Court Opinion

ID: 2961893
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:49:29.642773+00
Date Added: 2024-06-11T11:42:22.981971
License: Public Domain

USCA1 Opinion

	

                                       United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 92-2148                       COOPERATIVA DE AHORRO Y CREDITO AGUADA,                                Plaintiff, Appellant,                                          v.                            KIDDER, PEABODY & CO., ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                    [Hon. Jose Antonio Fuste, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                Selya, Cyr, and Stahl,                                   Circuit Judges.                                   ______________                                 ____________________            Enrique Peral,  with whom  Edgardo L. Rivera, Roberto  Boneta, and            _____________              _________________  _______________        Munoz  Boneta Gonzalez  Arbona  Benitez &  Peral,  were on  brief  for        ________________________________________________        appellant.            Nestor M.  Mendez-Gomez, with  whom Patricia  Rivera-MacMurray and            _______________________             __________________________        Pietrantoni  Mendez  & Alvarez,  were  on brief  for  appellee Kidder,        ______________________________        Peabody  & Co., Gladys Isabel  Flores for appellee  Ramon Almonte, and                        _____________________        Guillermo J. Bobonia and Carlos A. Bobonis on brief for appellee Paine        ____________________     _________________        Webber Incorporated.                                 ____________________                                     May 19, 1993                                 ____________________                      STAHL,  Circuit Judge.    In this  appeal, we  must                              _____________            decide whether  the district  court properly applied  Fed. R.            Civ.  P. 12(b)  in dismissing  plaintiff's complaint  as time            barred.   Because  the  district court  improperly relied  on            materials not within the  pleadings in reaching its decision,            we reverse the dismissal.                                           I.                                          I.                                          __                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       ________________________________________                      For  purposes of  this  appeal, we  provide only  a            summary of the procedural history of  this case.1  Plaintiff-            appellant Cooperativa de Ahorro y Credito Aguada ("the Coop")            is a  single-branch savings  and loan cooperative  located in            Aguada, Puerto Rico.   On December 28, 1989, more  than three            years after purchasing shares  in Drexel Burnham Lambert Unit            Trust  Bond  Funds  (hereinafter  "Unit  Trusts"),  the  Coop            brought  Section 10(b)2  and Rule  10b-53 claims  against its                                            ____________________            1.  For more  detailed accounts of the  case, see Cooperativa                                                          ___ ___________            de Ahorro y  Credito Aguada v. Kidder, Peabody &  Co., 758 F.            ___________________________    ______________________            Supp.  64   (D.P.R.  1990)  (hereinafter   "Cooperativa  I");                                                        ______________            Cooperativa de Ahorro  y Credito Aguada v.  Kidder, Peabody &            _______________________________________     _________________            Co., 777 F. Supp. 153 (D.P.R. 1990) (hereinafter "Cooperativa            ___                                               ___________            II");  Cooperativa  de Ahorro  y  Credito  Aguada v.  Kidder,            __     __________________________________________     _______            Peabody  & Co., 799  F. Supp. 261  (D.P.R. 1990) (hereinafter            ______________            "Cooperativa III").             _______________            2.  Section 10(b) of the Securities Exchange Act  of 1934, 15            U.S.C.   78j(b), states in relevant part:                 It shall  be unlawful  for any person,  directly or                 indirectly,   by   the   use   of   any  means   or                 instrumentality  of interstate  commerce or  of the                 mails,  or   of  any  facility   of  any   national                 securities exchange .  . . [t]o  use or employ,  in                                         -2-                                          2            financial  services   brokers,  defendants-appellees  Kidder,            Peabody & Co.  ("Kidder") and Ramon Almonte.4   The complaint                                            ____________________                 connection  with  the  purchase   or  sale  of  any                 security  registered  on   a  national   securities                 exchange  or any  security not  so registered,  any                 manipulative or deceptive  device or contrivance in                 contravention of such rules and  regulations as the                 Commission   may   prescribe   as    necessary   or                 appropriate  in  the  public  interest  or for  the                 protection of investors.              3.  Rule 10b-5, 17 C.F.R.   240.10b-5 states:                 It shall  be unlawful  for any person,  directly or                 indirectly,   by  the   use   of   any   means   or                 instrumentality  of interstate commerce,  or of the                 mails or of any facility of any national securities                 exchange,                      (a)  To employ  any  device,  scheme,  or                      artifice to defraud,                      (b) To  make  any untrue  statement of  a                      material  fact  or  to omit  to  state  a                      material fact necessary in order  to make                      the statements made, in  the light of the                      circumstances under which they  are made,                      not misleading, or                      (c)  To engage in  any act,  practice, or                      course  of  business  which  operates  or                      would operate  as a fraud  or deceit upon                      any person,                 in  connection with  the  purchase or  sale of  any                 security.            4.  The complaint also  named Almonte's subsequent  employer,            Paine  Webber, Inc.,  ("Paine Webber"),  as a  defendant, and            alleged other securities, RICO, and mail fraud claims against            Almonte, Kidder  and Paine Webber.   These additional federal            claims  were dismissed  by  the district  court  and are  not            before us on this appeal.  See Cooperativa I, 758 F. Supp. at                                       ___ _____________            64; Cooperativa II, 777 F. Supp. at 157-61.                  ______________                 In  addition, the  complaint  included  state law  fraud            claims  against  all three  defendants.    These claims  were            dismissed for  want of  pendent jurisdiction  coincident with                                         -3-                                          3            alleged  that  Almonte,   while  employed   at  Kidder,   had            fraudulently  induced the Coop to purchase shares in the Unit            Trusts  by misrepresenting to the Coop the nature and risk of            these investments.   As to timeliness,  the complaint alleged            that,  because Almonte  had  continued  to  misrepresent  the            nature and value of the Unit Trusts from the date of purchase            through  July of  1989, the  applicable Puerto  Rico two-year            statute of limitations had tolled.5                      While the  Coop's  claims were  pending before  the            district court,  the United States Supreme  Court announced a            uniform federal statute of  limitations for all Section 10(b)            and  Rule 10b-5  claims in  Lampf, Pleva,  Lipkind, Prupis  &                                        _________________________________            Petigrow v. Gilbertson, 111  S. Ct. 2773 (1991).   Lampf held            ________    __________                             _____            that such claims must be brought within one year of discovery            of the facts  which give rise  to the violation, and  no more                                            ____________________            the  dismissal  of  the   federal  securities  claims.    See                                                                      ___            Cooperativa II, 777 F. Supp.  at 161.  While our  decision in            ______________            the instant appeal will result in the  reinstatement of those            claims as well,  we reinstate them  without prejudice to  the            district court's  further consideration of whether  or not it            should   hear  and   determine  them  under   pendent  and/or            supplemental jurisdiction.            5.  The  parties do  not dispute  that at  the time  the Coop            filed  suit, the  applicable statute  of limitations  was the            two-year provision "borrowed" from the Puerto Rico Securities            Act, 10  L.P.R.A.    890(e).   This  two-year limitation  was            subject to equitable tolling under the doctrine of fraudulent            concealment, which provides that "the  statute of limitations            applicable  to  claims under  Section  10(b)  and Rule  10b-5            begins to run when an investor, in the exercise of reasonable            diligence, discovered  or should have discovered  the alleged            fraud."   General  Builders Supply  Co.  v. River  Hill  Coal                      _____________________________     _________________            Venture, 796 F.2d 8, 11 (1st Cir. 1986).            _______                                         -4-                                          4            than three years after the violation  itself. Id. at 2781-82.                                                          ___            The one-and-three  year limitation announced in  Lampf is not                                                             _____            subject to tolling.  Id. at  2782.  Because the Coop's claims                                 ___            had  been filed more than  three years after  the purchase of            the  Unit  Trusts,  the  district court,  relying  on  Lampf,                                                                   _____            dismissed  the claims  (hereinafter  "the first  dismissal").            Cooperativa II, 777 F. Supp. at 155-56.            ______________                      Less than two months after the first dismissal, the            Coop's claims were reinstated  by Section 476 of the  Federal            Deposit Insurance  Corporation Improvement Act  of 1991, Pub.            L. No.  102-242, 105  Stat. 2387  (codified as    27A  of the            Securities  Exchange  Act  of   1934,  15  U.S.C.     78aa-1)            (hereinafter "Section 27A").6   Section 27A reinstates claims                                            ____________________            6.  Section 27A provides:                 (a)  Effect on pending causes of action                 (a)  Effect on pending causes of action                      The  limitation period  for any  private civil                 action  implied  under  [section  10(b)]  that  was                 commenced on or before June 19, 1991,  shall be the                 limitation period provided  by the laws  applicable                 in  the  jurisdiction,   including  principles   of                 retroactivity, as  such laws  existed  on June  19,                 1991.                 (b)  Effect on dismissed causes of action                 (b)  Effect on dismissed causes of action                      Any  private  civil  cause of  action  implied                 under  [section 10(b)]  that  was  commenced on  or                 before June 19, 1991--                      (1)   which  was  dismissed   as  time  barred                 subsequent to June 19, 1991, and                       (2) which  would have been  timely filed under                 the   limitation  period   provided  by   the  laws                                         -5-                                          5            which,  like the Coop's, were  (1) pending at  the time Lampf                                                                    _____            was  decided, and (2)  dismissed as time  barred under Lampf.                                                                   _____            Pursuant to Section 27A,  the Coop filed a timely  motion for            reinstatement.                      With the Coop's claims before it a second time, the            district  court set  out  to apply  the pre-Lampf  statute of                                                        _____            limitations, which,  as noted above, was  subject to tolling.            Having no discovery before it on the issues of timeliness and            tolling, the  district court applied  Fed. R. Civ.  P. 12(b)7            to the Coop's motion for reinstatement.                       The  district court  began its application  of Rule            12(b) with a brief analysis of the junk bond market.  Relying            extensively on  articles in the national  press, submitted by                                            ____________________                 applicable    in   the    jurisdiction,   including                 principles of  retroactivity, as such  laws existed                 on  June 19, 1991, shall be reinstated on motion by                 the plaintiff not later than 60 days after Dec. 19,                 1991.            7.  Defendants  argue that  the  district court  applied Rule            60(b) to the motion  for reinstatement.  Though the  district            court  did refer to  the motion as  a "Fed. R.  Civ. P. 60(b)            motion for reconsideration," Cooperativa III, 799 F. Supp. at                                         _______________            262, it went on to apply a Rule 12(b) standard, "[l]ooking at            the facts in a light most  favorable to [the Coop] and taking            them as true, Fed. R. Civ. P. 12(b)(6)."  Id. at 264.                                                       ___                 Nothing  in  the  language  of Section  27A  or  in  its            legislative  history  suggests  that  district  courts should            apply Rule  60(b) to  motions  for reinstatement  thereunder.            Rather,   Section   27A  states   that  claims   meeting  its            requirements "shall be reinstated on motion by the plaintiff"                          _____ __ __________            (emphasis supplied).   The  district court properly  chose to            apply  a  Rule  12(b)  standard  to  the  Coop's  motion  for            reinstatement, and  we reject defendant's  argument that  the            court applied or should have applied Rule 60(b).                                         -6-                                          6            neither party, the district  court found that "it  was public            common knowledge within institutional investment circles that            . . . the high yield bonds sold by Drexel were accompanied by            an  equally high risk," Cooperativa III, 799 F. Supp. at 264,                                    _______________            and  that  "any   reasonabl[y]  sophisticated   institutional            investor should have recognized that it was investing in junk            bonds."8  Id. at 266.  The district court concluded that  the                      ___            Coop  "was  under  an  obligation  to  conduct  a  reasonably            diligent  inquiry from  the  date of  purchase  of [the  Unit            Trusts] and so  the statute  of limitations began  to run  on            that date."  Id.                         ___                      As an alternative date  for commencing the  running            of the statute of limitations, the district court found  that            the stock market crash of October 19, 1987, was sufficient to            put  the Coop  on  notice of  its possible  securities claims            against  defendants.  Id. at 265-66.  Again, the court relied                                  ___            on  national  press reports  submitted  by  neither party  to            support its view  that such  notice was within  the realm  of            common knowledge.9                                               ____________________            8.  The district court relied upon articles from, inter alia,                                                              _____ ____            The  Christian  Science  Monitor,  Barrons,  Forbes, Business            ________________________________   _______   ______  ________            Week, Fortune,  and The Los Angeles Times.   Cooperativa III,            ____  _______       _____________________    _______________            799 F. Supp. at 264 nn. 5, 6.               9.  Here,  the district  court  relied on  articles from  The                                                                      ___            Financial  Times,  Reuters,  The  New  York  Times,  and  The            ________________   _______   _____________________        ___            Washington Post.  Cooperativa III, 799 F. Supp. at 265-66 nn.            _______________   _______________            10, 12.                                         -7-                                          7                      Applying either date, the district court found that            the Coop's  December 28,  1989, complaint failed  to state  a            timely  claim   under  Puerto  Rico's   two-year  statute  of            limitations.   Accordingly, it dismissed the  Coop's claims a            second time (hereinafter "the second dismissal").  Id.                                                                  ___                      The Coop now appeals  the second dismissal, arguing            that the  district court's  reliance on materials  outside of            the pleadings was  improper and  thus not a  valid basis  for            dismissing its claim.  For the reasons that follow, we agree.                                         II.                                         II.                                         ___                                      DISCUSSION                                      DISCUSSION                                      __________                      Under Rule  12(b), "any consideration  of documents            not attached to the  complaint, or not expressly incorporated            therein,  is forbidden,  unless  the  proceeding is  properly            converted  into one for summary judgment  under [Fed. R. Civ.            P.]  56."  Watterson v. Page, 987  F.2d 1, 3 (1st Cir. 1993).                       _________    ____            See  also  Fed. R.  Civ. P.  12(b)  (if "matters  outside the            ___  ____            pleading  are presented to and not excluded by the court, the            motion  shall  be treated  as  one for  summary  judgment and            disposed of  as  provided  in  Rule  56").    Moreover,  upon            conversion to summary judgment, "all parties shall be given a            reasonable   opportunity   to  present   all   material  made            pertinent" by  the conversion.   Fed. R. Civ. P.  12(b).  See                                                                      ___            also Whiting v. Maiolini, 921 F.2d 5, 6 (1st Cir. 1990).              ____ _______    ________                                         -8-                                          8                      Here,  the district  court  relied  extensively  on            materials outside the pleadings in reaching its conclusion as            to when the statute of limitations began to run on the Coop's            claims.    In  relying  on these  extraneous  materials,  the            district   court  gave   the  parties   neither   notice  nor            opportunity to be heard, nor did it convert the proceeding to            one for summary judgment.   Such use of outside  materials is            beyond the scope of Rule 12(b).                      Nor do  we find that the  district court's reliance            on such material  was within the  scope of "judicial  notice"            under  Fed. R. Evid.  201(b).10  Ordinarily,  when a district            court  takes  judicial notice  of a  fact  other than  at the            request of a party, it  should notify the parties that  it is            doing so and afford them an  opportunity to be heard.  United                                                                   ______            States v. Garcia, 672  F.2d 1349, 1356 n.9 (11th  Cir. 1982).            ______    ______            See also Barr Rubber Prods. Co.  v. Sun Rubber Co., 425  F.2d            ___ ____ ______________________     ______________            1114,  1125-26  (2d Cir.)  (stating  that  failure to  notify            parties "exceeded the bounds  of judicial notice, and thereby            denied  [party] an  effective  opportunity  to  object  [to],            examine and  rebut the matters noticed")  (footnote omitted),                                            ____________________            10.  Fed. R. Evid. 201(b) provides:                 A judicially  noted fact must be one not subject to                 reasonable  dispute   in  that  it  is  either  (1)                 generally known within the territorial jurisdiction                 of  the trial court or (2)  capable of accurate and                 ready  determination  by  resort  to  sources whose                 accuracy cannot reasonably be questioned.                                           -9-                                          9            cert. denied, 400  U.S. 878  (1970); 21 Charles  A. Wright  &            _____ ______            Kenneth  W. Graham,  Federal  Practice and  Procedure    5107                                 ________________________________            (1977) ("[T]he judge  must notify the parties  that [s/]he is            taking judicial notice  of an adjudicative  fact.") (footnote            omitted).    As noted  above,  the  district court  gave  the            parties no  such opportunity to  be heard.   Accordingly,  we            find that the district court's use of scattered press reports            to  take judicial notice  of an adjudicative  fact was beyond            the proper scope of judicial notice.                      Finally, defendants offer an alternative ground for            affirming  the  district  court's  dismissal  of  the  Coop's            claims, claiming that Section 27A is constitutionally infirm.            For the reasons persuasively  stated in Anixter v. Home-Stake                                                    _______    __________            Prod. Co.,  977 F.2d  1533, 1543-47  (10th Cir.  1992), cert.            _________                                               _____            denied,  No. 92-1099,  1992  WL 391280  (Apr.  19, 1993),  we            ______            reject  defendants'  constitutional  challenges   to  Section            27A.11   See also Henderson v.  Scientific-Atlanta, Inc., 971                     ___ ____ _________     ________________________                                            ____________________            11.  "Given  the   existence  of  a   cogent,  well-reasoned,            eminently correct  opinion closely on point,  we embrace it."            United States v. 29 Cartons, 987 F.2d 33, 37 (1st Cir. 1993).            _____________    __________            Beyond Anixter, we add only the following comment in order to                   _______            address    defendants'    argument    that     Section    27A            unconstitutionally deprived them of  a vested property right.            It is well  established that  a party's property  right in  a            cause  of action does  not vest "until  a final, unreviewable            judgment has  been obtained."  Hammond v.  United States, 786                                           _______     _____________            F.2d 8,  12 (1st  Cir. 1986).   See also  Hoffman v.  City of                                            ___ ____  _______     _______            Warwick, 909 F.2d 608, 621 (1st Cir. 1990).  At the time that            _______            Section 27A was signed  into law, no final judgment  had been            entered  in  the  instant  case.    Accordingly,  defendants'            argument  that Section 27A deprived them of a vested property            right is without merit.                                         -10-                                          10            F.2d  1567,  1571-75  (11th  Cir. 1992);  Berning  v.  United                                                      _______      ______            States, No. 91-3318, 1993 WL 84590, **5-7 (7th Cir. March 25,            ______            1993).                                           III.                                         III.                                         ____                                      CONCLUSION                                      CONCLUSION                                      __________                      For  the  foregoing  reasons,  the   order  of  the            district  court denying the  Coop's motion  for reinstatement            under Section 27A is reversed.  Reversed and remanded.                                            ________ ___ ________                                         -11-                                          11