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Hill v. Equitable Trust Co.

argued: March 7, 1988.


Appeal from the United States District Court for the District of Delaware, D.C. Civil No. 82-220.

Weis, Greenberg, and Aldisert, Circuit Judges.

Author: Weis


WEIS, Circuit Judge.*fn*

The principal issue here is whether our in banc decision in In Re: Data Access Sys. Sec. Litig., 843 F.2d 1537 (3d Cir. 1988), should be applied in this appeal from a judgment based on two earlier, inconsistent panel opinions of this court. Because plaintiffs had no reasonable basis for reliance on our then-existing precedent, we will apply the in banc holding retroactively. Although it adopted a different rationale, the district court reached the same ultimate result that our in banc ruling requires. Accordingly, we will affirm.

The district court entered summary judgment on several counts of a multi-claim complaint and, in accordance with the jury's answers to interrogatories, granted judgment for defendant on the remaining counts. Plaintiffs have appealed the judgments on some, but not all, counts.

This litigation is an outgrowth of the plaintiffs' unsuccessful investments in two limited partnerships. The factual background is complex, and the various legal issues have led to five published opinions by the district court. Hill v. Equitable Trust Co., 562 F. Supp. 1324 (D. Del. 1983); Hill v. Equitable Bank, Nat'l Ass'n, 599 F. Supp. 1062 (D. Del. 1984); Hill v. Equitable Bank, N.A., 642 F. Supp. 1013 (D. Del. 1986); Hill v. Equitable Bank, 655 F. Supp. 631 (D. Del. 1987), amended by separate opinion, 655 F. Supp. 653 (D. Del. 1987).

The events relevant to this appeal, however, need only be summarized. In November 1977, plaintiffs John T. Hill, Thomas and Patricia Ruger, Virgil and Marie Scott, and Descomp, Inc. subscribed to purchase shares in Wilmington House. This limited partnership was organized under the laws of Maryland for the purpose of acquiring and renting a garden apartment complex in Wilmington, Delaware. Plaintiffs made cash down payments and, as security for subsequent installments, obtained irrevocable letters of credit from defendant, Equitable Trust Company of Baltimore, Maryland. A fire occurred a month after the partnership acquired the property, and Wilmington House suffered disastrous losses.

In November 1978, the Rugers, the Scotts, James Stritzinger, and Data Controls North, Inc. subscribed to shares in another limited partnership, Eagle Associates. This organization was formed as a resyndication of a West Virginia coal mining business. Before investing in this venture, plaintiffs met with Equitable officials who reported favorably on the mine's prospects. Only Stritzinger obtained financing through Equitable for his Eagle Associates investment; the others were unable to do so.

Like Wilmington House, the Eagle venture proved to be unprofitable. Later, plaintiffs learned that Equitable had extended substantial loans to the mining business' predecessor, had been engaged in litigation with the predecessor's limited partner, and had agreed to the company's restructuring as a means to retire outstanding debts to the bank.

Debilitatingly high partnership losses, along with indications of misrepresentations and kickbacks, led plaintiffs to suspect that they had been defrauded by Equitable employees working in collusion with Lee P. Der, the promoter of both investments. Suits were filed against Equitable in April 1982 in the United States District Court for the District of Delaware asserting claims under the Securities Act of 1933, 15 U.S.C. §§ 77l, 77o, the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j, 78t, regulations of the Securities Exchange Commission, primarily Rule 10b-5, 18 C.F.R. § 240.10b-5, the federal RICO statute, 42 U.S.C. §§ 1961-68, as well as counts under state law. Equitable counterclaimed for the amounts still owed by plaintiffs on their obligations to the bank.

As the litigation proceeded, a number of the counts were resolved and have not been included in this appeal. Plaintiffs have challenged, however, the district court's application of the statute of limitations to bar their claims under section 10(b) of the Securities Exchange Act and SEC Rule 10b-5.

Because the Exchange Act counts are not governed by a statutory limitations provision, the district judge, complying with this court's precedent, searched for the state law cause of action most analogous to the plaintiffs' claims. For the plaintiffs who were Delaware residents, the court ruled that the Delaware general fraud statute was most analogous to the plaintiffs' claims and appropriated that statute's three-year time limitation.*fn1 Hill I, 562 F. Supp. at 1337-39 (applying Del Code Ann. tit. 10, § 8106) (1975).

For the other plaintiffs, who were not Delaware residents, the court decided that the Maryland Blue Sky law applied, providing for a maximum period of three years after sale or one year after discovery of the fraud, whichever came sooner. Id. at 1333-36 (applying Md. Corp. & Ass'ns Code Ann. § 11-703(f)). Because more than three years had elapsed since plaintiffs subscribed to both the Wilmington House and Eagle Associates transactions, the court held that the section 10(b) and Rule 10b-5 claims were barred as to all non-Delaware residents. Hill V, 655 F. Supp. at 653.

The remaining counts proceeded to a jury trial. The jurors' responses to a comprehensive set of special interrogatories included a finding that plaintiffs had not exercised due diligence in investigating their claims. Based on that answer and others, the court entered judgment for defendant on the plaintiffs' outstanding claims. At the conclusion of a subsequent bench trial on the bank's counterclaim, judgment was entered in Equitable's favor.

Plaintiffs appeal the district court's selection of the proper statute of limitations to govern the section 10(b) and Rule 10b-5 claims, the entry of summary judgment on a Wilmington House count, and various evidentiary rulings at trial. We will discuss these issues in turn.



The principal argument on appeal focuses on the applicable statute of limitations for the non-Delaware Eagle investors' section 10(b) and Rule 10b-5 claims. Plaintiffs argue that the district court erred in applying the Maryland Blue Sky statute of limitations in place of the Delaware general fraud law, or at least in rejecting their request for an equitable tolling of the Maryland statute.


In ascertaining the proper limitations period for the non-Delaware investors, the district court preliminarily consulted the borrowing statute of Delaware, the forum state. Hill I, 562 F. Supp. at 1333. As that statute applies to nonDelaware residents, the jurisdiction where the cause of action arose supplies the rule of decision on the statute of limitations. Del. Code Ann. tit. 10, § 8121 (1975). Because the ...

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