Betz v. Trainer ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HEIDE BETZ, 
Plaintiff-Appellant,
v. No. 05-15704
TRAINER WORTHAM & COMPANY,  D.C. No.
CV-03-03231-SI
INC.; DAVID P. COMO; FIRST
REPUBLIC BANK, a Nevada OPINION
corporation; ROBERT VILE,
Defendants-Appellees.

Appeal from the United States District Court
for the Northern District of California
Susan Yvonne Illston, District Judge, Presiding
Argued and Submitted
February 12, 2007—San Francisco, California
Filed October 4, 2007
Before: John T. Noonan, Jr., Ronald M. Gould, and
Johnnie B. Rawlinson, Circuit Judges.
Opinion by Judge Gould
13461
BETZ v. TRAINER WORTHAM & CO. 13465
COUNSEL
Joseph M. Alioto, San Francisco, California, Theodore F.
Schwartz, St. Louis, Missouri, and Myron Moskovitz, Berke-
ley, California, for the plaintiff-appellant.
Sara B. Brody and Alexander M.R. Lyon, Heller Ehrman,
LLP, San Francisco, California, for the defendants-appellees.
OPINION
GOULD, Circuit Judge:
We must decide whether Heide Betz’s federal securities
fraud claim is barred by the statute of limitations.1 We hold
that there is a genuine issue of material fact whether Betz’s
claim is time barred, and we reverse the district court’s sum-
mary judgment for the defendants.
1
In a separately-filed memorandum disposition, we resolve Betz’s
appeal of the district court’s disposition of her state law claims.
13466 BETZ v. TRAINER WORTHAM & CO.
I
On an appeal of summary judgment we, like the district
court, view the evidence in the light most favorable to the
non-moving party and draw all justifiable inferences in the
non-moving party’s favor. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255 (1986). Viewed in the light most favorable
to Betz, the facts are as follows:
In 1999, Betz, a retired art dealer, sold her house for $2.2
million. Betz planned to buy a co-op and invest the proceeds
of the sale of her house to provide interest income. An
employee of First Republic Bank named Carmen Castro intro-
duced Betz to David Como, an employee of Trainer
Wortham, an investment subsidiary of First Republic Bank.
Como and Castro recommended that Betz invest the proceeds
from the sale of her house with Trainer Wortham. Como and
Castro assured Betz that, if she invested her $2.2 million with
Trainer Wortham, she could withdraw $15,000 per month
from her portfolio, for living expenses, without touching the
$2.2 million in principal. Betz told Como and Castro that she
knew nothing about stocks and bonds and that she only would
understand the “bottom line,” or total balance, of her account.
According to Betz, on June 7, 1999, Betz entered into an
oral agreement with Como, who was acting on behalf of
Trainer Wortham, giving the defendants control over her $2.2
million. Betz and Como agreed that Como would invest
Betz’s money “in such a fashion that [Betz] would receive
$15,000 a month from the profit of the investment and that
[the defendants] would not touch the principal.” The same
day, Betz and Como, who was again acting on Trainer
Wortham’s behalf, entered into a written “Letter of Under-
standing for Portfolio Management and Administration Ser-
vices” and an “Investment Management Agreement.” These
documents explicitly stated that Betz’s account was subject to
market risk and that “no person has represented to [Betz] that
any particular result can or will be achieved.” However, these
BETZ v. TRAINER WORTHAM & CO. 13467
documents also contained no “merger” or “integration”
clauses and made no reference to the alleged oral agreement
regarding Betz’s $15,000 in monthly maintenance income.
After Betz opened her account with Trainer Wortham, she
received account statements at least once per month. In Febru-
ary 2000, Betz received a statement reflecting an account
value below her initial investment of $2.2 million. Between
February 2000 and July 2001, Betz received twenty-nine
more account statements, each reflecting an account balance
of less than $2.2 million. In March 2001, Betz’s account bal-
ance had dropped to $848,000. Around that time, Betz spoke
with Robert Vile, a Trainer Wortham employee, to express
concern about the declining value of her account. Vile told
Betz that the declining balance was attributable to her
monthly $15,000 withdrawals; he assured her, however, that
the shortfall was temporary, that the market would recover,
and that in a year or less her account balance would be back
to $2.2 million. When subsequent account statements showed
the balance of Betz’s account continuing to fall, she met with
Castro, who told her that there was a “serious problem” with
the way Betz’s portfolio had been managed and that the presi-
dent of Trainer Wortham, Charles Moore, would “take care of
the account because it was ‘the right thing to do’ and because
[Trainer Wortham] value[d] their client relationships.” In May
2002, after Betz had met with Moore in person, Castro called
Betz to tell her that “Moore was meeting with other principals
and attorneys” regarding her account, and that Betz “should
be patient with them and not take any legal action.” However,
in June 2002, Castro advised Betz that Trainer Wortham was
“not going to do anything at all” to remedy the declining
value of her account.
Betz filed her complaint in this case on July 11, 2003,
alleging that Como, Vile, Trainer Wortham, and First Repub-
lic Bank (collectively, “Trainer Wortham” or “defendants”)
had committed securities fraud in violation of § 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and
13468 BETZ v. TRAINER WORTHAM & CO.
Rule 10b-5 of the Securities Exchange Commission, 17
C.F.R. § 240.10b-5. The defendants moved for summary
judgment on the ground that Betz’s federal securities fraud
claim was barred by the statute of limitations. Section 804(a)
of the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116
Stat. 745, 801 (codified at 28 U.S.C. § 1658(b)), provides that
a suit for securities fraud under § 10(b) of the Securities
Exchange Act must be filed “not later than the earlier of (1)
2 years after the discovery of the facts constituting the viola-
tion; or (2) 5 years after such violation.” The district court
held that, because Betz had inquiry notice of the defendants’
violations of § 10(b) before July 11, 2001, Betz’s claims were
time barred, and on this ground the district court granted sum-
mary judgment for the defendants.
II
We review de novo the district court’s grant of summary
judgment. Olympic Pipeline Co. v. City of Seattle, 437 F.3d
872, 877 n.11 (9th Cir. 2006). Federal Rule of Civil Procedure
56(c) entitles a party to summary judgment “if the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” As we
noted above, in deciding a motion for summary judgment, we
view the evidence in the light most favorable to the non-
moving party. Anderson, 477 U.S. at 255.
III
The defendants contend that Betz’s suit is time barred
because she had both actual and inquiry notice of the facts
giving rise to her claim. Betz contends that she had neither.
[1] We first address actual notice. Betz’s suit is timely only
if she filed it “not later than . . . 2 years after the discovery
of the facts constituting the violation.” 28 U.S.C. § 1658(b).
BETZ v. TRAINER WORTHAM & CO. 13469
Viewing the facts in the light most favorable to Betz, there is
a genuine issue of fact about whether Betz actually discovered
that she had a claim against the defendants for securities fraud
more than two years before she filed her suit on July 11, 2003.
For Betz to have a claim under § 10(b), the defendants must
have had, among other things, scienter, which is the “mental
state embracing intent to deceive, manipulate, or defraud.”
See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193-94 n.12
(1976); see also Simpson v. AOL Time Warner Inc., 452 F.3d
1040, 1047 (9th Cir. 2006) (listing the elements of a federal
securities fraud claim), petition for cert. filed sub nom. Avis
Budget Group, Inc. v. Cal. State Teachers Ret. Sys., No. 06-
560 (U.S. filed Oct. 19, 2006). In In re Silicon Graphics Inc.
Securities Litigation, 183 F.3d 970, 974 (9th Cir. 1999), we
held that to adequately plead scienter, a § 10(b) plaintiff
“must plead, in great detail, facts that constitute strong cir-
cumstantial evidence of deliberately reckless or conscious
misconduct.” We went on to describe this heightened plead-
ing standard as follows:
Our holding rests, in part, on our conclusion that
Congress intended to elevate the pleading require-
ment above the Second Circuit standard requiring
plaintiffs merely to provide facts showing simple
recklessness or a motive to commit fraud and oppor-
tunity to do so. We hold that although facts showing
mere recklessness or a motive to commit fraud and
opportunity to do so may provide some reasonable
inference of intent, they are not sufficient to estab-
lish a strong inference of deliberate recklessness. In
order to show a strong inference of deliberate reck-
lessness, plaintiffs must state facts that come closer
to demonstrating intent, as opposed to mere motive
and opportunity. Accordingly, we hold that particu-
lar facts giving rise to a strong inference of deliber-
ate recklessness, at a minimum, is required to satisfy
the heightened pleading standard under the PSLRA.
13470 BETZ v. TRAINER WORTHAM & CO.
Id.
[2] We cannot say that, as a matter of law, Betz, before July
11, 2001, actually discovered facts suggesting that the defen-
dants consciously or deliberately and recklessly deceived her.
Under the version of facts presented by Betz, a reasonable
factfinder could conclude that Betz did not discover that the
defendants intentionally misled her into believing that she
could withdraw $15,000 per month without depleting her
principal until June 2002, when Moore told her that Trainer
Wortham was “not going to do anything” to fix her account.
If the statute of limitations began running only upon Betz’s
actual discovery of the facts giving rise to her securities fraud
claim, this would end our inquiry. However, the defendants
contend that, even if Betz did not actually discover the facts
underlying her claim before July 11, 2001, Betz was on “in-
quiry notice” of her claim before that date, and that her claim
therefore is still barred by the statute of limitations. We
address that argument in the next section.
IV
A
[3] We have held that the statute of limitations for a federal
securities fraud claim begins to run when the plaintiff has
either actual or inquiry notice that the defendants have made
a fraudulent misrepresentation. See, e.g., Gray v. First Win-
throp Corp., 82 F.3d 877, 881 (9th Cir. 1996); Volk v. D.A.
Davidson & Co., 816 F.2d 1406, 1412 (9th Cir. 1987). In
more recent cases, however, it has been suggested that under
the United States Supreme Court’s decision in Lampf, Pleva,
Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350
(1991), only actual notice of the facts forming the alleged
fraud, and not inquiry notice of those facts, triggers the run-
ning of the statute of limitations for a § 10(b) claim.2 See
2
Though Gray was decided after the Supreme Court handed down
Lampf, in Gray we applied pre-Lampf statute of limitations principles pur-
BETZ v. TRAINER WORTHAM & CO. 13471
Berry v. Valence Tech., Inc., 175 F.3d 699, 704 (9th Cir.
1999); see also Livid Holdings Ltd. v. Salomon Smith Barney,
Inc., 416 F.3d 940, 951 (9th Cir. 2005). The uncertainty intro-
duced by our opinion in Berry led us to suggest in Livid Hold-
ings that, notwithstanding our unequivocal pre-Lampf case
law, we had “considered, but not made a final determination
on whether actual or inquiry notice of the alleged fraud trig-
gers the running of Rule 10b-5’s statute of limitations.” Livid
Holdings, 416 F.3d at 951.
[4] In Lampf, the Supreme Court resolved a split among the
circuits regarding the statute of limitations applicable to a
§ 10(b) claim. See Lampf, 501 U.S. at 354. Some circuits had
borrowed state statutes of limitations, while others had estab-
lished a unique federal limitations period. See id. at 354 n.1.
The Supreme Court in Lampf held that the statute of limita-
tions provided in § 9(e) of the Securities Exchange Act, 15
U.S.C. § 78i(e), was the appropriate standard. See Lampf, 501
U.S. at 364 n.9. Section 9(e) provides that “[n]o action shall
be maintained to enforce any liability created under this sec-
tion, unless brought within one year after the discovery of the
facts constituting the violation and within three years after
such violation.”3 No one disputes that “discovery” can occur
when a plaintiff actually discovers facts giving rise to his or
her claim. However, Lampf left it to the lower courts to decide
whether “discovery” occurs only upon actual notice or
whether “discovery” can occur on some form of inquiry
notice.
[5] We hold that either actual or inquiry notice can start the
suant to 15 U.S.C. § 78aa-1(a), which provides that pre-Lampf limitations
periods apply to suits filed before Lampf was decided. See Gray, 82 F.3d
at 879 n.1, 880-81.
3
The one year/three year limitations period set forth in § 9(e) still
applies to securities fraud suits filed before the enactment date of
Sarbanes-Oxley, July 30, 2002. See Sarbanes-Oxley Act § 804(b).
13472 BETZ v. TRAINER WORTHAM & CO.
running of the statute of limitations on a federal securities
fraud claim. While it is unquestioned that actual notice can
mark the beginning of the limitations period, two things hap-
pened in the aftermath of Lampf that convince us that an
inquiry notice standard should also apply to federal securities
fraud claims. First, the courts of appeal in our sister circuits,
along with the district courts in our own circuit, have uni-
formly embraced inquiry notice. In fact, “every circuit to have
addressed the issue since Lampf has held that inquiry notice
is the appropriate standard.” Berry, 175 F.3d at 704; see Fin.
Sec. Assurance, Inc. v. Stephens, Inc., 450 F.3d 1257, 1267-68
(11th Cir. 2006); Shah v. Meeker, 435 F.3d 244, 249 (2d Cir.
2006); Glaser v. Enzo Biochem, Inc., 126 Fed. App’x 593,
597 (4th Cir. 2005) (citing Brumbaugh v. Princeton Partners,
985 F.2d 157, 162 (4th Cir. 1993)); New England Health
Care Employees Pension Fund v. Ernst & Young, LLP, 336
F.3d 495, 500 (6th Cir. 2003); In re NAHC, Inc. Sec. Litig.,
306 F.3d 1314, 1325 (3d Cir. 2002); Young v. Lepone, 305
F.3d 1, 8 (1st Cir. 2002); Ritchey v. Horner, 244 F.3d 635,
638-39 (8th Cir. 2001); Sterlin v. Biomune Sys., 154 F.3d
1191, 1199-1200 (10th Cir. 1998); Marks v. CDW Computer
Ctrs., Inc., 122 F.3d 363, 367 (7th Cir. 1997); Topalian v.
Ehrman, 954 F.2d 1125, 1134-35 (5th Cir. 1992). Likewise,
the district courts in our circuit regularly apply an inquiry
notice standard to § 10(b) claims. See, e.g., In re Micron
Techs., Inc. Sec. Litig., No. CV-06-085-S-BLW, 2007 WL
576468, at *4 (D. Idaho Feb. 21, 2007); In re Immune
Response Sec. Litig., 375 F. Supp. 2d 983, 1026 (S.D. Cal.
2005); In re Infonet Servs. Corp. Sec. Litig., 310 F. Supp. 2d
1106, 1113 (C.D. Cal. 2003); Getty v. Harmon, 53 F. Supp.
2d 1053, 1055 (W.D. Wash. 1999); Freedman v. La.-Pac.
Corp., 922 F. Supp. 377, 395 (D. Or. 1996); In re Syntex
Corp. Sec. Litig., 855 F. Supp. 1086, 1099 (N.D. Cal. 1994),
aff’d, 95 F.3d 922 (9th Cir. 1996); Aizuss v. Commonwealth
Equity Trust, 847 F. Supp. 1482, 1486 (E.D. Cal. 1993).
While not binding on us, the reasoned opinions of ten of our
sister circuits and the widespread practices of the district
courts in our own circuit weigh heavily in favor of holding
that inquiry notice can trigger the running of the statute of
limitations on a securities fraud claim. The uniformity of the
BETZ v. TRAINER WORTHAM & CO. 13473
precedent in this direction sends a signal message that inquiry
notice, and not merely actual notice, can cause the statute of
limitations for securities fraud to begin to run.
[6] The second post-Lampf event that convinces us that an
inquiry notice standard is appropriate is an act of Congress.
In the Sarbanes-Oxley Act of 2002, Congress extended the
limitations period for § 10(b) suits from “one year after the
discovery of the facts constituting the violation,” 15 U.S.C.
§ 78i(e), to “2 years after the discovery of the facts constitut-
ing the violation” for actions commenced after July 30, 2002,
28 U.S.C. § 1658(b); Sarbanes-Oxley Act, § 804(b). In its
new enactment, Congress opted for language identical to the
language previously in effect in § 9(e) of the Securities
Exchange Act, 15 U.S.C. § 78i(e). The Supreme Court has
instructed that we should assume that Congress is aware of
the prevailing case law and legislates in its light. See Cannon
v. Univ. of Chicago, 441 U.S. 677, 696-97 (1979) (“It is
always appropriate to assume that our elected representatives,
like other citizens, know the law . . . .”); see also Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353,
379 (1982) (interpreting the Commodity Exchange Act in
light of pre-enactment case law). In 2002, the prevailing case
law in the lower federal courts interpreted the language of
§ 9(e) to mean that the limitations period could be com-
menced upon some form of inquiry notice. By choosing lan-
guage nearly identical to the language of § 9(e), Congress
implicitly approved of that case law. See Cannon, 441 U.S. at
696-99 (interpreting Title IX to provide a private cause of
action because Congress used language identical to that found
in Title VI, which had already been interpreted by the courts
to provide a private cause of action); Abrego v. Dow Chem.
Co., 443 F.3d 676, 684 (9th Cir. 2006) (per curiam) (holding
that the silence of the Class Action Fairness Act regarding the
burden of proving removal jurisdiction indicated Congressio-
nal intent to leave intact the common law rule placing the bur-
den on the defendant); United States v. Male Juvenile, 280
F.3d 1008, 1016 (9th Cir. 2002) (noting that “[i]n construing
13474 BETZ v. TRAINER WORTHAM & CO.
statutes, we presume Congress legislated with awareness of
relevant judicial decisions” and holding that Congress’s fail-
ure to explicitly include “tribal governments” within the Fed-
eral Juvenile Delinquency Act’s definition of “State,” when
amending other parts of the Act, “may be interpreted as an
endorsement of the judicial decisions excluding tribes from
the definition of ‘State’ ”).
[7] We recognize that the pragmatic effects of applying an
inquiry notice standard to § 10(b) are both positive and nega-
tive for individual litigants. As was suggested in Berry, a case
decided under the old one-year limitations period, such a stan-
dard may compel plaintiffs to file a suit based on “skimpy
facts.” See Berry, 175 F.3d at 704 n.6 (quoting Charles Benja-
min Nutley, Comment, Triggering One-Year Limitations on
Section 10(b) and Rule 10b-5 Actions: Actual or Inquiry Dis-
covery?, 30 San Diego L. Rev. 917, 948 (1993)). However,
Congress’s extension of the relevant limitations period from
one to two years alleviates this concern and allows us to con-
clude that an inquiry notice standard strikes an acceptable bal-
ance between the interest in requiring plaintiffs promptly to
file suit and the competing interest in avoiding the encourage-
ment of baseless or premature suits by requiring plaintiffs to
sue before they can discover the facts underlying their claims.
See New England Health Care Employees Pension Fund, 336
F.3d at 501; Young, 305 F.3d at 9; Sterlin, 154 F.3d at 1202.
B
[8] We have previously stated that, if we were to adopt an
inquiry notice standard for § 10(b) suits, we would apply a
standard similar to that applied by the Tenth Circuit. See Livid
Holdings, 416 F.3d at 951; Berry, 175 F.3d at 704. Today we
adopt the inquiry-plus-reasonable-diligence test used by the
Tenth Circuit. See, e.g., Sterlin v. Biomune Sys., 154 F.3d
1191, 1201 (10th Cir. 1998) (holding that inquiry notice “trig-
gers an investor’s duty to exercise reasonable diligence and
that the . . . statute of limitations period begins to run once the
BETZ v. TRAINER WORTHAM & CO. 13475
investor, in the exercise of reasonable diligence, should have
discovered the facts underlying the alleged fraud.”). Under
that standard, to determine when the statute of limitations
begins running, we first determine when the plaintiff had
inquiry notice of the facts giving rise to his or her securities
fraud claim. A plaintiff is on inquiry notice when there exists
sufficient suspicion of fraud to cause a reasonable investor to
investigate the matter further. Like our sister circuits, we cau-
tion that inquiry notice should not be construed so broadly
that the particular plaintiff cannot bring his or her suit within
the limitations period. The facts constituting inquiry notice
“must be sufficiently probative of fraud—sufficiently
advanced beyond the stage of a mere suspicion . . . to incite
the victim to investigate.” Fujisawa Pharm. Co. v. Kapoor,
115 F.3d 1332, 1335 (7th Cir. 1997), quoted in Tello v. Dean
Witter Reynolds, Inc., 410 F.3d 1275, 1284 (11th Cir. 2005).
Once a plaintiff has inquiry notice, we ask when the investor,
in the exercise of reasonable diligence, should have discov-
ered the facts constituting the alleged fraud. The answer to
that second question tells us when the statute of limitations
began to run.
[9] The question of whether inquiry notice exists is objec-
tive and contemplates a “reasonable investor” or “reasonable
person” standard. See, e.g., Newman v. Warnaco Group, Inc.,
335 F.3d 187, 193 (2d Cir. 2003) (citations and internal quo-
tation marks omitted) (holding that inquiry notice of securities
fraud is triggered when the plaintiff receives “sufficient storm
warnings to alert a reasonable person to the probability that
there were either misleading statements or significant omis-
sions involved”); Mathews v. Kidder, Peabody & Co., 260
F.3d 239, 252 (3d Cir. 2001) (holding that inquiry notice
exists where “a reasonable investor of ordinary intelligence
would have discovered the [suspicious] information and rec-
ognized it” as suspicious); Great Rivers Coop. of S.E. Iowa v.
Farmland Indus., Inc., 120 F.3d 893, 896 (8th Cir. 1997)
(inquiry notice is present “when the victim is aware of facts
that would lead a reasonable person to investigate and conse-
13476 BETZ v. TRAINER WORTHAM & CO.
quently acquire actual knowledge of the defendant’s misrep-
resentations.”). The existence of inquiry notice is only the
first prong of the two-part notice-plus-reasonable-diligence
test that we are today adopting, and the second stage of that
inquiry, the question of whether the plaintiff exercised reason-
able diligence in investigating the facts underlying the alleged
fraud, while remaining essentially objective in character, nec-
essarily entails an assessment of the plaintiff’s particular cir-
cumstances from the perspective of a reasonable investor. In
this second stage of the inquiry, one of the factors to be con-
sidered is whether the plaintiff was given any assurances by
a defendant after beginning to investigate the suspicious cir-
cumstances that would have delayed discovery of the fraud by
a reasonable person in the plaintiff’s position. For example, in
a situation much like the instant case, we have held that, when
an investor met with representatives of a defendant company
about possible fraud and was assured that there “had been no
improprieties,” whether the statute of limitations began run-
ning was a question for the trier of fact. See SEC v. Seaboard
Corp., 677 F.2d 1301, 1310 (1982). In that case, we con-
cluded that “the question of what a reasonable investor would
have done [under those circumstances] is not so certain as to
allow a determination as a matter of law.” Id.
Moreover, under the notice-plus-reasonable-diligence stan-
dard we apply to securities fraud claims, the defendant bears
a considerable burden in demonstrating, at the summary judg-
ment stage, that the plaintiff’s claim is time barred. See Sea-
board Corp., 677 F.2d at 1309-10 (noting that “the question
of notice of fraud is for the trier of fact” and that “the party
seeking summary disposition has an extremely difficult bur-
den to show that there exists no issue of material fact regard-
ing notice”). “Summary judgment is appropriate only when
uncontroverted evidence irrefutably demonstrates plaintiff
discovered or should have discovered the fraudulent conduct.”
Gray, 82 F.3d at 881 (internal quotations omitted); see also
Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d 873,
879 (9th Cir. 1984) (“The question of what a reasonably pru-
BETZ v. TRAINER WORTHAM & CO. 13477
dent investor should have known is particularly suited to a
jury determination.”).4 Our hesitation to approve summary
judgment in securities fraud cases is especially pronounced
where the plaintiff alleges that the defendants’ reassurances
4
We have in some cases resolved by summary judgment the question of
whether a federal securities plaintiff had sufficient notice of alleged fraud
to trigger the statute of limitations. In Davis v. Birr, Wilson & Co., 839
F.2d 1369 (9th Cir. 1988), for example, we concluded that summary judg-
ment on the issue of notice was proper because the plaintiff was a well-
educated and experienced investor who made suggestions to his broker
about his portfolio and who described himself as a “sophisticated inves-
tor.” Id. at 1370. By contrast, Betz had informed the defendants that she
had no experience with stocks or bonds and would only understand the
bottom line of her account statements, and thereafter, if we credit Betz’s
testimony, received specific assurances from the president of Trainer
Wortham that her account problems would be resolved and that she should
forego suit. We also affirmed a summary judgment recognizing inquiry
notice in the case of Volk v. D.A. Davidson & Co., 816 F.2d 1406 (9th Cir.
1987). Volk involved several investors who purchased limited partnership
interests in coal mining operations marketed as tax shelters and who were
subsequently informed by the general partner both through a letter and an
annual report that the partnership properties did not contain minable coal
reserves as warranted and that the investors might therefore not be legally
entitled to the tax deductions they had been taking. Id. at 1409-10. The
investors argued that the statute of limitations on their securities fraud
claim did not begin running until the IRS disallowed their deductions and
they first suffered out-of-pocket losses, but the court held as a matter of
law that the statute began to run when they received the letter and annual
report from the general partner putting them on inquiry notice of the prob-
lem with the coal reserves. See id. at 1411. However, Volk differs from the
case before us in that the warnings that the Volk investors received indi-
cated a much more permanent and fundamental type of problem with the
underlying investment than the declining account balances experienced by
Betz, which, at least in theory, could have reversed themselves over time.
In addition, while some of the investors in Volk also received reassurances
from the defendant investment company when they expressed concerns
about the general partner’s communications, these assurances took the
general form of admonitions “not to worry” about the letter, id., whereas
in Betz’s case she claims that she was specifically promised that the presi-
dent of Trainer Wortham would remedy the problems with her account
because it was “the right thing to do” and that in the meantime she should
refrain from taking any legal action against the company.
13478 BETZ v. TRAINER WORTHAM & CO.
convinced the plaintiff to postpone his or her legal action. See
Vucinich v. Paine, Webber, Jackson & Curtis, Inc., 739 F.2d
1434, 1436 (9th Cir. 1984).
We now turn to the facts of this case. Under our inquiry
notice standard outlined above, and keeping in mind that this
case is before us on summary judgment, we ask whether there
is a genuine dispute about whether there existed facts suffi-
ciently probative of fraud to cause a reasonable investor to
conduct a further investigation. Viewing the facts in the light
most favorable to Betz, a rational jury could conclude that a
reasonable investor in Betz’s shoes would not have initiated
further inquiry before July 11, 2001.
[10] The defendants contend that the account statements
Betz received would have spurred a reasonable investor to
inquire further whether Trainer Wortham had defrauded her.
However, the account statements indicated, at most, that the
defendants had failed to fulfill their oral promise that Betz
could withdraw $15,000 per month from her account without
depleting the principal. As a matter of law, we cannot say that
a declining account balance, in and of itself, would have
spurred a reasonable investor to further inquire whether he or
she had been defrauded. See Gray, 82 F.3d at 881 (“It is well
settled that poor financial performance, standing alone, does
not necessarily suggest securities fraud . . . , but could also be
explained by poor management, general market conditions, or
other events unrelated to fraud, creating a jury question on
inquiry notice.”); see also Livid Holdings, 416 F.3d at 951
(“This court has held that financial problems alone are gener-
ally insufficient to suggest fraud.”).
[11] Likewise, Castro’s statement that there was a “serious
problem” with Betz’s portfolio did nothing more than indicate
to Betz that the defendants had not been able to make good
on their promise of at least $15,000 per month in interest
income. Because such a statement provided no evidence that
the defendants had intentionally or deliberately and recklessly
BETZ v. TRAINER WORTHAM & CO. 13479
misled Betz as Silicon Graphics requires to state a claim for
securities fraud, see Silicon Graphics, 183 F.3d at 974, a
rational jury could conclude that, upon hearing such a state-
ment, a reasonable investor would not have initiated further
inquiry into the existence of fraud. See Fujisawa Pharm., 115
F.3d at 1335 (noting that “[t]he facts constituting [inquiry]
notice must be sufficiently probative of fraud” (emphasis
added)).
Moreover, even if Betz was on inquiry notice of fraud,
under the second prong of our inquiry notice standard, we
cannot say that, as a matter of law, Betz, in the exercise of
reasonable diligence, should have discovered the facts consti-
tuting the alleged fraud. In this case, Betz questioned the
defendants about her account and the defendants assured her
that they would take care of any problems and asked her not
to file suit. In Seabord Corp., the defendant’s giving of assur-
ances in response to a codefendant’s inquiries, which had the
effect of lulling the codefendant and delaying the onset of
legal action, was held to preclude summary judgment and
create an issue for the trier of fact as to when the statute of
limitations began to run. See Seaboard Corp., 677 F.2d at
1310. Trainer & Wortham’s assurances to Betz in this case,
which were given as recently as May of 2002, similarly give
rise to a fact issue which makes summary judgment inappro-
priate.
We do not suggest, however, that there is a per se rule that
in all cases involving assurances from a brokerage firm to an
investor, the issue of inquiry notice must go to a jury. Rather,
we conclude that here, in the total circumstances, and from
the point of view of a reasonable investor, there was a genuine
issue whether Betz should be held to have had notice of secur-
ities fraud.
V
[12] In summary, we hold that, once there exists sufficient
indicia of fraud to cause a reasonable investor to inquire into
13480 BETZ v. TRAINER WORTHAM & CO.
whether he or she has been defrauded, the statute of limita-
tions on a claim under § 10(b) of the Securities Exchange Act
begins running when the investor, in the exercise of reason-
able diligence, should have discovered the facts giving rise to
his or her claim. In this case, we cannot say that, as a matter
of law, a reasonable investor in Betz’s position should have
discovered the facts giving rise to her claim before July 11,
2001, especially in light of the express assurances made by
Defendants that they would remedy the problems with the
account, which may have lulled a reasonable investor into
inaction. Thus, a jury must determine whether a reasonable
investor would have discovered the fraud while receiving
active assurances from the highest levels of the securities firm
that there was no problem with her account and all would be
made right. We reverse the district court’s judgment in favor
of the defendants and remand this case for further proceedings
consistent with our opinion.
REVERSED AND REMANDED.