Appeals from the United States District Court for the Eastern District of Wisconsin.
Nos. 88-C-1079 & 89-C-1315--John W. Reynolds, Judge.
Before CUMMINGS, COFFEY, and EASTERBROOK, Circuit Judges.
EASTERBROOK, Circuit Judge.
A decade ago Balcor Film Investors (BFI) sold $48 million of securities to the public through an offering registered under the Securities Act of 1933. Litigation commenced in 1988 and 1989 became snagged by a change of rules defining the period of limitations. When last the case was here, we held that the suit by the Eckstein class is problematic on the merits, while the suit by the Majeski class may or may not be timely. We remanded for further proceedings to address these subjects. 8 F.3d 1121 (1993). On remand the district court granted summary judgment for the defendants, holding that the Eckstein class cannot show reliance on any material misstatements or omissions and that the Majeski action is too late. Our first opinion lays out the essential facts; we restate only the minimum necessary to grasp the remaining issues.
The Majeski action was filed in Wisconsin three years to the day after the registration statement became effective, posing serious problems under the one-and-three year period of limitations and repose established by Short v. Belleville Shoe Manufacturing Co., 908 F.2d 1385 (7th Cir. 1990). On the first appeal, we held that sec. 27A(a) of the Securities Exchange Act of 1934, 15 U.S.C. sec. 78aa-1(a), requires us to apply Short unless the plaintiffs relied to their detriment on pre-Short law. 8 F.3d at 1128-29. (Plaut v. Spendthrift Farm, Inc., 115 S. Ct. 1447 (1995), which holds sec. 27A(b) unconstitutional, does not affect sec. 27A(a).) One form of detrimental reliance, we concluded, could be filing in Wisconsin rather than in another jurisdiction that, under sec. 27A(a), would apply state law rather than the federal period of limitations established in Short. The Majeski class asserted that, had it anticipated Short, it would have filed suit in federal court in California, which would have applied California's longer period of limitations. (The only other form of reliance the class advances, that it has lavished time and money on federal litigation, is insufficient. Lewis v. Long Grove Trading Co., 13 F.3d 1028 (7th Cir. 1994).) California gives the investor three years from discovering the fraud, while federal law allows only one year. The district court accepted the Majeski plaintiffs' representation about their litigation strategy but held that it would have done them no good--because, the court concluded, a California court would have been led to the fatal one-and-three year period by California's borrowing statute:
When a cause of action has arisen in another state, or in a foreign country, and by the laws thereof an action thereon cannot there be maintained against a person by reason of the lapse of time, an action thereon shall not be maintained against him in this state. CCP sec. 361.
The Majeski suit is doomed if California courts would borrow the federal law that, according to Short and sec. 27A(a), applies to securities suits filed in Wisconsin. But, they insist, a California court--and therefore a federal court applying California's choice-of-law rules under Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941)--would borrow Wisconsin's state law rather than the federal law prevailing in Wisconsin.
The linchpin of this argument is the contention that "the laws thereof" in sec. 361 points exclusively to state or foreign law. The introductory phrase refers to actions that have "arisen in another state, or in a foreign country", so the antecedent of "laws thereof" must be state and foreign law, the argument runs. This is not, however, what sec. 361 says. The initial reference is to the place where the claim arose, not to the legislature or judicial system of that place. The Majeski class claim arose within the State of Wisconsin (so the class concedes). Wisconsin is both a state and a part of the United States; to say that a claim arose "in" a state is to say that it arose in the United States. Then sec. 361 calls on us to determine what law was in force in Wisconsin. That is a question answered long ago.
The laws of the United States are laws in the several States, and just as much binding on the citizens and courts thereof as the State laws are. The United States is not a foreign sovereignty as regards the several States, but is a concurrent, and, within its jurisdiction, paramount sovereignty. Every citizen of a State is a subject of two distinct sovereignties, having concurrent jurisdiction in the State,--concurrent as to place and persons, though distinct as to subject-matter. . . . The disposition to regard the laws of the United States as emanating from a foreign jurisdiction is founded on erroneous views of the nature and relations of the State and Federal governments. Claflin v. Houseman, 93 U.S. 130, 136-37 (1876).
Federal law--which is to say, Short--applies to claims in Wisconsin under the federal securities acts, and Wisconsin's period of limitations to claims based on state substantive law.
We have approached the interpretation of sec. 361 as a matter of first principles because the courts of California have never considered whether to distinguish between state and federal periods of limitations under that statute. They have never had any reason to do so, because federal periods of limitations normally are uniform across the nation, and when the law is uniform it makes no sense to think of "borrowing" one state's federal period to apply to a federal suit filed in another state. Section 27A(a) created a temporary geographic non-uniformity by requiring courts to apply the law in force in each jurisdiction on June 19, 1991, the day before Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991), resolved a conflict among the circuits. Given Klaxon, the law in force on June 19, 1991, in a district court sitting in California includes CCP sec. 361, which sends us back to Wisconsin, which means Short.
This is not the first time a federal court has had to divine the answer to a question of state law that state courts themselves have not addressed and are unlikely ever to address. Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (1985), posed the question whether a state would treat a boycott suit under state law as barring a later suit, based on federal antitrust law, arising out of the same conduct. Because the effect of a state judgment in federal court depends on the state's law of preclusion, 28 U.S.C. sec. 1738, the state's answer was controlling; yet given the widespread assumption that federal courts have exclusive jurisdiction over suits under the Sherman Act no state court had addressed the issue. What to do? The Supreme Court told us to make the best guess we can, drawing parallels to the state's treatment of similar issues. 470 U.S. at 381-82. Cf. Nolan v. Transocean Air Lines, 276 F.2d 280, 281 (2d Cir. 1960) ("Our principal task . . . is to determine what the New York courts would think the California courts would think on an issue about which neither has thought. They have had no occasion to do so.") (Friendly, J.). So we asked the parties at oral argument whether the state courts of California had addressed this or any similar issue concerning borrowing. Neither side was aware of a pertinent case. Plaintiffs scared up a few decisions by federal courts interpreting California's borrowing statute, but none attempted to predict how California's own courts would deal with ...