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May 10, 1982

Carl C. CORSON and Sally A. Corson, his wife, Plaintiffs,
FIRST JERSEY SECURITIES, INC., Robert E. Brennan, Jack Mondel and Jay M. Ingalls, jointly, severally and in the alternative, Defendants

The opinion of the court was delivered by: GERRY

This is an action for damages under the securities laws-§ 10(b) and common law fraud. Plaintiffs allege that defendants were involved in a distribution of certain securities. Defendants purchased the securities for its own account and then sold them to plaintiffs at inflated prices. In addition, defendants represented to plaintiffs that the securities were "hot" issues. Defendants told plaintiffs that they were preferred customers and were getting a good deal. Plaintiffs allege that these statements were misleading and calculated to obtain their reliance. The aforesaid conduct is claimed to violate Rules 10b-5 and 10b-6, made actionable pursuant to § 10(b) of the Securities Exchange Act of 1934, and to constitute common law fraud.

Defendants have moved for summary judgment to dismiss the complaint on the ground that plaintiffs did not institute this action within the applicable limitations period.

 Plaintiffs contend that the applicable statute is the six year limitation over actions for common law fraud and that their claims were timely brought under such a statute. Even assuming that the two year statute applies, plaintiffs argue that the statute was tolled during administrative proceedings and that the statute did not begin to run until plaintiffs discovered or could, in the exercise of reasonable diligence, have discovered the existence of the alleged fraud.

 The Third Circuit has spoken to the question of the appropriate statute of limitations for an action under § 10(b) in two recent decisions.

 In Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir. 1979), Judge Gibbons, writing for a divided court, held the six year statute applicable to an action brought by a defrauded seller. Finding that the New Jersey Uniform Securities Act (NJUSA) protected only buyers of securities and did not deal with the fiduciary duties of officers, directors or insiders, nor with frauds perpetrated by buyers or tenderees in a merger, Judge Gibbons determined that the statute lacked even potential application to the transactions by means of which the seller suffered a loss. In addition, the NJUSA contained a savings clause for common law remedies, negating any suggestion that the two year time bar of the Act was intended to supplant time bars otherwise applicable to pre-existing causes of action. Finally, the plaintiffs' remedies under sections 10(b) and 14(a) of the Exchange Act are non-exclusive and coexist with rights under state common law, the violation of which could be asserted in an action for fraud, which action would not be time barred. Thus, the enforcement of the two year limitation in NJUSA in the federal causes of action would not accommodate the state's policy of repose but would merely deprive the plaintiff of the only forum (since federal jurisdiction of securities claims is exclusive) with jurisdiction to consider all the bases for relief sought. Accordingly, Judge Gibbons concluded that the six year statute applied.

 Judge Sloviter, in concurrence, agreed that the six year statute applied but stated that the determination should be approached not from the perspective of the state's policy of repose but from that of furthering federal policy. Observing that Congress in enacting the securities statutes intended that they be applied in addition to, and not in place of, applicable non-conflicting state statutes, Judge Sloviter concluded that Congress's deference to state law:


... would in ordinary circumstances lead us to the application of the statute of limitations provisions in the New Jersey blue sky law. That would seemingly supply the provision most consonant with and complementary to that of the federal scheme.

 Id. at 459. However, she distinguished the apparent general circumstance from the situation in Roberts, where a seller was claiming damages as a result of violation of the federal act. New Jersey's omission of sellers from the remedy provisions under the Uniform Securities Act was not intended to deny sellers relief but was based upon the perception that such individuals were adequately protected under the common law:


There is no clear need to create any civil liability against buyers as distinct from sellers. Although the lower federal courts have uniformly implied a civil cause of action against fraudulent buyers under the SEC rule, the federal courts when applying federal law do not have at their disposal all of the common-law and equitable remedies of deceit and rescission which are available to the state courts without benefit of statute. In the area of civil liability, moreover, it seems not only unnecessary but unwise to disturb the general jurisprudence which has been developing with reference, for example, to the obligation of corporate insiders to make affirmative disclosure when purchasing from existing stockholders. On the other hand, the general law is not adequate to deal with flagrant cases of fraud by buyers on a criminal level, and there can, of course, be no public action for an injunction against such practices without specific statutory authority.

 L. Loss, Commentary on the Uniform Securities Act 8 (1976). Thus, an action in state court by a seller against a fraudulent buyer could only be asserted under the common law and was governed by the six year limitation and therefore such a limitation would pertain to an action under §§ 10(b) and 14(a) brought by a seller. Judge Gibbons in his opinion for the court indicated his agreement with Judge Sloviter's approach.


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