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October 25, 1988

JOHNSTON, LEMON & CO., INC., et al., Defendants

The opinion of the court was delivered by: LAMBERTH




 Plaintiff Nicholas T. Filloramo brings this action against defendants Johnston, Lemon & Co. Inc., a stock brokerage firm, and Robert H. Boorman, Jr., a Johnston Lemon employee who acted as Filloramo's stockbroker from August, 1982 until sometime in early 1986. Filloramo claims violations of section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and brings common law counts of fraud and deceit, negligent misrepresentation, and breach of fiduciary duty. He also claims violations under "RICO", the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1962(a), (c) and (d). Defendants have moved for summary judgment on all counts.

 In the Court's earlier Memorandum Opinion and Order of July 28, 1988, (Filloramo I) the Court granted defendants' motion for summary judgment as to plaintiff's claim under 18 U.S.C. § 1962(c), and conditionally denied defendant's motion for summary judgment as to the rest of plaintiff's RICO claims, as well as his federal securities law and common law claims, pending further briefing by the parties. The Court ordered further briefing as to application of the statute of limitations to plaintiff's non-RICO claims. For the reasons set forth below, the Court now grants in part defendants' motion for summary judgment as to plaintiff's non-RICO claims, and it orders the parties to provide further briefing as to the application of the statute of limitations to plaintiff's RICO claims.


 This action concerns 16 transactions over a three year period involving three stocks in plaintiff Filloramo's portfolio: Manor Care, Johnson Electronics and Megadata. In essence, Filloramo alleges that defendant Boorman first fraudulently induced him to sell his substantial holdings -- approximately $ 240,000 worth -- in Manor Care, and then fraudulently induced him to invest the proceeds in Johnson Electronics and Megadata. The scheme was motivated, under Filloramo's theory, by Johnston Lemon's twin desire to recoup $ 10,000 it gave Filloramo in settlement of an earlier, unrelated dispute, and also to push Johnson Electronics and Megadata stocks on its customers in the hope it would influence the two companies to hire Johnston Lemon as their investment banker.

 In his complaint, Filloramo alleges that when he eventually sold his holdings in Johnson Electronics and Megadata, he suffered losses of over $60,000; in the meantime, Manor Care had more than doubled in value to over $ 600,000.

 In the motion papers and discovery filed with the Court, the factual disputes are well defined (although somewhat hazily remembered by the principals). Filloramo contends that in late 1982, Boorman called to advise him that he should liquidate his substantial holdings in Manor Care, a company engaged in nursing care and related businesses. Boorman gave as a reason that the government had announced it would no longer reimburse nursing homes under its Medicaid program. Filloramo Deposition at 186-187. However, Manor Care had never significantly relied on Medicaid patients, and there was no reason to believe it would be adversely affected by a government cutback of such payments. Further, Boorman was aware of this, or should have been, since this information was contained in Johnston Lemon reports in existence at the time.

 Defendants for their part contend that Filloramo was also in possession and aware of the same information, since the same reports were sent to him on a regular basis. Further, although Boorman does not recall whether he advised Filloramo to sell his Manor Care holdings, Boorman Deposition at 54, he explicitly denies advising him to do so because of cutbacks in Medicaid reimbursements. Id. at 58.

 In three sales in December, 1982, Filloramo liquidated most of his holdings in Manor Care, 8,000 shares, for approximately $ 240,000. He continued to trade in the stock, in much smaller quantities, until January, 1984.

 Filloramo next alleges that sometime in 1983, he is not sure when but possibly in March, see Filloramo Deposition at 125, Boorman began to extol the prospects for Johnson Electronics. The tenor of his comments was that the company had a "pending" contract which would transform it into a $100 million company, and that such a contract was "imminent." As a result, Filloramo made an initial purchase of the stock in March, 1983. The contract never materialized.

 Nevertheless, Filloramo continued to purchase Johnson Electronics, making two purchases in September, 1983, and three purchases some two years later in August, 1985. Joint Pretrial Statement, Stipulated Facts at 2. Before each purchase, Boorman allegedly repeated the same story about the pending $ 100 million contract, telling Filloramo he was now in contact with the president of the company, that it would be signed within two or three months, and explaining away the obvious fact it had not yet been signed as earlier promised because of a design change or other delay. Filloramo Deposition at 130-137. Filloramo invested a total of about $ 80,000 in Johnson Electronics, and claims losses of about $ 22,000 when he liquidated his holdings in the stock in 1986.

 At his deposition, Boorman acknowledged recommending the stock to Filloramo, Boorman Deposition at 30, but he did not recall whether he made the representations alleged by Filloramo. Id. at 38. Defendants have produced no evidence that, if Boorman did make such representations, he had any basis for doing so.

 The parties' respective stories about Megadata continue in this vein. Filloramo alleges that Boorman told him of illusory large contracts Megadata was about to obtain with companies throughout the airline industry, based on a super smart computer the company was developing for use in reservations programs. Boorman allegedly led Filloramo to believe that such contracts were a certainty, Filloramo Deposition at 173, and as with Johnson Electronics, they would happen "very shortly." Id. at 168-169. Based on this, Filloramo began purchasing Megadata in January, 1983. And as with Johnson Electronics, he continued to purchase the stock, buying in June and October, 1983, in February, June, and July, 1984, and in February, 1985, Joint Pretrial Statement, Stipulated Facts at 2-3, always pursuant to the same representations by Boorman about contracts with airline companies in the "very, very near future . . . in a few months; years would not interest me." Filloramo Deposition at 166-173. And as with Johnson Electronics, before each purchase of Megadata Filloramo adamantly trusted Boorman's representations that although the upcoming contracts had been delayed temporarily, they were now about to materialize. Over the two year period, Filloramo alleges he invested approximately $100,000 in Megadata, and when he sold out in 1986 he took a loss of about $ 41,000.

 Boorman on the other hand, while agreeing he did recommend that Filloramo purchase Megadata, Boorman Deposition at 42-43, denies he represented that contracts throughout the airline industry were a certainty, or even that there was a good chance they would occur. Id. at 143.

 Basic to Filloramo's version of events is that he reposed great and undaunted trust in Boorman, and continued to rely on the information he received from his broker because of the pressures of running his own business. See, e.g., Filloramo Deposition at 136-137. Defendants counter that Filloramo was an active and sophisticated investor, and that the 16 transactions contested here represent a small portion of the roughly 200 transactions that Johnston Lemon brokered for him over a 10 year period. Filloramo Deposition, Exhibit 7.


 I. Statute of Limitations

 A. The Common Law Claims: Accrual

 The parties have agreed that the three year statute of limitations under 4 D.C. Code Ann. § 12-301(8) (1981) is the applicable period for all of plaintiff's common law claims. King v. Kitchen Magic, Inc., 391 A.2d 1184, 1186 (D.C. 1987) (fraud); Riddell v. Riddell Washington Corp., 680 F. Supp. 4, 10 (1987) (breach of fiduciary duty, where plaintiff seeks money damages); Prouty v. National R.R. Passenger Corp., 572 F. Supp. 200, 206 (D.D.C. 1983)(negligence). Under § 12-301(8), the three year limitation period begins to run "from the time the right to maintain the action accrues." Since Filloramo filed this suit on May 28, 1987, all his common law claims that accrued by May 28, 1984 are barred, absent equitable tolling.

 In determining when Filloramo's common law claims "accrued" for statute of limitations purposes, two separate issues must be addressed. First, Filloramo's claims are based on several transactions occurring over a three year period, some of which fell within the limitations period while some did not. The Court must therefore determine whether to regard each transaction separately in applying § 12-301(8), or whether they should be taken as a whole. Secondly, injuries suffered as a result of stock transactions take time to develop. Since injury as well as wrongful conduct must be present for a cause of action to accrue, Weisberg v. Williams, Connolly & Califano, 390 A.2d 992, 994 (D.C. 1978), the Court must determine how much injury is sufficient for the common law causes of action to accrue, and then determine when such injury occurred. For the reasons set out below, the Court finds that each transaction should be regarded separately before applying the statute of limitations. Further, the Court finds that sufficient injury occurred prior to May 28, 1984, resulting from the transactions that occurred prior to that date, for Filloramo's claims on those transactions to have accrued by that date.

 When a lawsuit is based on wrongful conduct continuing over a period of time, a plaintiff can ordinarily recover only for damages resulting from that wrongful conduct which occur within the statutory period. See, e.g., Hanover Shoe, Inc. v. United States Machinery Corp., 392 U.S. 481, 502 n.15, 20 L. Ed. 2d 1231, 88 S. Ct. 2224 (1967) reh'g denied, Hanover Shoe, Inc. v. United Shoe Machinery Corp., 393 U.S. 901, 89 S. Ct. 64, 21 L. Ed. 2d 188 (1968) and accompanying text. However, under the "continuing tort" doctrine a plaintiff can recover for all damages resulting from all of defendant's wrongful conduct, provided any of it occurred within the statutory period. The parties have not cited, and the Court has not found any local law applying the doctrine; however, it has been applied by the federal court of appeals here. Page v. United States, 234 App. D.C. 332, 729 F.2d 818 (D.C. Cir. 1984).

 In Page, the plaintiff sued the Veteran's Administration under the Federal Tort Claims Act for subjecting him to harmful drugs during a course of treatment from 1961 to 1980, claiming severe physical and mental injury. 729 F.2d at 819. The Court held that his claims arising prior to 1972 were barred by res judicata, based on an earlier adjudication. 729 F.2d at 821. But Page was not barred from bringing a claim for the eight years of treatment from 1972 until 1980, despite the two years limitation period. *fn1" 729 F.2d at 821. Said the Court, "We view the injury claimed by Page as gradual, resulting from the cumulative impact of years of allegedly tortious drug treatment. To us it seems unrealistic to regard each prescription of drugs as the cause of separate injury, or as a separate tortious act triggering a new limitation period." 729 F.2d at 822-823. *fn2"

 The present case is distinguishable. Filleramo's sale of Manor Care in December, 1982 involved 8,000 shares worth over a quarter of a million dollars. Further, each purchase of Johnson Electronics and Megadata involved at least 1,000 shares, costing at least $ 7,750 and often much more. The harm resulting from each separate transaction is measured in the thousands of dollars, and therefore it would appear they should be analyzed separately for statute of limitation purposes. See Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123, 128 (7th Cir. 1972) (employees' eleven purchases of employer's stock regarded by Court as independent transactions for statute of limitations purposes, since if purchases were alleged in separate counts of civil complaint, recovery could be had as to each; or if listed as separate counts in criminal indictment, conviction could be had as to each).

 Nonetheless, Filloramo cites two cases in support of applying the continuing tort doctrine here, Gaudette v. Panos, 644 F. Supp. 826 (D. Mass 1986), modified on other grounds, 650 F. Supp. 912 (1987), rev'd on other grounds, 852 F.2d 30 (1988), and Taylor v. Meirick, 712 F.2d 1112 (7th Cir. 1983) (Posner, J.). However, it appears that Gaudette should more properly have been decided on the ground that defendant concealed plaintiffs' cause of action. See 644 F. Supp. at 829-831, 837-838. Taylor, on the other hand, was an action for copyright infringement, and its holding that plaintiff could collect for damages on infringing sales occurring prior to the limitations period appears to be at odds with a Court of Appeals decision here. Underwater Storage, Inc. v. United States Rubber Co., 125 App. D.C. 297, 371 F.2d 950, 955 (D.C. Cir. 1966) (plaintiff could recover in trade secret misappropriation case where original acquisition occurred prior to limitations period, for subsequent usage so long as such usage occurred within the limitations period).

 Therefore, since each transaction here resulted in significant injury to Filloramo, the Court will analyze each separately for determining when the statute of limitations began to run. In particular, the Court will focus on the sale of Manor Care stock in late 1982, and the purchases of Johnson Electronics and Megadata Stocks occurring prior to May 28, 1984. n3 n3 Filloramo's purchases were as follows: Johnson Electronics: March 9, 1983 2,000 shares at 10.75 = $21,500 September 14, 1983 1,000 shares at 9.125 = $ 9,125 September 23, 1983 2,000 shares at 9 = $ 18,000 Megadata: January 24, 1983 1,000 shares at 12.375 = $ 12,375 June 2, 1983 1,000 shares at 13.375 = $ 13,375 October 25, 1983 1,000 shares at 11.25 = $11,250 February 24, 1984 1,000 shares at 10 = $ 10,000 Filloramo Deposition Exhibit 7


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