Samuel Puterman v. Lehman Brothers Inc. , 332 F. App'x 549 ( 2009 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 08-10189 MAY 29, 2009
Non-Argument Calendar THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 05-21169-CV-KMM
SAMUEL PUTERMAN, individually and for all
those similarly situated, et al.,
Plaintiffs,
MARCELLA CORDOVA,
JORGE FLORES,
HENRY IURMAN,
MARCOS MUSTIELES,
KATIA OCAMPO, et al.,
Plaintiffs-Appellants,
versus
LEHMAN BROTHERS, INC., a New York corporation,
MERRILL LYNCH & CO., INC.,
RAYMOND JAMES FINANCIAL SERVICES, INC.,
OLIVA INVESTMENT GROUP, INC., et al.,
Defendants,
LUIS M. CORNIDE,
SUNTRUST BANKS, INC., a Georgia Corporation,
Defendants-Appellees,
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(May 29, 2009)
Before EDMONDSON, Chief Judge, DUBINA and FAY, Circuit Judges.
PER CURIAM:
Plaintiffs in this class action securities fraud suit appeal the dismissal of their
case for failure to state a claim, Fed.R.Civ.P. 12(b)(6). We affirm the district
court’s dismissal on Defendant SunTrust Banks, Inc. (“SunTrust”); but we vacate
and remand for additional proceedings on Defendant Luis M. Cornide.1
Plaintiffs, a group of investors, originally named SunTrust as a defendant in
their first amended complaint, filed on 22 June 2005. A second amended
complaint alleged a massive fraud perpetuated by Pension Fund of America
(“PFA”) that the financial institution Defendants knew of and participated in by
allowing PFA to continue using Defendants’ names, logos, and corporate
reputations. According to Plaintiffs, SunTrust’s role in the fraud included approval
of solicitation materials, knowledge that PFA was “diverting investor funds
1
Plaintiffs’ suit involved several financial institutions as Defendants. But after filing
their notice of appeal, Plaintiffs moved to dismiss the appeal on the remaining financial-
institution Defendants. So, the present appeal concerns the district court’s dismissal of the
second amended complaint only for SunTrust and Cornide.
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contrary to promises made to investors,” knowledge of inconsistencies between
SunTrust’s master agreement with PFA and its trust agreements with individual
investors, and sending “false and misleading information to investors” about the
safety of PFA’s investments. Plaintiffs alleged that SunTrust’s acts violated
Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and SEC
Rule 10b-5. The second amended complaint also noted that on 28 February 2003,
14 PFA investors had filed a lawsuit in state court against PFA, SunTrust, and
Lehman Brothers for breach of fiduciary duty.
SunTrust attached a copy of the February 2003 state complaint to their
motion to dismiss, which revealed that one of the plaintiffs -- Marcos Mustieles --
was a class plaintiff in the instant case. The district court granted the motion to
dismiss, concluding that Plaintiffs’ claims were barred by the two-year statute of
limitations. The court determined that Plaintiffs had actual notice of their claims
against SunTrust on 28 February 2003 and had inquiry notice before the February
2003 lawsuit.
On appeal, Plaintiffs argue that the district court erred in dismissing their
suit against SunTrust based on the statute of limitations. They contend that (1) the
February 2003 state lawsuit was directed only at PFA, (2) SunTrust was not added
as a defendant until an amended complaint filed within the limitations period on 16
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June 2003, and (3) even if Plaintiffs did sue SunTrust in February 2003, they were
not on inquiry notice that SunTrust had violated federal securities laws when the
state complaint alleged only breach of contract against PFA.
We review de novo a district court’s grant of a motion to dismiss under Rule
12(b)(6) for failure to state a claim; we accept the allegations in the complaint as
true and construe them in the light most favorable to Plaintiffs. Hill v. White, 321
F.3d 1334, 1335 (11th Cir. 2003). And we review “the district court’s
interpretation and application of statutes of limitations de novo.” Tello v. Dean
Witter Reynolds, Inc., 410 F.3d 1275, 1278 (11th Cir. 2005).2
A private claim of securities fraud must be brought by the earlier of (1) two
years after “the discovery of the facts constituting the violation,” or (2) five years
after the violation. 28 U.S.C. § 1658(b). “[D]iscovery of facts evidencing
securities misconduct occurs” -- and the statute of limitations begins to run --
“when a potential plaintiff has inquiry or actual notice of a violation.” Tello, 410
F.3d at 1283 (internal quotations omitted). Inquiry notice means “knowledge of
facts that would lead a reasonable person to begin investigating the possibility that
his legal rights had been infringed”; and such notice is triggered by evidence of the
2
“Dismissal under [Rule] 12(b)(6) on statute of limitations grounds is appropriate only if
it is apparent from the face of the complaint that the claim is time-barred.” Tello, 410 F.3d at
1288 (internal quotation omitted).
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possibility of fraud. Id.; Theoharous v. Fong, 256 F.3d 1219, 1228 (11th Cir.
2001) (explaining that a plaintiff need not have fully discovered the nature and
extent of the fraud before being on notice).
The district court based its statute of limitations ruling on the statements in
the second amended complaint about the February 2003 state lawsuit against PFA,
SunTrust, and Lehman Brothers. These statements indicate that Mustieles had
knowledge in February 2003 of facts underlying a fraudulent scheme perpetuated
by PFA and of which several financial institutions were a part. This knowledge
created a duty for Mustieles to investigate the extent of the fraud and the identities
and roles of the other parties. Therefore, the two-year limitations period began to
run -- at the latest -- on 28 February 2003 and expired on 28 February 2005, two
months before the original federal complaint was filed and almost four months
before SunTrust was added as a defendant in the first amended complaint on 22
June 2005. It was apparent from the face of the complaint, with reference to the
named plaintiff in the February 2003 lawsuit, that the instant suit was time-barred.3
Plaintiffs’ argument that they did not have inquiry notice until SunTrust was
3
Inquiry notice, a fact question, generally is inappropriate for resolution on a Rule
12(b)(6) motion. Tello, 410 F.3d at 1283. But here, although the district court referred to a
public document mentioned in, but not attached to, the complaint, such limited review of outside
material was permissible to determine the factual issue of inquiry notice on a motion to dismiss.
See Tello v. Dean Witter Reynolds, Inc. (Tello II), 494 F.3d 956, 967, 975 (11th Cir. 2007).
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formally named in the state lawsuit in an amended complaint filed in June 2003 is
unavailing: the duty to investigate arose when Mustieles knew of PFA’s fraud and
the involvement of financial institutions. And the district court’s statute of
limitations ruling applied to all financial institution Defendants, not just SunTrust;
and not all of these financial institution Defendants were named in the February
2003 or amended June 2003 complaints.4
Plaintiffs argue that knowledge of PFA’s fraud does not equate knowledge
of SunTrust’s federal securities fraud, under inquiry notice. The limitations period,
however, may begin to run before the extent of the fraud is known. And the
Plaintiffs were on notice of PFA’s fraud and the relationship between PFA and
SunTrust in connection with PFA’s investment plans more than two years before
the instant suit was filed. Plaintiffs also argue that any notice would apply only to
Mustieles’s claim, not the claims of other class members. But in class actions,
“[i]nquiry notice for determining statute-of-limitations compliance is gauged by
the knowledge of the alleged securities fraud by the class representative.” Tello II,
410 F.3d at 970.5
About Cornide, Plaintiffs alleged that he violated section 10(b) and Rule
4
And the February 2003 complaint names SunTrust in the case caption.
5
We decline to address Plaintiffs’ argument about the date the instant suit commenced
because it was raised for the first time in a reply brief. See Asociacion de Empleados del Area
Canalera (ASEDAC) v. Panama Canal Comm’n, 453 F.3d 1309, 1316 n.7 (11th Cir. 2006).
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10b-5 as a control person of PFA. He was first named as a defendant in the second
amended complaint filed on 13 February 2006. Cornide filed no motion to dismiss.
Plaintiffs argue that the case should be remanded for additional proceedings on the
claims against Cornide.
We have reviewed de novo sua sponte dismissals under Rule 12(b)(6). Am.
United Life Ins. Co. v. Martinez, 480 F.3d 1043, 1056-57 (11th Cir. 2007). We
have prohibited the sua sponte dismissal of a claim as meritless under Rule
12(b)(6) where the district court did not provide plaintiff with notice of its intent to
dismiss or an opportunity to respond. Jefferson Fourteenth Assocs. v. Wometco de
Puerto Rico, Inc., 695 F.2d 524, 526-27 (11th Cir. 1983).
The district court considered several motions to dismiss by financial
institution Defendants and dismissed the entire case against all Defendants. But
Cornide did not file a motion to dismiss; nor did the court discuss the claims
against Cornide or whether the statute of limitations defense applied equally to
him. In addition, nothing indicates in the record that the district court gave notice
to Plaintiffs that it would consider dismissing their claims against Cornide. See id.
(explaining that a court can exercise its inherent power to dismiss a suit that lacks
merit only when the party who brought the case has been given notice and an
opportunity to respond). Therefore, we vacate the order of dismissal on the claims
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against Cornide and remand for additional proceedings.
AFFIRMED IN PART, VACATED AND REMANDED IN PART.
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