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Benak ex rel Alliance Premier Growth Fund v. Alliance Capital Management

January 13, 2006

PATRICIA BENAK, ON BEHALF OF ALLIANCE PREMIER GROWTH FUND
v.
ALLIANCE CAPITAL MANAGEMENT L.P.; JOHN D. CARIFA; ALFRED HARRISON; MARK D. GERSTEN; RUTH BLOCK; DAVID H. DIEVLER; JOHN H. DOBKIN; WILLIAM H. FOUL, JR.; JAMES M. HESTER; CLIFFORD L. MICHEL; DONALD J. ROBINSON



On Appeal from the United States District Court for the District of New Jersey (D.C. No. 01-cv-05734). Honorable Jose L. Linares, District Judge*fn1

The opinion of the court was delivered by: Barry, Circuit Judge

Precedential

Submitted Under Third Circuit LAR 34.1(a) November 18, 2005

Before: BARRY and AMBRO, Circuit Judges, and POLLAK,*fn2 District Judge.

OPINION BY THE COURT

Appellees -- Alliance Capital Management L.P. ("Alliance Capital"), which was the investment advisor to the Alliance Premier Growth Fund, Inc. (the "Fund"); Alfred Harrison, the premier portfolio manager of the Fund; and a number of former directors and officers of the Fund -- and appellants, shareholders in the Fund from October 30, 2000 through November 29, 2001 (the "Class Period"), are before us on appellants' appeal of the District Court's dismissal of their complaint on statute of limitations grounds. We will affirm.

I. Background

During the Class Period, the Fund -- a long term capital growth fund -- held and continued to purchase shares of Enron stock. As of November 30, 2000, the Fund held $157,536,750 worth of Enron stock, as indicated in the Fund's 2000 annual report to the SEC. (Amended Class Action Compl. ("Am. Compl.") ¶ 73, A89.) Over the course of the next six months, the Fund acquired an additional 4,765,800 shares. Apparently, no Fund report issued between the May 31, 2001 semi-annual report and Enron's bankruptcy. During that time period, however, concerns about Enron's solvency began to be discussed publicly.

In their amended class action complaint of December 8, 2003, appellants referenced numerous news accounts beginning as early as September of 2000 and accelerating in the late summer and early fall of 2001 regarding Enron's financial health and accounting practices.*fn3 The end of October and beginning of November brought more specific accounts of trouble at Enron.*fn4

Concern continued to heighten as November waned,*fn5 particularly focused around a proposed acquisition of Enron by Dynegy that fell through in late November.*fn6 Throughout this period, Alliance's internal analysts gave voice to these concerns.*fn7

Enron finally collapsed, filing for bankruptcy on December 2, 2001. In the days immediately following that filing, reports of investors surprised by the collapse and the losses they sustained pervaded the media.*fn8 Of particular relevance here, Alliance's large stake in Enron was referenced and Fund portfolio manager Harrison was quoted regarding Enron's demise.*fn9

Moreover, in the week following Enron's collapse, The New York Times reported a potential conflict of interest of an Alliance insider, Frank Savage, who was on the boards of both Alliance and Enron during the relevant period of time.*fn10 The same day that the Times article appeared, Patricia Benak filed a complaint (the "Benak complaint") against Alliance in the U.S. District Court for District of New Jersey, alleging Investment Company Act claims.*fn11 The complaint in the litigation now before us was initially filed on December 13, 2002 -- more than a year after the Enron bankruptcy and the Benak complaint -- in the U.S. District Court for the Southern District of New York by Patrick and Laura Goggins (the "Goggins complaint"), and was transferred to the District of New Jersey on August 13, 2003. The factual basis of the Goggins complaint, as subsequently amended, closely tracks that of the Benak complaint.

According to the Goggins complaint, in October and November 2001, as the reports of Enron's worsening financial state increased, appellees continued to invest in the company.*fn12

As already noted, media coverage around and after Enron's fall included reference to Alliance's holdings in Enron, and either explicitly or implicitly referenced Alliance's losses.*fn13 Alliance's continued investment up until Enron's bitter end, despite the negative news accounts and communications to and by analysts at Alliance manifesting concern about Enron's solvency,*fn14 was the basis for appellants' §§ 11 and 12 claims.*fn15 Appellants argue that the Fund's publicized claims regarding the type of investment strategies employed ...


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