Court Opinion

ID: 8910670
Source: CourtListenerOpinion
Date Created: 2022-11-27 02:52:11.741371+00
Date Added: 2024-06-11T17:08:29.887000
License: Public Domain

SEITZ, Chief Judge,
dissenting.
I agree with the concurring opinion that the duty of a court faced with choosing a state statute of limitations for a federal *461cause of action is to effectuate federal policy. I disagree with the theory of the majority that New Jersey’s relegation of sellers to the common law, no matter how it is characterized, provides the answer in this case. When trying to determine a statute of limitations for federal claims, the court should look to the state statute that addresses the same regulatory area. If the state, as part of that regulatory scheme, enacts a statute of limitations, then that statute should govern federal claims, not a general, catch-all statute of limitations.
As an initial matter, it is important to note that this is an area of the law where precedent provides scant comfort no matter what the outcome. The Supreme Court has yet to rule on the issue. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n.29, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Although this circuit has never ruled on the issue, other circuits have split generally over whether to apply the blue sky limitation period or the one for common-law fraud. Moreover, even those courts that favor the blue sky rule have split over the significance of the purchaser-only remedy where a seller brings suit. Compare Dupuy v. Dupuy, 551 F.2d 1005, 1023-24 n.31 (5th Cir.) (makes no difference), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977), with Toledo Trust Co. v. Nye, 392 F.Supp. 484, 490-91 (N.D. Ohio 1975) (makes a difference), rev’d on other grounds, 588 F.2d 202 (6th Cir. 1978). Finally, the confusion is compounded by the fact that some cases picking the common-law period were decided at a time when the relevant state had no blue sky law. See generally Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123, 127-28 (7th Cir. 1972); Vanderboom v. Sexton, 422 F.2d 1233, 1236-41 (8th Cir.), cert. denied, 400 U.S. 852, 91 S.Ct. 47, 27 L.Ed.2d 90 (1970). Where such a situation exists, a court must relate the problem at hand to more general principles rather than trying to parse out a rule from the ease law.
In a federal cause where a federal court looks to state statutes of limitations, there should be a two-step inquiry. First, the court should determine which state substantive remedy is the most analogous to the federal statute in question. Second, the court should ask whether the statute of limitations applicable to that remedy best effectuates federal policy.
Turning to the first question, initially one must determine what is meant by “most analogous.” Some courts have adopted the approach of comparing the elements of the rule 10b-5 cause of action to the state cause of action in question. Here, the state blue sky statute is different from rule 10b-5 in three aspects: it does not provide a remedy for sellers, it does not cover the use of manipulative or deceptive devices, and it provides for more restrictive damages. Thus by merely matching up the elements of the state and federal causes of action, one might conclude that the blue sky limitation period should not apply. But see Morris v. Stifel, Nicolaus & Co., 600 F.2d 139, 144r46 (8th Cir. 1979) (although similarity of defenses usually is important, absence of scienter requirement in blue sky law does not require rejection of blue sky limitation period).
Although comparison of the elements of the state and federal claims is helpful, it should not be decisive. If the federal claim requires x, y, and z, and state claim A requires x and y but claim B requires y and z, that does not bring the court any closer to a more certain result, or one that is more likely to comport with federal interests. Nor does it help to say that the state legislature placed claim A within a statutory scheme but left claim B as it was at common law. A surer guide to proper analogy of state and federal substantive law in this context is the relationship of the state statute of limitations to the underlying substantive claim. Every statute of limitations cuts off claims that relate to specific types of conduct; one cannot consider the substantive claim without examining its relation both to the relevant statute of limitations and to the problem it seeks to correct. The question is whether the state statute of limitations addresses itself to the same kind of conduct (and the problems that such conduct creates) that is covered by the federal claim. See id. at 142-44. Cf. Occidental *462Life Insurance Co. v. EEOC, 432 U.S. 355, 367, 97 S.Ct. 2447, 53 L.Ed.2d 402 (1977) (expressing concern that state legislatures often do not address “national interests” in devising their limitation periods). In this case, one must look to the history and nature of the two statutes to determine what the state legislature considered in enacting them.
The six-year statute of limitations has its origins in the revolutionary period. See generally Kyle v. Green Acres at Verona, Inc., 44 N.J. 100, 207 A.2d 513 (1965). At common law, there was no limitation period for non-statutory claims.1 In 1799, New Jersey adopted a provision covering certain actions, modeling it on a statute from the reign of James I. The law was expanded and revised several times until its passage in substantially the present form in 1877. In the course of the many revisions, it gradually became a catch-all provision covering a wide variety of conduct.
By contrast, the two-year period in New Jersey’s blue sky statute was adopted in the 1960’s as part of a statutory scheme with a specific goal in mind: regulation of misinformation in the sale of securities. Modeled on the Uniform Securities Act, the act, of which the limitation period is an integral part, is the result of careful thought and study of a specific problem both by the legislature and by the drafters of the Uniform Act. Moreover, the entire act largely draws on existing federal securities statutes. See Commissioner’s Note to Uniform Securities Act § 410 in 7A Uniform Laws Annotated (1978).
In my view, the fact that New Jersey relegates sellers to the common law or limits statutory plaintiffs to recovery for fraud is outweighed here by the thrust of the New Jersey blue sky law. Where a state statute of limitations is part of a regulatory scheme that is addressed to misinformation in the sale of- securities and uses similar federal statutes as its model, then the claims covered by that statute of limitations are more analogous to rule 10b — 5 than are those falling under a catch-all provision that has slowly evolved to cover a wide variety of disparate conduct. To give decisive weight to the presence or absence of particular elements of a cause of action misperceives the function of analogy in this context, which is to find proximity not congruity.
The next inquiry is whether the blue sky limitation period best effectuates federal policy. It is important to note at the outset that the question is not whether a plaintiff will have two or six years after the illegal conduct occurs to bring his suit. If that were the case, a six-year rule might be desirable because in many cases fraud is difficult to discover for a period of time. But such is not the case because tolling principles apply to the question of when the statute of limitations begins to run. I need not decide whether state or federal law controls the outcome of the tolling question. Compare Holmberg v. Albrecht, 327 U.S. 392, 66 S.Ct. 582, 90 L.Ed. 743 (1946), and Arneil v. Ramsey, 550 F.2d 774, 780 (2d Cir. 1977), with Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 462-66, 95 S.Ct. 1716, 44 L.Ed.2d 295 (1975). New Jersey applies the rule (which is the same as the federal rule) to the six-year statute that where the cause of action involves fraud that by its nature is concealed, the statute of limitations does not begin to run until a reasonable man would discover the fraud. E. g., Hyland v. Kirkman, 157 N.J.Super. 565, 385 A.2d 284, 292 (1978). Although no case addressing the point has arisen under the two-year statute, there is no reason to suppose that the state would not apply the same rule there. In effect, the same tolling principles, whether state or federal, apply no matter which of the two statutes is chosen. Thus the policy question is how long a plaintiff should have to file suit once he knows or should know of the wrongful conduct.
*463After the plaintiff has notice, there is a strong federal interest in requiring him to file suit quickly. First, an early action will alert other shareholders to possible misconduct in the affairs of the corporation. Second, the shorter period permits the company’s management to treat a given securities transaction as closed, allowing them to proceed more confidently with running the company. Finally, by quickly bringing matters to a head, the blue sky rule will tend to promote greater stability in the market, a major goal of federal securities regulation. See generally Developments in the Law — Statutes of Limitation, 63 Harv. L.Rev. 1177, 1185-86 (1950). All of these policies are undercut by a rule that permits the plaintiff who has knowledge to wait six years, all the while watching the fate of the corporate enterprise and the concomitant rise and fall in the price of the stock.
My view of federal policy is buttressed by the fact that every explicit statute of limitations in the federal securities acts is of relatively short duration. E. g., 15 U.S.C. §§ 78i(e), 78p(b), 78r(c), 78cc(b) (1976). Cf. ALI Fed. Securities Code § 1421 (Tent. Draft No. 2, 1973). I rely on these statutes only as some indicia of federal policy. Several commentators have argued that federal courts should look to the most analogous federal statute for a rule 10b-5 limitation period. E. g., 6 L. Loss, Securities Regulation 3898 — 900 (1969). Were I writing on a clean slate, I would be inclined to adopt that approach. The Supreme Court, however, has rarely deviated from the normal rule of looking to state statutes. See Occidental Life Insurance Co. v. EEOC, 432 U.S. 355, 97 S.Ct. 2447, 53 L.Ed.2d 402 (1977); McAllister v. Magnolia Petroleum Co., 357 U.S. 221, 78 S.Ct. 1201, 2 L.Ed.2d 1272 (1958).
Thus because the New Jersey blue sky law is the most analogous statute and because its relevant statute of limitations best effectuates federal policy, I would affirm that portion of the district court’s holding. The plaintiff argues that if the two-year statute applies then the district court improperly decided the tolling question. The proxy statement stated that Langworthy intended to run Magmetco, and the plaintiff claims that at the time of the proxy vote the defendants fraudulently concealed their plan to sell the company to Inductotherm.
The district court denied the plaintiff the opportunity to conduct discovery on the question of the defendants’ state of mind at the time of the proxy statements vis-a-vis a subsequent sale of the business. The district court granted summary judgment to the defendants on the ground that the plaintiff’s presence at the stockholders meeting provided him with sufficient notice to start the statute of limitations running.2 The record reveals, however, that the discussion at that meeting centered on the adequacy of the price being offered; there apparently was no discussion of future plans regarding a sale to Inductotherm. The same is true of letters written after the meeting, upon which the district court also relied. If the defendants did have the sale in mind at the time and concealed that from the plaintiff, then he may not have had notice of the fraud until the Inductotherm sale took place. Because the amended complaint raises this issue and because the district court denied discovery thereon, I would reverse the grant of summary judgment and remand for further proceedings on the tolling issue.
I would hold that the blue sky statute is the most analogous state statute that best effectuates federal policy and would affirm, the district court on this point. I would reverse the grant of summary judgment and remand for further proceedings on the issue of tolling.

. New Jersey does not apply its six-year statute to statutory causes of action. See State v. Atlantic City Electric Co., 23 N.J. 259, 128 A.2d 861 (1957). Other courts have disagreed on the significance of such a rule in the context of limitation periods for rule 10b-5 cases. See 3 L. Loss, Securities Regulation 1774 & n.311 (1961).

. Because of this disposition of the case, the district court did not rule on the plaintiff’s motion for certification of the case as a class action. Thus no question is presented of the effect of class action status on the tolling question.