Source: https://case-law.vlex.com/vid/611-f-2d-450-596041934
Timestamp: 2020-02-27 08:16:00
Document Index: 622152916

Matched Legal Cases: ['§ 78', '§ 240', '§ 410', '§ 78', '§ 49', '§ 49', '§ 49', '§ 49']

611 F.2d 450 (3rd Cir. 1979), 79-1326, Roberts v. Magnetic Metals Co. - Federal Cases - Case Law - VLEX 596041934
611 F.2d 450 (3rd Cir. 1979), 79-1326, Roberts v. Magnetic Metals Co.
Docket Nº: 79-1326.
Party Name: James R. ROBERTS, Appellant, on behalf of himself and all others similarly situated v. MAGNETIC METALS COMPANY; Magmetco, Inc.; D. C. Langworthy and Butcher & Singer, Inc.
Case Date: November 14, 1979
611 F.2d 450 (3rd Cir. 1979)
James R. ROBERTS, Appellant, on behalf of himself and all
MAGNETIC METALS COMPANY; Magmetco, Inc.; D. C. Langworthy
and Butcher & Singer, Inc.
No. 79-1326.
Philip Stephen Fuoco, Haddonfield, N. J., Richard D. Greenfield, Sterling H. Schoen, Jr. (argued), Robert P. Frutkin, Gilbert F. Ashley, Greenfield & Schoen, Bala Cynwyd, Pa., for appellant.
Arthur Makadon (argued), John B. Langel, Philadelphia, Pa., for appellees Magnetic Metals Company, Magmetco, Inc. and Mr. David C. Langworthy; Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., of counsel.
Patrick W. Kittredge, Roslyn G. Pollack (argued), Philadelphia, Pa., for appellee Butcher & Singer, Inc.; Cohen, Shapiro, Polisher, Shiekman & Cohen, Philadelphia, Pa., of counsel.
On January 5, 1978, James R. Roberts filed a complaint, individually and as a class
representative, charging Magnetic Metals Company (Magnetic), Magmetco, Inc. (Magmetco), David C. Langworthy, and Butcher & Singer, Inc. (Butcher) with violations of sections 10(b) and 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(a) (1976), Rules 10b-5 and 14a-9 promulgated thereunder, 17 C.F.R. §§ 240.10b-5, 240.14a-9 (1978), and common law fraud. The transaction complained of is a merger of Magnetic, a New Jersey corporation, into Magmetco, a Pennsylvania corporation, approved by stockholder vote on June 25, 1975, as a result of which those Magnetic stockholders unallied with the Langworthy interests received $6.50 in cash for each share of Magnetic stock tendered, while those Magnetic stockholders allied with the Langworthy interests received Magmetco stock. The district court dismissed the complaint, holding that the federal law claims were time-barred by N.J.S.A. 49:3-71(e) (1970), a provision modeled on the Uniform Securities Act § 410(e), that plaintiff had not adequately alleged facts which would toll the application of that time-bar on grounds of fraudulent concealment, and that the pendent state common law breach of fiduciary duty claim would not, under the circumstances, be entertained. 1 This appeal followed. We conclude that the governing statute of limitations for the federal law claims is not N.J.S.A. 49:3-71(e), but N.J.S.A. 2A:14-1 (Supp.1979). Thus we reverse. Since the latter statute provides a six-year period within which to bring an accrued cause of action we have no occasion to discuss the fraudulent concealment issues.
No federal statute imposes an express limitation upon actions brought under sections 10(b) and 14(a) of the Securities Exchange Act. In such circumstances a federal court must apply the limitations law of the state in which it sits. Johnson v. Railway Express Agency, 421 U.S. 454, 462, 95 S.Ct. 1716, 44 L.Ed.2d 295 (1975); United Auto Workers v. Hoosier Cardinal Corp., 383 U.S. 696, 703-05, 86 S.Ct. 1107, 16 L.Ed.2d 192 (1966); Cope v. Anderson, 331 U.S. 461, 463, 67 S.Ct. 1340, 91 L.Ed. 1602 (1947); Holmberg v. Ambrecht, 327 U.S. 392, 395, 66 S.Ct. 582, 90 L.Ed.2d 743 (1946); Gelman v. Westinghouse Elec. Corp., 556 F.2d 699, 701 (3d Cir. 1977); Kubik v. Goldfield, 479 F.2d 472, 477 n. 12 (3d Cir. 1973); Loss, Securities Regulation 1771-72 (2d ed. 1961). When Congress has been silent on the applicable limitations period federal courts have presumed that its intended policy with respect to repose is deference to the policy of repose of the forum state, rather than national uniformity. Holmberg v Ambrecht, 327 U.S. at 395, 66 S.Ct. 582; Rawlings v. Ray, 312 U.S. 96, 97, 61 S.Ct. 473, 85 L.Ed. 605 (1940); Chattanooga Foundry & Pipe Works v. Atlanta, 203 U.S. 390, 397, 27 S.Ct. 65, 51 L.Ed. 241 (1906); Campbell v. Haverhill, 155 U.S. 610, 613-621, 15 S.Ct. 217, 39 L.Ed. 280 (1895). The starting point, therefore, for determining applicable state statutes of limitations is to inquire whether, assuming the operative facts alleged in the complaint, a state court would entertain an action for the relief sought; in this case the award of money damages. If it would do so, no state policy of repose is implicated, and no deference with respect to a federal law basis for recovery growing out of those operative facts is appropriate.
What Mr. Roberts alleges is that in May of 1975, when he held 600 shares of Magnetic, a publicly held corporation, eighty-four percent of which was controlled by Langworthy interests, David A. Langworthy announced a proposed squeeze out merger in which the public shareholders would receive $6.50 a share and the family stockholders would receive all the stock of Magmetco. At the time of the merger Magnetic stock possessed a book value of $11.77 a share. The stock traded in the over-the-counter market for $2.50 to $5.50 a share. In connection with the proposed merger the management of Magnetic sent its shareholders a proxy statement soliciting a favorable vote, and included therein a letter from Butcher indicating that $6.50 was a fair cash price for the Magnetic shares. Most, or all, of the public shareholders surrendered their
shares for the $6.50. In soliciting favorable stockholder action the defendants failed to disclose numerous material facts and made numerous material misrepresentations, the details of which need not be set forth. Through their omissions and misrepresentations they induced Roberts and other shareholders to believe that they had no practical alternative to accepting the $6.50 offered for their shares. Shortly after the merger's consummation the Langworthy interests sold their stock in Magmetco to another corporation for a price of over $15.00 per old Magnetic share.
These factual allegations state a claim that the defendants used manipulative or deceptive devices or practices in violation of section 10(b), and made untrue statements, or omitted material facts in connection with a proxy solicitation in violation of section 14(a). Because enforcement of the Securities Exchange Act is, by virtue of section 27, 15 U.S.C. § 78aa (1976), rendered a matter of exclusive federal jurisdiction, recovery on a cause of action implied from section 10(b) and 14(a) could not be had in a state court. But the same allegations of fact state a cause of action under state law for breach of fiduciary duty and for common law fraud. See Bilotti v. Accurate Forming Corp., 39 N.J. 184, 188 A.2d 24 (1963); Judson v. Peoples Bank & Trust Co., 25 N.J. 17, 134 A.2d 761 (1957); Riverside Trust Co. v. Collin, 114 N.J.Eq. 157, 168 A. 377 (1933). Thus the very transactions giving rise to the section 10(b) and section 14(a) claims would be cognizable in New Jersey courts. And it is clear which statute of limitations a New Jersey court would apply to these claims: the six-year statute of limitations provided by N.J.S.A. 2A:14-1 governing actions for common law fraud. The statute on which the district court relied, N.J.S.A. 47:3-71(e), would not have been applied to Roberts' claims. Litigation over the transactions alleged would, in a New Jersey court, be alive, not in repose.
The district court, recognizing that in a New Jersey court the action would proceed, nevertheless chose to apply a provision in a statute which is wholly inapplicable to the transactions alleged in the complaint. The civil liability provision of the New Jersey Uniform Securities Act, section 49:3-71(a), provides:
(1) offers or sells a security in violation of sections 8(b), 9(a) or 13 of this Act, or
(2) offers or sells a security by means of any untrue statement of material fact or any omission to state a material fact necessary in order to make the statement made, in the light of the circumstances under which they are made, not misleading (the buyer not knowing of the untruth or omission) Is liable to the person buying the security from him . . . . (emphasis added).
By its own terms the New Jersey Uniform Securities Act protects Buyers of securities. It provides no protection to sellers or tenderers of securities. It prohibits unlawful representations concerning registrations, N.J.S.A. § 49:3-55 (1970), persons from acting as broker-dealers, agents, or investment advisors unless duly registered, N.J.S.A. § 49:3-56 (1970), and the sale of unregistered securities. N.J.S.A. § 49:3-60 (1970). However, it has nothing to do with the fiduciary duties of officers, directors, or insiders, nor with frauds perpetrated by buyers or tenderees in a merger. Indeed, unlike section 10(b), section 49:3-71 does not contemplate the implication of additional remedies. See N.J.S.A. § 49:3-71(h) (1970). Consequently, it lacks even potential application to these transactions.
Nor does the New Jersey Uniform Securities Act preempt the field with respect to sellers' liability. In section 49:3-71(h) it provides:
The rights and remedies provided by this act are in addition to any rights or remedies that may exist at law or in equity . . ..
Thus New Jersey's common law remedies for breach of fiduciary duty and for fraud are undisturbed by the enactment, in 1967, of the New Jersey Uniform Securities Act. The savings clause negates any suggestion that the two-year time-bar of section 49:3-71(e) was intended to supplant time-bars
otherwise applicable to pre-existing causes of action.
In justifying its departure from the statute of limitations which New Jersey would apply to litigation arising out of the facts alleged the district court reasoned:
The duty of this court is not to apply the limitations period of the state statute under which the plaintiff might obtain relief. Were this the...