In re ENRON CORPORATION SECURITIES, Derivative & "ERISA" Litigation.
Mark Newby, et al., Plaintiffs
v.
Enron Corporation, et al., Defendants.
Publiс Employees' Retirement System of Ohio, et al., Plaintiffs,
v.
Andrew S. Fastow, et al., Defendants.
United States District Court, S.D. Texas, Houston Division.
*690 David E Sellinger, Grant & Eisenhofer, Wilmington, DE, for, Public Employees Retirement System Board.
David Carr Geer, Bieser & Greer, Dayton, OH, for Defendants.
OPINION AND ORDER
HARMON, District Judge.
Pending before the Court in the above referenced cause are two motions inter alia: (1) Plaintiffs Public Employees' Retirement System of Ohio ("PERS"), State Teachers' Retirement System of Ohio ("STRS"), School Employees' Retirement System of Ohio ("SERS"), and Ohio State Highway Patrol Retirement System's ("HPRS's") (collectively, the "Ohio Retirement Systems'") motion for leave to file an amended complaint and for the Cincinnati Retirement System ("Cincinnati") and the Ohio Tuition Trust Authority ("OTTA") to join in the Ohio Retirement Systems' Amended Complaint (instrument # 54); and (2) the Ohio Retirement Systems, Cincinnati, and OTTA's motion to strike the Sur-Reply Briefs of Proposed Defendants Goldman Sachs & Co.[1] and the Outside Directors[2] and for order that all parties and proposed Defents seen leave of Court prior to filing sur-reply briefs (# 86).
Since these motions were filed, the Newby class in H-01-3624 was certified on July 5, 2006, #4836. The Ohio Retirement Systems, Cincinnati, and OTTA filed a statement opting out of the class (# 94, filed on July 18, 2006), giving notice pursuant to the Court's July 11, 2003 order (#1561 in H-01-3624), as amended on July 11, 2006 (# 4848 in H-01-3624), that they were filing an amended complaint, in essence what they were seeking leave to do in the motions listed above, "without waiving any rights arising from (or asserted in) the motion for leave to amend and motion to join." Both scheduling orders clearly stated that if Plaintiffs were amending their complaints after opting out, unless as a matter of right, Plaintiffs must request leave of court. Thus the Court finds the motions listed above are still pending and apply to the permissibility of the filing of the new complaint, joinder of Cincinnati and OTTA as Plaintiffs in the instant suit, addition of federal securities claims, and suing additional Defendants in the amended complaint filed on August 17, 2006, # 97 in H-02-778.[3]
The Court addresses the motion to strike first because it affects the scope of review of the motion for leave to amend and to join.
I. Motion to Strike
Plaintiffs seek to strike the two sur-reply briefs on the grounds that (1) they were filed without leave of court[4] and *691 (2) Defendants "simply repackage arguments already asserted in their respective opposition briefs" and Defendants are not permitted to make new arguments that could have been raised in Defendants' responses.
Both Defendants respond that they are not aware of any federal, local or Court rule that requires a party to seek leave before filing a sur-reply, but that if the Court requires such, they request leave to file such a motion. Bank of America Corporation and Banc of America Securities LLC also filed a surreply (# 89), which reiterates the same point. In addition, Goldman Sachs states that it "believes its sur-reply will assist the Court in ruling on the merits of the original motion, especially in light of plaintiffs' omnibus reply brief, which fails to address many of the arguments raised in the separate briefs filed in opposition to their motion."
This Court observes that the Lacker court,
Here Plaintiffs filed an omnibus reply; after reviewing it and the surreplies the Court finds that allowing Defendants' surreplies will cause no prejudice as long as the surreplies respond to previous briefs and do not raise new legal arguments. This Court is capable of determining whether a surreply raises new legal arguments and ignoring them if it does. Here it finds no such new theories. Instead the Court finds that the Goldman, Sachs & Co.'s surreply points to three points previously made in its opposition and argues that Plaintiffs have failed to address them in Plaintiffs' reply and have therefore conceded them by silence. Similarly, the Outside Directors highlight arguments made in their opposition that they claim Plaintiffs have failed to rebut in their reply to insure that Outside Directors' "relatively straightforward entitlement to relief is not obscured by the white noise of Plaintiffs' ambitious, `Omnibus Reply.'" Bank of America Corporation and Banc of America Securities LLC similarly have not crossed the line by arguing new legal theories. Moreover Plaintiffs' objection to the surreplies is conclusory, and they have not identified any specific points in the surreplies as inappropriate. Accordingly, because there are no new arguments being made and there is no prejudice, the Court denies the motion to strike the sur-replies.
II. Motion for Leave and to Join in Amended Complaint
As has often happened in this Multidistrict Litigation, there is a broad spectrum of judicial responses to the issues raised by the motion under review. The Court first summarizes the motion, responses, and reply, then sets out what it has determined should be the applicable law relating *692 to the issues raised by the parties, and thereafter applies that law to resolve the questions. The Court also points out the law and pleading standards for issues that it finds should be more appropriately addressed by motions to dismiss in response to the viable portions of Plaintiffs' proposed amended complaint.
A. Pleadings Relating to Plaintiffs' Motion for Leave to Amend and to Join
1. Plaintiffs' Motion
The Ohio Retirement Systems filed their original complaint[5] against numerous Defendants in Ohio state court on September 4, 2002, asserting claims for common law fraud and deceit, aiding and abetting common law fraud, conspiracy to commit fraud, and negligent misrepresentаtion under Ohio law, as well as violation of the Texas Securities Act, Tex. Civ. Stat. Art. 581-33. Lehman Brothers Holdings, Inc. removed the action, based on diversity and "related to" bankruptcy jurisdiction, to the United States District Court for the Southern District of Ohio, from which it was transferred to this Court on December 6, 2003 by the Judicial Panel on Multidistrict Litigation for inclusion in MDL 1446. On January 7, 2003, the undersigned judge ordered it coordinated with Newby for pretrial proceedings in MDL 1446.
In their motion, the Ohio Retirement Systems seek to amend the complaint to add new federal securities law claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 and to add certain new defendants to both these new federal claims and to the state law claims in their original complaint. They further maintain that their fraud allegations are pleaded in significantly more detail in the proposed amended complaint, found at Ex. A to the Declaration of Sidney S. Liebsman, # 56 in H-02-4788, and virtually identical to the amended complaint (# 97) that was filed without leave on August 17, 2006.
The motion for leave to amend (# 56) was filed on September 15, 2005, two and a half months before the cut-off for fact discovery, November 30, 2005. Plaintiffs expressed concern that if they did not seek leave to amend at that time, but instead complied with the Court's July 11, 2003 order staying the filing of amended complaints in this action until a class had been certified in Newby and in Tittle, some of the proposed new claims might become time-barred.[6] As noted, the order certifying the Newby class was not entered in 01-3624 until July 5, 2006, # 4836; a class was certified in Tittle, H-01-3913, on June 7, 2006, # 1191. Plaintiffs argue that the July 11, 2003 order should be construed as having tolled the applicable statutes of limitations: "[W]here a person is prevented from exercising his legal remedy by the pendency of legal proceedings, the time *693 during which he is thus prevented should not be counted against him in determining whether limitations have barred his right." Piotrowski v. City of Houston,
Cincinnati and OTTA ask permission to join the Ohio Retirement Systems as Plaintiffs with the filing of the new complaint for reasons of economy and efficiency. Moreover, they fear that in waiting until the Newby class is certified to request joinder with leave to amend, their state-law claims might become timebarred. These two, as putative class members in the Newby action until opting out, claim entitlement to the protections of the American Pipe tolling doctrine for the claims they seek to assert in the proposed amended complaint and request that the Court determine that they have a right to such benefits and protections, even though they seek to file a complaint before the Court ruled on class certification. Joseph v. Wiles,
Even if the Court should find that tolling under American Pipe does not apply, Cincinnati and OTTA maintain that the filing of this motion for leave to amend should toll their state-law claims. Stafford v. Clark Const. Co.,
Cincinnati and OTTA insist that the American Pipe tolling doctrine should toll the statutes of limitations for their statelaw claims as well as the new federal securities law claims because they involve the same facts, evidence and witnesses (stemming from the massive fraud at Enron) as Newby. Sellers v. Bragg, No. 04 C 3663,
2. Non-Party Outside Directors' Response (# 59)
The Outside Directors[11] object that amendment would be futile because all applicable statutes of limitations on the purported new claims against them expired well before Plaintiffs filed the motion for leave to amend. Pan-Islamic Trade Corp. v. Exxon Corp.,
Plaintiffs seek to bring three claims, two of them common law, against the Outside Directors: (1) aiding and abetting common-law fraud; (2) negligent misrepresentation; and (3) violation of Section 18 of the Securities Exchange Act of 1934, 15 U.S.C. ง 78r.[12]
The Outside Directors argue that an amendment to add the aiding and abetting common law fraud is futile because "Ohio does not recognize claims for aiding and abetting common-law fraud; one who engages in any way in fraudulent behavior is liable for fraud itself, not as an aider and abettor to fraud." Federated Mgt. v. Coopers & Lybrand,
The Ohio statute of limitations for negligent misrepresentation is four years, and the discovery rule does not apply, insist the Outside Directors. Dancar Properties, Ltd. v. O'Leary-Kientz, Inc., No. 030936,
As for alleged violation of ง 18, Outside Directors contend that the period of repose in 15 U.S.C. ง 78r(c) ("No action shall be maintained to enforce any liability created under this section unless brought within a year after the discovery of the facts constituting the cause of action and within three years after such a cause of action accrued.") has expired.
The Outside Directors emphasize that Plaintiffs have moved for leave to amend in an existing individual action filed before the Court ruled on class certification. They maintain that "[t]he vast weight of recent authority, especially in complex multidistrict litigation such as this, makes clear that American Pipe tolling is not afforded to plaintiffs who file separate actions or `opt out' prior to a decision on class certification. Plaintiffs' claims are therefore untimely, and leave to amend should be denied." # 59 at 6. See Wyser-Pratte Co., Inc. v. Telxon Corp.,
Moreover argue Outside Directors, even if the tolling doctrine did apply gеnerally, it would not toll the Ohio state common law and statutory claims, which were not asserted in Newby and could not have been because they would have been preempted by the Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. ง 77p(b)(1)("no covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security"). The Outside Directors conclude that therefore the "Ohio Plaintiffs [who had filed their own lawsuit to pursue claims under Ohio law before any class was certified] had no legitimate reason to believe or expect that the class action tolled their Ohio state law claims." # 59 at 9.
Outside Directors further argue that the July 11, 2003 scheduling order did not provide a basis for tolling, nor did it bar Plaintiffs from filing a new lawsuit against new parties; Plaintiffs elected to wait to file a new suit against new parties until after limitations expired. Even if Plaintiffs believed that the scheduling order prevented them from filing new suits, their remedy was to seek leave of court before limitations expired, not to sit on their hands. Plaintiffs are not entitled to equitable tolling.
Nor does the "relation back" doctrine of Fed. R. of Civ. P. 15(c) apply to the proposed claims against new parties, including Outside Directors, to revive these timebarred claims, Outside Directors contend.
*697 That doctrine applies only when the action would originally have been brought against a new party "but for mistake concerning the identity of the proper party," as opposed to a strategic decision not to sue or a lack of knowledge regarding the identity of a given party. Outside Directors were sued in a number of actions, and there could be no mistake as to who they were.
Finally, Outside Directors insist they would suffer undue prejudice if the Court were to grant the motion for leave to amend because the depositions of four key Ohio Plaintiffs' representatives (Jana Harris, Richard Curtis, Timothy Steitz, and Timothy Viezer) took place before Plaintiffs filed their motion.
3. Response of the Bank Defendants Named in the Original Complaint (# 62)
Citigroup Inc., Credit Suisse First Boston LLC (f/k/a Credit Suisse First Boston Corp.), JPMorgan Chase & Co., Lehman Brothers Holdings Inc., and Merrill Lynch (collectively, "Originally Named Bank Defendants") object to Plaintiffs' request for a court finding that the statute of limitations on all new proposed claims has been tolled. They maintain that the issue is improperly raised in a motion for leave to amend and that they will address the issue in responsive pleadings to the amended complaint, if the Court allows it to be filed.
4. Response of Certain Non-Party Financial Institutions (#64)
The Royal Bank of Scotland plc, National Wеstminster Bank Plc, Barclays PLC, Barclays Bank PLC, Barclays Capital Inc., Deutsche Bank AG, Deutsche Bank Securities Inc., Deutsche Bank Trust Company Americas, Royal Bank of Canada, and Toronto Dominion Bank (collectively, "Non-Party Banks"), which Plaintiffs seek to name as Defendants in the proposed amended complaint, are charged with aiding and abetting common law fraud, negligent misrepresentation, and violations of ง 10(b) and 20(a) of the Securities Exchange Act of 1934. These newly proposed Financial Institution Defendants also disagree with Plaintiffs that Plaintiffs have been barred by the July 11, 2003 scheduling order from filing suit against the proposed new defendants and charge that Plaintiffs are in actuality attempting, "albeit in a back handed fashion, ... to revive already time-barred claims by pointing to a non-existent impediment and asking that it be removed." # 64 at 1. Plaintiffs are also improperly "asking for advance determinations on the tolling of limitations in various circumstances as to claims they propose to file." Id. at 1-2. They ask the Court to deny the motion in all respects as to the Non-Party Banks.
5. Response of Goldman Sachs & Co. (# 65)
Plaintiffs' amended complaint asserts claims for aiding and abetting common law fraud, negligent misrepresentation, and violations of ง 10(b) and ง 20(a) against another proposed new Defendant, Goldman Sachs & Co. ("Goldman Sachs"). Goldman Sachs joins in the arguments of other proposed Defendants that absent tolling, the statutes of limitations have run on the federal and state claims, but in the interests of efficiency, does not repeat them. # 67 at 11 n. 3. It concurs with Defendants that nothing in the July 11, 2003 order prevented Plaintiffs from seeking leave to amend or filing a new lawsuit against Goldman Sachs and the other new Defendants. Plaintiffs also cannot argue that the July 11, 2003 order extended the statutes of limitations. Plaintiffs' effort to invoke the American Pipe tolling doctrine fails, as explained by the other proposed Defendants. Even if the doctrine did apply to these Plaintiffs, it would not apply to claims against Goldman Sachs because Goldman Sachs was not named as a Defendant *698 in the original Newby complaint nor is it today a Defendant in any Enron class action alleging fraud. The only pending Enron class action claim against Goldman Sachs is solely for a ง 11 violation relating to an offering of Exchangeable Notes, which the Ohio Plaintiffs do not claim to have purchased.
Goldman Sachs further objects that contrary to the statement in the July 11, 2003 order of this Court that the claims the Court had dismissed were not be reasserted in new pleadings,[15] Plaintiffs' proposed amended complaint asserts conclusory fraud claims identical to the allegations made by another plaintiff against Goldman Sachs, indeed "obviously ... copied from the rejected Silvercreek pleading, sometimes verbatim," in Silvercreek Mgm't, Inc. v. Salomon Smith Barney, et al. (02-3185, # 67 (inter alia dismissing common law fraud and negligent misrepresentation claims under New York law against Goldman Sachs) and # 74 (stating inter alia that the earlier dismissal of common law claims was with prejudice and they should not be addressed again)). Goldman Sachs charts the parallel allegations in the proposed amended complaint here and the Silvercreek pleadings. # 65 at 4-6. It argues that the fraud claim here should be dismissed for the same reasons as those claims in Silvercreek, failure to comply with Ped.R.Civ.P. 9(b), and that the negligent misrepresentation claim under Ohio law, like that under New York law, should be dismissed because Plaintiffs failed to plead a type of "special relationship," necessary to give rise to a duty on the part of Goldman Sachs to Plaintiffs. Nor have Plaintiffs alleged that Goldman Sachs owes them any duty.
Aside from parallel allegations in Silvercreek, noting that the proposed new claims are based on allegedly overly-bullish ratings issued by Goldman Sachs, Goldman Sachs argues that it is now well established that a plaintiff alleging that an analyst issued a false statement of opinion must allege particularized facts showing that the analyst did not believe what he wrote at the time it was written. See, e.g., Virginia Bankshares, Inc. v. Sandberg,
Nor have Plaintiffs satisfied the requirements under Dura Pharmaceuticals v. Broudo,
6. Corrected Response of Bank of America Corporation ("BAC") and Banc of America Securities LLC ("BAS")(collectively, "Bank of America") (#66 and 70)
The proposed complaint asserts claims against BAC and BAS under งง 10(b) and 20(a) of the 1934 Act and common-law fraud, negligent misrepresentation, aiding and abetting fraud, and conspiracy to commit fraud under Ohio state law.
The claims under sections 10(b) and 20(a) allege that Bank of America participated in the falsification of Enron's financial results through its involvement in (1) the Bammel and Rawhide transactions, (2) structuring and funding of LJM2 Co-Investment, L.P. Partnership ("LJM2"), and (3) the Marlin Water Trust II Notes offering ("Marlin Notes Offering"). The Bammel transaction closed in December 1997, and the Rawhide, in December 1998. Bank of America argues that ง 10(b) and derivative ง 20(a)[16] control-person claims arising out of these two transactions are time-barred (and were before the July 30, 2002 effective date of the Sarbanes-Oxley Act)[17] by the three-year statute of repose then governing under Lampf Pleva, Lipid. kind, Prupis & Petigrow v. Gilbertson,
That two-year statute of limitations would also bar claims relating to the Marlin Notes Offering, which took place in July 2001, urges Bank of America, because Plaintiffs were on inquiry notice no later than October 11, 2002, when virtually identical *700 complaints (asserting claims under งง 10(b) and 20(a) and common law fraud and negligent misrepresentation claims against BAC and BAS) in connection with the Marlin Notes Offering were filed in two consolidated actions, one in the Southern District of New York, the other in the Southern District of Texas: Abbey Nat'l Treasury Servs., pic v. Credit Suisse First Boston Corp., No. 02-CV-1241 in the Southern District of New York, and H-02--3869 in the Southern District of Texas. Exs. 1 and 2 to Corrected Appendix, # 70. Furthermore, any ง 10(b) claims relating to Bank of America's analyst reports about Enron from 1997 to 2001 are time-barrecl by the two-year statute of limitations in Sarbanes-Oxley because Plaintiffs were on notice of possible misstatements in those reports at the latest on January 16, 2002, when the original complaint (Appendix Ex. 3, # 70) with similar allegations of fraud and negligent misrepresentation was filed against BAS in Silvercreek Management v. Salomon Smith Barney, Inc., No. H-02-3185. Ex. 3, id.
Bank of America further contends Plaintiffs' own pleadings also demonstrate that inquiry notice was given on October 16, 2001 when Enron announced it was taking a non-recurring charge of over $1 billion in the third quarter of 2001, with a resulting sharp decline in the price of Enron stock. The original Newby complaint was filed six days later. On October 31, 2001 the SEC commenced an investigation of Enron. In November 2001, Enron announced it was restating its financial results for the period from 1997 through 2000. Then, on December 2, 2001, Enron filed for bankruptcy.[19]
If these events did not trigger the running of the statute of limitations, Bank of America insists that the filing of the Silvercreek complaint (Ex. 3 to Corrected Appendix, # 70) on January 16, 2002 certainly did. Plaintiffs did not file their motion for leave to amend until September 15, 2005.
Bank of America also argues that the Ohio state-law claims, which all arise from the sale of Enron securities, are timebarred by the two-yеar statute of limitations and/or four-year statute of repose for securities fraud claims contained in the Ohio Securities Act,[20] with the same means *701 and dates indicated above giving Plaintiffs the requisite inquiry notice. Plaintiffs also had notice of the facts underlying the claims relating to Bammel no later than March 28, 2003 when the proposed amended complaint in Silvercreek was filed with claims against BAS similar to those made by the Ohio Plaintiffs. Claims arising out of the Rawhide transaction were asserted in the proposed amended complaint in Silvercreek and in the First Amended Consolidated Complaint in Newby, which was filed on May 14, 2003, more than two years before Plaintiffs filed their motion for leave to amend. Finally, insists Bank of America, all of Plaintiffs' state-law claims were barred by the Ohio Securities Act's four-year statute of repose to the extent that they relate to purchases of Enron securities that were made more than four *702 years before Plaintiffs filed their motion for leave to amend.
Thus according to the Bank of America, the state-law claims based on LJM2, the Marlin Notes Offering, and Bank of America's analyst reports, as well as the December 1997 Bammel transaction,[21] are timebarred because Plaintiffs had inquiry notice of them more than two years before they filed their motion for leave to amend. State-law claims based on the December 1998 Rawhide transactions are also timebarred because the March 29, 2003 Silvercreek Proposed Amended Complaint referenced the transaction, while the May 2003 Newby complaint alleged it was a disguised loan. Furthermore the Enron North America Corp. Bankruptcy Examiner concluded that the evidence was "insufficient to support a conclusion that BofA acted improperly respecting Rawhide." The Goldin Report, Appendix VII, p. 87. Bank of America further contends that all the state-law claims based on purchases of Enron securities before September 15, 2001 [22] are barred by the four-year statute of repose in the Ohio Securities Act.
While pointing out that Ohio has adopted American Pipe tolling,[23] Bank of America maintains that American Pipe tolling is inapplicable (1) to claims against BAS because BAS was not named as a defendant in the April 2002 Newby Consolidated Complaint;[24] (2) to claims based on Bammel and Rawhide because the April 2002 Newby complaint against BAC did not reference those transactions nor provide any notice of claims arising from them, contrary to Plaintiffs' assertion, and because the Bammel transaction fell outside the putative class period of October 19, 1998 to November 27, 2001; and (3) to Plaintiffs' state-law claims because the April 2002 Newby complaint did not and could not have asserted state-law claims because of SLUSA preemption.[25] Plaintiffs' *703 proposed claims against BAC and BAS are based on different legal theories and different facts than those asserted against BAC in the April 2002 Newby complaint. Even if tolling were applicable, it would not save the claims regarding LJM2, the Marlin Notes Offering, and Bank of America's analyst reports because the claims would still be too late: Plaintiff would only be entitled to tolling during the approximately eight and a half months that the ง 10(b) claim against BAC in the April 2002 Newby complaint was pending and these claims would still have been untimely asserted.[26]
Bank of America joins the other proposed Defendants in insisting that the Court's July 11, 2003 scheduling order did not toll the applicable statutes of limitations; the order did not refer to tolling the statutes. Bank of America insists that statutes of repose are not subject to equitable tolling. Nor did the order prevent Plaintiffs from filing a timely new suit against BAC and BAS or from seeking permission to amend their complaint. A number of parties have filed new actions since it was issued and a number have moved for leave to amend. Plaintiffs fail to cite any classes in which a scheduling order was found to toll limitations. Moreover if they can move for leave to amend in 2005, they could have done so earlier. Nor do the proposed claims "relate back" to claims in the original complaint because Plaintiffs do not argue that their failure to name BAC and BAS as Defendants in that original complaint was the product of a mistake.
Bank of America also contends that Plaintiffs' claims are futile because in Newby on December 20, 2002, the Court dismissed the ง 10(b) fraud claim against BAC, based in part of the purported investment of BAC or its executives in LJM2. # 1194. It also dismissed the common-law fraud claim for pleading insufficiency on December 11, 2003 in Silvercreek, #67 in H-02-3185, which charged BAS with structuring and investing in LJM2 and participating in the Bammel transaction. The July 11, 2003 scheduling order made clear that in new pleadings the parties should not reiterate allegations and claims that the Court had previously rejected. Finally, allowing amendment late in the litigation after the close of fact discovery on November 30, 2005 would severely prejudice Bank of America, which would be sued for the first time. Furthermore the allegations that have been proposed lack the specificity required by the PSLRA and by Rule 9(b) for fraud.
In sum, argues Bank of America, the Court should deny Plaintiffs' motion because all of the proposed claims against BAC and BAS are time-barred and/or have been dismissed by this Court.
7. Non-Parties Ian Schottlaender and Mark Wolf's Response (# Ex. 9 to # 72)
Former employees of Canadian Imperial Bank of Commerce ("CIBC"), Schottlaender *704 and Wolf, who allegedly directed CIBC in "actively participat[ing] in the structuring or financing of certain entities that were used to manipulate Enron's financial results" and in "at least 11 FAS 140 Transactions during June 1998 through October 2001,"[27] are charged with negligent misrepresentation, aiding and abetting common law fraud, common law fraud and deceit, and violations of the Securities Exchange Act. They oppose the motion for leave to amend and add them as Defendants on the grounds that Plaintiffs have been on notice of their claims against Schottlaender and Wolf for over two years but have inexcusably delayed filing suit against them. Allowing Plaintiffs to do so now would cause enormous and irrevocable harm to them, urge Schottlaender and Wolf, because they have not participated in the massive discovery up to this point. Truehart v. Blandon,
Schottlaender and Wolf argue that Plaintiffs have conceded that they became aware of the key facts giving rise to the claims against them no later than June 2003, when Neil Batson's Third Interim Examiner's Report, which references both men and details their involvement with Enron-related securities while employed at CIBC, was publicized. Amended Complaint at 1; Ex. 5 to # 74. Schottlaender and Wolf charge that Plaintiffs then sat on the facts for more than two years before filing their motion for leave to amend.
Furthermore, they urge, the Amended Complaint fails to present any significant, material facts about Schottlaender or Wolf that were learned since Baton's Report was issued. Plaintiffs have also had the benefit of all the discovery in Newby. In addition, in a civil suit filed by the SEC in December 2003 naming them as Defendants along with other CIBC employees in connection with the Enron/CIBC transactions, Wolf settled with the SEC on December 22, 2003 and Schottlaender, on June 25, 2004. The SEC announced those settlements publicly, again providing notice to Plaintiffs here. Moreover both men responded to third-party subpoenas for depositions in Newby, and Wolf gave testimony on July 14-16, 2004; Plaintiffs had the opportunity to participate and to review the deposition transcripts. The lack of diligence in pursuing their claims should foreclose Plaintiffs from obtaining leave to amend. Rosenzweig v. Azurix Corp.,
Plaintiffs' excuse that they relied on the scheduling order, of which Schottlaender and Wolf had no notice, and in which they had no input, "cannot possibly be construed to negate the right of Messrs. Schottlaender and Wolf to be named promptly in an ongoing litigation, since they were not parties to that Order." Ex. *705 9 at 8 to # 72. Furthermore, even though the parties to the order understood it precluded amended pleadings, it did not, on its face, preclude filing claims against new Defendants, as was done in several of the consolidated/coordinated cases.
As for futility because the statute of limitations has expired on the federal and common-law claims that Plaintiffs seek to assert against Wolf and Schottlaender, the two join in the brief filed by Daniel Ferguson, discussed next by the Court. They insist the scheduling order did not toll limitations. Even if it did, it could not apply to non-parties that were not existing parties to the litigation.
8. Daniel Ferguson's Corrected Opposition (Ex. 10 to # 72)
Daniel Ferguson is a Canadian citizen and resident who never worked in the United States and objects to the attempt by Plaintiffs, through their motion, to drag him into a four-year-old litigation in Texas on the eve of the discovery cutoff when the scheduling order did not toll limitations and did not bar new actions from being filed against new parties, and because limitations on their claims have expired, making amendment futile. Specifically he argues that the claims under the Securities Exchange Act are subject to a one-year statute of limitation[28] and are time barred because Plaintiffs had constructive notice as early as April 2002, when Plaintiffs were put on inquiry notice because CIBC was named in the Newby complaint at that time. Plaintiffs were given actual notice as early as the summer of 2003 when the Third Interim Report of Neal Batson was filed and addressed the role of CIBC and affiliates in the Enron special purpose entity transactions. Plaintiffs again received actual notice on December 22, 2003 when the SEC settlement with Ferguson was publicly disclosed.
Ferguson also contends that the Court lacks subject matter jurisdiction over the Ohio common-law claims since there is no viable federal claim.[29]
He also argues that this Court lacks personal jurisdiction,[30] both general *706 and specific, over him, another basis for finding the amendment futile. Ferguson maintains that Plaintiffs have failed to allege any contacts by him with the United States. Moreover, Ferguson insists that to exercise jurisdiction over him would be unreasonable because, as a foreign national the burden would be on him to defend in this country in a complex litigation without opportunity to participate in discovery, the forum state's interests are satisfied by the claims against CIBC and others, any relief that Plaintiffs can obtain would not depend on the addition of Ferguson to this litigation, the judicial system's interests are satisfied, and Ferguson's settlement with the SEC[31] on Enron-related involvement satisfies the shared policy interests of the states.
Ferguson contends that Plaintiffs had constructive knowledge of the claims against him as early as April 2002, when a CIBC аffiliate was first named in the Newby complaint, triggering an obligation to investigate the nature of CIBC's and its employees' involvement, and actual notice as early as the summer of 2003, when Neal Batson's Third Interim Report (Ex. D to # 72), with approximately eighty pages devoted to the role of CIBC and Ferguson mentioned dozens of times, was filed. Plaintiffs' proposed amended complaint *707 states that Plaintiffs included the 2003 Batson Report in their investigation before drafting their pleadings. Furthermore, Ferguson charges, Plaintiffs received additional actual notice of their claims against him on December 22, 2003 when the SEC settlement with him was publicly disclosed in a press release, and various articles were published discussing it.
Ferguson argues that Section 804 of Sarbanes-Oxley with its extended statute of limitations does not apply to this case because this proceeding began before the statute was enacted, according to Ferguson with the commencement of the Newby action in 2001, which named CIBC as a party, since Plaintiffs concede that they were originally members of the Newby action. Thus the proposed federal claims are time-barred. Without a federal claim, there would be no federal jurisdiction over the proposed state-law claims and thus allowing amendment to assert them would be futile. Moreover even if there were federal jurisdiction over these proposed state law claims against Ferguson, they are barred by the two-year constructive notice limitations in Ohio Rev.Code ง 1707.43, which applies because the claims arise out of the sale of securities.
Nor do the claims relate back to the filing of the original complaint in this action because Ferguson was not named as a Defendant in that pleading and Plaintiffs have not claimed mistake as to his identity when they filed the initial complaint
Nor are Plaintiffs entitled to tolling under American Pipe because Ferguson was not named as a Defendant in Newby and because Plaintiffs filed their motion for leave to amend before a ruling on class certification in Newby. Moreover, the doctrine does not apply to the new proposed state-law claims because they were not asserted and could not have been asserted in Newby because of SLUSA preemption.
Ferguson declares that amendment would be unduly prejudicial to him without opportunity to participate in fact discovery in this massive and complex litigation. He states that he retired from CIBC in 2003, settled the SEC's charges without admitting liability that same year, and thus had every reason to believe he would no longer be forced to defend Enron-related claims.
9. Plaintiffs' Omnibus Reply (# 79)
Plaintiffs' omnibus reply does not respond to Schottlaender and Wolf.
The Court summarizes arguments not made previously in Plaintiffs' motion.
Plaintiffs insist that American Pipe tolling is to be applied broadly. Crown,
They further argue that recent cases have held that tolling is applicable if the claims in the individual action are factually similar to those in the class action; they need not be identical. See, e.g., In re Linerboard Antitrust Litig.,
In addition, insist Plaintiffs, SLUSA does not prevent tolling of Cincinnati and OTTA's state-law claims because the factual predicate underlying these claims is substantially the same as that for the class *708 action claims. Newby put the newly proposed Defendants on notice of the substantially similar claims that Plaintiffs now seek to assert against them.
Objecting to Bank of America's argument that tolling does not apply to Plaintiffs' claims against BAS because BAS was not a named defendant in the April 2002 Newby complaint, Plaintiffs point out that this Court previously ruled that Bank of America could not challenge the singleentity approach naming BOA rather than BAS at the motion-to-dismiss stage, In re Enron Corp. Sec., Derivative & ERISA Litig.,
Moreover, Plaintiffs contend that having to reopen discovery does not constitute undue prejudice to Defendants. Compression Labs, Inc. v. Oklahoma State Univ. Educ. & Research Found., Inc., No. 93-20622 RPA,
Insisting that claims may be dismissed as time-barred only if Defendants conclusively demonstrate that on the face of the complaint alone the statute of limitations has expired, Plaintiffs argue that Defendants' varying and at times contradictory arguments that Plaintiffs had inquiry notice of their claims, but failed to act timely, are fact-intensive issues inappropriate for resolution on a motion for leave to amend. Aetna Life Ins. Co. v. Kaufman Indep. School Dist, No. Civ. A. 3-.99-CV-1085-G,
Plaintiffs also point out that they filed their original complaint on September 4, 2002, after the effective date of the Sarbanes-Oxley Act (July 30, 2002), and therefore its extended two-year/five-year statute of limitations applies to Plaintiffs' federal securities act claims against Bank of America.
Bank of America also argued that claims relating to the Bammel and Rawhide transactions are time-barred. Plaintiffs *709 respond that the proposed amended complaint does not limit its allegations against Bank of America to these two transactions, but asserts that Bank of America engaged in fraudulent activity through 1999, 2000, and 2001. Proposed Am. Complaint at ถถ 335, 353, 381, 392, 397-98, 468.
Challenging Goldman Sachs' argument that amendment would be futile because Plaintiffs fail to plead loss causation adequately, Plaintiffs assert that state-law claims do not require the pleading or proof of loss causation. As for the federal law claims, a corrective disclosure is not the only way to plead loss causation; the truth can "leak out" into the market and investors can lose money over time. Dura Pharmaceuticals, Inc. v. Broudo,
Moreover, Plaintiffs' common-law claims for conspiracy to commit fraud do not require pleading any misstatements, but only the following elements: "(1) a malicious combination; (2) two or more persons; (3) injury to person or property; and (4) existence of an unlawful act independent from the actual conspiracy." Terry v. Carney, No. TO-94-054,
Plaintiffs also disagree about the discovery rule and the statute of limitations in Ohio Rev.Code ง 2305.09 for Ohio common-law negligent misrepresentation and cite Clemente v. Gardner, No. 02-C00120,
In response to Outside Directors' contention that Plaintiffs cannot plead and establish the elements for negligent misrepresentation under Ohio law and to Goldman Sachs' objection that Plaintiffs have not alleged the requisite duty to disclose nor shown a special relationship for a negligent misrepresentation claim (required under New York law), Plaintiffs point out that (1) under Ohio law a duty is imposed in favor of third parties who a defendant in a business role knows will rely on the information in question, DeCapua v. Lambacher,
A. Applicable Law
The Court had determined that the following law applies.
1. Amendment of Complaint
Federal Rule of Civil Procedure 15(a) provides in relevant part,
A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.
A court has discretion in deciding whether to grant leave to amend. Foman v. Davis,
While Rule 15(a) does not establish a time limit for filing a motion for leave to amend, "`at some point, time delay on the part of a plaintiff can be procedurally fatal.'" Smith v. EMC Corp.,
Where the proposed new claims are time-barred, allowing amendment is futile. Williams v. Simmons,
2. Inquiry Notice and the Statute of Limitations in Federal Securities Acts
Until the effective date, July 30, 2002, of the Sarbanes-Oxley Act ("Sarbanes-Oxley"), 28 U.S.C. ง 1658(b), a claim grounded in the federal securities acts had to be filed "within one year after the discovery of the facts constituting the violation and within three years after such violation." Lampf,
Courts are divided over whether the Sarbanes-Oxley limitations period applies at all to claims under ง 18(a). Section 18(c) of the Exchange Act contains an express limitations period of "within one year after the discovery of facts constituting the cause of action and within three years after such cause of action occurred." 15 U.S.C. ง 78r(c). Most of the courts that have addressed the issue have reasoned that because the plain language of ง 18 does not require Plaintiffs to plead and prove scienter, and thus, unlike ง 804, covers negligence and strict liability claims, Sarbanes-Oxley's enlarged limitations does not apply to ง 18 claims. See, e.g. In re Hollinger International, Inc., No. 04C 0834,
In contrast, the court in Shriners Hospitals for Children v. Qwest Communications Int'l, Inc., No. 04-CV-0781,
Examining the rationale in this last group of cases, the Alstom court rejected their conclusions, arguing that this language of the Sarbanes-Oxley statute of limitations in ง 804, "a private right of action that involves a claim of fraud, deceit, manipulation or contrivance," "refer[s] only to causes of action under the securities laws in which fraudulent intent is an element that plaintiffs are required to plead as a part of the underlying claim. Section 18 does not require thе pleading of scienter, or fraudulent intent."
this remark refers to the quantum of proof required to succeed on a claim, not what must be pled by a plaintiff to state a claim. The Section 18 defendant has an affirmative defense if he acted in good faith, see 15 U.S.C. ง 78r(a), but it is not the plaintiffs burden to anticipate and plead in his complaint a rebuttal to the defendant's potential defense.... The pleading standards, and thus the elements of a claim under Section 18, do not require allegations of "something more than negligence."
Id. Moreover, the court found evidence in the limited legislative history supporting its conclusion that ง 804 applies only to securities claims that require proof of fraud as an element of the cause of action, and therefore not to ถ18. Id. at 415-16.
This Court is persuaded by the Alstom court's reasoning and by the cases that are in accord with its line of thinking and concludes that regardless of time filed, the *713 extended statute of limitations in Sarbanes-Oxley does not apply to claims under ง 18(a).
In federal securities claims, the statute of limitations begins to run when the plaintiff has actual knowledge of the facts giving rise to his claims or has notice of facts that in the exercise of reasonable due diligence should have known of the alleged wrongdoing. In re Dynegy, Inc. Sec. Litig.,
Because a determination of when a plaintiff is on inquiry notice depends upon the facts and because courts may weigh such matters differently, such a decision is often inappropriate under Rule 12(b)6) review. Dynegy,
There are, nevertheless, circumstances where a plaintiff is on inquiry notice as a matter of law:
Where ... the facts needed for determination of when a reasonable investor of ordinary intelligence would have been aware of the existence of [wrongdoing] can be gleaned from the complaint and papers such as the prospectuses and disclosure forms that are integral to the complaint, resolution of the issue on a motion to dismiss is appropriate.
Dynegy,
3. Ohio State-Law Claims and Statute of Limitations
Section 2305.09 does not list negligence as one of the causes of action to which the discovery rule is applicable. The Ohio Supreme Court has held that because the legislature did not expressly provide an exception for claims of "mere concealment as distinguished from direct and specific allegations of fact showing fraud," the discovery role does not toll the statute of limitations for negligence causes of action. Investors REIT One v. Jacobs,
4. American Pipe Tolling Doctrine
In American Pipe & Const. Co. v. Utah,
A contrary rule allowing participation only to those potential members of the class who had earlier filed motions to intervene in the suit would deprive Rule 23 class actions of the efficiency and economy of litigation which is the principal purpose of the procedure. Potential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable.
Id. at 553,
The American Pipe tolling doctrine was extended by Crown, Cork & Seal Co., Inc. v. Parker,
The rationale was that "[o]therwise, class members would be led to file individual actions prior to denial of class certification, in order to preserve their rights. The result would be a needless multiplicity of actionsโprecisely the situation that Federal Rule of Civil Procedure 23 and the tolling rule of American Pipe were designed to avoid." Crown,
Courts addressing the issue are divided over whether plaintiffs who bring an independent action while a related class action is pending are entitled to the benefits of a class action, including tolling under the American Pipe doctrine. Among the majority of courts concluding that a plaintiff who files an independent action before a decision regarding class certification in the related class action forfeits tolling under American Pipe are the following: Wyser-Pratte Mgmt. Co. v. Telxon Corp.,
While the filing of a federal class action "suspends the applicable statute of limitations as to all asserted members of the *717 class who would have been parties had the suit been permitted to continues as a class action," there is a difference of opinion as to whether a statute of repose can be tolled. American Pipe,
Nevertheless, the majority of the lower courts addressing the issue interpret this Lampf rule to refer to equitable tolling, which they distinguish from legal tolling.[39]See, e.g., Joseph v. Wiles,
A common issue is what relationship between the claims in the class action and the claims in an individual law suit is necessary to trigger application of the American Pipe tolling doctrine. In a concurring opinion in Crown, Justice Powell, joined by Justices O'Connor and Rehnquist, wrote, "[W]hen a plaintiff invokes American Pipe in support of a separate lawsuit, the district court should take care to ensure that the suit raises claims that `concern the same evidence, memories, and witnesses as the subject matter of the original class suit,' so that `the defendant will not be prejudiced.'" Crown,
"notifies the defendants not only of the substantive claims being brought against them, but also of the number and generic identities of the potential plaintiffs who participate in the judgment. Within the period set by the statute of limitations, the defendants have the essential information necessary to determine both the subject matter and the size of the prospective litigation."
Id. at 354-55,
[T]he tolling rule of American Pipe is a generous one, inviting abuse. It preserves for class members a range of options pending a decision on class certification. The rule should not be read, however, as leaving a plaintiff free to raise different or peripheral claims following denial of class status."
Id. at 355,
The majority of courts have followed Justice Powell's reasoning and concluded that subsequent individual claims, filed after denial of class certification or after granting class certification and opting out, need not be identical to the original class action's for tolling to apply as long as they share a common factual basis and legal nexus so that the defendant would rely on the same evidence and witnesses in his defense. See e.g., Tosti v. City of Los Angeles,
In American Pipe and in Crown the tolling doctrine was applied where federal court class actions were brought under federal statutes to toll federal statutes of limitations on individual federal claims (based on the same facts alleged in the class action) of individuals who were putative members of the class. Thus the doctrine is persuasive, but not binding, on issues of state-law claims with state-law tolling provisions in individual federal or state court actions or on state-court class actions. (In cases raising state-law claims in federal court, state statutes of limitations law governs. Walker v. Arrnco Steel Corp.,
Among the factors to be considered by a court in addressing the issue of tolling by the filing of a federal class action on individual state-law claims or a state class action are whether a class action rule modeled on the Federal Rule of Civil Procedure 23 has been adopted by the state, whether the state allows сlass action tolling in its jurisdiction, whether the state permits cross-jurisdictional tolling for individual cases, whether the state applies common-law tolling, and the state's policies. See generally Gerald D. Jowers, Jr., The Class Stops the Clock, 41-NOV Trial 18 (Nov.2005).[41]See, e.g., Wade v. Danek Medical, Inc.,
In the instant action, there is a claim under Article 581-33 of the Texas Securities Act. Section 581-33(H) provides a statute of limitations inter alia for claims under Article 581-33(A)(2), -33(C), -33(F) of no more than three years or after discovery of the untruth or omission or after discovery should have been made by the exercise of reasonable diligence, and a statute of repose of five years after the sale of the security. The doctrine of American Pipe and progeny has been adopted by Texas courts. In the wake of American Pipe and Crown, Cork and Seal, in Texas, in Grant v. Austin Bridge Construction Co.,
In Bell v. Showa Denko K.K.,
Emphasizing that defendants must have received fair notice of the existence of a claim by the filing of the class suit, the Bell appellate court distinguished Grant, which involved "plaintiffs who were readily discernible group of people claiming injury to certain property rather than personal injury," from the case before it, a "mass personal injury suit, in federal court, in another state, with the variety of claims necessarily involved in such a сase," which it found "would be an extension of American Pipe not warranted by the Grant decisions...." Id. at 758.
Furthermore, the panel proclaimed, "We do not agree that American Pipe operates to toll our state statute of limitations. That case involved an interpretation of Rule 23 of the Federal Rules of Civil Procedure and concerned the question of whether a federal statute of limitations was tolled for the purpose of filing a federal claim. Under the doctrine of the hoary case of Erie Railroad v. Tompkins,
In Vaught v. Showa Denko K.K.,
[T]he Bell court concluded first that the American Pipe line of cases did not directly control, because they involved the tolling effect of putative federal class actions on federal statutes of limitations.... Whether a state statute of limitations would be tolled by a federal class action, the court explained, was a question of state law. The Bell court construed Grant to apply only to the tolling effect of a state class action on state claims.... In addition, the Bell court concluded, the American Pipe tolling rule was meant to apply only where a class action gives a defendant notice of the "type and potential number of the claims against itโfor example where "a discernible group of people claim[ ] injury to certain property."
In light of Bell, we understand Texas' tolling rule to operate as follows: A state (Texas) class action that raises property damage-type claims tolls a Texas statute of limitations pending a certification ruling. And, consistent with our understanding of this Texas tolling rule, it is unclear, whether under this rule a federal class action filed in Texas or in any other State would ever toll a Texas statute of limitations, regardless of the type of claims raised."
*722 Thus under the Fifth Circuit's holding in Vaught, this Court concludes that the filing of the complex federal Newby class action, grounded in federal securities law and involving a not easily discernible class of plaintiffs, does not toll the Texas statelaw claims asserted Plaintiffs' proposed amended complaint on behalf of Cincinnati and OTTA.[45]
The other state-law claims are under Ohio law. In contrast to Texas, Ohio has recognized cross-jurisdictional tolling by a federal class action of state statute of limitations for Ohio state-law claims. Vaccariello v. Smith & Nephew Richards, Inc.,
5. Relation Back of Amendments
Fed.R.Civ.P. 15(c) allows the amendment of a complaint to add or change a party defendant after limitations has expired under certain conditions. Rule 15(c) provides in relevant part,
An amendment of a pleading relates back to the date of the original pleading when
(1) relation back is permitted by the law that provides the statute of limitations applicable to the action, or
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, or
(3) the amendment changes the party or the naming of the party against whom the claim is asserted if the foregoing provision (2) is satisfied and, within the period provided by Rule 4(m) for service of the summons and complaint,[46] the party to be brought in by amendment
(A) has received such notice of the institution of the action that the party will not be prejudiced in maintaining a defense on the merits, and (B) knew or *723 should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party.
The relation back doctrine "`does not extend the limitations period, but merely recognizes that the purposes of the statute are accomplished by the filing of the initial pleading.'" Kansa Reinsurance Co. v. Cong. Mortgage Corp.,
Although the Rule references only the addition of defendants, but courts have applied it to the adding of plaintiffs, In re Dynegy, Inc. Sec. Litig.,
Where a plaintiff could have obtained the proper identities of intended defendants by greater diligence, failing to identify a party defendant until discovery untimely reveals it is not a "mistake" or "misidentification" for purposes of the relation back doctrine under Rule 15(c). Jacobsen v. Osborne,
6. Analysts'Statements and ง 10(b)/Rule 10b-5 Liability
In Virginia Bankshares, Inc. v. Sandberg,
The Fifth Circuit has held that to hold a corporate defendant liable for its analysts' statements under ง 10(b)/Rule 10b-5, a plaintiff must show that the analyst at issue had scienter (intent to deceive, manipulate, or defraud or severe recklessness). Southland Sec. Corp. v. Inspire Ins. Solutions, Inc.,
The Fifth Circuit makes clear that to hold an issuer liable for a third-party analyst's statements, the plaintiff must show that the statement was adopted by the defendant or attributable to the defendant in some way or used the analyst as a conduit by make false and misleading statements to the analyst with the intent that the analyst publish it to the market. Id. at 373. The plaintiff must plead with particularity "who supplied the information to the analyst, how the analyst received the information, and how the defendant was entangled with or manipulated the information and the analyst." Id. "[Analysts' statements that reflect their own opinions or forecasts may not be charged to the defendants because the plaintiffs have not sufficiently alleged entanglement and the adoption of such statements by the defendants." Id. at 374.
With respect to loss causation and Dura Pharmaceuticals, under the holding in Greenberg v. Crossroads Sys., Inc.,
*725 III. Court's Decision on Motion for Leave to Amend and to Join
A. Scheduling Orders and Tolling Effect
As a central, threshold matter, this Court's intention in issuing the July 11, 2003 order (#1561 in H-01-3624), as amended on July 11, 2006 (# 4848 in 01-3624), staying the filing of amended pleadings in the member cases until after the class certification determinations in Newby and Tittle, was also tо toll the statutes of limitations on claims that could still be timely and properly asserted. Otherwise, especially in light of what became a substantial period in certifying both classes, parties would have been unfairly deprived of their rights. Thus the Court concludes that the tolling for unexpired federal and state-law claims arising out of the same nucleus of facts lasted from the beginning of the Court's stay on July 11, *726 2003 until two weeks after the Newby class certification order, by which time the opting-out plaintiffs were required to have filed motions for leave to amend if they chose to supersede their earlier pleadings. Because Plaintiffs have complied with that order, their motion for leave to amend and proposed amended complaint are deemed filed as constructively filed as of July 11, 2003.
B. The Reach of the order # 1561 at 4 in H-01-3624
Several Defendants have argued that the Court's July 15, 2003 order (# 1561 at 4 in Newby) that "IN ALL AMENDED PLEADINGS, COUNSEL SHALL NOT REITERATE ALLEGATIONS OR AGUMENTS PREVIOUSLY REJECTED BY THIS COURT IN RULINGS ON MOTIONS TO DISMISS THE CONSOLDATED COMPLAINTS," means that similar arguments could not be raised in the other consolidated and coordinated MDL 1446 actions. The Court would prefer to examine the pleadings in each amended complaint in the opt-out actions in response to motions to dismiss than to make an across-the-board ruling. What one plaintiff may not have adequately pleaded or timely filed under the same or different law, another may have. Defendants may summarily incorporate into their responsive pleadings to amended complaints any arguments they have made in response to the motion for leave to amend, such as Goldman Sachs' chart of parallel allegations.
C. Ohio State Common Law Claims Generally
1. Aiding and Abetting Common-Law Fraud Under Ohio Law
Defendants are correct that in Federated Management Co. v. Coopers & Lybrand,
Nevertheless, in an opinion issued a few months later, the Sixth Circuit, in Aetna Cas. & Sur. Co. v. Leahey Const. Co.,
Without meaning to set forth an inflexible definition of aiding and abetting, we find that a person may be held as an aider and abettor only if some other party has committed a securities law violation, if the accused party had general awareness that his party was a part of an overall activity that is improper, and if the accused aider-abettor knowingly and substantially assisted the violation.
Subsequently, however, the Sixth Circuit appears to have stepped back from its earlier position and opined, "It is unclear whether Ohio recognizes a common law cause of action for aiding and abetting tortious conduct." Pavlovich v. National City Bank,
Furthermore, in the wake of the cases discussed above, noting that the issue remains unresolved, a couple of federal district courts in Ohio have denied motions to dismiss because it "cannot be said conclusively that Ohio law does not recognize such a claim." In re National Century Fin. Enterprises, Inc. Investment Litig, No. 2:03-mdl-1565,
In Ohio cases that have allowed such a cause of action, depending on the stage of the litigation the courts have focused on whether the plaintiffs has pled and/or proved the elements of aiding and abetting fraud. The Sixth Circuit in Pavlovich, reviеwing a summary judgment in favor of a bank defendant, looked past the question of Ohio's recognition of aiding and abetting fraud to determine if the plaintiff had prevailed on a claim under ง 876(b) by establishing the first prong of that cause of action, actual knowledge or general awareness of the primary party's wrongdoing.
The proposed amended complaint at 236, ถ 618, asserts,
As previously set forth herein, each of the defendants aided and abetted the fraud by Enron and the other defendants, by knowingly and substantially assisting in the fraud, with knowledge or reckless disregard that their actions were part of an overall fraudulent scheme. The defendants' assistance included, among other things, preparation and/or review and approval of documents containing false and misleading statements, or omitting material information, for the purpose of manipulating Enron's reported financial results, or orchestrating, funding and entering or facilitating transactions with Enron and its affiliated partnerships and special purpose entities to disguise Enron's debt and enable the Company to inflate its operating results and earnings.
The phrase "actual knowledge or reckless disregard" appears to relate to both the knowledge requirement of their state-law aiding and abetting fraud claim and the scienter requirement for ง 10(b) claims. Each Defendant's activities are mentioned in the complaint, although whether in the detail necessary for pleading the required elements for a fraud-based common-law claim in Ohio will be more appropriately determined on a motion to dismiss after the parties have been given an opportunity to brief the matter. Because of the tolling based on the Court's scheduling order, the four-year statute of limitations would allow claims that accrued at least as far back as July 11, 1999; moreover, since grounded in fraud, under Ohio law the discovery rule would apply, which might extend that period farther back and raise questions not appropriately resolved on a motion for leave to amend, nor adequately briefed by the parties at this point. At this stage of the litigation the Court concludes that the claim for aiding and abetting common law fraud may go forward.
2. Negligent Misrepresentation
The Court agrees with Defendants that in accordance with the express list in Ohio Rev.Code Ann. ง 2305.09 and the Ohio Supreme Court's holding in Investors *729 REIT One,
Moreover, this Court concludes that if tolling under American Pipe did apply and if these claims for negligent misrepresentation arose out of the same nucleus of facts as the claims in Newby, negligent misrepresentation could not have been asserted in Newby not only because of SLUSA, but because negligence is not actionable under ง 10(b). Therefore the Newby action did not give fair notice to Defendants of such claims, and the evidence for a negligence-based claim could, in significant part, be different from that for a fraud-based claim.
3. Conspiracy to Commit Fraud
Under Ohio Rev.Code ง 2305.09 the four-year statute of limitations and the discovery rule apply to claims of conspiracy to commit fraud. Tri-State Computer Exchange, Inc. v. Burt, No. C-020345,
D. Limitations and the Proposed Amended Complaint
Sarbanes-Oxley was enacted on July 20, 2002, and the original complaint in H-02-4788 was not actually filed until September 4, 2002, so it is a "new proceeding" in which the extended two-year/five-year statute of limitations under Sarbanes Oxley would govern the proposed unexpired ง 10(b), ง 20(a) and ง 20A federal statutory claims if amendment is allowed, but not to the ง 18(a) claims. Given the original complaint's solely Ohio state-law claims, *730 contrary to the urging of some Defendants, this Court does not construe what is now H-02-4788 as having been constructively filed at the commencement of the Newby action even though Plaintiffs were putative members of the proposed Newby class, because their state-law claims were not and could not have been asserted in Newby because of SLUSA.
As indicated above, Sarbanes-Oxley's extended statute of limitations does not apply to ง 18 claims. Thus deeming the motion for leave to amend and the proposed amended complaint as filed on the date of the scheduling order that tolled limitations in this action, July 11, 2003, given the applicable three-year statute of repose the ถ 18 claims may be based on SEC filings possibly as far back as July 11, 2000.
This Court agrees with Defendants that Plaintiffs are not entitled to tolling under American Pipe because they not only filed their state-law independent action on September 4, 2002, after the filing of the Newby First Consolidated Complaint on April 8, 2002, but they moved for lеave to amend to add federal securities law claims overlapping with those asserted in Newby against some of the same Defendants before a decision on class certification in Newby was made. Their actions constitute the inefficiency of multiple suits prior to class certification that the American Pipe tolling doctrine was developed to avoid. Plaintiffs in effect opted out prior to the decision on class certification and thereby forfeited their right to the benefits of American Pipe tolling. See, e.g., Wyser-Pratte,
Furthermore, even if Plaintiffs had not in essence opted out, American Pipe tolling based on the Newby class action cannot apply to claims against Defendants not named in Newby, including Goldman Sachs, Wolf, Schottlaender, and Ferguson, because these parties were not named as Defendants in Newby and were thus not on notice of the claims against them by Plaintiffs here.
Plaintiffs maintain that if the Court concludes that American Pipe does not apply, the claims are saved by the "relation back" doctrine under Fed.R.Civ.P. 15. This Court disagrees. Where a plaintiff could have obtained the proper identities of intended defendants by greater diligence, failing to identify a party defendant until discovery untimely reveals it is not a "mistake" or "misidentification" for purposes of the relation back doctrine under Rule 15(c). Jacobsen v. Osborne,
E. Proposed Defendant-Specific Issues
1. Outside Directors
As indicated above, Ohio may recognize a cause of action for aiding and abetting fraud, with a four-year statute of limitations, to which the discovery rule would apply, and thus the Court allows this claim against the Outside Directors to proceed. Nevertheless Plaintiffs must meet the pleading requirements for such a claim against the Outside Directors, an issue likely to be raised by a motion to dismiss.[51]
Given the tolling by the Court's July 11, 2003 order, the motion for leave to amend *731 and proposed complaint are deemed filed on that date and reach claims based on negligent misrepresentations made by Outside Defendants as far back as July 11, 1999. The discovery rule does not apply. The proposed complaint is too vague for this Court to determine what alleged misrepresentations were made and when by Outside Directors, or any other proposed Defendants, but such matters can be resolved on a motion to dismiss.
As for the ถ 18 claims, again the complaint lacks the specificity for this Court to determine when any of the alleged misrepresentations by the Outside Directors were filed with the SEC, but because the one-year/three-year statute of limitations and statute of repose apply, these claims against the Outside Directors may be based on SEC filings possibly as far back as July 11, 2000.
2. Non-Party (proposed) Financial Institutions and Goldman Sachs
Because this Court intended the July 11, 2003 scheduling order to toll the statute of limitations on consolidated and coordinated cases, the common-law claims for aiding and abetting and negligent misrepresentation under Ohio law and claims under the Securities Exchange Act and the Sarbanes-Oxley statute of limitations are not on their face time-barred. The Court will entertain challenges in motions to dismiss based on inquiry notice and limitations in response to the new complaint.
Goldman Sachs' argument that Plaintiffs' failure to plead a "special relationship" dooms the negligent misrepresentation claim may be true under New York law, but it is not an element of such a claim under Ohio law, which requires a showing of the following: "One, who, in the course of his business, profession or employment, or any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." Manno v. St. Felicitas Elementary School,
The Court has indicated pleading requirements for imposing liability based on analysts' opinions/statements and will entertain motions to dismiss challenging the amended complaint's pleading sufficiency with regard to such claims.
3. BAC and BAS
Because the initial complaint was filed on September 4, 2002, the statute of limitations on the federal claims under ง 10(b) and ง 20(a) arising out of the Bammel and Rawhide transactions, closing in December 1997 and December 1998, respectively, were already time-barred by the Lampf one year/three year limitations (December 2000 and December 2001) and cannot be revived by Sarbanes-Oxley's extended period of limitations. Margolies v. Deason,
*732 The federal claims arising out of the Marlin Notes Offering in July 2001 are governed by the Sarbanes-Oxley two year/ five year limitations period and are tolled by the Court's July 11, 2003 scheduling order. Thus it is not necessary to determine whether the Abbey National Treasury lawsuits, filed on October 11, 2002, constituted inquiry notice to Plaintiffs about these claims.
Regarding the ง 10(b) and ง 20(a) claims arising out of Bank of America's analyst statements from 1997 until 2001, some of these will be time-barred by the Lampf three-year statute of repose. Defendants argue that Plaintiffs were on notice of the remaining claims at the latest by January 16, 2002 when the original Silvercreek complaint with the similar claims against BAS was filed. Those claims not time-barred by the Lampf and Sarbanes-Oxley's statutes of repose are tolled by the scheduling order.
The Court has previously rejected the contention that the events during the fall of 2001 (Enron's announcement of a nonrecurring charge of over $1 billion, the initial Newby complaint, the restatement of previous years' financial reports, the SEC investigation, and the bankrupt) gave inquiry notice of the claims against the bank Defendants. See footnote 19.
As for the Ohio common law negligent misrepresentation claim based on the Bammel and Rawhide transactions, the four-year statute of limitations bars allegations based on both.
The Ohio aiding and abetting common law fraud claim is subject to the discovery rule. Defendants have argued that Plaintiffs had inquiry notice no later than March 28, 2003, when the proposed amended complaint in Silvercreek was filed. They also argue that the First Amended Consolidated Complaint filed in Newby on May 14, 2003, but deemed timely filed on January 14, 2003 based on a letter from Lead Plaintiffs counsel (see footnote 19) also gave inquiry notice. Either way, the aiding and abetting common law fraud claim would be tolled by the scheduling order. Moreover, it is irrelevant whether Ohio's two-year ง 1707.43 or four-year ง 2305.09 provides the appropriate statute of limitations as the aiding and abetting claim is not barred under either.
4. Schottlaender, Wolf, and Ferguson
The discussions of the statutes of limitations above apply to the claims against Schottlaender, Wolf and Ferguson. The scheduling order has tolled all claims asserted against them that were still viable.
Ferguson can challenge personal jurisdiction over him by an appropriate motion to dismiss.
Accordingly, for the reasons indicated above, the Court
ORDERS that the Ohio Retirement Systems, Cincinnati, and OTTA's motion to strike (# 86) is DENIED. The Court further
ORDERS Plaintiffs' motion for leave to amend is GRANTED in part but denied as to the time-barred identified in this opinion and order. Because cases establishing pleading standards for Plaintiffs' various causes of action were issued long before they filed their motion for leave to amend and proposed amended complaint, and because this Court has issued numerous orders in Newby and the coordinated and consolidated cases addressing pleading requirements, the Court sees no reason to permit Plaintiffs to amend again. In Defendants' responsive pleadings, Defendants may challenge issues such as pleading adequacy and inquiry notice for triggering statutes of limitations to the extent that they comply with the rulings made in this opinion. Because OTTA and Cincinnati have an identity of interests with the Ohio *733 Retirement Systems and bring the same state-law claims that they asserted in the original complaint against the original Defendants, allowing them to join as Plaintiffs does not unfairly prejudice the original Defendants, and any new claims against the original or newly added Defendants that are timely filed are permissible. Therefore the Court
ORDERS that OTTA and Cincinnati's motion to join (# 54) is GRANTED.
Some Defendants have rather conclusorily argued that they are severely prejudiced by the close of discovery without the opportunity to depose key witnesses on the new claims. Any party may file a motion to reopen discovery for specific goals, but that party must show good cause with particularity.
Finally, the Court
ORDERS that responsive pleadings to the amended complaint shall be filed within thirty days of entry of this opinion and order. Plaintiffs' responses to any motions to dismiss filed by Defendants shall be filed within thirty days of Defendants' filings. Defendants may file replies within thirty days of Plaintiffs' filings. Should any of these deadlines fall on a weekend, the pleadings shall be filed on the following Monday.
NOTES
Notes
[1] Instrument # 82.
[2] Instrument # 85.
[3] Except for those Defendants filing motions to stay based on ongoing criminal proceedings, the parties had entered into agreed briefing schedules (# 114, 125, 128, 129, and 131) to respond to the amended complaint. This Court subsequently stayed the deadline for responsive pleadings until it could address the two motions under review.
[4] Plaintiffs cite Lacher v. West,
[5] The original complaint sued Andrew Fastow, Jeffrey Skilling, Kenneth Lay, Richard Causey, Michael Kopper, Ben Glisan, Arthur Andersen LLP, Citigroup, Inc., Credit Suisse First Boston Corp., JP Morgan Chase and Company, Lehman Brothers Holdings, Inc., Merrill Lynch & Co., and Vinson & Elkins LLP on five counts, each against all Defendants: common law fraud and deceit; aiding and abetting common law fraud; conspiracy to commit fraud; negligent misrepresentation; and violations of Article 581-33 of the Texas Securities Act against all Defendants. Complaint attached to Notice of Removal, # 1.
[6] If the Court holds that its July 11, 2003 order does not toll all applicable statutes of limitation, the Ohio Retirement Systems alternatively argue that the new claims "relate back" to filing of the complaint under Fed. R. of Civ. P. 15 because they arise out of the same conduct and occurrences that were the basis of the state-law claims in their original complaint.
[7] The Fifth Circuit applied Texas law in Piotrowski; for the Ohio Retirement Systems' Ohio state-law claims Texas law would not apply.
[8] Non-Party Outside Directors and Goldman Sachs insist Piotrowski is not on point. Because the Piotrowski case arose in the undersigned judge's court, the Court is fully familiar with it. After this Court dismissed the lawsuit with prejudice, that dismissal was affirmed, but at the same time the Fifth Circuit equitably tolled limitations and allowed a new suit based on a new theory to be filed. A new action was filed and was assigned to another judge. Piotrowski was prevented from filing the new lawsuit until that appellate ruling. In the instant suit, argue Defendants, there was no order or appeal preventing Plaintiffs from filing a new lawsuit оr a motion for leave to amend. Bank of America notes that Piotrowski did not seek to add defendants not named in her original action. Defendants also distinguish the situation here from that in Versluis, in which the court refused to toll the statute of limitations during a time that "relevant decisions rendered doubtful whether the action might be successfully maintained."
[9] Cincinnati and OTTA misrepresent their authority here. This Court observes that in Reeves, a class was certified for the purpose of approving a settlement agreement before the Realmontes elected to opt out.
[10] Bank of America points out that these cases stand for the proposition that filing a motion to amend only tolls the statute of limitations on claims that have not yet expired; it insists that the statutes of limitations on Plaintiffs' claims had already run before they filed their motion for leave to amend.
[11] Outside Director Movants are Robert A. Belfer, Norman P. Blake, Jr., Ronnie C. Chan, John H. Duncan, Joe H. Foy, Wendy L. Gramm, Robert K. Jaedicke, Charles A. Le-Maistre, John Mendelsohn, Jerome Meyer, Frank Savage, John A. Urquhart, and Charles E. Walker.
[12] Section 18(a), imposing liability for misleading statements in documents filed with the SEC under section 15(d) of the Exchange Act, 15 U.S.C. ง 78o(d), provides in relevant part:
Any person who shall make or cause to be made any statement in any application, report, or document filed pursuant to this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 78o of this title, which statement was at the time and in light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleаding.
[13] Section 2305.09 sets out certain tort causes of action to which a four-year statute of limitations and identifies those to which the discovery rule is applicable:
An action for any of the following causes shall be brought within four years after the cause of action thereof accrued:
(A) For trespassing upon real property;
(B) For recovery of personal property, or for taking or detaining it;
(C) For relief on the ground of fraud;
(D) For an injury to the rights of the plaintiff not arising on contract nor enumerated in sections 1304.35, 2305.10 tp 2305.12. and 2305.12 of the Revised Code;
(E) For relief on the grounds of a physical or regulatory taking of real property;
If the action is for trespassing under ground or injury to mines, or for the wrongful taking of personal property, the cause thereof shall not accrue until the wrongdoer is discovered; nor, if for fraud, until the fraud is discovered.
[14] Outside Directors also question whether the financial statements are representations made by them.
[15] Specifically the order (#1561 at 4 in 01-3624) stated, "IN ALL AMENDED PLEADINGS, COUNSEL SHALL NOT REIERATE ALLEGATIONS OR ARGUMENTS PREVIOUSLY REJECTED BY THIS COURT IN RULINGS ON MOTIONS TO DISMISS THE CONSOLIDATED COMPLAINTS."
[16] The derivative ง 20(a) claim has the same statute of limitations as that for the underlying primary violation of ง 10(b). Theoharous v. Fong,
[17] This Court has held that the Sarbanes-Oxley Act does not revive claims that were time-barred before its date of enactment, July 30, 2002. # 1999.
[18] Bank of America cites the following cases for the proposition that the filing of a complaint in another action asserting the same theories of liability against the same defendants) places plaintiffs on inquiry notice of their claims against the same parties: In re Adelphia Comm. Corp. Sec. & Derivative Litig., No. 03 MD 1529(LMM),
[19] In # 1999 at 32 n. 34 in Newby, this Court rejected the argument that the putative class members had inquiry notice of claims against banks involved with Enron
as early as December 2002, when Enron filed for bankruptcy and the prices of Enron and Enron-related securities plunged. They contend that the "operative complaint was the original Newby complaint, filed on October 20, 2001. The Court finds this argument lacks merit, as the first complaint was filed before Enron made most of its public disclosures prior to filing for bankruptcy and the nature of the alleged fraud is so complex and the banks' purported involvement initially less obvious than that of Enron officers and directors, that experts to this day have difficulty unraveling the intricacies.
As for the argument that inquiry notice was, triggered by the First Consolidated Complaint filed on April 8, 2002 (#441) and the unknown identities of some Bank Defendants, see # 2036 at 53-75 (finding good cause, including reliance on a Court order, for construing Lead Plaintiff's counsel's January 14, 2003 letter as a motion for leave to amend to name the subsidiaries of Bank Defendants, making the First Amended Consolidated Complaint (# 1388, filed May 14, 2003) timely).
In an order dated April 6, 2004 (# 2064), denying Bank of America's motion to dismiss in Newby, referencing earlier orders, the Court emphasized that it had "rejected the argument that Plaintiffs had inquiry notice" of Foreign Debt Securities claims against secondary-actor Bank Defendants as early as October 2001; "[i]nstead it found that the earliest possible storm warnings came in October 2002." #2064 at 4.
[20] Bank of America contends that under Ohio law, common law claims that "arise out of or are predicated on the sale of securities" are governed by the Ohio Securities Act's statute of limitations, ง 1707.43(b), not the general four-year statute of limitations for tort claims, Ohio Rev.Code ง 2305.09. Wyser-Pratte,
According to Bank of America, currently the Ohio Securities Act provides that no action may be brought after the earlier of "two years after the plaintiff knew, or had reason to know, of the facts by reason of which the actions of the person or director were unlawful, or more than five years from the date of such sale or contract for sale, which ever is the shorter period." Ohio Rev.Code ง 1707.43. It was amended, effective September 16, 2003. Before that date, and at the time the instant suit was filed, it provided that the statute of limitations was two years from the date of discovery or four years from the date of Plaintiffs' purchase of the securities. Ohio Rev.Code, ง 1707.43(B). See Wyser-Pratte,
Plaintiffs object that the two-year statute of limitations in ง 1707.43(b) does not apply to actions in which the plaintiff does not expressly base his claim upon and assert that it arises out of the Ohio blue sky law. Nickels v. Koehler Mgmt. Corp.,
Because the aiding and abetting common law fraud claims here do not arise out of a contract for sale of securities, the Court agrees with Plaintiffs' argument that ง 1707.43 is not applicable.
[21] Bank of America contends that Plaintiffs had inquiry notice of their claim based on Bammel in March 2003 but waited more than two years to move to amend to add the claim. On March 5, 2003, the Second Interim Report of Court-Appointed Enron Bankruptcy Examiner Neal Batson, describing the transaction and Bank of America's involvement in it, was made publicly available. Moreover on March 28, 2003 the Silvercreek Proposed Amended Complaint, asserting that BAS was involved in Bammel and the fraud at Enron, was filed.
[22] Plaintiffs state that their last purchase of Enron stock was on July 25, 2001, so according to Bank of America, the statute of repose expired on July 25, 2005, before Plaintiffs filed their motion for leave to amend.
[23] Vaccariello v. Smith & Nephew Richards, Inc.,
[24] See Wyser-Pratte,
[25] Bank of America cites Weston v. Ameri-Bank,
[26] Bank of America summarizes that after the Newby complaint was filed on April 8, 2002, this Court dismissed the ง 10(b) claim against BAC on December 20, 2002, on behalf of the entire putative class, thereby ending any tolling benefit and the statute of limitations resumed running. Southwire Co. v. LP. Morgan Chase & Co.,
[27] Proposed Amended Complaint 492 at 185 (Ex. A to # 56, Decl. of Liebesman).
[28] Ferguson argues that this "proceeding" began with the commencement of the Newby action in 2001, and thus Sarbanes-Oxley does not apply. Even if Sarbanes-Oxley did apply, Ferguson argues that the two year limitations expired either in April 2004, or the summer of 2005 (given the notice discussed in the text), well before Plaintiffs filed their motion for leave to amend.
[29] The Court observes that this case was originally removed from state court to Ohio federal district court by Lehman Brothers Holdings on diversity and "related to" bankruptcy jurisdiction, which might negate any argument about pendent jurisdiction, now known as supplemental jurisdiction. Regardless, under 28 U.S.C. ง 1367(c), a federal district court has some limited discretion to decline to exercise subject matter jurisdiction over state-law claims if the court has dismissed all claims over which it had federal jurisdiction, although the general rule in the Fifth Circuit is "to dismiss state claims when the federal claims to which they are pendent are dismissed." Parker & Parsley Petroleum Co. v. Dresser Industries,
[30] Where a federal statute authorizes nationwide and worldwide service of process and allows for personal jurisdiction over foreigners not present in the United States, here the 1934 Exchange Act, 15 U.S.C. ง 78aa, the appropriate analysis is (1) whether the defendant has had constitutionally sufficient minimum contacts with the United States as a whole (in accordance with the due process clause of Fifth Amendment) and (2) whether the exercise of personal jurisdiction is reasonable, i.e., consistent with "traditional notions of fair play and substantial justice." Pinker v. Roche Holdings Ltd.,
"Pendent personal jurisdiction exists [over a defendant regarding Plaintiffs' state-law claims] `where a federal statute authorizes nationwide service of process, and the federal and state claims `derive from a common nucleus of operative facts.''" High River Ltd. Partnership v. Mylan Laboratories, Inc.,
In Calder v. Jones,
[31] Ferguson states that he "consented to the entry of a judgment enjoining him from violating federal securities laws; agreed to pay $563,000; and agreed to entry of an order barring him from serving as an officer or director of a publicly traded company for a period of five years." Ex. 10 at 22 n. 14, citing Ex. A to Zweifach Decl. (# 74).
[32] Clemente, at *3 cites Investors REIT One v. Jacobs,
[33] Thus the new Sarbanes-Oxley statute of limitations does not apply to non-fraud-based actions under ง 11 and 12(a)(2) of the 1933 Act.
[34] In American Pipe, the court tolled the statute of limitations specifically for persons who moved to intervene after class certification had been denied.
[35] If the class is certified, the plaintiffs are members; if class certification is denied, the putative class members may choose to file their own suits or to intervene as named plaintiffs in the pending action. Crown,
[36] The Newby class was certified on July 5, 2006. H-01-3624, #4836
[37] In American Pipe, the Supreme Court pointed out that a contrary rule would frustrate the principal function of a class suit because then the sole means by which members of the class could assure their participation in the judgment if notice of the class did not reach them until after the running of the limitation period would be to file earlier individual motions to join or intervene as parties-precisely the multiplicity of activity which Rule 23 was designed to avoid....
[38] Judge Cote in WorldCom,
[39] For example, the district court in Official Committee of Asbestos Claimants of G-I Holding, Inc. v. Heyman,
Equitable tolling is appropriate where, for example, the claimant has filed a defective pleading during the statutory period, Burnett v. New York Cent. R.R. Co.,
[40] The court in Joseph v. Wiles noted that "in a sense, application of the American Pipe tolling doctrine . .. does not involve `tolling' at all" since the party seeking application of the doctrine should effectively have been a member of the class and a party to the class action suit against the named defendants all along."
[41] See, e.g., In re Linerboard Antitrust Litigation,
[42] In Boone v. Citigroup, Inc.,
[43] The Texas Supreme Court later disagreed with this part of Vaught's holding and found that where a plaintiff consulted several doctors about his symptoms but the doctors rejected his suspicions about the cause of his symptoms, a fact question, on which reasonable minds could differ, was for the jury relating to the discovery rule's application to the statute of limitations. Childs v. Haussecker,
[44] This Court is aware that a couple of federal district courts in Texas have modified the Texas class action tolling rule and varied from the Fifth's Circuit's interpretation of it, but this Court is not persuaded that the Fifth Circuit would agree with these decisions. See Prieto v. John Hancock Mutual Life Ins. Co.,
[45] The Court concludes that this result is further enforced by the fact that in the absence of a circumstances relating to American Pipe tolling, the general rule is that "[q]uestions of substantive law are controlled by the laws of the state where the cause of action arose, but matters of remedy and procedure are generally governed by laws of the state where the action is sought to be maintained." Rush v. Barrios,
[46] The 1991 amendment changed the requirement that the defendant receive notice of the suit within the limitations period to receiving notice with the time for service of process under Rule 4(m), i.e., within 120 days from the filing of the complaint. "The only significant difference ... is that, instead of requiring notice within the limitations period, relation back is allowed as long as the added party had notice within 120 days following the filing of the complaint, or longer if good cause is shown." Skoczylas v. Fed. Bureau of Prisons,
[47] The high court did not сlearly indicate what must be pled to establish loss causation other than requiring more than a simple allegation of inflated stock price: "We need not, and do not, consider other proximate cause or loss related questions." Id. at 1633-34. The Supreme Court did not affirmatively adopt Dura Pharmaceuticals' argument that a plaintiff must allege and ultimately prove that the defendant made a corrective disclosure of the fraud that was followed by a related price drop, nor did it specify what must be pled to establish that "the truth became known"; instead, the Supreme Court stated vaguely that a complaint must "provide defendants with notice of what the relevant economic loss might be or what the cause connections might be between that loss and the misrepresentation" (i.e., "some indication of the loss and the causal connection that the plaintiff has in mind," a subjective standard), the pleading of which "should not prove burdensome" for a plaintiff. Id. at 1634. Thus besides a formal corrective disclosure by a defendant followed by a steep drop in the price of stock, the market may learn of possible fraud a number of sources: e.g., from whistleblowers, analysts' questioning financial results, resignations of CFOs or auditors, announcements by the company of changes in accounting treatment going forward, newspaper and journals, etc. See Alan Schulman and Nicki Mendoza, Dura Pharm., Inc. v. BroudoโThe least of All Evils, 1505 PLI/Corp. 272, 274 (Sept.2005). Plaintiff's economic loss may occur as "relevant truth begins to leak out" or "after the truth makes its way into the market place," and the plaintiff need only give "some indication" of the causal link between that leaked truth and his economic loss.
The Court, "assum[ing], at least for argument's sake, that neither the Rules nor the securities statutes impose any special further requirement in respect to the pleading of proximate causation or economic loss," appeared to suggest that Federal Rule of Civil Procedure 8(a)(2)'s standard ("a short plain statement of the claim showing that the pleader is entitled to relief") applies to the pleading of economic loss and proximate causation and that plaintiff must merely give fair notice of his claim and the grounds on which it is based, a "simple test." Id. at 1634 ("We concede that ordinary pleading rules are not meant to impose a great burden upon a plaintiff. Swierkiewicz v. Sorema N.A.,
[48] Section 876(b) states, "From harm resulting to a third person from the tortious conduct of another, one is subject to liability if he... knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself ..." Aetna Casualty,
[49] The Sixth Circuit emphasized, "We stress that the requirement is actual knowledge (which, again may be proven by circumstantial evidence), and therefore evidence establishing negligence, i.e., that [the defendant] 'should have known,' will not suffice." Id. at 536.
[50] Indeed, plaintiffs' authority for the application of the discovery rule to negligent misrepresentation claims is unpersuasive. Clemente, an unpublished opinion, while citing Investors REIT One, conclusorily asserts a rule contrary to it, without any analysis. Clemente v. Gardner, No. 02-CA-00120,
[51] Rule of Civil Procedure 9(b) of the Ohio Revised Code Annotated mirrors Federal Rule of Civil Procedure 9(b): "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other conditions of the mind of a person may be averred generally."