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HOULIHAN v. ANDERSON-STOKES

June 28, 1977

DAVID P. HOULIHAN, et al., Plaintiffs,
v.
ANDERSON-STOKES, INC., et al., Defendants



The opinion of the court was delivered by: RICHEY

 DISTRICT JUDGE CHARLES R. RICHEY

 This case is before the Court on the motion of defendants Coopers & Lybrand and Peter Nunn (the "accountant defendants") to dismiss or, in the alternative, for summary judgment on all of the claims against them. The accountant defendants are the sole defendants named in Counts IV and IX of plaintiffs' Third Amended Complaint; they are also named, along with other defendants, in Counts VI and VIII. For the reasons set forth below, the Court will grant the motion to dismiss Count IV and will decline to exercise pendent jurisdiction over Count IX and Counts VI and VIII as they pertain to these defendants.

 This case arises out of the sale to plaintiffs in 1972 of certain limited partnership interests in a condominium development in Ocean City, Maryland. As detailed in the complaint, see para. 60, the accountant defendants prepared certain financial projections for the offering memorandum distributed to plaintiffs by various defendants herein in connection with the then-proposed sale of the limited partnership interests involved. According to plaintiffs, the financial projections contained misrepresentations of certain material facts and omitted to state certain other material facts. These material misrepresentations and omissions were, according to plaintiffs, due in part to the negligence and recklessness of the accountant defendants.

 In Count IV, plaintiffs seek damages solely from the accountant defendants under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and under Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. In Count VI, plaintiffs repeat the allegations summarized above and charge the accountant defendants, inter alia, with violations of the securities statutes of Maryland, Virginia, and the District of Columbia. In Count VIII, plaintiffs seek damages from the accountant defendants, inter alia, for common law reckless and/or negligent misrepresentations and omissions. In Count IX, plaintiffs seek damages solely from the accountant-defendants for "accountants' negligence." Jurisdiction over the subject matter of Counts VI, VIII, and IX is premised upon the exercise of this Court's pendent jurisdiction, in connection with its jurisdiction over the counts, including Count IV, arising under the federal securities laws. See § 22 of the Securities Act of 1933, 15 U.S.C. § 77v; and § 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa.

 I. Count IV Is Barred By The Applicable Statute of Limitations.

 Defendants have asserted, and the Court agrees, that Count IV of plaintiffs' Third Amended Complaint is barred by the two-year statute of limitations applicable to this action.

 When this issue was briefed by the parties, the major source of dispute was which local limitations period should be applied: the District of Columbia's three-year statute of limitations for common law fraud, or the two-year statute of limitations established by section 14 of the District of Columbia Securities Act of 1964, 2 D.C. Code § 2413(e). Since the briefs herein were filed, the dispute has been settled in this circuit by a decision in which the court of appeals ruled that the two-year statute of limitations applies. Forrestal Village, Inc. v. Graham, 179 U.S. App. D.C. 225, 551 F.2d 411 (1977).

 It is undisputed that the actions allegedly giving rise to the accountant defendants' liability occurred in October and November 1972 and that the accountant-defendants were not sued until July 1975. Thus, unless plaintiffs can avoid the clear dictates of the applicable statute, their case against the accountants is time-barred.

 Plaintiffs seek to escape the effect of the statute by invoking the "federal tolling doctrine" governing fraudulently concealed causes of action. In a Memorandum issued this date concerning an unrelated motion in this case, this Court has discussed fully the federal tolling doctrine. The aforesaid discussion is hereby incorporated by reference, and the Court will not repeat the general points made therein with respect to the federal tolling doctrine. The issue now before the Court is whether plaintiffs' complaint is sufficient to invoke the tolling doctrine and thereby defeat a motion to dismiss under Fed.R.Civ.P. 12(b)(6). The Court holds that it is not sufficient, and will therefore grant the motion.

 Since allegations of fraudulent concealment must meet the specificity requirements of Fed.R.Civ.P. 9(b), see, e.g., Dayco Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389, 394 (6th Cir. 1975), a close examination of plaintiffs' complaint is particularly appropriate. Nothing in Count IV even hints at an allegation of fraudulent concealment. Rather, plaintiffs rely on the section of their complaint entitled Background Facts, which is incorporated by reference in each count of the complaint. In paras. 23 and 24, plaintiffs allege that in the first half of 1974, after considerable difficulties had arisen in the construction of the condominium in which they had invested, they made largely unsuccessful attempts to learn more about the causes of those difficulties. Their efforts began to yield results only when they met on June 28, 1974, with representatives of the general partners and of the securities dealership which organized the partnership involved herein. The critical allegation, para. 25, states:

 
At that meeting the limited partners [plaintiffs] for the first time were provided with substantial information as to the extent of construction and financial difficulties. At this point, the limited partners increased their efforts to obtain complete information concerning the project. During the ensuing investigation, the limited partners learned that at the time of the initial sale they had lacked information which any prudent investor would desire to have before investing and that there had been material misrepresentation and omissions which the general partners and their agents had a fiduciary duty to correct and disclose during the formation of the partnership.

 Plaintiffs further assert that at all times they "exercised due diligence" in ascertaining the facts concerning the project's construction and financing difficulties and in discovering whether the representations made to them at the time of sale were accurate. See para. 27.

 What is striking about these allegations, standing alone, is that there is no allegation of fraudulent concealment, much less one that comports with Rule 9. To be sure, there are claims that it was not until 1974 that plaintiffs discovered that they had been the victims of certain misrepresentations and omissions made at the time of sale. But there is no claim that these misrepresentations and omissions were fraudulent, i.e. intentional, and, more important for purposes of the instant motion, there is also no claim that there was an intentional effort to conceal the cause of action which arose from the misrepresentations and omissions. Finally, there is no attempt to relate these events as set forth in ...


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