Appeal from the United States District Court for the District of New Jersey. (D.C. No. 88-05260).
Before: Mansmann, Alito and Aldisert, Circuit Judges.
This interlocutory appeal under 28 U.S.C. § 1292(b) requires us to answer the following question: Does the one-year/three-year uniform limitations period for actions brought under Section 10(b) of the Securities Exchange Act of 1934 adopted by this court in In Re Data Access Systems Securities Litigation, 843 F.2d 1537 (3d Cir.), cert. denied sub nom. Vitiello v. Kahlowsky & Co., 488 U.S. 849, 102 L. Ed. 2d 103, 109 S. Ct. 131 (1988), apply to a cause of action under Section 14(a) of the Act, 15 U.S.C. § 78n(a), which was filed after this court's Data Access decision?
The question compels us to decide if the same limitations period controls both sections of the Securities Exchange Act and, if so, whether our holding in Data Access should be applied retroactively in this case. In addition, we are asked to decide whether the action is now moot under this court's decision in General Electric v. Cathcart, 980 F.2d 927 (3d Cir. 1992).
The district court ruled that the uniform federal limitations period also governs Section 14(a) actions, but the court declined to apply the limitations period retroactively to this case and instead applied an analogous state statute of limitations. The defendants have appealed. We reach the merits and hold that the uniform federal limitations period applies. The order of the district court will be reversed.
Jurisdiction was proper in the trial court based on Section 27 of the Securities Exchange Act, 15 U.S.C. § 78aa, and precepts of pendent jurisdiction. Pursuant to 28 U.S.C. § 1292(b), the district court certified for interlocutory appellate review the limitations period question. On September 8, 1992, we granted defendants' Petition for Permission to Appeal.
For purposes of clarity, we distinguish claims brought under Section 14(a) and those brought under Section 10(b) of the Securities Exchange Act. Section 14(a) prohibits the solicitation of proxies in violation of any rules and regulations promulgated under the Act. 15 U.S.C. § 78n(a). Rule 14a-9, which was promulgated pursuant to Section 14(a), further provides that no proxy statement shall contain "any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading." 17 C.F.R. § 240.14a-9. Section 10(b) prohibits the use of any "manipulative or deceptive device" in connection with the purchase or sale of registered securities. 15 U.S.C. § 78j(b). Rule 10b-5, which was promulgated pursuant to Section 10(b), further provides that it is unlawful "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made . . . not misleading" in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5.
Although these statutes do not explicitly authorize private civil suits, the Supreme Court has long recognized the viability of implied causes of action. See Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 13, 30 L. Ed. 2d 128, 92 S. Ct. 165 n.9 (1971) (recognizing an implied private right of action under Section 10(b)); J.I. Case Co. v. Borak, 377 U.S. 426, 431, 12 L. Ed. 2d 423, 84 S. Ct. 1555 (1964) (recognizing an implied private right of action under Section 14(a)).
The plaintiffs are Westinghouse shareholders, who brought this federal securities law derivative suit and class action against twelve directors and senior officers ("directors") of Westinghouse Electric Corporation. The original complaint in this action was filed on December 2, 1988 and has since been amended. The second amended complaint alleged violations of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), and Rule 14a-9, 17 C.F.R. § 240.14a-9. The shareholders allege that the directors disseminated false and misleading proxy statements to shareholders in 1987 and thereafter.
The shareholders contend that the directors omitted material information from corporate proxy statements about Westinghouse's alleged criminal activity in the construction of a nuclear power plant in the Philippines. According to the shareholders, Westinghouse officers made unlawful payments to Philippine operatives in order to obtain a contract to build a power plant in the Philippines and subsequently failed to fulfill their obligations under that contract by substituting cheaper, inferior materials, components and equipment than were specified by the contract terms. These actions allegedly exposed Westinghouse to the threat of substantial losses. The shareholders also claim that Westinghouse proxy statements were materially misleading because they failed to disclose that shareholders' counsel had demanded that Westinghouse's Board of Directors commence legal action against certain officers for their involvement in the Philippine activities, and further, the proxy statements failed to disclose that Westinghouse made substantial expenditures lobbying for the Pennsylvania "Directors Liability Act," which became effective in January of 1987, and protected the directors from liability for any alleged wrongdoing in the Philippines.
According to the allegations, the proxy materials were intended to deceive shareholders into voting with management. The Westinghouse board had disseminated the proxy statements in order to solicit shareholder proxies for the re-election of the directors to the Board and to gain approval of Board-recommended amendments to Westinghouse's articles of incorporation. The shareholders contend that, as a result of misleading proxy statements, the directors successfully solicited votes from shareholders approving their re-election and amending Westinghouse's articles of incorporation and its bylaws to expand director indemnification and to limit director liability, corporate governing maneuvers bearing the prevalent description of "raincoat provisions." It is alleged that the directors' elections and the corporate governance amendments were not in the best interests of the shareholders or the corporation. Plaintiffs further allege that the re-elected directors continued their mismanagement of the company, causing further damages. The shareholders also alleged pendent state law claims that the directors breached fiduciary duties.
In their complaint, the shareholders sought to have the district court void the director elections tainted by the misleading proxy statements and rescind the raincoat provisions. In addition, they sought compensatory damages relating to the alleged misrepresentations.
The district court applied the six-year New Jersey statute of limitations governing actions for common law fraud to the shareholders' Section 14(a) claims under the reasoning of this court in Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir. 1979). Because the shareholders filed their complaint within six years of discovering the misleading proxy statements, the court concluded that the statute of limitations did not bar the suit. The district court agreed with the directors that the same limitations period governed suits under Section 10(b) and Section 14(a), but the court refused to apply the limitations period prescribed in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 115 L. Ed. 2d 321, 111 S. Ct. 2773 (1991), because of the "inequity imposed by [its] retroactive application." Westinghouse Elec. Corp. by Levit v. Franklin, 789 F. Supp. 1313, 1319 (D.N.J. 1992). The district court also determined that James B. Beam Distilling Co. v. Georgia, 115 L. Ed. 2d 481, 111 S. Ct. 2439 (1991), was inapplicable to the instant case because the Supreme Court in Lampf had not decided the specific question before this court, to-wit, ...