Summary
The Fifth Circuit affirmed summary judgment dismissing the Davises' Securities Act claims as untimely and affirmed the denial of Rule 11 sanctions. It held that the four-year limitations period under the Clayton Act governed the civil RICO claims, making those claims timely, and vacated and remanded for reconsideration of the RICO and pendant state-law claims.
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Practice areas
Questions Presented
- Whether the Davises' Securities Act claims were barred by Louisiana's two-year statute of limitations.
- Whether the Davises' pleadings established that they knew the facts underlying their Securities Act claims when they closed their accounts in August 1983.
- Whether the Davises' civil RICO claims were timely under the applicable limitations period.
- Whether the district court properly denied defendants' motion for Rule 11 sanctions.
- Whether the district court should reconsider the exercise of pendant jurisdiction over the state-law claims after the RICO claims were found timely.
Holdings
- The Davises' Securities Act claims were untimely because the applicable two-year limitations period began when they knew, or had notice of facts sufficient to lead to actual knowledge of, the alleged violation, and their pleadings established that they knew of the objectionable trading practices when they closed their accounts in August 1983.
- The Davises could not create a genuine issue of material fact by relying on a later affidavit that conflicted with their earlier pleadings because the factual assertions in their pleadings were judicial admissions.
- The civil RICO claims were timely because all civil RICO claims are governed by the four-year limitations period borrowed from the Clayton Act, and the claims filed in October 1985 were within four years even under defendants' asserted accrual date of December 30, 1981.
- The district court properly denied defendants' motion for Rule 11 sanctions because the Davises' claims and counsel's advocacy were not shown to have been frivolous or pursued in bad faith.
Key quotations
“"[F]actual assertions in pleadings are ... judicial admissions conclusively binding on the party that made them."” (¶ 10)
“The Supreme Court, however, now instructs that all civil RICO claims are governed by the four year limitations period contained in the Clayton Act, 15 U.S.C. Sec. 15(b).” (¶ 12)
Factual background
John and Paul Davis each opened securities accounts with A.G. Edwards in July 1979 and invested more than $300,000 in daily accumulation funds. Their broker was Edwards employee Lloyd Tiller, and the portfolios declined to approximately $65,000. The Davises closed the accounts in July or August 1983 and later alleged that defendants had engaged in excessive and objectionable trading, or churning, during 1980 through 1983.
Procedural history
The Davises filed separate complaints alleging securities-account churning and later amended them to add civil RICO, breach-of-contract, and unjust-enrichment claims. The United States District Court for the Western District of Louisiana granted defendants' motions for summary judgment on statute-of-limitations grounds, dismissed the pendant state claims without prejudice, and denied defendants' Rule 11 sanctions motion. The Fifth Circuit affirmed the Securities Act ruling and denial of sanctions, vacated the RICO ruling in light of Agency Holding Corp. v. Malley-Duff & Associates, Inc., and remanded for further consideration of the RICO and pendant state claims.
Remand instructions
The district court must reconsider the RICO claim under the applicable four-year limitations period and should reconsider the propriety of exercising pendant jurisdiction over the state-law claims.