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May 1, 1990


The opinion of the court was delivered by: NORGLE


 Before the court is defendants' motion to dismiss. For the following reasons, it is granted in part and denied in part.

 On a motion to dismiss, the allegations of the complaint as well as the reasonable inferences to be drawn from them are taken as true. Doe v. St. Joseph's Hosp., 788 F.2d 411 (7th Cir. 1986). The plaintiff need not set out in detail the facts upon which a claim is based, but must allege sufficient facts to outline the cause of action. Id. The complaint must state either direct or inferential allegations concerning all of the material elements necessary for recovery under the relevant legal theory. Mescall v. Burrus, 603 F.2d 1266 (7th Cir. 1979). The court is not required to accept legal conclusions either alleged or inferred from pleaded facts. Carl Sandburg Village Condominium Ass'n No. 1 v. First Condominium Development Co., 758 F.2d 203, 207 (7th Cir. 1985). Dismissal under Rule 12(b)(6) is improper unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Papapetropoulous v. Milwaukee Transport Services, Inc., 795 F.2d 591, 594 (7th Cir. 1986).

 Hernandez's claims arise from his purchase of investment units in a limited partnership known as Sealock (Israel) and Co. ("Sealock"). In late 1979, Childers contacted Hernandez and informed him of an opportunity to invest in Sealock. Childers told Hernandez that funds invested in Sealock would be used for the research and development of meat packing machinery. Childers allegedly promoted the investment as one providing an outstanding opportunity to shelter income from taxes and simultaneously to obtain large profits. In addition, Childers allegedly told Hernandez that he had obtained whatever legal and tax opinions that were necessary to insure that the investment was sound. During 1980, 1981, and 1982, Childers, after receiving authorization from Hernandez, invested a total of $ 245,000 of Hernandez's money on Sealock.

 In 1983, the IRS began an investigation into the entire scheme of Israeli limited partnerships, including Sealock. Hernandez claims he first learned of the IRS challenge to his own Sealock investment in 1986. In September, 1987, the Seventh Circuit held in Levin v. Commissioner, 832 F.2d 403 (7th Cir. 1987), that the tax shelter features of Sealock were improper. Consequently, the IRS disallowed the Sealock tax deductions and imposed penalties. As a result, Hernandez claims he lost his entire investment and incurred significant tax liabilities and penalties totalling $ 830,000, in addition to the loss of $ 245,000 already invested in Sealock.

 Hernandez's complaint centers around a series of alleged misrepresentations and omissions by Childers regarding the Sealock investment. Among the alleged misrepresentations is Childers' statement of the fundamental purpose of Sealock. Hernandez states that although Sealock was promoted as a tax shelter and an income producing investment, it was never meant to be anything but a tax loss. Hernandez also alleges that Childers assured him that the investment had been favorably reviewed by lawyers and accountants when in fact no such evaluation ever took place. In addition, Childers allegedly did not disclose either that he stood to profit if Hernandez invested, that there were the tax risks involved, or that the Sealock promoters had conflicts because of their ownership of the only firms that were to benefit from the venture.

 On February 21, 1989, Hernandez filed a seven count complaint consisting of federal securities law and various state law claims. Count I is a common law breach of fiduciary duty claim; Count II is a common law fraud claim; Count III is a claim for violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934; Count IV is a claim for violation of Section 12(2) of the Securities Exchange Act of 1933; Count V is a claim for violation of section 17(a) of the Securities Exchange Act of 1933; Count VI is a common law negligence claim; Count VII is a common law breach of contract claim. These will be addressed seriatim.

 Section 10(b) and Rule 10b-5 claims

 Defendants move to dismiss Hernandez's Section 10(b) and Rule 10b-5 claims in Count III as barred by the applicable statute of limitations. As no federal limitations provision governs claims brought under Section 10(b) or Rule 10b-5, federal courts look to the most analogous limitations period controlling in the state in which the action is brought. See Teamsters Local 282 Pension Trust Fund v. Angelos, 815 F.2d 452, 456 (7th Cir. 1987). The Seventh Circuit has held that the most analogous statute of limitations in Illinois is the three year period prescribed by the Illinois Securities Act, Ill. Rev. Stat. ch. 121-1/2, P137.13(D). See Suslick v. Rothschild Securities Corp., 741 F.2d 1000, 1004 (7th Cir. 1984).

 Under Section 137.13(D) of the Illinois Securities Act, the three year statute of limitations period begins to run "from the date of sale." Ill. Rev. Stat. ch. 121-1/2, para. 137.13(D). The parties in this case disagree as to when Hernandez "purchased" the securities in question and, therefore, when the limitations period began to run. Defendants argue that in Section 10(b) and Rule 10b-5 actions the purchase of a security pursuant to a written agreement occurs on the date when the agreement becomes binding on the purchaser, rather than any future date or dates when the agreement unconditionally requires payment of the purchase price. Therefore, defendants assert, the Sealock securities were purchased when Hernandez signed the Subscription Agreement to Sealock and his Letter of Understanding to DMC, Ltd. which provided research and development services regarding Sealock. Under the terms of the Subscription Agreement, Hernandez was to make an initial payment and then to pay the balance of the purchase price at future dates which were to be determined. (Subscription Agreement para. 1-2, 4). Both of these documents were dated September 15, 1980. Consequently, defendant argues, the limitations period began to run on that date.

 Hernandez acknowledges that Childers sent him the Sealock Investment documents in November or December of 1979. Although Hernandez states that he promptly returned these documents to Childers, he does not indicate when he signed them. Rather, Hernandez instead emphasizes that after his initial investment in Sealock he was required to provide additional capital contributions in 1994. Hernandez, relying upon Goodman v. Epstein, 582 F.2d 388, 414 (7th Cir. 1978), contends that calls for additional capital contributions entail new investment decisions, thus precluding the contract execution date or initial investment from being the "purchase" date from whence the statute of limitations would run.

 Hernandez's reliance on Goodman is misplaced. Although the Goodman Court held that additional capital contributions constituted separate investment decisions and, therefore, separate purchases of securities, Goodman is easily distinguishable. In Goodman, the plaintiffs were limited partners in a real estate development limited partnership. Under the terms of the partnership agreement, the plaintiffs were required to provide additional contributions of capital upon call for such contributions by the general partners. 582 F.2d at 412. The plaintiffs contended that those subsequent capital contributions constituted additional purchases of securities within the meaning of Section 10(b) and Rule 10b-5, even though they were obligated to make those contributions under the terms of the partnership agreement. The Seventh Circuit held that the additional contributions did constitute separate purchases of securities because the plaintiffs faced a separate investment decision each time a call was made. This was because under Illinois law, they had a right to relieve themselves of their obligations to provide additional capital if the facts showed that the partnership was unprofitable. Ill. Rev. Stat. ch. 106-1/2, para. 32(1)(e)); 582 F.2d at 413. *fn1"

 Unlike the plaintiffs in Goodman, Hernandez is obligated to provide additional capital and has no legal right to relieve himself of this obligation. Paragraph 41 of the complaint states that "an additional payment is due in January, 1994 and the plaintiff is obligated to make that payment." Accordingly, the plaintiff's obligation with respect to the purchase of the securities has not yet been completed. Therefore, Hernandez is not making a separate investment decision. Rather, he is fulfilling his contractual obligation. In Goodman, the Seventh Circuit was careful to distinguish a situation, such as this, where the purchaser would have "no legal alternative to performing the contract. . . ." 582 F.2d at 412. Because Hernandez has no legal alternative to providing an additional contribution in 1994, no separate investment decision will be made and, thus, the contribution does not constitute the purchase of a security. Rather, Hernandez's only "purchase" of securities occurred on September 15, 1980, the date of the Subscription Agreement and the date upon which the agreement became binding. The limitations period began to run on that date.

 Since Hernandez purchased the Sealock units on September 15, 1980 (the date of the Subscription Agreement and of the Letter of Understanding), the limitations period expired and his Section 10(b)-5 claim became time-barred in September 15, 1983, in the absence of factual allegations which would toll the limitations period. Robin v. Doctors Officenters Corp., 686 F. Supp. 199 (N.D.Ill. 1988). Although federal courts look to state law for the period of limitations, they remain bound by federal tolling principles. See Geeting v. Prizant, 664 F. Supp. 343, 347 (N.D.Ill. 1987). Extended tolling, as is sought by Hernandez, is disfavored in this circuit. See John v. Phelps, 713 F. Supp. 1161, 1164 (N.D.Ill. 1989) citing Norris v. Wirtz, 818 F.2d 1329, 1333-34 (7th Cir. 1987).

 Federal courts recognize two types of fraudulent behavior which justify the tolling of a statute of limitation in securities fraud litigation. See Angelos, 815 F.2d at 456; Tomera v. Galt, 511 F.2d 504, 510 (7th Cir. 1975); John, 713 F. Supp. at 1164; Geeting, 664 F. Supp. at 348. In the first type, the limitations period may be tolled where the fraud goes undiscovered even though the defendant does nothing to conceal it, so long as the plaintiff alleges and proves that he remained unaware of the fraud without any fault or want of diligence on his part. Geeting, 664 F. Supp. at 348. The plaintiff bears the burden of showing his reasonable diligence. Id. In the second type, the statute of limitations may be tolled if the plaintiff alleges and proves that the fraud went undiscovered because the defendant took affirmative steps to conceal the fraud after committing it. Id. If the plaintiff successfully alleges and proves active concealment, the statute is tolled until the date of actual discovery. Id. In this case, Hernandez claims that both tolling provisions are applicable. We disagree.

 As to the first tolling provision, Hernandez alleges that in 1979, Childers contacted him and told him of the Sealock investment opportunity. The investment was allegedly described as an outstanding tax shelter that would also reap huge profits. Beginning in September, 1985, and periodically for the next three years, Hernandez had allegedly made numerous inquiries to Childers regarding the investment, but these questions were answered generally or deflected by information about other investments. Hernandez also alleges that although he requested documents regarding the investment, such documents were never sent to him. Hernandez states that in late 1986, he personally received some information about the IRS challenge to his investment. In September 1988, Hernandez allegedly learned that the tax shelter features of his investment had been disallowed.

 When Childers would not answer the questions Hernandez posed to him beginning in September of 1985 and failed to provide him with documents regarding his investment, Hernandez was put on inquiry notice that perhaps Childers had acted improperly in investing his money in Sealock. "At the very least, these circumstances should have aroused suspicion or curiosity on the part of plaintiff." Hupp v. Gray, 500 F.2d 993, 996-997 (7th Cir. 1974) (citing Morgan v. Koch, 419 F.2d 993, 998 (7th Cir. 1969)). Although Hernandez alleges that Childers provided inadequate responses to his "numerous inquiries," Hernandez does not allege that he contacted an attorney, an accountant or anyone else regarding the propriety of Childers' conduct. Rather, he merely accepted Childers responses to his requests and took no further action.

 In claiming that he exercised reasonable diligence in uncovering Childers' alleged fraud, Hernandez states that he lacked the means and resources to investigate Childers' actions regarding the investment. Hernandez states that he was unsophisticated about securities. Such a lack of sophistication, however, is not sufficient to warrant tolling of the statute of limitation. The time to file suit begins to run when the investor either knows or in the exercise of reasonable diligence could have discovered the facts on which the suit is based Norris, 818 F.2d at 1334. "The investor need not actually know the facts or appreciate their significance; the 'could have discovered' branch of the test is objective." Id. Hernandez's lack of sophistication, therefore, is irrelevant. The statute begins to run when a reasonable person would have appreciated the need for further inquiry. Id. An objectively reasonable person would have appreciated the need for further inquiry when he was unable to obtain either responses to his questions or documents regarding Sealock from Childers. Hernandez proffers no basis for tolling between 1980 and September, 1985. Even assuming that the statute of ...

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