## Facts

- Plaintiffs were former holders of Baltimore & Ohio Railroad Company (B&O) convertible debentures purchased before December 13, 1977; the debentures were convertible into B&O common stock until maturity in 2010.
- Chesapeake & Ohio Railroad Company (C&O) owned nearly all B&O shares, and C&O was a wholly owned subsidiary of CSX’s corporate predecessor.
- The debenture indenture trustee was The Chase Manhattan Bank, N.A.
- B&O undertook transactions and restructuring intended, in part, to separate rail and non-rail assets and to manage regulatory constraints.
- Plaintiffs alleged defendants concealed material information about transactions and distributions from 1977 to 1986, which allegedly prevented debentureholders from converting to common stock in time to obtain valuable stock dividends and related benefits.
- The disputes arose against a background of extensive prior public litigation involving similar debentures and related corporate transactions.

## Issues

1. Whether the § 10(b) and Rule 10b-5 claims were barred by the applicable statute of limitations based on inquiry notice from publicly available information, including prior litigation.
2. Whether the civil RICO claim under 18 U.S.C. § 1962(c) failed because the alleged RICO “person” was not distinct from the alleged RICO “enterprise.”
3. Whether state-law claims for breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing were legally viable and timely.
4. Whether plaintiffs adequately pleaded actionable nondisclosure and related elements in light of what reasonable investors should have known earlier.

## Decision

- The Third Circuit affirmed the district court’s dismissal of all challenged claims.
- The court held the § 10(b) and Rule 10b-5 claims were time-barred because plaintiffs were on inquiry notice of the alleged wrongdoing well before suit.
- The court held the RICO claims failed because the pleadings did not maintain the required separation between the RICO defendant (“person”) and the alleged RICO “enterprise.”
- The court rejected the fiduciary-duty and implied-covenant theories as unavailable on the pleaded facts and, to the extent cognizable, also untimely.

## Legal Principles

- For § 10(b)/Rule 10b-5 claims, the limitations period begins when public information provides “storm warnings” sufficient to put a reasonable investor on inquiry notice; the clock runs when the fraud would have been discovered through reasonable diligence.
- Public, detailed litigation over the same transactions can supply inquiry notice and defeat attempts to rely on asserted ignorance of facts already placed in the public record.
- Under 18 U.S.C. § 1962(c), the RICO “person” must be distinct from the RICO “enterprise”; pleadings that treat a corporation and its related corporate group as both the actor and the enterprise are legally deficient.
- Debentureholders are generally treated as creditors; absent special circumstances or contractual terms, they cannot convert nondisclosure disputes into broad fiduciary obligations beyond the governing indenture and applicable corporate law limits.

## Conclusion

The Third Circuit affirmed dismissal because the securities-fraud and related state-law claims were brought after inquiry notice had arisen from publicly available information, and because the RICO pleadings impermissibly collapsed the required distinction between the defendant “person” and the alleged “enterprise.”


Lorenz v. CSX Corp., 1 F.3d 1406 (3d Cir. 1993)