Opinion ID: 468850
Heading Depth: 2
Heading Rank: 3

Heading: The Georgia Blue Sky Law Is Most Analogous

Text: 24 The third step in the Wilson analysis is the characterization of the statutory claim, the selection of the most analogous state statute, and the application of the statute of limitations period for that state statute. Troutman, Sanders suggests that the Georgia Securities Act offers the best analogy to a Sec. 10(b) and Rule 10b-5 claim. Section 12 of the Act, O.C.G.A. Sec. 10-5-12 (1982), describes certain unlawful practices. Subsection (a) prohibits certain behavior in connection with the offer and sale of any security. Subsection (d), in language very similar to the language of Rule 10b-5, makes unlawful certain fraudulent schemes or acts which would defraud or deceive a purchaser or seller of securities. 25 Section 14 of the Act, O.C.G.A. Sec. 10-5-14, concerns civil liability for violation of Sec. 12. Subsections (a) and (b) of Sec. 14 create civil liability for violations of subsection 12(a). The statute of limitations--two years after the date of the unlawful sale of securities--is provided in Sec. 14(c). There is no remedy expressly provided under Sec. 14 for violations of Sec. 12(d). See Diamond v. Lamotte, 709 F.2d at 1423. Thus, the state blue sky law would provide a remedy to a purchaser under Sec. 12(a), but the state law is uncertain as to whether a private cause of action for a seller would be implied under Sec. 12(d). 26 Friedlander suggests that the Georgia general fraud and deceit statutes, O.C.G.A. Secs. 51-6-1, 51-6-2 (1982), are the most analogous to Sec. 10(b) and Rule 10b-5 actions. Actions for damages under the fraud and deceit statutes are, under Georgia law, actions for injuries to personalty. McNeal, 598 F.2d at 893 n. 10. They are subject to the four-year limitation for injuries to personalty under O.C.G.A. Sec. 9-3-31. 598 F.2d at 893 n.10. 27 The district court concluded that there is no private cause of action 9 for a seller under Sec. 12(d) of the Georgia Act and thus that no comparable cause of action for a defrauded seller exists under the Georgia Securities Act. For this reason, the district court concluded that the limitations period provided in the Georgia Securities Act could not be employed as an analog to Rule 10b-5. Friedlander, 595 F.Supp. at 1449. Alternatively, the district court examined the other three factors set out in Diamond v. Lamotte --scienter, reliance and purposes of the statutes--along with the relief available under each of the statutes to determine which of the two statutes was more analogous. Again, the district court concluded that the general fraud and deceipt statutes were more analogous to this plaintiff's Sec. 10(b) and Rule 10b-5 claim, again based largely on the premise that the Georgia Securities Act would provide no remedy for a seller, though the district court also was influenced by its belief that the Georgia Securities Act did not require reliance and that the scienter requirement was uncertain. 28 Since we have decided that a statute of limitations must be selected on a statute-by-statute basis and since the district court's analysis was done on a claim-by-claim basis, we need not rule on the correctness of the district court's selection of the Georgia general fraud statute. Because we are proceeding on the statute-by-statute basis, we must decide what Georgia statute is the most analogous for purposes of all suits brought under Sec. 10(b) and Rule 10b-5--i.e., both suits brought by purchasers and suits brought by sellers. Thus, the difference which the district court found to be controlling in this case--that as a defrauded seller Friedlander would not be able to state a cause of action under the Georgia securities law--should not be determinative of the statute we select as being more analogous to Sec. 10(b) and Rule 10b-5. Approaching the question on a statute-by-statute basis, we find that the Georgia blue sky law is more analogous to Sec. 10(b) and Rule 10b-5. 29 First, the purpose of the Georgia Securities Act is the same as the purpose of the federal securities laws. The Georgia Securities Act promotes the full, accurate disclosure of information and protects against fraud in connection with the sales of securities, precisely the same purpose as that of Sec. 10(b) and Rule 10b-5. As this court noted in Diamond v. Lamotte: 30 Without doubt the blue sky statute is more closely attuned to securities fraud than generalized common law fraud.... The blue sky cause of action serves to supplement the relief available to a defrauded purchaser of securities and therefore particularizes a securities fraud case. 31 709 F.2d at 1424. 32 Second, the language of the Georgia Securities Act substantially tracks language of the federal securities statutes. As we have already mentioned, the language of Sec. 12(d) of the Georgia Securities Act is substantially the same as the language of Rule 10b-5. 33 Third, the case law in this circuit indicates that the Georgia blue sky law is more analogous to Sec. 10(b) and Rule 10b-5 than the general fraud statute because of the closeness of purpose and language and some similarity in the elements of the actions. In the two most recent cases analogizing Sec. 10(b) and Rule 10b-5 to Georgia law, this court has approved the selection of the Georgia blue sky law as the most analogous statute. Kennedy v. Tallant, 710 F.2d 711; Diamond v. Lamotte, 709 F.2d 1419. Moreover, in Greenblatt v. Drexel Burnham Lambert, Inc., 763 F.2d 1352 (11th Cir. 1985), a case involving a private right of action implied under Rule 10b-16, we noted: 34 In Diamond, we concluded that the most appropriate Georgia statute of limitations to borrow in an action for damages under Sec. 10b of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and Rule 10b-5 was the two-year limitations period found under the Georgia blue sky law, rather than the four-year period governing common law fraud claims. 709 F.2d at 1421-24. 35 Greenblatt, 763 F.2d at 1356 n. 5. Similarly, the district court cases listed supra slip op. p. 1504, have all settled on the blue sky law as the most analogous to a Rule 10b-5 claim. See, e.g., Miller, 572 F.Supp. at 1184 ([I]t is now well established that the appropriate statute of limitations for an action brought under Rule 10b-5 is the two-year statute of limitations of the Georgia Securities Act.)There is one case in this circuit where the four-year limitations period of Georgia's common law fraud action was applied to a Rule 10b-5 claim. In McNeal v. Paine, Webber, Jackson & Curtis, Inc., 598 F.2d 888 (5th Cir.1979), the former Fifth Circuit chose that law as most analogous to a claim for churning under Rule 10b-5. The McNeal panel found that the Georgia blue sky law provided no remedy for a churning claim. Treating the factor as determinative, the court found the general fraud statute most analogous. Since McNeal was decided pursuant to a claim-by-claim basis, its analysis retains no vitality for the same reasons that the district court in this case erred. 36 Other cases decided by this court have also generally selected a state's blue sky law over its general fraud law when analogizing to Sec. 10(b) and Rule 10b-5 actions. See, e.g., White v. Sanders, 650 F.2d 627 (5th Cir. Unit B 1981); Dupuy v. Dupuy, 551 F.2d 1005 (5th Cir.1977). Although it may have been decided on a claim-by-claim basis and although the Alabama blue sky statute differed from the federal securities law in two of the same ways that the Georgia blue sky statute differs from Rule 10b-5, the White court found the blue sky statute to be analogous in general to Sec. 10(b). See Hunt v. American Bank & Trust Co. of Baton Rouge, 783 F.2d 1011, 1013 n. 2 (11th Cir.1986) (dicta) (Our decision in White, however, was based on the general similarity of blue sky actions in Alabama to actions brought under [Sec. 10(b) and Rule 10b-5]; it did not focus on the nature of the particular cause of action at hand.). The court noted that the blue sky law allowed recovery for purchasers only, whereas Rule 10b-5 provides redress for defrauded purchasers and sellers. Second, the court noted that the Alabama blue sky statute, like the Georgia blue sky statute, 10 does not clearly require the element of scienter--which is a requirement in Rule 10b-5 actions. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 206, 96 S.Ct. 1375, 1385, 47 L.Ed.2d 668 (1976). However, White concluded that [t]hose features which do distinguish the Alabama and federal securities laws are, we believe, outweighed by their greatest similarity--an undeniable 'commonality of purposes.'  White v. Sanders, 650 F.2d at 632 (citations omitted). 37 One of the cases heavily relied on by this court in White v. Sanders was O'Hara v. Kovens, 625 F.2d 15 (4th Cir.1980), cert. denied, 449 U.S. 1124, 101 S.Ct. 939, 67 L.Ed.2d 109 (1981), which compared an action under the Maryland blue sky law to a Rule 10b-5 action. In the O'Hara case, the court found some discrepancies in its claim-by-claim analysis. The plaintiffs were sellers rather than purchasers--the situation in the instant case. Moreover, the Maryland blue sky law did not require scienter. Nevertheless, the Fourth Circuit held that these claim-by-claim distinctions were outweighed by the simple truth that the federal and state statutes at issue here were designed to achieve similar ends. 625 F.2d at 18. By comparison, the shared purposes between Sec. 10(b) and common law fraud are generalized at best. Id. 38 In Dupuy v. Dupuy, this court compared the Louisiana blue sky law with Rule 10b-5 and found that the Louisiana law prohibited only misrepresentations by sellers and required only negligence not scienter. Despite these claim-by-claim differences, this court found that the purposes of the state blue sky law and the federal securities law were precisely the same and selected the securities law as most analogous. Dupuy, 551 F.2d at 1024 n. 31. 39 The only recent decision other than McNeal where this court selected a state's general fraud statute over its blue sky law is Wood v. Combustion Engineering, Inc., 643 F.2d 339 (5th Cir. Apr. 24, 1981). However, Wood is distinguishable, as the decision in White v. Sanders points out. White v. Sanders, 650 F.2d at 632. As noted in White, the Texas blue sky statute and the Texas general fraud statute described in Wood were different from the Alabama blue sky statute and general fraud statute involved in White. The Texas blue sky statute lacked a counterpart to Rule 10b-5. In contrast, the Alabama blue sky statute had a section which, like Sec. 12(d) of the Georgia securities statute, tracks the language of Rule 10b-5. Moreover, the Texas fraud statute examined in Wood specifically addressed fraud in stock transactions whereas the common law fraud cause of action available in Alabama was, as it is in Georgia, a catchall provision. Thus, under a statute-by-statute analysis, the Texas general fraud statute might be most analogous, a question which we expressly do not decide. 40 In sum, the case law in this circuit has held that the language and purposes of the Georgia blue sky law make it [w]ithout doubt ... more closely attuned to securities fraud than generalized common law fraud. Diamond v. Lamotte, 709 F.2d at 1424 (citing White v. Sanders, 650 F.2d at 632-33). 41 Based on the commonality of purpose between the Georgia blue sky law and Sec. 10(b) and Rule 10b-5, based on the similarity of language, and based on the case law in this circuit, our examination of the nature and purpose of the several statutes leads us to the conclusion that the Georgia blue sky law is most analogous to Sec. 10(b) and Rule 10b-5. Thus, the two-year statute of limitations should be applied here. 11