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FLECK v. CABLEVISION VII

August 25, 1992

DAVID H. FLECK, et al., Plaintiffs,
v.
CABLEVISION VII, INC., et al., Defendants.



The opinion of the court was delivered by: STANLEY S. HARRIS

 Before the Court are two motions, plaintiffs' motion to amend the complaint a third time and defendants' motion for leave to amend their answer. Plaintiffs seek to add Catherine Warburton as a plaintiff. Defendants seek to add the statute of limitations as a defense to the second amended complaint. For the reasons stated below, the Court grants the plaintiffs' motion and denies defendants' motion.

 BACKGROUND

 Plaintiffs David H. Fleck and Carol L. Couchenour were limited partners in Cablevision Associates VII (the Partnership), an Iowa limited partnership that acquired and operated cable television systems. They jointly owned five partnership interests that they inherited from their father, Harold J. Fleck, who purchased them during the initial limited partnership offering in 1983. Defendant Cablevision VII, Inc. (general partner), a wholly-owned subsidiary of defendant Heritage Communications, was the general partner of the partnership. In 1987, Heritage merged with defendant Tele-Communications, Inc., and became its wholly-owned subsidiary. Heritage then began efforts to increase its direct ownership interest in cable systems owned by various subsidiary limited partnerships, including Cablevision. It decided in the case of the Cablevision partnership to purchase the limited partners' interests.

 The general partner mailed a consent statement to all limited partners on November 21, 1988. The statement informed them of a special meeting to be held on December 12, 1988, and proposed amending the partnership agreement to permit the general partner to purchase the limited partners' interests. *fn1" Upon approval of the amendment, the limited partners would vote on the terms of the sale. The meeting was held on December 12, 1988. Approximately 97% of the limited partners' interests that voted, including proposed plaintiff Warburton, approved both the amendment and the transaction. Plaintiffs Fleck and Couchenour did not vote. The general partner paid the limited partners $ 4,232.47 per interest, a return in excess of 400% in five years on their original investment of $ 1,000.00 per interest.

 Plaintiffs Fleck and Couchenour filed this suit, framed as a class action, against Cablevision, Heritage, and Tele-Communications, Inc., on May 3, 1990. Plaintiffs allege that defendants violated Sections 10(b), 14(a), 14(e), and 20(a) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78j(b), § 78n(e) and § 78t, and Rules 10b-5 and 14a-9 promulgated by the Securities and Exchange Commission (SEC). Plaintiffs also allege pendent state law claims for breach of fiduciary duty.

 On April 10, 1991, this Court denied plaintiffs' motion for class certification on the grounds that the claims of plaintiffs Fleck and Couchenour were not typical of the claims of the class. On July 5, 1991, plaintiffs filed a motion for leave to amend the complaint to add Warburton as a plaintiff. On July 23, 1991, they filed a renewed motion for class certification, based on the addition of Warburton. Defendants were granted leave to respond to the renewed motion for class certification after resolution of the motion to amend.

 DISCUSSION

 Plaintiffs' Motion To Amend the Complaint

 Plaintiffs Fleck and Couchenour seek to add Warburton, another limited partner in Cablevision Associates VII, as a plaintiff in this action. Under Federal Rule of Civil Procedure 15(a), leave to amend "shall be freely granted when justice so requires." District courts are to allow an amendment unless there is a "clear and solid justification for denying it." Monroe v. Williams, 705 F. Supp. 621, 623 (D.D.C. 1988). Defendants oppose the motion on grounds that the amendment would prove futile and it would be prejudicial. See Foman v. Davis, 371 U.S. 178, 182, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962). The Court concludes the amendment is neither futile nor prejudicial.

 Futility of Amendment

 An amendment is futile if the complaint as amended would not survive a motion to dismiss. See Monroe, 705 F. Supp. at 623. Defendants contend that the amendment would be futile because the statute of limitations precludes Warburton's claim. The limitation period for claims brought before June 19, 1991, under § 10(b) of the Exchange Act, is the local jurisdiction's statute of limitations for securities claims as of that date. *fn2" On June 19, 1991, a two-year statute of limitations was in effect in the District of Columbia for securities claims. See D.C. Code § 2-2413(e); Forrestal Village, Inc. v. Graham, 551 F.2d 411, 413 (D.C. Cir. 1977); Fishman v. Estrin, 501 F. Supp. 208, 210 (D.D.C. 1980). Thus, a two-year statute of limitations applies to plaintiffs' claims under § 10(b).

 The statute of limitations begins to run when a plaintiff discovers or should have discovered through the exercise of reasonable diligence, the fraudulent activity in question. See, e.g., Wachovia Bank and Trust v. National Student Marketing Corp., 650 F.2d 342, 349 (D.C. Cir. 1980), cert. den., 452 U.S. 934, 101 S. Ct. 3098, 69 L. Ed. 2d 965 (1981); Cross v. Price Waterhouse & Co., Fed. Sec. L. Rep. (CCH) (P 99,153, at 95,568) (D.D.C. 1983). Knowledge of the fraudulent activity occurs when a plaintiff has knowledge of the facts that constitute the cause of action, not when he attains knowledge of the legal significance of those facts. See Bergen v. Rothschild, 648 F. Supp. 582, 585 (D.D.C. 1986) (noting that knowledge of any fact that should cause suspicion is equivalent to actual knowledge of a claim); Bender v. Rocky Mountain Drilling Assoc., 648 F. Supp. 330, 334 (D.D.C. 1988) (finding that statute of limitations began to run for plaintiffs upon receipt of memorandum which they allege contained material omissions). However, the statute may be tolled if a plaintiff was unable to discover the fraud due to the defendant's concealment of the facts. See Hobson v. Wilson, 737 F.2d 1, 34 (D.C. Cir. 1984).

 The consent statement was mailed to the limited partners on November 21, 1988. Plaintiffs do not state the date that they received the consent statement, but it is not contested that they received the statement and its attachments before December 12, 1988, the day of the partnership meeting. Plaintiffs Fleck and Couchenour contend that they had no knowledge of the material omissions in the consent statement until July, 1989. (Affidavit of David Fleck, P 8, Affidavit of Carol Couchenour, P 6.) Proposed plaintiff Warburton contends she was unaware of the omissions until April 1991. ...


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