New standard to determine running of statute of limitations on securities fraud claims.
In Betz v Trainer Wortham & Co, Inc., the Ninth Circuit reversed the district court’s finding that the federal securities fraud claims were time barred. The district court had granted summary judgment because the plaintiff was aware of the depleting value of her portfolio, contrary to promises she had been made, more than two years before the filing of her complaint. The Court held that because the plaintiff was promised she would be taken care, she could not be aware of the scienter element of securities fraud until the defendants admitted to her that they would do nothing to recover her losses.
The Court also adopted the Tenth Circuit’s “inquiry-plus-reasonable-diligence” standard to determine when a security fraud claim accrues for purposes of the statute of limitations. Under this standard, the statute begins running when the plaintiff had sufficient suspicion of fraud to investigate further, and with such investigation, should have discovered the facts constituting fraud. Here, because the, concerns of the plaintiff, a naïve investor, were lulled by the defendants’ assurances, the Court rejected the argument that plaintiff’s declining account balances should have put her on inquiry notice. Because a reasonable jury could conclude that the plaintiff’s delay was not unreasonable, summary judgment should not have been granted.
