argue that the "occurrence or event" that gave rise to that claim necessarily took place within the six year period provided by Section 15.
The issue in this case, thus, is which occurrences or events gave rise to the defendants' claims. Two of my colleagues in this district have held that, for the purpose of Section 15, the "occurrence or event" is the date of investment. Merrill Lynch, Pierce, Fenner & Smith Inc. v. Jana, 835 F. Supp. 406 (N.D. Ill. 1993) (Nordberg, J.); Smith Barney, Harris Upham & Co., Inc. v. St. Pierre, 1993 U.S. Dist. LEXIS 18649, No. 92 C 5735, 1994 WL 11600 (N.D. Ill. Jan. 4, 1994) (Marovich, J.). This court agrees with their holdings.
In Jana, Merrill Lynch filed an action seeking to enjoin arbitration of a dispute before the NASD. In its arbitration claim, the Janas' alleged that they had been fraudulently misled by their Merrill Lynch account executive with respect to six limited partnership investments. Merrill Lynch sought to bar the Janas' claim with respect to two of the investments pursuant to Section 15. Citing Sorrells, the court found that, for the purpose of Section 15, the "event or occurrence" is the date of investment. Jana, 835 F. Supp. at 411. The court also rejected the Janas' argument that the six year time requirement should be tolled because Merrill Lynch fraudulently concealed the nature of the investment and the harm incurred. Id. Accordingly, the court held that the arbitration claims regarding the two investments made prior to the six year period were both untimely. Id.
In St. Pierre, the plaintiffs brought suit seeking to enjoin an arbitration proceeding. In its arbitration suit, the defendants brought a number of claims including a federal security claim and state law claims based on negligent misrepresentation, fraud, and breach of fiduciary duty. Plaintiffs sought a declaration that defendants' claims were all time-barred. The court found that the events or occurrences that gave rise to all of the defendants claims were the original purchases, which took place well before the six year period. St. Pierre, 1993 U.S. Dist. LEXIS 18649, 1994 WL 11600 at *3 Accordingly, the court held that the defendants' claims were not subject to arbitration. Id.
The defendants in this case, meanwhile, urge this court to follow the court's holding in Pacific Brokerage Services, Inc. v. National Financial Services Corp., 864 F. Supp. 61, 1994 WL 550703 (N.D. Ill. 1994) (Aspen, J.). In that case, the defendant purchased stock from the plaintiffs in August, 1987. According to the defendant, that purchase entitled the buyer to various rights accruing on the stock, including stock splits and dividends. Because the plaintiffs failed to transfer certain splits and dividends that were declared much later, the defendant filed an arbitration claim against the plaintiff with the NASD. The plaintiff brought suit in the district court seeking to enjoin the arbitration proceeding because of the Section 15 time bar. The court framed its only issue as whether an "occurrence or event" for purposes of Section 15 is measured by the date of investment or some other date. Pacific Brokerage Services, 864 F. Supp. 61, 1994 WL 550703 at * 1. The court recognized the rule set out by Sorrells and its progeny, which points to the date of investment as the measurement date. Id. at *2. However, the court distinguished itself from that line of cases because, in each of those cases, the investor challenged the suitability of his investment. Id. Here, the court found that the initial investment was entirely proper and that the first wrongful act by the plaintiffs was their failure to turn over the splits and dividends, which occurred well within the six year period. Id. After holding that the relevant starting date for Section 15's six year time period was not the date of investment, the court concluded that the defendant's claims could go to arbitration. Id.
In this case, Margaret Spaulding and the trustees of the Helen Spaulding Trust clearly challenge the suitability of the investments. Therefore, Pacific Brokerage Service does not apply and we follow the Sorrells line of cases. As a result, the "occurrence or events" which gave rise to the claims were the initial investments. Eleven of the seventeen investments were made by the Spaulding sisters before March 2, 1987. Consequently, because more than six years elapsed prior to defendants' attempt to arbitrate these claims, all the claims with respect to these eleven purchases are time-barred pursuant to Section 15. Furthermore, because Section 15 is an eligibility period and not a statute of limitations, Sorrells, 957 F.2d at 512, the defendants' allegations that plaintiffs concealed the fraud and had a continuing fiduciary duty do not toll the six year time requirement. Thus, the Arbitration Panel exceeded its authority when it considered evidence relating to allegations of wrongdoing made after March 2, 1987, regarding purchases made prior to that date. Consequently, the court vacates the Arbitration Panel's award in its entirety.
MSC and Holesha's motions to vacate the arbitration award are granted. It is hereby ordered that the arbitration award on September 27, 1994, against the plaintiffs is vacated. The motion by Margaret Spaulding and the co-trustees of the Helen Spaulding Trust to confirm the arbitration award is denied. Defendants' counterclaim to enforce the award is dismissed.
Date: DEC 7, 1994
JAMES H. ALESIA
United States District Judge
JUDGMENT IN A CIVIL CASE
Decision by Court. This action came to hearing before the Court. The issues have been heard and a decision has been rendered.
IT IS ORDERED AND ADJUDGED that the motions by plaintiffs Mutual Service Corporation and Carol A. Holesha to vacate the arbitration award are granted. It is hereby ordered that the arbitration award of $ 199,000.00 on September 27, 1994 against the plaintiffs is vacated. The defendants' motion to confirm the arbitration award is denied. The defendants counterclaim to confirm the arbitration award is dismissed with prejudice.
December 7, 1994