Herschel Zarecor v. Morgan Keegan & Company
2015 U.S. App. LEXIS 15555
8th Cir.2015Background
- Herschel and Mona Zarecor and their son invested about $800,000 in three RMK mutual funds; they allege Morgan Keegan made/approved misrepresentations and concealed the funds’ risky structure, causing ~ $718,577 loss when the funds collapsed in 2007.
- A putative class action against Morgan Keegan involving the RMK funds was filed December 21, 2007; the Zarecors were in the putative class but later opted out.
- The Zarecors filed a FINRA arbitration claim on July 27, 2009 (amended Aug. 12, 2010 to add §10(b) claims); an arbitration award in their favor was later vacated by a district court as non-arbitrable; reconsideration was denied on Nov. 10, 2011.
- The Zarecors filed this federal suit on Nov. 17, 2011 asserting Arkansas securities claims (for Herschel and Mona), a New Jersey securities claim (for their son), and a federal §10(b)/Rule 10b-5 claim; the district court dismissed all claims as time-barred and denied post-judgment leave to amend.
- On appeal, the Eighth Circuit affirmed dismissal of the Arkansas and federal claims as untimely, but held the New Jersey claim was timely because New Jersey law would toll the limitations period during the FINRA arbitration; it reversed denial of leave to amend as to the surviving New Jersey claim and remanded.
Issues
| Issue | Zarecor's Argument | Morgan Keegan's Argument | Held |
|---|---|---|---|
| Timeliness of federal §10(b) claim (28 U.S.C. §1658(b)(1)) | Limitations tolled by discovery rule — did not discover facts constituting violation until after 2009; arbitration and class action tolled time | A reasonably diligent plaintiff would have started investigating by end of 2007; Zarecor’s filing in Nov. 2011 is beyond two-year discovery period | Dismissed: §10(b) claim untimely; discovery rule triggered by end of 2007/July 2009 arbitration facts; American Pipe did not toll because claim differs from class action’s claims |
| Applicability of American Pipe tolling to later claims | 2007 class action should toll limitations because it arose from same facts | American Pipe tolling applies only to claims identical to those in the class action; different claims are not tolled | Limited American Pipe: tolling only for identical claims; not available for Zarecors’ federal claim |
| Tolling by pursuing arbitration (FINRA) for federal claim | Filing arbitration tolls limitations while FINRA retained jurisdiction | Arbitration pursuit does not require plaintiffs to await arbitration; could have sued within limitations and stayed for arbitration; arbitration pursuit does not toll federal statute | No tolling: arbitration did not toll the federal §10(b) limitations period |
| Timeliness and tolling of state claims (New Jersey and Arkansas) | New Jersey: arbitration tolled NJ two-year statute; discovery rule starts limitations in Dec. 2007; Arkansas: discovery rule and arbitration tolling should apply | NJ: (implicitly) limitations would bar if not tolled; AR: statute runs from contract date and bars suit after fixed period, no discovery tolling | New Jersey claim timely: under NJ precedent (Galligan, Schwartz) arbitration equitably tolled limitations from July 27, 2009 to Nov. 10, 2011; Arkansas claim untimely: Ark. statute fixed by contract date and courts would not apply discovery tolling |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (use of complaint and public records in pleadings review)
- Merck & Co. v. Reynolds, 559 U.S. 633 (federal discovery rule: limitations accrues when plaintiff discovers facts constituting violation, including scienter)
- American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (class action tolling of statute of limitations for identical claims)
- Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (discussion of American Pipe purposes and tolling scope)
- Johnson v. Ry. Express Agency, Inc., 421 U.S. 454 (tolling in American Pipe depends on same cause of action)
- Galligan v. Westfield Centre Service, Inc., 412 A.2d 122 (N.J. 1980) (equitable tolling where plaintiff sued in wrong forum; tolerant application of limitations)
- Blaylock v. Shearson Lehman Bros., 954 S.W.2d 939 (Ark. 1997) (Arkansas recognition of American Pipe tolling in prior context)