On Appeal from the United States District Court for the District of New Jersey, D.C. Civil No. 87-5076.
Sloviter and Greenberg, Circuit Judges, and Van Antwerpen, District Judge*fn*
Appellants are plaintiffs in a suit alleging violations of federal securities laws and state common law in connection with their purchase on or about December 30, 1981 of limited partnership interests in a medical building, a transaction structured to shelter income from federal taxation. Appellees were various parties connected with the sale of the limited partnership interests. Meridian Medical Associates, Inc. (MMA) was the issuer of the securities; 1680 Meridian Corp. was a corporation organized to obtain a lease on the office building; Consolidated Mast Corporation was the sole shareholder of MMA; Mast Property Investors, Inc. and Affiliated Companies Employee Profit Sharing Trust provided financing; NWN Capital Ltd. was the broker-dealer which sold the securities; and Marks, Shron & Co. was an accounting partnership which prepared financial projections used in the offering. The individual defendants were principal shareholders and/or control persons of the various corporate defendants.
Appellants filed suit in federal court on December 28, 1987 after learning that the Internal Revenue Service had disallowed the tax deductions which formed the raison d'etre of their investments. Appellants' federal claim was based on allegations that they were induced to purchase the limited partnership interests by fraudulent misrepresentations and omissions constituting violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), (1982), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1988). Appellants contended that these violations gave them a right under section 29(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(b) (1982), to rescind the limited partnership agreements. Appellants also included various state law claims.
The district court granted defendants' motions to dismiss on the ground that the federal cause of action was barred by the statute of limitations. The court, applying the rule announced by this court in In re Data Access Sys. Sec. Litig., 843 F.2d 1537 (3d Cir.) (in banc), cert. denied, 488 U.S. 849, 109 S. Ct. 131, 102 L. Ed. 2d 103 (1988), held that the appellants were required to file suit within one year from the time of discovery and within three years from the time the violation occurred. The district court also found that the Data Access rule applied retroactively and dismissed the amended complaint, including the pendent state law claims.
Appellants contend that the district court erred in applying the limitations period for section 10(b) and Rule 10b-5 violations to their claim under section 29(b), and, alternatively, that if Data Access does apply to claims under section 29(b) it should not apply retroactively in this case.
Section 29(b) provides in pertinent part that:
Every contract made in violation of any provision of this chapter or of any rule or regulation thereunder, and every contract . . . heretofore or hereafter made, the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this chapter or any rule or regulation thereunder, shall be void (1) as regards the rights of any person who, in violation of any such provision, rule, or regulation, shall have made or engaged in the performance of any such contract.
15 U.S.C. § 78cc(b) (1982) (emphasis added).
Appellants claim that the applicable limitations period for claims under section 29(b), other than claims against brokers or dealers under section 15(c) (1) of the Securities Exchange Act, 15 U.S.C. § 780(c)(1), is the statute of limitations governing the rescission of contracts in the state in which the contract was made. They contend that the six year New York state limitations period for contract actions ...