Summary
The Fifth Circuit reviewed summary judgment dismissing claims that A.G. Edwards and its broker engaged in churning of the plaintiffs’ securities accounts. The court affirmed dismissal of the Securities Act claims as untimely and affirmed denial of Rule 11 sanctions, but held that the civil RICO claims were timely under the applicable four-year limitations period. It vacated and remanded for reconsideration of the RICO and pendant state-law claims.
Topics
Practice areas
Questions Presented
- Whether the Davises' Securities Exchange Act claims were barred by Louisiana's two-year statute of limitations.
- Whether the Davises' pleadings conclusively established that they knew the facts underlying their securities claims when they closed their accounts.
- 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 its dismissal of the pendant state-law claims after the RICO claim was 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 the facts forming the basis of the claims, which their pleadings established occurred when they closed their accounts in August 1983.
- A later affidavit contradicting factual assertions in the pleadings does not create a genuine issue of material fact when the pleadings contain judicial admissions concerning the plaintiff's knowledge.
- Civil RICO claims are governed by the four-year limitations period contained in the Clayton Act, 15 U.S.C. § 15(b), rather than Louisiana's one-year limitations period for delictual actions.
- The district court properly denied defendants' Rule 11 sanctions motion because the legal limitations issue was unsettled and counsel's advocacy was undertaken in good faith despite inconsistencies in the plaintiffs' assertions.
- Because the RICO claim was timely, the district court should reconsider whether to exercise pendant jurisdiction over the state-law claims.
Key quotations
““[F]actual assertions in pleadings are ... judicial admissions conclusively binding on the party that made them.”” (108)
“Facts that are admitted in the pleadings “are no longer at issue.”” (108)
Factual background
John and Paul Davis 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. After the portfolios declined to approximately $65,000, the Davises ordered the accounts closed in July or August 1983, alleging that excessive and objectionable trading, or churning, caused the losses. They filed separate complaints in September 1985 and amended them in October 1985 to add RICO and Louisiana-law claims.
Procedural history
The Davises sued A.G. Edwards and Lloyd Tiller for securities-account churning under the Securities Exchange Act, RICO, and Louisiana law. The United States District Court for the Western District of Louisiana granted defendants' motion for summary judgment, concluding that the federal claims were barred by limitations, 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 reconsideration of the pendant state claims.
Remand instructions
The district court must reconsider the propriety of exercising pendant jurisdiction over the Louisiana state-law claims in light of the timely RICO claim.