Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Baron v. Allied Artists Pictures Corp.

September 19, 1983



Gibbons and Becker, Circuit Judges, and Weber, District Judge.*fn*

Author: Gibbons


GIBBONS, Circuit Judge.

John G. Baron, a stockholder in Allied Artists Pictures Corporation (Allied Pictures) appeals from a summary judgment dismissing his complaint as time barred.*fn1 The complaint is brought on his own behalf and derivatively on behalf of Allied Pictures against Allied Artists Industries (Allied Industries), Price Waterhouse & Co., and a number of individual defendants. It seeks money damages and declaratory relief with respect to a merger between Allied Pictures and Allied Industries which consummated on January 20, 1976. Proxy solicitations were made for the merger pursuant to a Proxy Statement and Prospectus dated November 24, 1975, and the complaint alleges that this document was false and misleading. Baron's complaint was filed in the district court on January 19, 1979.*fn2 That court held that it is time barred by virtue of 10 Del. C. § 8106 (1974). We reverse.


The proxy solicitation materials on which Baron relies as false and misleading were, as noted above, issued on November 24, 1975. It is undisputed that at least by December 17, 1975 Baron was aware of the deficiencies in those statements upon which he relies, for on that date he filed in the Delaware Chancery Court an action seeking to enjoin the merger.*fn3 The parties agree that no federal statute of limitations applies, and that the appropriate state statute to borrow is 10 Del. C. § 8106, which provides:

No action to recover damages for trespass, no action to regain possession of personal chattels, no action to recover damages for the detention of personal chattels, no action to recover a debt not evidenced by a record or by an instrument under seal, no action based on a detailed statement of the mutual demands in the nature of debit and credit between parties arising out of contractual or fiduciary relations, no action based on a promise, no action based on a statute, and no action to recover damages caused by an injury unaccompanied with force or resulting indirectly from the act of the defendant shall be brought after the expiration of 3 years from the accruing of the cause of such action; . . . .

We are called upon in this appeal to determine when the cause of action alleged in Baron's complaint accrued. If, as the defendants contend, it accrued no later than December 17, 1975, when Baron had knowledge of the alleged deficiencies in the proxy solicitation materials, the three-year limitations period expired on December 17, 1978. The district court so held, reasoning that the statute of limitations on Baron's federal law cause of action commenced running as soon as he had knowledge of the defendants conduct, violative of section 14(a), of which he complains. Baron urges, however, that the cause of action for damages which he pursues both on his own behalf and derivatively did not accrue until such time as he could first have maintained a damage action to a successful conclusion. That, he urges, was when the damages occurred by the consummation of the merger on January 20, 1976. Since the complaint was filed within three years of that date, under Baron's theory it was timely.

To put the respective positions of Baron and the defendants in context, it is necessary to review briefly the seminal case of J.I. Case Co. v. Borak, 377 U.S. 426, 12 L. Ed. 2d 423, 84 S. Ct. 1555 (1964). That case started with the filing of a two-count complaint. One count alleged diversity jurisdiction. The second relied for jurisdiction on section 27 of the Securities Exchange Act of 1934. 15 U.S.C. § 78aa. Both sought injunctive relief against a merger for which allegedly misleading proxy statements had been solicited. No preliminary injunctive relief was granted, and, as here, the merger was consummated. Thereafter Borak filed an amended complaint charging that the use of the proxy materials, obtained in violation of section 14(a) of the Act and rule 14a-9 of the Securities and Exchange Commission caused damage to the corporation and its shareholders. The Supreme Court held that the derivative complaint seeking damages resulting from the consummation of the merger stated a cause of action which could be entertained by virtue of the jurisdiction conferred in section 27 over "suits in equity and actions at law brought to enforce any liability or duty created by this title." It expressly rejected the contention that remedies for violation of section 14 are limited to prospective relief. 377 U.S. at 433.

The situation in Borak and in this case are analytically similar. In Borak the diversity plaintiff was unsuccessful in preventing a merger. Here Baron's state court efforts to prevent the merger proved to be equally unavailing. In Borak the Court recognized a derivative cause of action for the damages which accrued as a consequence of the merger. Baron seeks such damages. Further, common to both cases is the plain and indisputable fact that had either succeeded in obtaining an injunction no damages would have been inflicted. Borak did not involve a statute of limitations issue. It did, however, recognize that there is a separate cause of action for damages resulting from the unjustifiable use of proxies obtained in violation of section 14. The Court reasoned that recognition of such a separate cause of action was necessary for "if the law of the State happened to attach no responsibility to the use of misleading proxy statements, the whole purpose of the section might be frustrated." 377 U.S. at 434-35. The holding in Borak that use of a misleading proxy statement is separately actionable was reiterated unequivocally in Mills v. Electric Auto-Lite, 396 U.S. 375, 383, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970).

When, then, does a cause of action for damages flowing from the unjustifiable use of proxies obtained in violation of section 14 accrue? The district court held that it accrues when the plaintiff has sufficient knowledge of the misleading nature of the proxies that he could bring an action under section 27 for injunctive relief. That analysis is in our view inconsistent with the court's recognition in Borak of a separate cause of action for damages. The cause of action for damages is in the nature of an action in tort for breach of the fiduciary duty to refrain from making use of illegal proxies to the detriment of the corporation and its stockholders. If Borak had succeeded in enjoining the use of the proxies, such a cause of action would never have accrued. The cause of action recognized by the Supreme Court could never have been prosecuted to a successful conclusion because a necessary element of an action for damages is actual injury.

It is a rule of general application that a cause of action for the recovery of damages accrues only when it could be prosecuted to a successful conclusion. E.g., United States v. Wurts, 303 U.S. 414, 82 L. Ed. 932, 58 S. Ct. 637 (1938); Grayson v. Harris, 279 U.S. 300, 73 L. Ed. 700, 49 S. Ct. 306 (1929); City of Philadelphia v. Lieberman, 112 F.2d 424, 428 (3d Cir.1940). Delaware, whose statute of limitations governs, adheres to that rule. "A cause of action for breach of contract accrues at the time of the breach and a cause of action in tort accrues at the time of the injury." Nardo v. Guido DeAscanis & Sons, Inc., 254 A.2d 254, 256 (Del. Super. Ct. 1969). The state recognizes "the basic rule that, in general, the statute of limitations begins to run from the date of the injury caused by the defendant . . . ." Lembert v. Gilmore, 312 A.2d 335, 337 (Del. Super. Ct. 1973). The United States District Court in Delaware has consistently recognized as much. Rose Hall, Ltd. v. Chase Manhattan Overseas Bank, 494 F. Supp. 1139, 1157 (D. Del. 1980); Oliver B. Cannon & Son, Inc. v. Fidelity & Casualty Co., 484 F. Supp. 1375, 1388 (D.Del. 1980); Freedman v. Beneficial Corp., 406 F. Supp. 917, 922 (D. Del. 1975).

The district court held, however, that when state statutes of limitations are borrowed, federal standards determine the question of accrual. Certainly which state statute of limitations should be borrowed is a question of federal law. E.g., Knoll v. Springfield Township School District, 699 F.2d 137 (3d Cir.1983); Biggans v. Bache Halsey Stuart Shields, 638 F.2d 605 (3d Cir. 1980); Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir. 1979). In addition, with respect to federal law causes of action, it is well settled that federal standards determine when concealment tolls the running of a state statute of limitations otherwise applicable. Holmberg v. Armbrecht, 327 U.S. 392, 90 L. Ed. 743, 66 S. Ct. 582 (1946). Moreover the question of when a cause of action is so complete that it may be enforced by suit, and thus has accrued, is a federal question. Cope v. Anderson, 331 U.S. 461, 464, 91 L. Ed. 1602, 67 S. Ct. 1340 (1947); Rawlings v. Ray, 312 ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.