Cooperativa de Ahorro Y Credito Aguada v. Kidder, Peabody & Co., 993 F.2d 269, 1st Cir. (1993)
Cooperativa de Ahorro Y Credito Aguada v. Kidder, Peabody & Co., 993 F.2d 269, 1st Cir. (1993)
Cooperativa de Ahorro Y Credito Aguada v. Kidder, Peabody & Co., 993 F.2d 269, 1st Cir. (1993)
2d 269
61 USLW 2780, Fed. Sec. L. Rep. P 97,453,
25 Fed.R.Serv.3d 982,
37 Fed. R. Evid. Serv. 904
In this appeal, we must decide whether the district court properly applied
Fed.R.Civ.P. 12(b) in dismissing plaintiff's complaint as time barred. Because
the district court improperly relied on materials not within the pleadings in
reaching its decision, we reverse the dismissal.
I.
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
2
While the Coop's claims were pending before the district court, the United
States Supreme Court announced a uniform federal statute of limitations for all
Section 10(b) and Rule 10b-5 claims in Lampf, Pleva, Lipkind, Prupis &
Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991).
Lampf held that such claims must be brought within one year of discovery of
the facts which give rise to the violation, and no more than three years after the
violation itself. Id. at ---- - ----, 111 S.Ct. at 2781-82. The one-and-three year
limitation announced in Lampf is not subject to tolling. Id. at ----, 111 S.Ct. at
2782. Because the Coop's claims had been filed more than three years after the
purchase of the Unit Trusts, the district court, relying on Lampf, dismissed the
claims (hereinafter "the first dismissal"). Cooperativa II, 777 F.Supp. at 155-56.
Less than two months after the first dismissal, the Coop's claims were
reinstated by Section 476 of the Federal Deposit Insurance Corporation
Improvement Act of 1991, Pub.L. No. 102-242, 105 Stat. 2236, 2387 (codified
as 27A of the Securities Exchange Act of 1934, 15 U.S.C. 78aa-1)
(hereinafter "Section 27A").6 Section 27A reinstates claims which, like the
Coop's, were (1) pending at the time Lampf was decided, and (2) dismissed as
time barred under Lampf. Pursuant to Section 27A, the Coop filed a timely
motion for reinstatement.
With the Coop's claims before it a second time, the district court set out to
apply the pre-Lampf statute of limitations, which, as noted above, was subject
The district court began its application of Rule 12(b) with a brief analysis of the
junk bond market. Relying extensively on articles in the national press,
submitted by neither party, the district court found that "it was public common
knowledge within institutional investment circles that ... the high yield bonds
sold by Drexel were accompanied by an equally high risk," Cooperativa III,
799 F.Supp. at 264, and that "any reasonabl[y] sophisticated institutional
investor should have recognized that it was investing in junk bonds."8 Id. at
266. The district court concluded that the Coop "was under an obligation to
conduct a reasonably diligent inquiry from the date of purchase of [the Unit
Trusts] and so the statute of limitations began to run on that date." Id.
Applying either date, the district court found that the Coop's December 28,
1989, complaint failed to state a timely claim under Puerto Rico's two-year
statute of limitations. Accordingly, it dismissed the Coop's claims a second time
(hereinafter "the second dismissal"). Id.
The Coop now appeals the second dismissal, arguing that the district court's
reliance on materials outside of the pleadings was improper and thus not a valid
basis for dismissing its claim. For the reasons that follow, we agree.
II.
DISCUSSION
10
Here, the district court relied extensively on materials outside the pleadings in
reaching its conclusion as to when the statute of limitations began to run on the
Coop's claims. In relying on these extraneous materials, the district court gave
the parties neither notice nor opportunity to be heard, nor did it convert the
proceeding to one for summary judgment. Such use of outside materials is
beyond the scope of Rule 12(b).
12
Nor do we find that the district court's reliance on such material was within the
scope of "judicial notice" under Fed.R.Evid. 201(b).10 Ordinarily, when a
district court takes judicial notice of a fact other than at the request of a party, it
should notify the parties that it is doing so and afford them an opportunity to be
heard. United States v. Garcia, 672 F.2d 1349, 1356 n. 9 (11th Cir.1982). See
also Barr Rubber Prods. Co. v. Sun Rubber Co., 425 F.2d 1114, 1125-26 (2d
Cir.) (stating that failure to notify parties "exceeded the bounds of judicial
notice, and thereby denied [party] an effective opportunity to object [to],
examine and rebut the matters noticed") (footnote omitted), cert. denied, 400
U.S. 878, 91 S.Ct. 118, 27 L.Ed.2d 115 (1970); 21 Charles A. Wright &
Kenneth W. Graham, Federal Practice and Procedure 5107 (1977) ("[T]he
judge must notify the parties that [s/]he is taking judicial notice of an
adjudicative fact.") (footnote omitted). As noted above, the district court gave
the parties no such opportunity to be heard. Accordingly, we find that the
district court's use of scattered press reports to take judicial notice of an
adjudicative fact was beyond the proper scope of judicial notice.
13
Finally, defendants offer an alternative ground for affirming the district court's
dismissal of the Coop's claims, claiming that Section 27A is constitutionally
infirm. For the reasons persuasively stated in Anixter v. Home-Stake Prod. Co.,
977 F.2d 1533, 1543-47 (10th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct.
1842, 123 L.Ed.2d 467 (1993), we reject defendants' constitutional challenges
to Section 27A.11 See also Henderson v. Scientific-Atlanta, Inc., 971 F.2d 1567,
1571-75 (11th Cir.1992); Berning v. United States, 990 F.2d 272, 277-79 (7th
Cir.1993).
III.
CONCLUSION
14
For the foregoing reasons, the order of the district court denying the Coop's
14
15
For more detailed accounts of the case, see Cooperativa de Ahorro y Credito
Aguada v. Kidder, Peabody & Co., 758 F.Supp. 64 (D.P.R.1991) (hereinafter
"Cooperativa I "); Cooperativa de Ahorro y Credito Aguada v. Kidder, Peabody
& Co., 777 F.Supp. 153 (D.P.R.1991) (hereinafter "Cooperativa II ");
Cooperativa de Ahorro y Credito Aguada v. Kidder, Peabody & Co., 799
F.Supp. 261 (D.P.R.1992) (hereinafter "Cooperativa III ")
Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), states
in relevant part:
The parties do not dispute that at the time the Coop filed suit, the applicable
statute of limitations was the two-year provision "borrowed" from the Puerto
Rico Securities Act, 10 L.P.R.A. 890(e). This two-year limitation was subject
to equitable tolling under the doctrine of fraudulent concealment, which
provides that "the statute of limitations applicable to claims under Section 10(b)
and Rule 10b-5 begins to run when an investor, in the exercise of reasonable
diligence, discovered or should have discovered the alleged fraud." General
Builders Supply Co. v. River Hill Coal Venture, 796 F.2d 8, 11 (1st Cir.1986)
Defendants argue that the district court applied Rule 60(b) to the motion for
reinstatement. Though the district court did refer to the motion as a
"Fed.R.Civ.P. 60(b) motion for reconsideration," Cooperativa III, 799 F.Supp.
at 262, it went on to apply a Rule 12(b) standard, "[l]ooking at the facts in a
light most favorable to [the Coop] and taking them as true, Fed.R.Civ.P. 12(b)
(6)." Id. at 264
Nothing in the language of Section 27A or in its legislative history suggests that
district courts should apply Rule 60(b) to motions for reinstatement thereunder.
Rather, Section 27A states that claims meeting its requirements "shall be
reinstated on motion by the plaintiff" (emphasis supplied). The district court
properly chose to apply a Rule 12(b) standard to the Coop's motion for
reinstatement, and we reject defendant's argument that the court applied or
should have applied Rule 60(b).
The district court relied upon articles from, inter alia, The Christian Science
Monitor, Barrons, Forbes, Business Week, Fortune, and The Los Angeles
Times. Cooperativa III, 799 F.Supp. at 264 nn. 5, 6
Here, the district court relied on articles from The Financial Times, Reuters,
The New York Times, and The Washington Post. Cooperativa III, 799 F.Supp.
at 265-66 nn. 10, 12
10
11