[262 NJSuper Page 99] Plaintiff Bramblewood Investors, Ltd. ("Bramblewood") seeks summary judgment for $67,358.82 as the amount allegedly due and owing on three promissory notes executed by defendant C & G Associates. At relevant times, the individual defendants were partners in C & G. On or about April 17, 1985, Bramblewood offered limited partnership interests pursuant to a Confidential Private Offering Memorandum (sometimes abbreviated as "Memorandum") to raise money for the construction and operation of an apartment complex in High Point, North Carolina. On May 22, 1985, C & G, a New Jersey general partnership, acquired three limited partnership interests in Bramblewood, executing the promissory notes which are the subject of plaintiff's complaint. C & G allegedly defaulted on the notes in May 1989.
The defendants filed a counterclaim and third party complaint against Bramblewood and others alleging misrepresentation and breach of duty. They further claim that Bramblewood failed to register the offering of limited partnership interests as allegedly required by the New Jersey Bureau of Securities. Defendants also submit that they have the right to rescind the transaction because United Capital Securities Inc. (an affiliate of United Capital Investment Inc., the general partner of Bramblewood) did not register as an "agent" under the New Jersey Uniform Securities Law.
For the reasons that follow, plaintiff's motion for summary judgment is granted in all respects, dismissing defendants' affirmative defenses and counterclaims. The summary judgment motion of the third party defendants involves essentially the same issues and is granted for the same reasons. Defendants' motion for summary judgment is denied in all respects.
I. Defendants' counterclaim is barred by the statute of limitations.
Any claim that Bramblewood was required to register the offering of limited partnership interests under N.J.S.A. 49:3-60(b) is time-barred by N.J.S.A. 49:3-71(e).*fn1 Under the "discovery rule", the time to file suit is triggered when the plaintiff "learns, or reasonably should learn, the existence of a state of facts that may equate in law with a cause of action." Vispisiano v. Ashland Chem. Co. 107 N.J. 416, 426, 527 A.2d 66 (1987). (citations omitted). The purpose of the rule is to ". . . avoid harsh results that otherwise would flow from mechanical application of a statute of limitations." Id.
N.J.S.A. 49:3-71(e), as amended in 1986, provides in pertinent part that:
"No person may sue under this section more than two years after the contract of sale, or within two years of the time when the person aggrieved knew or should have known of the existence of his cause of action, whichever is later."
Defendants here knew as early as the Spring of 1985 that the Bramblewood offering was not registered with federal or state securities authorities. The cover page of the Confidential Private Offering Memorandum states:
The offer and sale of limited partnership interests covered by this confidential private offering memorandum have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended . . . or the securities authorities of other states, pursuant to the securities laws of other states, pursuant to the securities laws of . . . such other states, in reliance upon certain exemptions from registration under such laws.
Under the "Investment and Inducement" letter signed by Angelo Coppolino, a partner of C & G, "[t]he undersigned acknowledges being informed by the Issuer that the securities being purchased . . . are unregistered." Mr. Coppolino's execution of those documents in the partnership name binds C & G and its partners (N.J.S.A. 42:1-9, "[e]very partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership . . ."). Moreover, C & G's partners explicitly authorized Mr. Coppolino to act as representative and signator on behalf of the partnership. Significantly, Mr. Coppolino admits that he read and signed the Investment and Inducement letter. Coppolino dep., T92:9-24.
From the record presented, the court finds that no genuine issue of fact exists on the question whether defendants knew (or should have known) that the limited partnership offerings were unregistered. It is indisputable that they were aware of a ". . . state of facts which may equate in law with a cause of action" when the Memorandum was reviewed and the Investment and Inducement letter was signed by Mr. Coppolino in 1985. Vispisiano, 107 N.J. at 426, 527 A.2d 66. Applying
N.J.S.A. 49:3-71(e), the statute of limitations ran in 1987, because defendants knew or should have known of the existence of a cause of action, if any, when the relevant documents were reviewed and signed in 1985. Two years after defendants had the knowledge necessary to equate in law with a state of facts upon which a cause of action could be based, they still had not asserted their claims, which are thus time-barred.
Defendants' reliance on Petruzzi v. Kobrin, 241 N.J. Super. 439, 575 A.2d 80 (Law Div.1989), is mistaken. In Petruzzi, plaintiff filed a securities fraud action on February 9, 1987, based on a transaction that occurred on or before July 30, 1984. Defendant moved to dismiss certain claims as barred by the two-year statute of limitations of N.J.S.A. 49:3-71(e) prior to its amendment. The transactions took place prior to the effective date of the discovery rule and the complaint was filed over two and one-half years after the transaction. The court, however, stated, "This amendment occurred before plaintiff's time to file under the original time period had run," and that "the timeliness of this filing is measured as of when a cause of action became known or should have become known to plaintiff." Id. at 442, 575 A.2d 80. Accepting, arguendo, the reasoning of Petruzzi as binding here, defendants have still failed to show that their claims are saved by the discovery rule. The discovery rule, under N.J.S.A. 49:3-71(e), became effective April 9, 1986. Even if the court were to apply the discovery rule as of April 9, 1986, defendants still did not assert a claim until October 4, 1990, or well after the two-years allowed by the statute had expired. And if the timeliness of a filing is measured from the date a cause of action became known (as Petruzzi suggests), defendants nevertheless are unable to establish the basic premise on which the discovery rule is grounded, -- their unawareness of a state of facts upon which to state a cause of action. Defendants claim the existence of facts that could have been equated in law with a cause of action. They failed to do so, and thus any claim they assert for violation of the state securities laws is barred by N.J.S.A. 49:3-71(e) for
failure to file suit within the applicable two-year statute of limitations and any discovery rule which may apply thereto.
II. Even if defendants' counterclaim was not in all respects barred by the statute of limitations, defendants' claims and defenses based on alleged violations of the Uniform Securities Law are without merit.
In 1985, when the Bramblewood offering was made, N.J.S.A. 49:3-60(b) provided that an offering or sale of securities need not be registered with the Bureau of Securities if:
the security or transaction is not subject to, or is exempted from, the registration requirements of the Securities Act of 1933 and the rules and regulations thereunder; other than by reason of section 3(a) of such ...