Petition for Writ of Certiorari — Gold v. Squadron

FILED

N02 452 SEP 11 2002

OFFICE OF THE CLERK

IN THE

Supreme Court of the Anited States

ie ie ee

MARTIN GOLD, as Trustee of the Martin Gold, Attorney at Law, P.C.

Defined Benefit Pension Plan dated 12-10-87, individually and on behalf

of others similarly situated,

Petitioner,

SQUADRON, ELLENOFF, PLESENT, & LEHRER, SQUADRON, ELLENOFF,

PLESENT & SHEINFELD, LLP and IRA L. SORKIN,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE NEW YORK SUPREME COURT

APPELLATE DIVISION—FIRST DEPARTMENT

PETITION FOR A WRIT OF CERTIORARI

JARED B. STAMELL

Counsel of Record

STAMELL & SCHAGER, LLP

One Liberty Plaza, 35th Floor

New York, New York 10006-1404

(212) 566-4047

ROBERT A. SKIRNICK

MEREDITH COHEN GREENFOGEL

& SKIRNICK, P.C.

63 Wall Street, 32nd Floor

New York, New York 10005

(212) 482-1250

Attorneys for Petitioner

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QUESTIONS PRESENTED

1. When a state law claim pending in federal court as a

claim pendent to a federal Statutory claim is dismissed

without prejudice because the federal court declines to

exercise supplemental jurisdiction after the federal statutory

claim is dismissed, does 28 U.S.C. § 1367(d) toll the state

statute of limitation during the pendency of the state law

claim in federal court?

2. Does the Supremacy Clause, U.S. Constitution, Article

VI, Cl. 2, require state courts to apply the tolling provisions

of 28 U.S.C. § 1367(d) to state-law claims during their

pendency in federal court?

LIST OF PARTIES

The caption contains the names of all the parties. No

corporate listing is required under Rule 29.6 because

petitioner is a natural person.

ll

TABLE OF CONTENTS

CJuneatens PUNE oo .oic vive oaaees eek ek i

Li CETUS «6553 cei see ee ae 1

Table of AMIN 0. 6.4 4h a i eS lil

Citation to Opinion Below ................ccccecee 1

Dr er ie Oe ene 1

Constitutional Clause and Statute Involved ............ 2

Statemndat Of Cie CNR yi xsi. o:chns Exes 3

Reason for Granting the Writ ..................0000. 8

COMCRINOR. ... 045 60435 ope eee 10

RE LS Set Apt itt its i a iz

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TABLE OF AUTHORITIES

Cases

Aldinger v. Howard,

BE eee ee 8

Central Bank v. First Interstate Bank,

ge EE errr Tr eee Ter Teer 5

City of Chicago v. International Coll. of Surgeons,

SEE, Sth vars eevee eeecaer ees 7

Dinsmore v. Squadron, Ellenoff, Plesent, Sheinfeld

& Sorkin,

8 ee yey ee | er er 5

Finley v. United States,

SRE PR CUUIE 5 ok cde wakdan see wveace wes 8

In re Towers Financial Noteholders Litigation,

Owen Equip. & Erection Co. v. Kroger,

gh Me 0) >) | Fe ee 8

Raygor v. Regents of the University of Minnesota,

Son Ge. Sas, (225.4%. 999 Ge)... 22s. 6, 7

United Mine Workers of America v. Gibbs,

/ 48 Bes fi | een nee 7

IV

Constitution and Statutes

pot oe ee er eee eee

PoE Fy eo errr ry

28 A SD Ax b'cecnensdewdkaves

28 U.S.C. § 1367(c) Petree eer rT ee

28 U.S.C. § 1367(d) sha wae ale ba ens

Judicial Improvements Act of 1990,

Pub. L. No. 101-650, 104 Stat. 5089

Securities Act of 1934,

DF Sn Oe PUD vv cei woneses

of oe ae Ue ee BS ee eee

Miscellaneous

Codification of Supplemental Jurisdiction:

Anatomy of a Legislative Proposal,

14 W. New Eng. L. Rev. 1 (1992),

PREG FO, oc dacnvasncbes

H.R. Rep. No. 734 (House Report),

101st Cong., 2d Sess. 27-29 (1990)

Vv

Prospectus for the American Law Institute's Fedevai Judicial

Code Revision Project,

31 U.C. Davis L. Rev. 855 (1998),

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]

Martin Gold petitions for a writ of certiorari to review the

New York state court judgment holding that, notwithstanding

the federal tolling provision in 28 U.S.C. § 1367(d), “state

law controls” (A8) the tolling of statutes of limitations for

State-law claims pending in federal court. This Court should

grant the writ because only this federal court can require state

courts to enforce 28 U.S.C. § 1367(d) given that this tolling

provision is applied oniy to actions filed in a state court after

dismissal of state-law claims from an earlier federal action.

CITATION TO OPINION BELOW

Petitioner seeks review of an order of the New York

Appellate Division, First Department that is reported at 286

A.D.2d, 57, 732 N.Y.S.2d 565 (1 Dep’t 2001) and is set out

in the Appendix (Al). That order adopts and affirms an

opinion and order of the Supreme Court, State of New York,

New York County, which is unreported and set out in the

Appendix (A3).

JURISDICTION

This Court has jurisdiction under 28 U.S.C. § 1257(a)

because the petitioner seeks review froma State court decision

denying him a right claimed under a statute of the United

States — the right to the tolling of state statutes of limitations

pursuant to 28 U.S.C. § 1367(d) during the time his state-law

claims were pending in federal court. The date of the order to

be reviewed is November 13, 2001, the date on which the

New York Supreme Court Appellate Division, First

Department affirmed a lower court order dismissing the

complaint on statutes of limitations grounds. Petitioner

thereafter exhausted his right to review by the state court of

2

last resort, the New York Court of Appeals, by filing a notice

of appeal and by motion for leave to appeal. The New York

Court of Appeals dismissed the notice of appeal in an order

reported at 97 N.Y.2d 725, 767 N.E.2d 153 (N.Y. 2002) and

set out in the Appendix (A12). The New York Appellate

Division, First Department denied leave to appeal to the Court

of Appeals in an unreported order set out in the Appendix

(A10). The New York Court of Appeals denied leave to

appeal in an order reported at 98 N.Y.2d 606, _ N.E.2d

(N.Y. June 13, 2002) and set out in the Appendix (Al14). The

petition to this Court for a writ of certiorari is timely under

Rule 13.1 because it is filed within 90 days after the New

York Court of Appeals denied discretionary review.

CONSTITUTIONAL CLAUSE

AND STATUTE INVOLVED

U.S. Const., Art. VI, Cl. 2:

[T]he Laws of the United States . . . shall be the supreme law

of the Land; and the Judges in every State shall be bound

thereby, any Thing in the Constitution or Laws of any State to

the Contrary notwithstanding.

28 U.S.C. § 1367:

(a) Except as provided in subsections (b) and (c) or as

expressly provided otherwise by Federal statute, in any civil

action of which the district courts have original jurisdiction,

the district courts shall have supplemental jurisdiction over all

other claims that are so related to claims in the action within

such original jurisdiction that they form part of the same case

or controyersy under Article Il of the United States

3

Constitution. Such supplemental jurisdiction shall include

claims that involve the joinder or intervention of additional

parties.

(c) The district courts may decline to exercise supplemental

jurisdiction over a claim under subsection (a) if —

(1) the claim raises a novel or complex issue of State

law,

(2) the claim substantially predominates over the

claim or claims over which the district court has

original jurisdiction,

(3) the district court has dismissed all claims over

which it has original jurisdiction, or

(4) in exceptional circumstances, there are other

compelling reasons for declining jurisdiction.

(d) The period of limitations for any claim asserted under

subsection (a), and for any other claim in the same action that

is voluntarily dismissed at the same time as or after the

dismissal of the claim under subsection (a), shall be tolled

while the claim is pending and for a period of thirty days after

it is dismissed unless state law provides for a longer tolling

period.

STATEMENT OF THE CASE

This case concerns the application of the federal

supplemental jurisdiction statute — and, specifically, its tolling

provision — to state-law claims dismissed without prejudice

after the district court dismisses claims over which it had

4

original jurisdiction (A4). The statute, 28 U.S.C. § 1367,

authorizes federal district courts to exercise jurisdiction over

pendent state-law claims — i.e., claims that would not,

standing alone, come within a district court's original

jurisdiction, but that "are so related to" claims within the

court's original jurisdiction "that they form part of the same

case or controversy under Article III of the United States

Constitution." 28 U.S.C. § 1367(a). The same statute tolls the

limitations period for such claims while they are pending in

federal court and for 30 days after they are dismissed. 28

U.S.C. § 1367(d).

The federal complaint that preceded the state court action

that is the subject of this petition was filed against

respondents on June 7, 1993 in the Southern District of New

York (A6). It alleged that respondents aided and abetted

others to defraud a class of investors in a Ponzi scheme that

caused hundreds of millions of dollars in damages in violation

of the anti-fraud provisions of federal securities law, i.e., Rule

10b-5 and § 10(b) of the Securities Act of 1934, 15 U.S.C. §

78}(b), as well as state law. The district court had original

jurisdiction over the federal claim under 28 U.S.C. § 1331

and supplemental jurisdiction over state-law claims under 28

U.S.C. § 1367(a). Section 1367(a) states, in relevant part:

(a) Except as provided in subsections (b) and (c) or as

expressly provided otherwise by Federal statute, in

any civil action of which the district courts have

original jurisdiction, the district courts shall have

supplemental jurisdiction over all other claims that are

so related to claims in the action within such original

jurisdiction that they form part of the same case or

controversy under Article III of the United States

Constitution.

es

5

At the time the federal action was brought in 1993, aiding

and abetting was an established basis for § 10(b) liability

based upon opinions rendered by the courts of appeal. In

1994, however, this Court held that § 10(b) did not create

aiding and abetting liability. Central Bank v. First Interstate

Bank, 511 U.. 1164 (1994). In response to that decision

petitioner filed amended complaints alleging that respondents

violated § 10(b) directly and not simply as aiders and abettors.

In a series of decisions thereafter issued by a magistrate judge,

the district court and the Court of Appeals, these courts

considered the scope of a § 10(b) violation in light of the

Central Bank decision. The district court held that although

aiding and abetting liability was no longer a viable basis for

liability, petitioner nonetheless could plead a federal claim of

conspiracy to violate Rule 10b-5 and § 10(b). Jn re Towers

Financial Noteholders Litigation, 936 F. Supp. 126, 129

(S.D.N.Y. 1991) (“If plaintiffs can put these allegations [of

conspiracy] — which were so eloquently described by their

counsel at oral argument — into a formal pleading, such a

pleading would ‘constitute a valid allegation that Sorkin had

knowingly and wilfully engaged in a deliberate conspiracy

unlawfully to obtain funds by the deception of investors, in

violation of Rule 10b-5.”) The Second Circuit disagreed and

reversed, holding that the federal anti-fraud statute simply did

not cover conspiracy based upon its analysis of the Central

Bank decision. Dinsmore v. Squadron, Ellenoff, Plesent,

Sheinfeld & Sorkin, 135 F.3d 837 (2d Cir. 1998). The debate

over how to apply the Central Bank decision, however,

consumed many years.

A final judgment dismissing the federal claim with

prejudice and the state-law claims without prejudice was

entered on November 18, 1998 (A6). The state-law claims

were dismissed for the reason stated in the supplemental

6

jurisdiction statute (A7), 28 U.S.C. § 1367(c)(3), namely, “the

district court has dismissed all claims over which it has

original jurisdiction” under 28 U.S.C. § 1331. Although an

appeal to the Second Circuit was noticed, it was withdrawn by

stipulation of the parties on March 9, 1999 (A6). Before the

appeal was withdrawn, petitioner filed his case in New York

state court in February 1999, pursuing the state-law claims

dismissed without prejudice in federal court (A6).

Section 1367(d), by its terms, provides that the state

limitations period “shall be tolled while the claim is pending ~

and for a period of 30 days after it is dismissed” and should —

have been so applied by the state court. Raygor v. Regents of

the University of Minnesota, 534 U.S. 533, _,122S. Ct. 999,

1005 (2002) (“If subsection (d) applied in such circumstances,

it would toll the state statutes of limitations for 30 days in

addition to however long the claim had been pending in

federal court.”’).

Petitioner raised this very point, and the federal question

sought to be reviewed here, in the state trial court as soon as

respondents moved to dismiss the complaint on statute of

limitations grounds (A8). The state-law statute of limitations

applicable to the state-law claims is six years (A5) and

petitioner pointed out that 28 U.S.C. § 1367(d) tolled that six-

year period during the pendency of the state-law claims in

federal court.

The arithmetic calculation that the state-law claims were

timely filed in state court if 28 U.S.C. § 1367(d) tolled the

statutes of limitations is not in dispute. The last incident of

fraud that petitioner alleges occurred on December 26, 1992

(A5). The state-law claims were pleaded against respondents -

as part of the federal action on June 7, 1993 (A6). The federal

action tolled the state-law limitations period by operation of

28 U.S.C. § 1367(d) until thirty days after final judgment was

ele Rie eee ee ee oe a OO OEE EE —————

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entered on November 16, 1998 (A6) — that is, until December

16, 1998. The state court action commenced on February 5,

1999 (A7). Accordingly, five months and eleven days of the

six-year state limitations period ran between December 26,

1992 and June 7, 1993. An additional 51 days ran between

December 16, 1998 and February 5, 1999. This means a total

of only seven months ran on the six-year state limitations

period.

Under New York state law, statutes of limitations are not

suspended during the pendency of an action. Rather than

apply 28 U.S.C. § 1367, the state court applied state law to

the question of whether statutes of limitations are tolled

during the pendency of state-law claims in federal court, held

that petitioner’s action was untimely, and dismissed it for that

reason. As a result, the state court never afforded petitioner

the benefit of federal tolling.

Congress enacted the supplemental jurisdiction statute as

part of the Judicial Improvements Act of 1990, Pub. L. No.

101-650, 104 Stat. 5089, to codify the common-law doctrines

of pendent and ancillary jurisdiction. See H.R. Rep. No. 734

(House Report), 101st Cong., 2d Sess. 27-29 (1990); City of

Chicago v. International Coll. of Surgeons, 522 U.S. 156, 165

(1997). In United Mine Workers of America v. Gibbs, 383

U.S. 715 (1966), the Court held that district courts, when

adjudicating federal-law claims within their subject-matter

jurisdiction under 28 U.S.C. § 1331, also may adjudicate

state-law claims over which they would not otherwise have

jurisdiction, if the federal-law and state-law claims "derive

from a common nucleus of operative fact" and thus comprise

"but one constitutional 'case'" under Article III. 383 U:S. at

725.

In a series of decisions after Gibbs, the Court identified

various limits on a district court's ability to adjudicate claims

8

that, although not independently within its subject-matter

jurisdiction, are related to claims within its jurisdiction. See,

e.g., Aldinger v. Howard, 427 U.S. 1 (1976); Owen Equip. &

Erection Co. v. Kroger, 437 U.S. 365 (1978). In Finley v.

United States, 490 U.S. 545 (1989), the Court held that a

district court could not, in the absence of Congressional

authorization, exercise jurisdiction over pendent parties, i.e.,

parties that are not the subject of any claim independently

within the district court's jurisdiction. Congress responded by

enacting 28 U.S.C. § 1367, which codified the doctrine of

pendent jurisdiction that was recognized in Gibbs and

provided the Congressional authorization that the Court found

lacking in Finley by expressly permitting pendent party

jurisdiction. See Arthur D. Wolf, Codification of

Supplemental Jurisdiction: Anatomy of a Legislative

Proposal, 14 W. New Eng. L. Rev. 1 (1992).

REASON FOR GRANTING THE WRIT

The writ should be granted because the state courts refused

to apply the tolling provision of 28 U.S.C. § 1367(d) in

derogation of the state courts’ duty under the Supremacy

Clause, U.S. Const. Art. VI, Cl. 2 to enforce federal law.

Because the tolling provision of 28 U.S.C. § 1367(d) applies

only to actions filed in a state court after dismissal of state-

law claims from an earlier federal action, only this federal

court can require state courts to enforce that statute.

Equally important, tolling the state limitations period

protects federal court jurisdiction. Given 28 U.S.C. § 1367(d),

litigants should not need to divide a case and file parallel state

court actions because of: statutes of limitations concerns.

Further, § 1367(d) allows district courts to assess whether to

retain jurisdiction over state-law claims free from concerns

9

about whether the claims, if dismissed, could be timely filed

in state court. Only this federal court can enforce federal

tolling in order to eliminate the incentive for district courts to

retain jurisdiction over state-law claims that, for reasons of

comity or otherwise, are better suited for adjudication in state

court. See John B. Oakley, Prospectus for the American Law

Institute's Federal Judicial Code Revision Project, 31 U.C.

Davis L. Rev. 855, 945 (1998) ("Congress clearly intended

subsection 1367(d) to facilitate discretionary dismissal under

subsection 1367(c) by relieving courts of concerns about the

inequitable consequences of state limitations law barring the

dismissed claim from refiling.").

The failure of the New York state courts to enforce the

federal statute is obvious — the federal statute says that the

statutes of limitations applicable to state-law claims are to be

tolled, but the state courts did not give petitioner the benefit

of that toll, notwithstanding the Supremacy Clause, which

required them to do so.

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CONCLUSION

For the reasons stated above, petitioner asks the Court to

grant his petition and issue a wnit of certiorari to the New

York Supreme Court, Appellate Division, First Department.

Dated: September 11, 2002

New York, New York

Jared B. Stamell

Stamell & Schager, LLP

One Liberty Plaza, 35th Floor

New York, New York 10006-1404

(212) 566-4047

Robert A. Skirnick

Meredith Cohen Greenfogel & Skirnick, P. C.

63 Wall Street, 32™ Floor

New York, New York 10005

(212) 482-1250

Attorneys for Petitioner