame ay 13

Ogden v. Blackledge, 6 U.S. (2 Cranch) 272 (1804) .... 8

Plaut v. Spendthrift Farm, Inc., 789 F. Supp. 231 (E.D.

i SUE Cc ciekacakbawn senueee ses tabencee eens 3,4

Pommer v. Medtest Corp., 961 F.2d 620 (7th Cir. 1992) 11

RAM Investment Associates v. Citizens Fidelity Bank &

Trust Co., [1992 Transfer Binder] Fed. Sec. L. Rep.

(CCH) 9 97,010 (S.D.N.Y., Sept. 24, 1992) ........ 4

Randall v. Loftsgaarden, 478 U.S. 647 (1986) ......... passim

Reilly v. Pinkus, 338 U.S. 269 (1949) ................ 18

Robertson v. Seattle Audubon Society, __. U.S. ____, 112

ea Re CED ode ni Vides ue eanene a eaten 6, 7

Robins v. Rarback, 325 F.2d 929 (2d Cir. 1963), cert.

COE. DEW Wes PO CEE hod 6 oka ves ecenes 3

Schatz v. Rosenberg, 943 F.2d 485 (4th Cir. 1991), cert.

Gemked, cca. USB. nn, 112 SAX. 1475 (1992) ....... 24

Schick v. Ernst & Young, 1992 WL 383188 (S.D.N.Y.,

| Pee rere rrr re ren ema 4

Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir.

1990), cert. denied, 111 S.Ct. 2887 (1991) .......... 10

Spector Motor Service, Inc. v. McLaughlin, 323 U.S. 101

CE 62 okains Keene cl eee eee ele eee 5

Taylor v. McKeithen, 407 U.S. 191 (1972) ............ 19, 20

Thor Power Tool Co. v. Commissioner, 439 U.S. 522

SP ee rrr mat rionis B08 5 eee doe 25

Treiber v. Katz, 796 F. Supp. 1054 (E.D. Mich. 1992) .. 3

United States v. Klein, 80 U.S. (13 Wall.) 128 (1871) .. 6

v1

TABLE OF AUTHORITIES CITED

CASES

Page

United States v. Baynes, 548 F.2d 481 (3d Cir. 1977) ... 19

United States v. The Schooner Peggy, 5 U.S. (1 Cranch)

St ROUND bic dccedcdecaedesceaeeseereseecses eas 6, 8

United States v. Security Industrial Bank, 459 U.S. 70

SEN Ss ae ses bkendGk noe ean ence aceer tre 8

United States v. Sioux Nation of Indians, 448 U.S. 371

PPE eee Tor roe rer ere ee rer eye 8

Women's Federal Savings & Loan Ass'n v. Nevada Na-

tional Bank, 607 F. Supp. 1129 (D. Nev. 1985), rev'd on

other grounds, 811 F.2d 1255 (9th Cir. 1987)........ 16

Statutes

Department of the Interior and Related Agencies Appro-

priations Act, 1990, 103 Stat. 745, Sec. 318 ......... 7

Securities Act of 1933

a Bs 8 oe 8 re ee eer 17

memes Cite), 15 UBL. 6 TIRE) oc cic cccesscss 22

Securities Exchange Act of 1934

ee, DEGD, BS Vien © PUGS occ cine ei cceuweeies 6

me, BED, OD CLA, BROOD wc ccscicsvsuccecus passim

ty es Sas Oe PE nce cuanccsanacewsemes passim

Rules

Federal Rules of Appellate Procedure, Rule 36......... 19

Federal Rules of Civil Procedure

aig oie SG sae Shi 3 are ea ee 17, 18

ey Pe irs em eer yh oe 17

cine) bas PAA a ak ek ace ad eda ae ne 17

Miscellaneous

137 Cong. Rec. S18624 (daily ed. Nov. 27, 1991) ...... 1]

:

No. 92-1099

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

WYNEMA ANNA Cross, EXECUTRIX, et ai.,

Petitioners,

vs.

THOMAS H. THORNER, et. al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Tenth Circuit

RESPONDENT’S BRIEF IN OPPOSITION

COUNTER STATEMENT OF THE CASE

On December 11, 1992, these respondents filed their own

Petition For A Writ of Certiorari, William H. Dennler, et al.

v. Robert S. Trippet, et al., No. 92-1003. That petition, at

pages 2-12, contains a description of the claims upon which

the judgments below are based and a more complete state-

ment of facts material to the issues raised in both petitions.

Additionally, respondents are filing herewith a cross-

petition raising issues with regard to their claims under

Section 10(b) of the Securities Exchange Act of 1934

(“1934 Act”). As explained in the cross-petition, a ruling

sustaining the decision of the district court on equitable

estoppel would obviate the need to consider the constitu-

tional questions raised by petitioners.

2

REASONS FOR DENYING THE PETITION

1. There is no conflict among the courts of appeals

regarding the constitutionality of Section 27A of the 1934

Act, 15 U.S.C. § 78aa-1, and no reason to believe that other

courts of appeals will not follow the well-reasoned decisions

of the Tenth and Eleventh Circuits upholding the statute.

Review of the constitutional questions presented would be

both premature and unnecessary.

Section 27A, subsection (a), provides in pertinent part

that the limitations period for any pending action under

Section 10(b) of the 1934 Act commenced on or before

June 19, 1991—the day prior to this Court’s decisions in

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

come We , 111 S.Ct. 2773 (1991) and James B. Beam

Distilling Co. v. Georgia, __- U.S. — ., 111 S.Ct. 2439

(1991)—*shall be the limitz*ion »e 4 provided by the

laws applicable in the jurisdictio, including principles of

retroactivity, as such laws existed on June 19, 1991.” This

Case, asserting violations of Section 10(b), was timely filed

in 1973, as provided by the limitations period applicable in

the Northern District of Oklahoma, and was pending ai ine

time Section 27A was enacted.’ The Tenth Circuit correctly

applied the new limitations period established by Congress

in Section 27A and properly rejected petitioners’ constitu-

tional challenge that Section 27A(a) violates the separation

of powers doctrine. (Appendix to the Petition for Writ of

Certiorari (hereinafter “App.”) 29a-37a).

There is no conflict among the lower courts requiring

review by this Court. The Eleventh Circuit, the only other

'As of December 19, 1991, the date of enactment of Section

27A, petitioners’ time to file a petition for a writ of certiorari had

not expired (which petition was subsequently granted in Dennler

v. Trippet, 504 US. , 112 S.Ct. 1658 (1992)) and the

action had not been dismissed by the district court.

ee ©

3

court of appeals to decide this issue, has also found Sec-

tion 27A(a) constitutional. Henderson v. Scientific-Atlanta,

Inc., 971 F.2d 1567 (11th Cir. 1992).

The overwhelming majority of district courts that have

addressed the issue have found Section 27A(a) constitu-

tional. (App. 127a-128a). Petitioners cite a few district

court decisions to the contrary and then cite Calhoon v.

Harvey, 379 U.S. 134, 137 (1964), for the proposition that

where there are conflicting views among the district courts

which, in turn, conflict with court of appeals decisions,

certiorari should be granted. (Petition for Writ of Certiorari

(hereinafter “Pet.”) 8). In truth, the petition in Calhoon

was granted in order to resolve a conflict among the courts

of appeals’ and discloses no instance where the Court has

granted certiorari to resolve conflicts between district courts

and courts of appeals.

Moreover, the few district court decisions finding Sec-

tion 27A(a) unconstitutional all antedate the decisions by

the Tenth and Eleventh Circuits upholding the statute.

(App. 126a).* The Tenth Circuit’s decision (as well as the

*No other court of appeals has yet to rule on the constitutional-

ity of Section 27A. The Second Circuit, however, has observed in

dicta that “[a]lthough the parties have not suggested that sec-

tion 27A is unconstitutional, we are aware that several district

courts have so held, but. . . we are unimpressed by the cogency of

their analysis.” Litton Industries, Inc. v. Lehman Brothers Kuhn

Loeb, Inc., 967 F.2d 742, 751 n.6 (2d Cir. 1992).

379 U.S. at 137 n. 10. Compare, e.g., the conflicting decisions

in Beckman v. Local No. 46 Intern. Ass'n of Bridge, S. & OI.

Wkrs., 314 F.2d 848 (7th Cir. 1963), and Robins v. Rarback, 325

F.2d 929, 931 (2d Cir. 1963), cert. denied, 379 U.S. 974 (1965).

‘Petitioners cite Treiber v. Katz, 796 F. Supp. 1054 (E.D.

Mich. 1992) and Plaut v. Spendthrift Farm, Inc., 789 F. Supp.

231 (E.D. Ky. 1992) (App. 126a), two cases which have found

4

Eleventh Circuit’s decision in Henderson) is now being

followed routinely by the district courts,” and respondents

subsection (b) of Section 27A unconstitutional. Under Sec-

tion 27A(b), a completely different constitutional issue is

presented: Whether Congress may direct the reinstatement of a

cause of action upon which judgment has been entered, when that

judgment is final in all respects and has not been appealed. Plaut,

789 F. Supp. at 234. That issue has no relevance to this case,

which was pending at the time Section 27A was enacted and

therefore comes within Section 27A(a). Indeed, Treiber specifi-

cally held Section 27A(a) constitutional, rejecting the very argu-

ments advanced by petitioners here. 796 F. Supp. at 1058-59.

Petitioners also argue that “the judicial principle of finality”

renders Section 27A unconstitutional. (Pet. 12-13). Section 27A

was enacted prior to expiration of respondents’ right to appeal,

making petitioners’ entire argument irrelevant. Moreover, the

cases cited by petitioners are inapposite. None involves an act of

Congress or decisions by lower federal courts. See, e.g., Hodges v.

Snyder, 261 U.S. 600 (1923) (South Dakota legislation enacted

after decision of state supreme court upheld); McCullough v.

Virginia, 172 U.S. 102 (1898) (Virginia state tax coupon legisla-

tion). Both Baldwin v. Iowa State Traveling Men's Association,

283 U.S. 522 (1931), and Federated Department Stores, Inc. v.

Moitie, 452 U.S. 394 (1981), concerned res judicata issues.

Neither involved legislation of any kind.

*Agapitos v. PCM Investment Company, 1992 WL 365643 at

*3 (M.D. Ga., Dec. 8, 1992); Aguilio v. Manaker, 1992 WL

349672 at *10 (N.D.N.Y., Nov. 13, 1992); Dendinger v. First

Nat. Corp., 1992 WL 318593 at *8 (E.D. La., Oct. 28, 1992); In

re First American Center Securities Litigation, 1992 WL 379373

at *5 (S.D.N.Y., Oct. 13, 1992); Ash v. Dean Witter Reynolds,

Inc., 1992 WL 319421 at *5 (E.D. Cal., Sept. 30, 1992).

The following cases decided since the Tenth Circuit’s decision

herein, though not citing that decision, have also found Section

27A constitutional: Jn re Integrated Resources Real Estate Lim-

ited Partnerships Securities Litigation, 1993 U.S. Dist. Lexis 195

at *18 (S.D.N.Y., Jan. 11, 1993); Schick v. Ernst & Young, 1992

5

are not aware of a single district court decision that has held

Section 27A unconstitutional since the Tenth Circuit upheld

the statute in this case.

The decisions of the Tenth and Eleventh Circuits are also

consonant with the views on the constitutionality of Sec-

tion 27A(a) expressed by the United States as intervenor

and the Securities and Exchange Commission as amicus

curiae.

In the absence of any conflict, real or potential, there is no

need for review by this Court.

2. Prior to reaching any constitutional questions, federal

courts must consider nonconstitutional grounds for decision.

Jean v. Nelson, 472 U.S. 846, 854-55 (1985). As the Court

stressed in Spector Motor Service, Inc. v. McLaughlin, 323

U.S. 101, 105 (1944), it should not pass upon questions of

constitutionality “unless such adjudication is unavoidable.”

Filed herewith is respondents’ cross-petition for writ of

certiorari, which seeks review inter alia of that part of the

Tenth Circuit’s judgment rejecting findings by the jury and

district court concerning equitable estoppel. In the event the

Court were to grant respondents’ cross-petition and rule in

their favor on the issue of equitable estoppel, there would be

no need to address the constitutionality of Section 27A(a)

WL 383188 at *4 (S.D.N.Y., Dec. 16, 1992); RAM Investment

Associates v. Citizens Fidelity Bank & Trust Co., [1992 Transfer

Binder] Fed. Sec. L. Rep. (CCH) §] 97,010 (S.D.N.Y., Sept. 24,

1992); In re Crazy Eddie Securities Litigation, 802 F. Supp. 804

(E.D.N.Y., Sept. 16, 1992); Arioli v. Prudential-Bache Securities,

Inc., 800 F. Supp. 1478 (E.D. Mich. 1992); Kenney v. Deloitte,

Haskins & Sells, 1992 U.S. Dist. Lexis 14600 (N.D. Cal., Sept. 2,

1992); Cannistraci v. Dean Witter Reynolds, Inc., 796 F. Supp.

619 (D. Mass. 1992).

)

6

since no claims of respondents would be time-barred, even

under the statute of limitations announced in Lampf.°

3. The Tenth Circuit correctly concluded that Section

27A(a) is constitutional. Petitioners argued below, as they

do here (Pet. 7, 14-15), that Congress, by enacting Sec-

tion 27A, impermissibly directs the outcome of certain

litigation and attempts to control the adjudicative process

without making any change in the controlling provisions of

the existing law, thus running afoul of United States v. Klein,

80 U.S. (13. Wall.) 128 (1871). The Tenth Circuit properly

rejected that argument:

This case is not Klein. Section 27A does not direct

courts to make specific factual findings or mandate

a result in a particular case. It does not remove or

alter the courts’ constitutional adjudicatory func-

tion. Instead, in Section 27A, Congress prescribed

a new statute of limitations for the judiciary to

apply to all Section 10(b) litigation pending on

June 19, 1991. Surely Congress has the power to

change a rule of law and make that change appli-

cable to pending cases. United States v. Schooner

Peggy, 5 U.S. (1 Cranch) 103, 110, 2 L.Ed. 49

(1801).

(App. 32a-33a (citations omitted)). The Tenth Circuit

found further assurance in the unanimous decision of this

Court last year in Robertson v. Seattle Audubon Society,

‘The cross-petition also challenges the Tenth Circuit's interpre-

tation of Section 9(e) of the 1934 Act and its rejection of the

jury’s findings regarding the dates when respondents discovered

the facts giving rise to their claims. Were the Court to grant

respondents’ cross-petition and rule in respondents’ favor on

either of these bases, the constitutionality of Section 27A would

only be relevant to the claims against petitioners by investors in

Home-Stake’s 1969 Program.

7

__ —U.S. —_, 112 S.Ct. 1407 (1992) upholding the

constitutionality of Section 318 of the Department of the

Interior and Related Agencies Appropriations Act, 1990,

103 Stat. 745, a statute intended to affect specifically identi-

fied pending litigation. The Court in Robertson reasoned

that Section 318 “modified the old provisions” and did not

“direct any particular findings of fact or applications of law,

old or new, to fact.” 112 S.Ct. at 1413. Following Robertson,

the Tenth Circuit concluded that “Section 27A does not

direct certain factual findings or impose a rule of decision for

§ 10(b) claims. It changes the law.” (App. 33a-34a (foot-

note omitted) ).’

Indeed, the Tenth Circuit held that Section 27A(a) was

intended to change the law:

Before its enactment, all § 10(b) claims were

governed by the one-year/three-year Lampf stat-

ute of limitations as applied retroactively by Beam.

“Section 27A changed the law by limiting the one-

year/three-year rule to prospective application

only and by subjecting Section 10(b) claims filed

prior to June 19, 1991 to the limitations period

determined to be applicable by the court in which

"In Henderson, 971 F.2d at 1573, the Eleventh Circuit indepen-

dently reached the identical conclusion:

Like the Compromise at issue in Audubon, section 27A

does implement a change in the law; it amends the

Securities Exchange Act to provide the statute of

limitations for private causes of action under sec-

tion 10(b) that were filed by June 19, 1991. But

Congress has not interfered with the judicial process.

The Act does not require courts to make any particular

findings of fact or applications of law to fact. Any effect

on pending cases is solely a result of a change in the

underlying law. We therefore hold that section 27A

does not violate the doctrine of separation of powers.

8

the action was filed.” In enacting Section 27A,

Congress exercised a key legislative power.

(App. 34a-35a (citation omitted) ).

Petitioners also argue here, as they did below, that Sec-

tion 27A is unconstitutional because it operates only retro-

spectively. (Pet. 10). Yet Congress power to enact

retrospective legislation is undisputed. United States v.

Sioux Nation of Indians, 448 U.S. 371, 396 (1980); United

States v. The Schooner Peggy, 5 U.S. (1 Cranch) 103, 110

(1801). Nothing in the Constitution prohibits Congress

from acting solely retrospectively when the problem it seeks

to address is itself retrospective.” Petitioners’ argument rests

on a rule of statutory construction, not on principles of

constitutional law. As the Court confirmed in United States

v. Security Industrial Bank, 459 U.S. 70, 79 (1982), cited

by petitioners (Pet. 10), retrospective operation will be

given to a statute if such be “the unequivocal and inflexible

import of the terms, and the manifest intention of the

legislature.” Section 27A(a) meets those criteria.’

*The Eleventh Circuit rejected a similar argument in Hender-

son, 971 F.2d at 1573:

[Appellant] attempts to distinguish Audubon on the

ground that the Compromise in that case had both

retroactive and prospective effect whereas section 27A

has only a retroactive effect. We fail to sce the signifi-

cance of such a distinction. (citation omitted).

*The other authorities cited by petitioners are totally inapposite.

In Koshkonong v. Burton, 104 U.S. 668 (1882), the Court upheld

the nght of the Wisconsin legislature to change the statute of

limitations applicable to existing causes of action. Jd. at 674-76.

However, the Court struck down the legislature's attempt to alter

existing contract rights. Jd. at 679. Ogden v. Blackledge, 6 U.S. (2

Cranch) 272 (1804), also cited by petitioners, says nothing about

Congress’ power to enact retrospective legislation.

9

In a similar vein, petitioners argue that the retrospective

nature of Section 27A renders it unconstitutional under

James B. Beam Distilling Co. v. Georgia, ___. U.S. ;

111 S.Ct. 2439 (1991). (Pet. 11-13). This contention is

incorrect for two distinct and independent reasons. First, as

the Tenth Circuit recognized, a majority of the Court in

Beam expressly refused to hold that the Constitution man-

dates a prohibition on selective prospectivity. “Beam was

carefully crafted to garner a plurality to agree only that

retroactive application of a rule of law announced in a case

was a matter of a choice of law and not of constitutional

import.” (App. 37a). See also Beam, 111 S.Ct. at 2448,

2449. Because the bar against selective prospectivity has no

constitutional status, it cannot support a declaration that

Section 27A is unconstitutional.

Second, Beam is concerned solely with the obligation of

courts under Article III to apply existing rules of decision,

not with the power of Congress to change the rules of

decision. 111 S.Ct. at 2444, 2449-51. Even if Beam were

thought to have constitutional implications for Article III

courts, there is no basis for reading into Beam a restriction

on the power of Congress under Article I to enact a statute

establishing or changing the rules of decision, retrospectively

or otherwise.'°

‘The Tenth Circuit also properly rejected petitioners’ equal

protection argument that it is irrational for Congress to permit

courts to treat people in one state differently from those in

another regarding a statute of limitations defense. (App. 36a

n. 9). Petitioners take a different tack before this Court, arguing

that Beam constitutionally prohibits Congress from enacting leg-

islation to benefit litigants in pending cases based on inequities

resulting from the Lampf decision. (Pet. 11). Again, however,

Beam cannot be read to restrict Congress’ power under Article I.

The Tenth Circuit properly concluded that Congress, in enacting

Section 27A, “evinced a legitimate purpose to protect the reason-

10

4. Petitioners contend that the Tenth Circuit ignored the

phrase “including principles of retroactivity’ contained in

Section 27A(a). Without citing any authority, petitioners

argue that the Tenth Circuit should have conducted an

analysis under Chevron Oil Co. v. Huson, 404 U.S. 97

(1971) to determine the proper statute of limitations to be

applied under Section 27A. (Pet. 15-16). The argument is

frivolous. The Tenth Circuit’s decision is consistent with the

plain meaning of the statute, the legislative history and every

case to address this question. No review by this Court is

necessary.

Prior to this Court’s decision in Lampf, three courts of

appeals—the Second, Third and Seventh Circuits—had

held that claims under Section 10(b) of the 1934 Act

should be governed by a “one-year/three-year” statute of

limitations similar to the rule subsequently announced in

Lampf. In re Data Access Systems Securities Litigation, 843

F.2d i537 (3d Cir.), cert. denied, 488 U.S. 849 (1988);

Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir.

1990), cert. denied, 111 S.Ct. 2887 (1991); Ceres Partners

v. GEL Associates, 918 F.2d 349 (2d Cir. 1990). When

Congress, following the Lampf decision, proposed to enact a

statute of limitations for pending cases commenced on or

before June 19, 1991, it inserted the “principles of retroac-

tivity” language in order to honor decisions from those three

circuits that had declined to apply the “one-year/three-

year” statute retroactively for reasons of fairness. As ex-

able expectations of litigants who relied on established law in

filing § 10(b) actions. Section 27A is rationally related to that

legislative purpose.” (App. 36a). See also Henderson, 971 F.2d

at 1574 (rejecting equal protection challenge). The Tenth Cir-

cuit’s decision on this issue does not conflict with Beam.

11

plained by Senator Bryan, the principal sponsor of

Section 27A:

A few federal courts had begun to adopt a federal-

ized statute of limitations. The law in those cir-

cuits would be the law as it existed on June 19,

1991, including “principles of retroactivity.” A

number of courts had switched from a “borrow-

ing” approach to a federalized and shortened stat-

ute of limitations, but had declined to apply the

uniform federalized approach retroactively be-

cause of the obvious unfairness of doing so. In

those circuits that had declined to apply the short-

ened statute retroactively, the courts would con-

tinue to be obliged to decline to apply the new

rule. That is the meaning of the phrase “including

principle[s] of retroactivity.”

137 Cong. Rec. S18624 (daily ed. Nov. 27, 1991).

Consistent with this legislative history, every court to

consider the question has rejected petitioners’ interpretation

of the “principles of retroactivity” language. Pommer v.

Medtest Corp., 961, F.2d 620, 627-28 (7th Cir. 1992).

Accord, Henley v. Slone, 961 F.2d 23 (2d Cir. 1992)."'

Contrary to petitioners’ assertion (Pet. 16), there are no

See also Ahmed v. Trupin, 781 F. Supp. 1017, 1021-24

(S.D.N.Y. 1992); Alfadda v. Fenn, [1991-1992 Transfer Binder]

Fed. Sec. L. Rep. (CCH) 41 96,625 (S.D.N.Y., Feb. 21, 1992);

Ayers v. Sutliffe, [1991-1992 Transfer Binder] Fed. Sec. L. Rep.

(CCH) 4 96,552 (S.D. Ohio, Feb. 11, 1992); Ferguson v. Lurie,

1992 WL 23486 at *2 (N.D. Ill., Feb. 5, 1992); Bankard v. First

Carolina Communications, Inc., 1992 WL 3694 at *5 (N.D. IIL,

Jan. 6, 1992).

12

conflicting decisions’? and there is no need for guidance by

this Court.

Unlike the Second, Third and Seventh Circuits, the

Tenth Circuit had not adopted a “one-year/three-year”’

statute of limitations for Section 10(b) cases prior to the

Lampf decision. Indeed, it expressly declined to do so in

Bath v. Bushkin, Gaims, Gaines & Jonas, 913 F.2d 817, 818-

19 (10th Cir. 1990). Accordingly, the Tenth Circuit cor-

rectly rejected petitioners’ argument that the “principies of

retroactivity” language required the application of a “Chev-

ron-type analysis.” Instead, as required by Section 27A(a),

the court applied the applicable law as it existed on June 19,

1991, the Oklahoma two-year limitations period.

(App. 29a). See also Dzenits v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 494 F.2d 168, 171 (10th Cir. 1974).

Petitioners’ “principles of retroactivity” argument is with-

out ment.

5. The Tenth Circuit properly affirmed the district court’s

application of the out-of-pocket measure of damages.

(App. 49a-50a). Although petitioners argue that the lower

courts need guidance in determining damages under Sec-

tion 10(b) (Pet. 17-18, 19-20, 22), petitioners have cited

nothing in the Tenth Circuit’s opinion in conflict with prior

decisions by this Court or other courts of appeals regarding

the measure of damages recoverable under Section 10(b) of

the 1934 Act. This is true with regard to all damage issues

'2Henley v. Slone, 961 F.2d 23, 26 (2d Cir. 1992) is not in

conflict. The Second Circuit, prior to Lampf, had adopted a “one-

year/ three-year” statute of limitations in Ceres Partners v. GEL

Associates, 918 F.2d 349 (2d Cir. 1990), but left open the issue of

whether it should be applied retroactively. In Henley, the court

remanded the issue of whether Ceres should be applied retroac-

tively and, if not, whether the claim was timely under the pre-

Ceres limitations period.

13

reviewed by the Tenth Circuit, including those regarding

offsets for alleged tax benefits and attorneys fees from prior

settlements highlighted by petitioners and discussed below.”

Based on the reasoning in Randall v. Loftsgaarden, 478

U.S. 647 (1986), the Tenth Circuit correctly concluded that

non-rescissory damages for violation of Section 10(b)

should not be offset by the so-called “‘tax benefits” realized

as a result of the investment. (App. 50a).'* Every court to

address the issue since Randall has reached the same

conclusion,'® and petitioners have cited no cause to the

\3Petitioners also make fleeting assignments of error by the

court below in refusing to offset damages by “reorganization

distributions, or other distributions received as a result of Respon-

dents’ investments.” (See Pet. 4, 17, 18). Petitioners were

credited with the value of their securities as of the appropriate

valuation dates, as determined by the jury. Subsequent receipts

and changes in value are not proper offsets under the out-of-

pocket measure of damages. Harris v. American Investment Co.,

523 F.2d 220, 228 (8th Cir. 1975), cert. denied, 423 U.S. 1054

(1976). Petitioners fail to cite contrary authority.

'4Detitioners mischaracterize the Tenth Circuit's ruling. The

court did not, as petitioners state, claim “an absence of guidance

from Randall v. Loftsgaarden.” (Pet. 17). Rather, the Tenth

Circuit recognized that Randall had left open the precise question

presented but found “no guidance in existing case law under

Randall to warrant a different treatment here.” (App. 50a).

'SEreschi v. Grand Coal Venture, 800 F.2d 305, 306 (2d Cir.)

(per curiam), amended, 806 F.2d 17 (2d Cir. 1986); Feldman v.

Pioneer Petroleum, Inc., 813 F.2d 296, 302 (10th Cir.), cert.

denied, 484 U.S. 954 (1987); Lee v. Levenfeld, 1987 WL 7293 at

*6 (N.D.IIl. 1987). Cf Nottingham v. General American Com-

munications Corp., 811 F.2d 873, 878 (Sth Cir.), cert. denied, 484

U.S. 854 (1987) (applying Texas law), Burdett v. Miller, 957

F.2d 1375, 1383 (7th Cir. 1992) (applying Illinois law); Fullmer

14

contrary. Indeed, every case cited by petitioners antedates

Randall. (Pet. 19-20).

Petitioners’ citations do not support their position. In

Dupuy v. Dupuy, 551 F.2d 1005, 1025 (Sth Cir.), cert.

denied, 434 U.S. 911 (1977), the defrauded investor did not

realize tax benefits and, therefore, the court had no occasion

to consider the appropriateness of a “tax benefit” offset

against his damages. In Bridgen v. Scott, 456 F. Supp. 1048,

1057 (S.D. Tex. 1978), the investors sought rescission, not

out-of-pocket damages. The court held (1) that plaintiffs

were not entitled to rescission where, among other things,

they had not proved the value of their tax write-offs (id. at

1060), and (2) that a plaintiff may be questioned concern-

ing tax considerations in connection with the issue of

whether a misrepresentation actually occurred. Jd. at 1062.

To the extent Bridgen can be read as approving a tax benefit

offset in an action for rescissory damages, it was overruled

by Randall. And, like the district court in Bridgen, the

district court in this case admitted al! proffered evidence

regarding the investors’ tax considerations in making their

investments. The court simply refused, consistent with Ran-

dall, to offset the investors’ damages by their purported tax

benefits. '®

v. Wohlfeiler & Beck, 905 F.2d 1394, 1402 (10th Cir. 1990)

(applying Utah law).

‘The remaining cases cited by petitioners (Pet. 20) are mis-

leading. Norfolk & WR. Co. v. Liepelt, 444 U.S. 490 (1980),

Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983), and

In re Air Crash Disaster Near Chicago, Ill., 701 F.2d 1189 (7th

Cir.), cert. denied, 464 U.S. 866 (1983) are all cases for wrongful

death and personal injury. They are not cases under the federal

securities laws and, in particular, do not address the issue of tax

benefits as an offset to non-rescissory out-of-pocket damages

under Section 10(b). More significantly, those cases considered

the tax impact on future earnings and explicitly recognized that

15

The result sought by petitioners would contravene every

reason cited in Randall for refusing to apply a tax benefit

offset. It would “substantially . . . insulate those who commit

securities frauds from any appreciable liability to defrauded

investors” and thereby “seriously impair the deterrent value

of private rights of action [under Section 10(b)] ....”

Randall, 478 U.S. at 664. Moreover, this case, involving

investments made long ago, raises precisely the concerns

expressed by the Court in Randall about the “speculative”

nature of evidence of tax benefits and the “formidable

difficulties” presented in calculating a defrauded investor's

“net economic loss.” Jd. at 664-65. The federal and state

income tax positions of more than 1,600 class members over

a long period of time would have required recalculation. In

addition, as the Court recognized in Randall, not only past

transactions would have required analysis. Under Hillsboro

National Bank v. Commissioner, 460 U.S. 370 (1983), in

order to determine “plaintiffs’ net economic gain as com-

pared with the status quo ante,” 478 U.S. at 664, the

estimated future taxes on the investors’ damages recovery

would also have to be calculated (which would involve

predicting the year of the collection of the judgment, each

class member’s taxable income for that year, and the appli-

cable federal and state income tax rates for that year).

Lastly, petitioners neglect to inform the Court that the

deductions for intangible drilling costs taken by investors in

Home-Stake’s 1970 and 1971 Programs were disallowed by

the Internal Revenue Service (IRS) after the fraud was

discovered in 1973. The IRS subsequently allowed those

investors theft loss deductions for 1973—the year of discov-

the awards are non-taxable. Norfolk, 444 U.S. at 496; Jones &

Laughlin, 462 U.S. at 534; Air Crash, 701 F.2d at 1195-96. By

contrast, the Court in Randall explicitly recognized that under

the “tax benefit rule,” recoveries for securities fraud are taxable as

ordinary income. 478 U.S. at 663-64.

16

ery. (Doc. 2591, 2598; 6/1/88 Tr. at 120). Petitioners, in

effect, ask this Court to give a thief the “tax benefit” of his

victim’s theft loss deduction.

Randall has provided the lower courts with the necessary

guidance on this issue. They have uniformly rejected tax

benefit offsets to claims for non-rescissory out-of-pocket

damages under Section 10(b). Petitioners, found to have

violated the anti-fraud provisions of the 1934 Act, should

not be insulated from liability through a tax benefit offset.

With regard to attorneys fees, the district court did not

award to respondents the attorneys fees incurred by them in

successfully suing petitioners. (Pet. 21-22). Rather, in re-

ducing the damages awarded to respondents, the court

credited petitioners with the amounts actually received by

respondents from prior settlements but not with the costs

incurred in obtaining them. Petitioners have cited no case

reaching a contrary conclusion.'’ Moreover, there is no

discussion of this subject in the opinion by the Tenth

Circuit. No precedent has been established.

6. The Tenth Circuit held that the trial court did not

abuse its discretion under Rule 16 by reinstating the Sec-

tion 10(b) claims against petitioners Kothe & Eagleton, Inc.

(“K&E”) and Elmer M. Kunkel at the close of plaintiffs’

case. (App. 4la). Those Section 10(b) claims had been

"By analogy, attorneys fees may be recovered as a cost of

mitigation. See, e.g., Women's Federal Savings & Loan Ass'n v.

Nevada National Bank, 607 F. Supp. 1129, 1135 (D. Nev. 1985),

rev'd on other grounds, 811 F.2d 1255 (9th Cir. 1987). Similarly,

where litigation against a third party is the natural consequence of

defendant's wrongful conduct, fees incurred therein may be recov-

ered in subsequent litigation against that defendant to recover the

losses caused by such wrongful conduct. See, e.g., Nepera Chemi-

cal, Inc. v. Sea-Land Service, Inc., 794 F.2d 688, 697 (D.C.Cir.

1986). Both principles apply here.

ee ill IS

17

pending for over 13 years and were the subject of massive

discovery. They were dismissed on motion for summary

judgment shortly before trial, and the case against K&E and

Kunkel proceeded under Section 11 of the Securities Act of

1933, 15 U.S.C. § 77k. The Tenth Circuit correctly ruled,

pursuant to Rules 16(e), 54(b) and 56(d), F.R.C.P., that

the dismissal of the Section 10(b) claims on partial sum-

mary judgment was not final, the pretrial order was subject

to revision at any time to prevent manifest injustice, and the

district court did not abuse its discretion by reinstating the

Section 10(b) claims against those petitioners after hearing

the evidence introduced by respondents. (App. 38a-41la).

Moreover, the Section 10(b) claims were reinstated prior

to the presentation by petitioners of their defenses. Petition-

ers were granted free rein to recall any witness that had

already testified and examine that witness on any additional

matters, designate and call any new witness, designate any

additional deposition testimony and designate and offer any

additional exhibits. (Doc. 2553 at 3). To this day, petition-

ers have not identified a single witness called by respondents

who they would have cross-examined any differently, had

the Section 10(b) claims been pending when respondents

presented their case-in-chief, or what testimony they would

have sought to elicit. No additional witness or evidence was

designated by either petitioner. Indeed, in presenting its

defense after reinstatement of the Section 10(b) claims,

petitioner K&E did not even recall to the stand its own

employees, John Eagleton and David James, the two wit-

nesses most qualified to testify regarding K&E’s participa-

tion in preparation of the 1971 Program registration

statement and its knowledge of the Home-Stake fraud.

K &E in fact presented no evidence at all in its own defense.

(Tr. 4022). Similarly, petitioner Kunkel did not take the

stand in his own defense. (Tr. 3954-4018).

18

Petitioners Kunkel and K&E now seek review by arguing

they were denied their right of cross-examination. (Pet. 23-

24). They also contend they were effectively denied their

right to trial by jury. (Pet. 24). As demonstrated above,

both contentions are wrong as a matter of fact.

In order to suggest a conflict with Brookhart v. Janis, 384

U.S. 1 (1966), these petitioners argue that the Tenth

Circuit required a showing of prejudice before it could find a

denial of the mght of cross-examination to be reversible

error. (Pet. 23). In fact, the Tenth Circuit never found that

Kunkel and K&E had been denied their right of cross-

examination in the first place. It found that they had not

proved they were prejudiced by the reinstatement of the

Section 10(b) claims under Rule 16(e) and that the trial

judge had not abused his discretion.'* (App. 41a). There is

no reason for the Court to review this question.

7. Contrary to petitioners’ argument (Pet. 24-25), there

is no requirement that a court of appeals include in its

opinion a discussion of its reasons for rejecting every individ-

'’There would be no conflict with Brookhart in any event.

There, the Court reversed a denial of habeas corpus on the basis

that the defendant neither personally waived his constitutional

nght to cross-examine and confront his witnesses nor acquiesced

in his attorney's attempted waiver of those rights. 384 U.S. at 7-8.

There is no “waiver” at issue in the present case.

Petitioners also rely on Reilly v. Pinkus, 338 U.S. 269

(1949). There, the trial court erred by prohibiting certain cross-

examination of an expert witness. Jd. at 276. Petitioners, by

contrast, had every opportunity to cross-examine every witness

called by respondents on any subject.

The other cases cited by petitioners, /nterstate Commerce

Com'n v. Louisville & N.R. Co., 227 U.S. 88 (1913), and

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), do not

address a denial of the right io cross-examination.

19

ual argument raised by an appellant. Indeed, there is no

requirement that a decision by a federal court of appeals be

accompanied by an opinion at all. Furman v. United States,

720 F.2d 263, 264 (2d Cir. 1983); United States v. Baynes,

548 F.2d 481, 483 (3d Cir. 1977). Rule 36, F.R.A.P., in fact

contemplates that some appeals will be decided without an

opinion.'®

Petitioners rely on Taylor v. McKeithen, 407 U.S. 191

(1972). (Pet. 25). There, the court of appeals reversed

“without opinion” a reapportionment plan for New Orleans

adopted by the district court. The Court ordered the Fifth

Circuit to explain its ruling due to the possibility that the

petition presented an important federal question on the

extent to which the broad equitable powers of the federal

court could be “employed to overcome the residual effects

of past state dilution of Negro voting strength [where] the

only alternative is to leave intact the traditional ‘safe’ white

‘°F R.A.P. 36 provides, in pertinent part:

If a judgment is rendered without an opinion, the clerk

shall prepare, sign and enter the judgment following

instruction from the court. The clerk shall, on the date

judgment is entered, mail to all parties a copy of the

opinion, if any, or of the judgment if no opinion was

written, and notice of the date of entry of the judgment.

Accord, Tenth Circuit Rule 36.1:

It is unnecessary for the court to write opinions in every

case... Disposition without opinion does not mean

that the case is considered unimportant. It does mean

that the panel believes the case involves application of

no new points of law that would make the decision of

value as a precedent.

20

districts.” Jd. at 193. Notwithstanding the admitted impor-

tance of the issue, three justices dissented:

No existing statute or rule of procedure prohibits

the Fifth Circuit from issuing a short opinion and

order, as it has done here, or from deciding cases

without any opinion at all... [DJecisions as to

whether opinions should accompany judgments of

the courts of appeals, and the desirable length and

content of those opinions are matters best left to

the judges of the courts of appeals.

Id. at 195, 196 (Rehnquist, J., dissenting).

Moreover, in the present case the Tenth Circuit explicitly

stated that it had reviewed the entire record, considered the

issues raised by appellants, and concluded that

the issues raised on causation and the motion for

new tnal are without ment. During trial, defend-

ants could not overcome plaintiffs’ substantial evi-

dence supporting their claims under § 10(b) and

Rule 10b-5. Defendants’ recharacterization of that

evidence again is defied by the record.

(App. 49a). Petitioners concede this. (Pet. 24). The Tenth

Circuit did discuss those issues which it believed merited

discussion (App. 49a-53a)”° and, in fact, remanded certain

issues to the district court for further proceedings.

(App. 53a). Petitioners do not challenge those issues.

(Pet. 5).

The “overlooked” issues raised by petitioners (Pet. 25-

29) are based on misstatements of the record and raise no

issues requiring review by this Court. They are discussed

below.

Petitioners raised at least 39 issues in the Tenth Circuit.

21

Petitioners misstate the procedure employed for deter-

mining each class member's damages. (Pet. 25). Following

the jury’s verdicts in the liability phase of the trial, the

district court established a schedule for filing motions for

summary judgment regarding damages. (Doc. 2596). Re-

spondents filed a motion for partial summary judgment on

damage issues (Doc. 2607), which was granted based upon

the undisputed records showing dollar amounts invested by

and returned to each individual class member. The district

court then set a jury trial on the remaining disputed factual

issues pertaining to the value of the securities on specific

dates. Following the damage trial, respondents filed a mo-

tion for entry of judgment. (Doc. 2670, 2671). After briefing

and argument, the district court entered judgment.

(Doc. 2713).

Petitioners persist, as they did below, in characterizing

this procedure as proving damages on a “global basis’’ based

on “affidavit of counsel.” (Pet. 25). In fact, each class

member’s damages were separately calculated from Home-

Stake business records and records from prior settlement

distributions. The procedure employed by the district court

for determining the precise damages of over 1600 class

members stands as a model of fairness and accuracy. Other

than valuation issues, which were tried to the jury, petition-

ers have never identified a single genuine issue of material

fact concerning damages.

The Tenth Circuit did not, as petitioners contend, fail to

consider petitioners’ argument that there was no damage

causation for the 1970 Program investors who elected not to

accept Home-Stake’s rescission offer in 1971. (Pet. 25).

The Tenth Circuit explicitly rejected petitioners’ causation

arguments. (App. 49a). Moreover, the argument itself is

ludicrous. The evidence at trial established that the rescis-

sion offer was itself part of the Home-Stake fraud. Bearing

the imprimatur of the Securities and Exchange Commission

oo

22

and the federal court and purporting to tell the truth about

the 1970 Program, the rescission offer prospectus in fact

concealed the material elements of the Home-Stake secuni-

ties fraud. Petitioners’ contention that a fraudulent rescis-

sion offer aimed at dissuading rescission can cut off a

deceived investor's damages is nonsensical and unsupported

by any authority.

The jury did not, as petitioners contend, find that the

nationalization of Home-Stake’s properties by the Venezue-

lan government caused the losses of investors in the 1970

and 1971 Programs. (Pet. 4, 25-26). For purposes of deter-

mining out-of-pocket damages under Section 10(b), the

Home-Stake securities were valued as of September 1973,

when the fraud was discovered. Esplin v. Hirschi, 402 F.2d

94, 105 (10th Cir. 1968), cert. denied, 394 U.S. 928 (1969).

Petitioners have not challenged that date as the proper

valuation date for fixing out-of-pocket damages under Sec-

tion 10(b), and the district court properly credited those

values, determined by the jury, against the damages

awarded respondents. The district court also properly ig-

nored diminutions in the value of those securities occurring

after September 1973 for purposes of fixing damages under

Section 10(b), Harris v. American Investment Co., 523 F.2d

220, 228 (8th Cir. 1975), cert. denied, 423 U.S. 1054

(1976), and petitioners were not charged with those

diminutions.

For purposes of fixing damages under Section 11(e) of

the 1933 Act, 15 U.S.C. § 77k(e), an issue not raised by

petitioners, the jury also determined two values for certain

securities on alternative valuation dates in 1974, one includ-

ing proposed nationalization and the other excluding it.

Those valuations are completely irrelevant to the damages

awarded under Section 10(b), and the jury at no time

determined that nationalization caused petitioners’ losses.

23

Petitioner Cross & Company misstates the facts relating

to the damage claims of the 1972 class members. (Pet. 26-

27). The class invested $5,148,526 in the 1972 Program. Of

that sum, Home-Stake pocketed $1,074,500 before the

fraud was discovered and the company went into bank-

ruptcy. The investors acquiesced in the transfer of the

remaining $4,074,026 to a successor operator. The 1972

class made no claim against petitioner for the amount so

transferred, but only for the initial $1,074,500 that was lost.

There is no support for petitioner’s contention that the 1972

class somehow “waived” their claim against Cross & Com-

pany for that loss, or that the transfer of the remaining

monies to the successor operator somehow “eliminated any

loss causation.” Contrary to Cross & Company’s assertion

(Pet. 26), the Tenth Circuit did not “overlook” these

frivolous arguments, which were fully briefed below and

rejected. (App. 49a).

Petitioner K&E argues that the Tenth Circuit failed to

consider whether lawyers have a duty to “blow the whistle”

on their client and disclose material facts to investors. (Pet.

27). At trial, the evidence showed that K&E knowingly or

recklessly participated in the Home-Stake fraud by prepar-

ing the false and misleading 1971 Program registration

statement and prospectus. The jury found K&E liable under

Section 10(b). As the Tenth Circuit noted:

[W]e reject K&E’s contention its activity did not

amount to proof of scienter under § 10(b) and

Rule 10b-5. Evidence was introduced in support of

plaintiffs’ claims K&E was primarily and seconda-

rily liable under Rule 10b-5, and the jury was

instructed without objection on each of the ele-

ments necessary to find liability... [T]he jury

placed its stamp on the evidence related to the

actions of David James and John Eagleton, K&E

attorneys who participated in the 1971 Home-

24

Stake offering. K&E’s version of this evidence

cannot now displace the verdict.

(App. 46a, 47a).

K&E’s cryptic reference to “whistle blowing” relates to

events that occurred after the securities were registered and

in the process of being sold. Those events eventually caused

K&E to secretly withdraw as special counsel to Home-Stake

without informing the SEC of its withdrawal and without

withdrawing its opinion contained in the registration state-

ment. K&E’s liability, powever, is not premised on its

conduct during that post-effective period of the offering, but

On its participation in preparation of the offering itself. The

Tenth Circuit undoubtedly recognized that fact in affirming

the verdict.

K&E’s contention that the Tenth Circuit’s decision con-

flicts with decisions of this Court and other circuits is

without merit. (Pet. 27). K&E cites Schaiz v. Rosenberg,

943 F.2d 485 (4th Cir. 1991), cert. denied, U.S. :

112 S.Ct. 1475 (1992), where an attorney was accused of

failing to blow the whistle on his client in a private sale. The

opinion expressly distinguished that situation from the one

presented here:

Plaintiffs also cite cases in which courts im-

posed liability on attorneys who drafted false pro-

spectuses or other securities documents. These

cases, however, are also easily distinguished be-

cause they involve affirmative misrepresentations

made in the solicitation of securities. In our case,

Weinberg & Green did not solicit any purchase of

securities or prepare any solicitation documents.

Id. at 491-92 (citation omitted).”!

*'Neither of the other cases cited by K&E, Chiarella v. United

States, 445 U.S. 222 (1980) and Farlow v. Peat, Marwick,

25

Finally, petitioners Cross and Cross & Company argue

that the exclusion of certain testimony was error. (Pet. 28).

Petitioners concede that this issue has no importance be-

yond this litigation, but argue that this Court should correct

a “severe injustice.” (Pet. 28-29). Their arguments, how-

ever, are replete with misstatements of the record.

The district court properly excluded the proffered testi-

mony of three IRS agents. The first, Robert Nicks, ex-

amined Home-Stake’s corporate tax returns in 1963, five

years before Cross was retained by Home-Stake. Nicks’

proposed testimony about requiring Home-Stake to use the

accrual method for tax purposes had no bearing on the

propriety of Home-Stake’s use of the percentage-of-comple-

tion method of accounting for financial statements governed

by generally accepted accounting principles, one of the

issues in this case. Additionally, Nicks was not qualified as

an expert in financial statement accounting. The proposed

testimony was irrelevant and confusing, suggesting incor-

rectly that tax accounting and financial statement account-

ing are the same. Thor Power Tool Co. v. Commissioner,

439 U.S. 522, 542-43 (1979).

The second agent, Harry Riggs, would have testified to

the IRS’s acceptance of Home-Stake’s percentage-of-com-

pletion accounting for tax purposes, the IRS’s knowledge of

oversales in the 1969 Program, and the deductibility of

Home-Stake’s payments to investors on its corporate tax

return—issues irrelevant to those at trial. Home-Stake’s

principal fraud on the IRS was its failure to develop the oil

properties, as the mastermind of the Home-Stake fraud,

Robert S. Trippet, conceded at trial.”

Mitchell & Co., 956 F.2d 982 (10th Cir. 1992), involve claims

against attorneys.

2260. Why didn’t you tell [Home-Stake’s appraisers about the

transfer of properties from one program to another]?

26

The third agent, Samuel Mingo, audited Home-Stake in

1973 after this litigation was commenced. He apparently

would have testified that petitioners did not conceal any-

thing from him or assist Home-Stake in defrauding the IRS

through the underpayment of its corporate income taxes.

Not only did he offer no testimony about the financial

accounting issues in the case, but respondents never claimed

that Home-Stake defrauded the IRS by underpaying its own

taxes. To the contrary, Home-Stake used large portions of

the respondents’ investments to pay income taxes on ficti-

A: Because it would have jeopardized our participants’ tax

deductions, which was the last thing they wanted us to do.

Q: That is because Home-Stake was not using the money for

drilling oil wells; isn’t that nght, Mr. Trippet.

A: That’s right.

Q: And isn’t it a fact, Mr. Trippet, that the reason the

government gives people tax deductions is so that people will drill

oil wells and produce oil?

A: Yes.

Q: And Home-Stake wasn’t doing it; isn’t that right?

A: Yes.

Q: And you didn’t want the government to find out about that;

isn't that nght?

A: Yes, for the benefits of our participants.

Q: Isn't it a fact, Mr. Trippet, that the government did find out

in 1973 with respect to the Venezuelan properties that Home-

Stake wasn’t spending the money for drilling for oil?

A: In part.

Q: Isn't it a fact that they disallowed the tax deductions for the

‘70 and ‘71 participants because the money hadn’t been spent for

drilling and for oil as the law required?

A: They did disallow them.

(Tr. 1570-71).

27

tious profits from completion of oil properties that were

never actually developed.

Contrary to petitioners’ argument (Pet. 28), the district

court held that petitioners Cross and Cross & Company,

through the preparation of false and misleading financial

statements, assisted other defendants who systematically

defrauded the IRS, the Securities and Exchange Commis-

sion, and the federal courts. The district court ruled that

petitioners, like the other defendants, should be equitably

estopped from raising the statute of limitations defense.

(App. 103a-105a). See respondents’ cross-petition filed

herewith and separate petition for writ of certiorari.

The Tenth Circuit did not, as petitioners state, character-

ize the exclusion of testimony by the IRS agents “as an

exclusion of an unqualified tax expert.” (Pet. 28). Rather, it

found that the district court did not abuse its discretion in

excluding their testimony based on a finding that “the case

was not centrally a tax case, the witnesses could not be

qualified as expert auditors, and could not properly testify on

Mr. Cross’ state of mind.” (App. 48a n. 4).

28

CONCLUSION

For the reasons stated, the petition for writ of certiorari

should be denied. Respondents’ cross-petition need only be

considered in the event this Court concludes that the peti-

tion should be granted to consider the constitutionality of

Section 27A of the 1934 Act. In that event, certain issues

raised in the cross-petition may obviate the need to address

the statute’s constitutionality. Given the absence of any

conflict among the courts of appeals on that issue, however,

respondents respectfully suggest that the petition be denied

in toto.

Respectfully submitted,

WILLIAM A. WINEBERG, Esq. PETER VAN N. LoOcKWwoop, Esq.

MICHAEL R. SIMMONDS, Esq. ALBERT G. LAUBER, Esq.

BROAD, SCHULZ, LARSON & JILL R. SHELLOw, Esq.

WINEBERG CAPLIN & DRYSDALE,

One California Street CHARTERED

San Francisco, CA 94111 One Thomas Circle, N.W.

(415) 986-0300 Washington, DC 20005

*ELIHU INSELBUCH, Esq. (202) 862-5000

CAPLIN & DRYSDALE, WILLIAM H. HINKLE, Esq.

CHARTERED Suite 1100

10 East 53rd Street 320 South Boston Avenue

20th Floor Tulsa, Oklahoma 74103

New York, New York 10022 (918) 584-6700

(212) 319-7125 *Counsel of Record

January 25, 1993