## F I L E D United States Court of Appeals Tenth Circuit 

### MAR 3 1999 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

CIRO REALMONTE; FRANK REALMONTE; SALVATORE REALMONTE,

Plaintiffs-Appellants,

v. ALVIN REEVES, JR.; COOPERS & LYBRAND, L.L.P.,

Defendants-Appellees. No. 98-6079

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

(D.C. No. CIV-97-542-C)

Submitted on the briefs: Mark C. Dangerfield, Grant, Williams, Lake & Danger field, P.C., Phoenix, Arizona, for Plaintiffs-Appellants. Margaret M. Enloe, Associate General Counsel, Coope rs & Lybrand, L.L.P., New York, New York, B.J. Rothbaum, Linn & Neville, P.C., Oklahoma City, Oklahoma, for Defendants-Appellees.

Before BALDOCK , EBEL , and MURPHY , Circuit Judges.

MURPHY , Circuit Judge.1 After examining the briefs and appellate record, th is panel has

determined unanimously that oral argument would notmaterially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). Therefore, the parties’ requests for oral argument are denied, and the case is ordered submitted without oral argument.

2 The remaining twenty-five percent of the stock in R &B was owned by Antonino M. Balbo, who is not a party to this ac tion. -2- Plaintiffs Ciro, Frank, and Salvatore Realmonte (th e Realmontes) appeal the district court’s dismissal of their federal sec urities fraud action brought against defendants Alvin Reeves, Jr. and Coopers & Lybrand, L.L.P., pursuant to sections 10(b) and 20(a) of the Securities and Exch ange Act, 15 U.S.C. §§ 78j(b) and 78t(a), 17 C.F.R. § 240.10b-5, state, and commo n law. The district court dismissed the action on statute of limitations grou nds and subsequently denied the Realmontes’ Fed. R. Civ. P. 59(e) motion to alter or amend judgment.. 1

I. Background Prior to December 8, 1993, the Realmontes owned sev enty-five percent of the stock in R&B Quality Foods, Inc. in Scottsdale, Arizona. 2 At this same time, defendant Alvin Reeves was president, chief financi al officer, and treasurer of Skolniks, Inc. (Skolniks), a publicly-owned bagel c ompany whose stock traded on the NASDAQ. Defendant Coopers & Lybrand served as outside auditor for Skolniks.3 The Realmontes received 95,000 shares of Skolniks s tock with the

remainder going to Balbo. -3- Early in 1993, Reeves approached the Realmontes inq uiring about the possibility of Skolniks purchasing R&B in exchange for Skolniks stock. Although Skolniks had suffered financial losses in 1992, it had shown gains so far in 1993, and Reeves provided the Realmontes with a positive outlook for the remainder of 1993 and 1994. In reliance on Reeves’ representations, on October 29, 1993, the Realmontes signed a letter agreement with Skolniks which contemplated the future merger of R&B into Skolniks in exchange for approximately 126,667 shares of Skolniks stock. Th e letter agreement referred to a future merger agreement which the parties agreed to negotiate in good faith. At the time the Realmontes signed the letter agreem ent, Coopers & Lybrand was in the process of completing its audit of Skoln iks, which they issued on November 12, 1993. In its audit report, Coopers & Lybrand gave its unqualified opinion certifying Skolniks’ 1993 financial stateme nts and confirming Skolniks’ improved financial position and future outlook. OnDecember 8, 1993, the sale of R&B to Skolniks was consummated, and the Skolniks s tock certificates were transferred to the Realmontes and Balbo. 3 The Realmontes assert that Reeves and Coopers & Lybrand did not disclose Skolniks’ true f inancial picture, and had they done so, the Realmontes would not have agreed to th e merger.4 According to the class action complaint, during the class action

period, Skolniks stock was trading at approximately$14.00 a share. After it was revealed that Skolniks was not as financially soundas represented, the stock dropped to $1.00 a share, was eventually delisted b y NASDAQ, and is now considered worthless. See Appellants’ App. Vol. 1 at 2. -4- In November 1994, a class action alleging securitie s fraud was filed against Reeves in federal district court. An amended compl aint was filed on February 10, 1995, adding Coopers & Lybrand as a defendant, and stating that the action was brought “on behalf of all person[s] and entities (the ‘Class’) who purchased Skolniks common stock during the period from Novemb er 3, 1993 through October 25, 1994, inclusive (the ‘Class Period’).” 4 Appellants’ App. Vol. 1 at 14. The amended complaint exempted from the class the d efendants and their families, any person or entity in which the defenda nts may have a controlling interest or to which the defendant may be affiliate d, and any legal representative of any exempted party. See id. at 14-15. On September 19, 1996, the district court certifiedthe class for the purpose of approving a settlement agreement. The certification order provided that any putative class member could opt out by notice to le ad counsel. Upon receipt of the notice of settlement, the Realmontes, who objec ted to the terms of the settlement agreement, elected to opt out, and on No vember 11, 1996, submitted written notice of their decision to be excluded. D ue to a large number of persons electing to be excluded, the settlement agreement, as originally submitted, was-5-

not approved. A new settlement agreement was negot iated and eventually approved. The Realmontes filed this action on April 10, 1997. The district court dismissed the Realmontes’ complaint on statute of l imitations grounds, concluding that the Realmontes did not acquire thei r stock within the class period, November 3, 1993, through and including October 25, 1994, and therefore were not entitled to the equitable tolling of the statut e of limitations during the pendency of a class action. In so holding, the cou rt had before it the October 29, 1993 letter agreement between Skolniks and the Real montes and the December 8, 1993 merger agreement. The court held that, becaus e the letter agreement and the merger agreement referred to an “effective” date of October 30, 1993, that was the date of purchase for purposes of the running of the statute of limitations. This finding placed the Realmontes’ acquisition out side the class period. The court also determined that because the Realmontes a cquired their stock in “a stock-for-stock transaction” and not “on the open market,” the Realmontes could not be considered class members. Appellants’ App. Vol. II at 427, 430. On appeal, the Realmontes assert that the district court erred in its findings that the method and timing of their acquisition of Skolniks stock precluded them from class membership. We agree, and for the follo wing reasons, we reverse the district court’s dismissal.5 In Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson , 501 U.S.

350, 364 (1991) (superceded by statute on differentholding), the Supreme Court concluded that § 10(b) actions “must be commenced w ithin one year after the discovery of the facts constituting the violation and within three years after such violation.” Accord Sterlin v. Biomune Sys. , 154 F.3d 1191, 1195 (10th Cir. 1998). The district court determined that the appl icable period for the Realmontes’ state securities fraud claim was “two y ears from the date they discovered the fraud but no more than three years a fter purchase of the security, 71 Okla. Stat. § [408(f)],” and for the fraud and n egligence claims, “two years from the discovery of a fraud or negligence claim, 12 Okla. Stat. § 95(3).” (continued...) -6- II. Discussion A. Standard of Review Where, as here, a party moves to dismiss pursuant t o Fed. R. Civ. P. 12(c), we review the judgment on the pleadings de novo. See McHenry v. Utah Valley Hosp. , 927 F.2d 1125, 1126 (10th Cir. 1991). In reviewi ng a motion to dismiss, we accept the well-pleaded allegations of the compl aint as true and construe them in the light most favorable to the non-moving party. See Yoder v. Honeywell
Inc. , 104 F.3d 1215, 1224 (10th Cir. 1997) .

B. Statute of Limitations In American Pipe & Construction Co. v. Utah , 414 U.S. 538, 552-53 (1974), the Supreme Court held that commencement of a class action tolls the running of the applicable statute of limitations fo r all class members who upon denial of certification make timely motions to intervene. 5 In Crown, Cork & Seal5 (...continued)

Appellants’ App. Vol. 2 at 425-26. -7- Co. v. Parker , 462 U.S. 345, 350-52 (1983), the Court extended the tolling of the statute of limitations to those seeking to bring in dividual actions in the event class certification is denied, and to those electing to o pt out of the class action in order to file individual claims. In American Pipe and Crown, Cork & Seal the class certification was denied. In the instant case the class was certified for the purpose of approving a settlement agreement. Relying on American Pipe and Crown, Cork & Seal , defendants argue that “[t]he filing of a complaint containing class actio n allegations, . . . interrupts the running of statutes of limitation only as to persons who would have been members of a properly defined class and only if a motion to maintain a class suit has been denied. ” Appellees’ Br. at 8-9. Defendants assert that the tolling rule of American Pipe has “ never been applied in a case in which class certificatio n has been granted.” Id. at 9. Contrary to defendants’ confident statement , there are a number of cases in which the tolling rule of American Pipe has been applied when a class action has been certified. See, e.g. , Adams Pub. Sch. Dist. v. Asbestos Corp. , 7 F.3d 717, 718 n.1 (8th Cir. 1993) (decision to opt out rather than denial of class certification “irrelevant” to tolling); Tosti v. City of Los Angeles , 754 F.2d 1485, 1488 (9th Cir. 1985) (when class certification has been granted,6 Defendants cite to Basch v. Ground Round, Inc. , 139 F.3d 6 (1st

Cir.), cert. denied , 119 S. Ct. 165 (1998) to support this argument. In Basch , the court held that, even assuming the tolling rules of American Pipe and Crown, Cork & Seal applied to Age Discrimination in Employment Act ca ses, it would not have saved the plaintiffs’ case because their t olling claim depended on the “stacking” of two sequential class actions in orderto keep their claims timely. See 139 F.3d at 11. We determine that the facts and holding in Basch are inapposite here. -8- statute of limitations begins running anew from dat e class member opts out); Edwards v. Boeing Vertol Co. , 717 F.2d 761, 766 (3d Cir. 1983) (distinction based on whether class was denied or certified for application of tolling rule “would make no sense”). 6 Rule 23(c)(2) requires notice to all class members that they can, upon request, be excluded from the class. See also Eisen v. Carlisle & Jacquelin , 417 U.S. 156, 173 (1974). We agree with the Court in Crown, Cork & Seal , that without tolling, this rule would be irrelevantbecause the statute of limitations period for absent class members would, more often than not, have expired, making the right to pursue individual claims meaningless. See 462 U.S.
at 351-52. Considering the Supreme Court’s rationale that toll ing the applicable statute of limitations during the course of a class member’s participation would serve to prevent the “needless duplication of motio ns” and protective filings by parties seeking to preserve their rights, we believ e that, in this case, the tolling-9-

rule would even be more strongly applicable. American Pipe , 414 U.S. 553-54. Therefore, we hold that the fact that the Realmonte s’ participation in the class action terminated with a decision to opt out of a c ertified class rather than with the denial of class certification is irrelevant to the applicability of the American Pipe tolling rule.
C. Method of Stock Acquisition The district court found that the Realmontes’ stockwas acquired in a stock-for-stock transfer, was not traded on the ope n market, and was subject to certain restrictions. The court decided that these facts precluded the Realmontes from being considered putative class members thus d epriving them of the tolling of the statute of limitations afforded class member s desiring to file individual claims. Among the purposes of Fed. R. Civ. P. 23 is to assu re that courts will properly identify the common interests of class mem bers and evaluate the ability of the named plaintiff and counsel to fairly and ad equately protect the interests of the class. The requirements for class certificatio n pursuant to Rule 23(a) are: (1) the proposed class must be so numerous that joi nder of all members is impracticable; (2) the party seeking class certific ation must demonstrate that there is at least one question of law or fact common to t he class; (3) the claims of the representative plaintiffs must be typical of the cl aims of the class; and (4) the-10-

representative parties must demonstrate an ability to fairly and adequately represent the interests of the class members. Here, we are concerned with whether the Realmontes’ claims were common to those of the class. Commonality is not necessary on every issue raised in a class action. See DeBoer v. Mellon Mortgage Co. , 64 F.3d 1171, 1174 (8th Cir. 1995). In fact, “Rule 23 is satisfied when the leg al question linking the class members is substantially related to the resolution of the litigation.” Id. (further quotation omitted). On appeal the Realmontes argue that the Supreme Court’s case of SEC v. National Securities, Inc. , 393 U.S. 453 (1969) is dispositive. In National Securities , the Court reviewed the Rule 12(b)(6) dismissal of the SEC’s complaint alleging that the merger of two insurance companies , National Life & Casualty Insurance Co. and Producers Life Insurance Co., was in violation of Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. See id. at 455-56. Because of certain alleged misrepresentations, Prod ucers’ shareholders were misled into approving the merger, thus losing theirstock in Producers and becoming stockholders in a new company. See id. at 455. After determining that, in order to protect stockho lders as well as policy holders, federal securities law applied, the Court considered the respondents’ argument that the lower court’s judgment could be s ustained on the alternative-11-

grounds that the SEC complaint failed to allege a “ purchase or sale” of securities within the meaning of § 10b-5. The Court agreed th at “[f]or the statute and the rule to apply, the allegedly proscribed conduct mus t have been ‘in connection with the purchase or sale of any security.’” Id. at 466 (quoting 15 U.S.C. § 78j(b)). Concluding that Producers’ stock exchan ge constituted a purchase of shares in the new company, the Court opined that“[w]hatever the terms ‘purchase’ and ‘sale’ may mean in other contexts, h ere an alleged deception has affected individual shareholders’ decisions in a way not at all unlike that involved in a typical cash sale or share exchange.” Id. at 467. We agree with the Realmonte’s assertion that National Securities is applicable here. The Securities Exchange Act of 1934 defines “sale” to include “every contract of sale or disposition of a security or interest in a security, for value.” 15 U.S.C. § 77b(3). This section has been interpretedto include exchanges of one security for another. See, e.g. , 7547 Corp. v. Parker & Parsley Dev. Partners,
L.P. , 38 F.3d 211, 223 (5th Cir. 1994); United States v. Wernes , 157 F.2d 797, 799 (7th Cir. 1946). When an exchange of shares fa cilitates the merger of two separate and distinct corporate entities, that exch ange constitutes a “purchase or sale” for purposes of bringing a Rule 10b-5 action. See National Securities , 393 U.S. at 467; Gelles v. TDA Indus., Inc. , 44 F.3d 102, 104 (2d Cir. 1994). Therefore, as a matter of law, we conclude that the Realmontes were purchasers7 Pursuant to the factual averments in the class acti on complaint and in

the Realmontes’ complaint, in making their respecti ve decisions regarding the acquisition of Skolniks stock, the class members an d the Realmontes relied on the alleged overstated financial statements and project ions of Skolniks officers, the report of the outside auditors, and press releases. See Appellants’ App. Vol. 1 at 3-6, 144-47. -12- of Skolniks stock for purposes of bringing federal securities fraud claims which were the basis of the class action. Here, the district court did not cite any authorityor offer any rationale to support its conclusion that the Realmontes’ claims were not in common with those of the rest of the class. It states only that “the difference in the method in which these plaintiffs acquired Skolniks stocks provides an additional reason for finding plaintiffs are not properly considered among the cl ass of plaintiffs in the [class action].” Appellants’ App. Vol. II at 430. This f inding is erroneous. The Realmontes assert in their complaint, which the cou rt must construe as true,

see Yoder , 104 F.3d at 1224, that they relied on the represe ntations of Reeves and Coopers & Lybrand as to the financial condition andfuture of Skolniks in making their decision to go through with the merger. Ther efore, it can be assumed that defendants’ alleged deceptions influenced the Realm ontes’ decision in the same way the alleged deceptions influenced those who bou ght Skolniks stock on the open market. 7-13-

The claims of the Realmontes and the other class me mbers allege that they relied, to their detriment, on defendants’ actions, conduct, and representations as to the financial condition and future of Skolniks. Therefore, under these facts, the Realmontes’ acquisition of their Skolniks stockthrough the merger does not render their claims atypical of a class member who acquired Skolniks stock on the open market. Cf. Alpern v. UtiliCorp United, Inc. , 84 F.3d 1525, 1540 (8th Cir. 1996) (plaintiff’s acquisition of stock through a d ividend reinvestment plan did not render his claim atypical of those of members o f the class who purchased stock on the open market).

D. Date of Stock Purchase Next, the district court determined that “[b]ecause plaintiffs here acquired their Skolniks stock outside the window of time est ablished for the [class action] (November 3, 1993, through October 25, 1994), . . . the doctrine of equitable tolling does not save plaintiffs’ claim.” Appellants’ App. Vol. II at 430. In so finding, the district court relied on notations in both the October 29, 1993 letter agreement and the December 8, 1993 merger agreementbetween the Realmontes and Skolniks stating that the closing would be “eff ective as of October 30, 1993.” Appellants’ App. Vol. II at 426. The Realmontes argue that the “sale” did not occur until December 8, 1993, when the parties were committed to the transaction and the acquisition was-14-

consummated. They contend that the October 30, 199 3 effective date was “wholly arbitrary and likely had more to do with co rporate bookkeeping than anything else.” Appellants’ Br. at 18. Coopers & Lybrand argues that, because the Realmont es acquired their Skolniks stock on October 30, 1993, they cannot cla im that they relied on any alleged misrepresentations in the November 12, 1993 audit report. We determine this argument to be unpersuasive. Moreover, it is inconsistent with a note to Skolniks’ financial statements in Coopers & Lybrand ’s audit report discussing the proposed merger at some length, including a summaryof R&B’s unaudited financial statements. See Appellants’ App. Vol. II at 565. In this note, Co opers & Lybrand stated that the closing was “subject to c ertain conditions to be fulfilled and the signing of a definitive agreement.” Id. The report asserted that although “there is no assurance that the acquisition will be consummated,” Skolniks believed that there was a “substantial likelihood t hat the acquisition will occur as planned.” Id. Therefore, contrary to Coopers & Lybrand’s assert ion, at the time of its report, no stock had changed hands and the merger was far from consummated. Defendants further argue that the Realmontes “becam e obligated” to transfer R&B stock on October 30, 1993. Appellees’ Br. at 4. Our reading of the-15-

October 29, 1993 letter agreement does not lead us to that conclusion. The letter agreement states: 5. Closing . The closing of the transactions described in thi s letter shall occur at Oklahoma City, Oklahoma, at a time t o be designated by Skolniks, with time being of the essence, but inany event immediately following the satisfaction of all condi tions to closing. The closing shall be made effective as of October 3 0, 1993. However, all references to closing made herein shal l refer to the date upon which the closing actually occurs. Appellants’ App. Vol. 1 at 200. The only obligatio n we glean from this provision, and the other provisions of this letter, is the obligation of the parties to negotiate the terms of a future merger agreement in good faith according to the guidelines set forth in the letter. Pursuant to Oklahoma law, a letter agreement which memorializes the material terms of the parties’ agreement may serve as a binding contract if the parties so intend. See Raydon Exploration, Inc. v. Ladd , 902 F.2d 1496, 1500 (10th Cir. 1990). Our reading of the parties’ Octo ber 29, 1993 letter agreement here does not reveal such intent. Performance of the terms of the contract was not required until the date of closing, and there were a number of contingencies upon which performance was dependent. In this light, itis clear that the Realmontes did not receive any interest in the Skolniks stock until December 8, 1993. It follows that their claimed injuries did not aris e until after they acquired such interest.8 We note that our decision on this issue prevents th e incongruous

result of rendering irrelevant a fraudulent document provided after the “as of” date in order to entice plaintiffs such as the Real montes to remove the contingencies in the agreement letter and complete the deal. -16- Regardless of the “effective date” of the closing, it is our conclusion that the Realmontes did not acquire or become finally ob ligated to acquire Skolniks stock until the date of closing, December 8, 1993. See Appellants’ App. Vol. 1 at 236 (Skolniks was required to deliver stock cert ificates to the Realmontes at closing). We conclude, therefore, that, under t he facts presented here, the “effective as of” legal fiction inserted in the letter agreement and the merger agreement without further explanation, cannot be in voked to prejudice the rights of the Realmontes. 8-17- E. Conclusion In sum, it is our conclusion that neither the metho d nor the timing of the Realmontes’ acquisition of Skolniks stock precl uded them from class membership. Therefore, because the Realmontes were purported class members who opted out in favor of filing an individual acti on, they were entitled to the tolling of the statute of limitations from the comm encement of the original class suit. See Crown, Cork & Seal , 462 U.S. at 351-52. In accord, the judgment of the United States District Court for the WesternDistrict of Oklahoma is REVERSED, and the matter is REMANDED to the distric t court for further proceedings consistent with this opinion.