Court Opinion

ID: 9466862
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:31:00.812041+00
Date Added: 2024-06-11T17:40:01.162530
License: Public Domain

PELL, Circuit Judge,
dissenting.
Although I have no basis for disagreeing with the majority opinion’s observation that no federal court has applied a state catchall limitation period, this does not mean that such application would never be appropriate. Here, it appears to me, unlike the situation in other states where the question has arisen, that the interregnum existing in the Wisconsin statute leaves the only appropriate limitation period as that contained in Sec. 893.19(4) Wis.Stats., the catch-all provision. I therefore respectfully dissent.
I am in agreement with the majority opinion that the correct procedure in determining the applicable state statute of limitations in a Rule 10b-5 case is to apply the statute of limitations applicable to the state statute bearing the closest resemblance to Rule 10b-5. A comparison drawn between Section 551.41 and Sec. 551.59(1) on the one hand and Rule 10b-5 on the other shows clearly in my opinion that Sec. 551.41 is the Wisconsin statute most similar to Rule 10b-5. Indeed that section is almost a mirror image of the rule. The common purpose of the two laws is self-evident. They both provide a remedy against the same intentional wrongful conduct. A comparison with the federal regulatory scheme appears to me to show convincingly that Sec. 551.-59(1) was never intended to cover the same conduct as Rule 10b-5 but was meant to provide an analogous state statute to Sec. 12 of the Securities Act of 1933, 15 U.S.C. § 771.
*157I regard it as significant that Sec. 551.-59(1) limits the types of actors against whom it imposes liability. It only makes parties to the purchase or sale of securities, control persons and broker dealers and their agents civilly liable for their conduct. Neither Sec. 551.41 nor Rule 10b-5 contains such a limitation as to parties. Both of the latter provide a remedy against any person who violates their prohibitions and thus we have another example of the close similarity of purpose between these two laws and their dissimilarity with Sec. 551.59(1). Another example of the close similarity of purpose between Rule 10b-5 and See. 551.41 and conversely the dissimilarity between the rule and Sec. 551.59(1) is with regard to the type and amount of damages allowed. See. 551.59(1) contains an exact measure of recovery which limits recovery to “the amount that would be recoverable on a tender less the value of the security when the purchaser disposed of it and interest at the legal rate from the date of disposition.” Its federal counterpart, 15 U.S.C. § 771, contained the same damage measure. Neither the federal rule nor Sec. 551.41 contains this limitation on damages. They are both intended to punish intentional wrongful conduct and make the perpetrators of such conduct liable for all the consequential damages caused by their acts.
Another area of comparison is that of available defenses. It appears that all three of the laws under examination provide a remedy for fraud and for injury caused by reckless conduct. The similarity, however, ends on the third possible ground for a recovery in that neither Sec. 551.41 nor the rule allows for recovery as a result of injuries caused by negligent conduct. Conversely, Sec. 551.59(1) does allow recovery for damages caused by negligent conduct. This is demonstrated in the statute which establishes the reasonable cause standard as the defense to liability.
I cannot agree with the district court that Sec. 551.41 did not provide a private right of action. Indeed the majority opinion expressed concern as to effect of the Wisconsin legislature excising the words from Sec. 551.59(1), “but this act does not create any cause of action not specified in this section .,” thus seemingly authorizing a private cause of action under Sec. 551.41. The draftsmen of the Uniform Securities Act, as the majority opinion points out, had indicated that the excised phrase was intended to abrogate a private cause of action. I regard the legislative intent inherent in the excision of this wording in a Uniform Act as being that a private right of action was permitted under Sec. 551.41.
In the present case the plaintiff is suing accountants. The plaintiff could not sue these defendants under Sec. 551.59(1) as accountants did not offer nor sell securities. Such a suit could only be maintained under 551.41. The district court’s decision would in effect deny a plaintiff such as the present one a state remedy. In light of the fact that Sec. 551.41 as passed by the Wisconsin legislature expressly punishes persons other than persons offering or selling securities it is not reasonable to believe that the legislature did not intend to grant people such as the present plaintiff a private right of action. Because it appears to me beyond question that Sec. 551.41 does provide for a private cause of action, and that plaintiff should have been permitted to proceed under that section, the only statute of limitations which can have applicability is the catch-all six year provision.
There is certainly a sound logical basis for applying different limitation periods to the statutes in question. As previously noted, Sec. 551.59(1) provides relief for damages due to negligent conduct. In effect the law is making an individual responsible for his unintentional mistakes. While there is nothing repugnant to the law in such a standard, it would seem sound law that a person should not be placed in jeopardy for extended periods of time because of an unintentional mistake. Additionally, there is a rational basis for encouraging the finality of securities transactions. These two policies in tandem provide strong intellectual support for the application of a short statute of limitations upon negligent conduct. On the other hand, intentional conduct or fraud is another matter. Here an innocent person allegedly has been injured by intentional wrongful conduct. No policy recom*158mends protection of the perpetrator of the fraud by imposing a short period of limitation. “The fundamental purpose of Sec. 10(b) and Rule 10b-5 is to achieve a high standard of business ethics. This purpose is taken seriously and is broadly construed.” Tornera v. Galt, 511 F.2d 504, 510 (7th Cir. 1975). A short statute of limitations undermines this purpose. Among other factors, a short period of limitations decreases the risk of discovery and lessens the deterrent effect of the law. The question of discovery points out another problem arising from a short period of limitations. Securities cases by their very nature tend to be complex. The present case was no exception. This inherent complexity simply means that much time is needed to digest and understand the interrelationship, facts, and law. A short period of limitations deprives a potential claimant of this needed time.
In sum, it appears to me that if the Wisconsin security law is to be interpreted consistently with its federal counterparts, Sec. 551.59(5) will not be applied to actions properly brought pursuant to Sec. 551.41 but that the six year statute of limitations contained in Sec. 893.19(4) should be applied to the present action. Both the law and sound public policy command this result.