The opinion of the court was delivered by: Elaine E. Bucklo, United States District Judge
MEMORANDUM OPINION AND ORDER
Celsion Corporation ("Celsion"), brought this action under Section
29(b) of the Securities Exchange Act of 1934 ("the Act"),
15 U.S.C. § 78cc(b), and the Declaratory Judgment Act,
28 U.S.C. § 2201, for rescission of a series of common stock purchase
warrants that Celsion issued to the defendants, Stearns Management
Corporation ("SMC"), Warren C. Stearns ("Stearns"), Warren R. Stearns,
Charles A. Stearns, Anthony Riker, Ltd., John T. Horton, and the George
T. Horton Trust.
Celsion claims that Stearns and SMC solicited potential investors to
purchase Celsion's securities without the assistance of any broker-dealer
registered with the Securities Exchange Commission ("SEC"), as required
by § 15(a)(1) of the Act, 15 U.S.C. § 78o(a)(1).
Original jurisdiction over this matter exists pursuant to Section 27 of
the Securities Exchange Act of 1934, 15 U.S.C. § 78aa. The defendants
move to dismiss the action, and I grant their motion.
Celsion researches and develops patented treatments of cancer and other
diseases. Warren C. Stearns is the president, director, and majority
shareholder of SMC, which provides consulting and financial advisory
services to Celsion. Warren R. Stearns, Charles A. Stearns, Anthony Riker
Ltd., John T. Horton, and the George T. Horton Trust are all holders of
Celsion common stock purchase warrants, which entitle them to Celsion
stock at a purchase price of sixteen cents per share.
In 1996, Celsion sought to raise capital for its business operations,
and Stearns proposed a plan to raise capital, including bridge
financing, followed by a private placement offering and a secondary
offering of Celsion equity securities. Celsion alleges that, at a May
1996 meeting, Stearns repeatedly represented to Celsion's officer that he
and SMC regularly raised funds through the sales of his clients'
securities, and that he would raise funds for Celsion through the private
placement of equity securities. Celsion entered into a consulting
agreement with SMC on May 28, 1996, in which SMC agreed to provide
recommendations concerning offerings of securities in private
transactions and public transactions. In return, Celsion agreed to pay
SMC's fees and issue common stock purchase warrants to SMC's designated
assignees. The warrants included anti-dilution provisions, and granted
the holders the right to demand that, when they exercised the warrants,
the underlying shares of Celsion stock that they purchased would be
registered with the SEC and could be publicly traded.
In August 1996, Celsion issued common stock purchase warrants to Warren
R. and Charles A. Stearns, Anthony Riker, Ltd., John T. Horton, and the
George T. Horton Trust. In August 1997, under the terms of the May 1996
agreement, Celsion issued new warrants substituting the original
warrants. In March 1999, SMC demanded that Celsion register with the SEC
all the underlying shares that the warrant holders would receive upon
exercise of their warrants. This included a total of 3,460,587 shares at
a purchase price of sixteen cents per share. Celsion refused to register
the shares with the SEC. The present value of the common stock purchase
warrants held by the defendants exceeds $15 million. Celsion seeks
rescission of the common stock purchase warrants that Celsion issued to
defendants. Defendants move to dismiss on statute of limitations
grounds, among others.
I grant a motion to dismiss for failure to state a claim only if it
appears beyond a doubt that the plaintiff can prove no set of facts in
support of its claim that would entitle it to relief. Conley v. Gibson,
355 U.S. 41, 45-46 (1957). In determining this, I accept as true all
well-pleaded factual allegations and draw all reasonable inferences in
favor of the plaintiff. Chaney v. Suburban Bus Div. of Reg'l Transp.
Auth., 52 F.3d 623, 626-27 (7th Cir. 1995).
Section 15(a)(1) of the Act prohibits any broker from using interstate
commerce to effect a transaction in securities or to induce or attempt to
induce the purchase or sale of any security unless the broker is
registered with the SEC. 15 U.S.C. § 78o(a)(1). Section 29(b) permits
a party to a contract to seek its rescission if performance of the
contract "involves the violation of or the continuance of any
relationship or practice in violation of" any provision of the Act.
15 U.S.C. § 78cc(b). The Supreme Court has found an implied, private
cause of action for rescission of a contract under section 29(b),
15 U.S.C. § 78cc(b). Mills v. Electric Auto-Lite Co., 396 U.S. 375,
388 (1970); see also Regional Props., Inc. v. Financial and Real Estate
Consulting Co., 678 F.2d 552, 558 (5th Cir. 1982).
Defendants argue that the action is time barred by the limitations
provision of section 29(b)(2)(B), which states that:
no contract shall be deemed to be void by reason of
this subsection in any action maintained in reliance
upon this subsection, by any person to or for whom any
broker or dealer sells, or from or for whom any broker
or dealer purchases, a security in violation of any
rule or regulation prescribed pursuant to paragraph
(1) or (2) of subsection (c) of section 78o of this
title, unless such action is brought within one year
after the discovery that such sale or purchase
involves such violation and within three years after
15 U.S.C. § 78cc(b)(2)(B) (emphasis added). This provision provides
an express limitation for the rescission of a transaction for violation
of the antifraud provisions in section 15(c), but not for the
broker-dealer registration requirements of section 15(a). Therefore, I
must determine the applicable statute of limitations for rescission of a
contract for a violation of section 15(a).
Generally, when Congress has failed to provide a statute of limitations
for a federal cause of action, I "borrow" or "absorb" the local state law
time limitation most analogous to the case at hand. Lampf, Pleva,
Lipkind, Prupis, & Petigrow v. Gilbertson, 501 U.S. 350, 355 (1991).
However, I look to federal law "when a rule from elsewhere in federal law
clearly provides a closer analogy than available state statutes, and when
the federal policies at stake and the practicalities of litigation make
that rule a significantly more appropriate vehicle for interstitial
lawmaking." Id. at 356. In Lampf, the Supreme Court was faced with the
question of which statute of limitations to apply to a private suit
brought pursuant to section 10(b) of the Act. Id. at 361. The Court held
that the uniform federal period (one-and-three-year limitations period)
in the Act's original remedial provisions applied. Id.*fn1 The Court
stated that "where the claim asserted is one implied under a statute that
also contains an express cause of action with its own time limitation, a
court should look first to the statute of origin to ...