The opinion of the court was delivered by: Mihm, District Judge.
Plaintiffs (the PIERSONS) filed this eight count complaint
alleging statutory violations of the Securities and Exchange Act
of 1934 ("ACT"), together with various common law counts. Subject
matter jurisdiction is based on section 27 of the Act, 15 U.S.C. § 78aa.
The common law counts are before this Court under the
doctrine of pendent jurisdiction.
The facts in this case are still sketchy. On May 20, 1977, the
Piersons opened a "non-discretionary margin account" with the
Defendant (DEAN, WITTER) and placed $25,000 in the account.
Through this account the Piersons traded in the purchase and sale
of stocks and options on margin. All trading in this account was
completed by February 28, 1979. Among the actions the Piersons
complain of are:
1. That sales and purchases were not properly made
2. That Dean, Witter made sales and purchases
contrary to specific instructions from the
3. That options were allowed to expire as worthless
when they were in fact "covered";
4. That sales and purchases were not properly posted
to the account;
5. That the Piersons' margin account and margin
position was therefore misrepresented to them by
6. That calls were made against the account which
caused Dean, Witter to liquidate the account; and
7. That Dean, Witter promised to perform an audit of
the account and later refused to perform the
On these facts the Piersons allege violations of the following
sections of the Securities Exchange Act of 1934:
I. Section 10(b) (15 U.S.C. § 78j) and Rule 10b-5
(17 C.F.R. § 240 10(b)-5);
II. Section 15(c)(1) (15 U.S.C. § 78o(c)(1)) and the
rules promulgated thereunder;
III. Section 15(c)(3) (15 U.S.C. § 78o(c)(3)) and the
rules promulgated thereunder;
IV. Section 7 (15 U.S.C. § 78g) and Regulation T
(12 C.F.R. § 220); and
V. Sections 6(b) (15 U.S.C. § 78f(b)) and 15A
(15 U.S.C. § 78o-3).
In addition, the Piersons allege common law counts of breach of
fiduciary duty, negligence and fraud.
Dean, Witter has filed a motion to dismiss each of these counts
pursuant to Fed.R.Civ.P. 12(b)(6). The applicable standard is
that the complaint should not be dismissed for failure to state
a claim unless it appears beyond a doubt that the plaintiff can
prove no set of facts in support of his claim which would entitle
him to relief. Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99,
101, 2 L.Ed.2d 80 (1957) and Weissbuch v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 558 F.2d 831, 833 (7th Cir. 1977). Dean,
Witter has also requested this court to sever and compel
arbitration of the common law claims.
Motion to Dismiss the Entire Complaint as Time-Barred by
the Statute of Limitations
Dean, Witter contends that the entire complaint is time-barred
by the statute of limitations. Both parties agree that the
applicable Illinois statute of limitations provides three years
from the date of the transactions complained of in which to bring
the action. Ill.Rev.Stat., Ch. 121 1/2, Sec. 137.13(D); Parrent
v. Midwest Rug Mills, Inc., 455 F.2d 123, 125-128 (7th Cir.
1972); and Tomera v. Galt, 511 F.2d 504, 508-509 (7th Cir. 1975).
They also agree that all trading in the account was completed