Opinion ID: 599314
Heading Depth: 3
Heading Rank: 9

Heading: Questionable Residuary Value

Text: 13 10. Loss of Revenue to the United States Government 14 The combination of these factors persuaded the IRS that it was unlikely that Princeton Partners would ever be able to repay the debt to Vidco or ever show a profit from the transaction. The tax deductions claimed by the limited partners, however, would provide a tax savings that approximated their initial investments within six years. The IRS also surmised that the investors were likely to walk away from the property without repaying the note or ever having received income. Thus, the partners would never pay taxes on the investment. Accordingly, the IRS concluded that the transaction was an abusive tax shelter and disallowed the partnership deductions. 15 Disgruntled by this turn of events, Brumbaugh, a West Virginia attorney, filed this lawsuit on November 23, 1990 to recover his investment in the limited partnership and other related damages. After listing the conclusions of the IRS summary report, the complaint alleged that the PPM failed to state that the partnership would not be treated by the IRS as a partnership for tax purposes, that the entire transaction was a sham, that Vidco and Pennvest were the real owners of the property and the beneficiaries of the transaction, that investors in the limited partnership should anticipate a negative return, and that investors would not develop any equity in the property. Brumbaugh asserted that these alleged deceptions violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. Brumbaugh also asserted claims under the West Virginia common law of fraud and negligence and under the West Virginia Blue Sky law. W. Va.Code § 32-4-410. The complaint further stated that Brumbaugh did not know of the alleged unlawful acts until November 24, 1988, when Brumbaugh received his copy of the IRS report. 16 Defendants filed a motion to dismiss on the grounds that the statute of limitations had elapsed for all of the counts. The district court agreed. See 766 F.Supp. 497 (S.D.W.Va.1991). That court dismissed the federal claim on the basis of the three-year statute of repose announced by the Supreme Court in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, ----, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991) (Litigation instituted pursuant to § 10(b) and Rule 10b-5 therefore must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation.). The court dismissed both state claims on the basis of the three-year statute of repose under the Blue Sky law. W.Va.Code § 32-4-410(e) (No person may sue under this section more than three years after the sale [of the securities].). Brumbaugh appealed the dismissal of his common law fraud claim to this court. 17 While that appeal was pending, Congress passed a law eliminating the retroactive effect of Lampf. Federal Deposit Insurance Corporation Improvement Act of 1991, Pub.L. No. 102-242, § 476, 105 Stat. 2236, 2387 (1991), § 27A of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa-1. Brumbaugh believed his federal claim was viable under pre-existing law, and moved the district court for reinstatement of that claim. The district court denied this motion, believing that the Fourth Circuit rule prior to Lampf required it to incorporate the most analogous state statute of limitations. Howard v. Haddad, 962 F.2d 328, 330 n. 3 (4th Cir.1992). Applying the three-year statute of repose from the West Virginia Blue Sky law, the district court held that Brumbaugh's federal claim was barred. Brumbaugh appealed from that determination and we consolidated the two appeals. We have before us now the dismissal of both Brumbaugh's common law claim and federal securities claim; Brumbaugh has abandoned his claim under the Blue Sky law.