Pension Trust Fund for Operating Engineers v. Mortgage Asset Securitization Transactions, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______

No. 12-3454
______

PENSION TRUST FUND FOR OPERATING ENGINEERS;
Individually and on behalf of itself
and all others similarly situated,
Appellant

v.

MORTGAGE ASSET SECURITIZATION
TRANSACTIONS, INC.; DAVID MARTIN;
PER DYRVIK; HUGH CORCORAN;
PETER SLAGOWITZ; UBS REAL ESTATE
SECURITIES, INC.;
UBS SECURITIES, LLC; UBS AMERICAS INC.
______

On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-10-cv-00898)
District Judge: Honorable Claire C. Cecchi
______

Argued June 25, 2013
Before: FUENTES, FISHER
and CHAGARES, Circuit Judges.
 (Filed: September 17, 2013)

Douglas S. Wilens, Esq. (ARGUED)
Robbins Geller Rudman & Dowd
120 East Palmetto Park Road, Suite 500
Boca Raton, FL 33432
Counsel for Appellant Pension Trust Fund for
Operating Engineers

Peter S. Pearlman, Esq.
Cohn, Lifland, Pearlman, Herrmann & Knopf
Park 80 West – Plaza 1
250 Pehle Avenue, Suite 401
Saddle Brook, NJ 07663
Counsel for Appellant Pension Trust Fund for
Operating Engineers

Rukhsanah Singh, Esq.
Liza M. Walsh, Esq.
Connell Foley
85 Livingston Avenue
Roseland, NJ 07068
Counsel for Appellees Mortgage Asset
Securitization Transactions,
Inc., David Martin, Per Dyrvik,
Hugh Corcoran, UBS Real
Estate Securities, Inc.,
UBS Securities, LLC, Peter Slagowitz,
and UBS Americas Inc.

2
Lawrence J. Zweifach, Esq. (ARGUED)
Gibson Dunn
200 Park Avenue, 47th Floor
New York, NY 10166
Counsel for Appellees Mortgage Asset
Securitization Transactions,
Inc., David Martin, Per Dyrvik,
Hugh Corcoran, UBS Real
Estate Securities, Inc.,
UBS Securities, LLC, Peter Slagowitz,
and UBS Americas Inc.

______

OPINION OF THE COURT
______

FISHER, Circuit Judge.

Lead Plaintiff Pension Trust Fund for Operating
Engineers (the “Operating Engineers”) appeal from the
District Court’s initial order dismissing without prejudice
their amended class action complaint (the “Amended
Complaint”), which alleged violations of the Securities Act of
1933, 15 U.S.C. § 77a et seq., by subsidiaries and employees
of UBS AG (“UBS”), for failure to plead compliance with the
one-year statute of limitations set forth in Section 13 of the
Securities Act, 15 U.S.C. § 77m. The Operating Engineers
also appeal from the District Court’s subsequent order
dismissing with prejudice their second amended class action
complaint (the “Second Amended Complaint”) as untimely

3
under an inquiry notice standard. Although we hold that a
Securities Act plaintiff need not plead compliance with
Section 13 and that Section 13 establishes a discovery
standard for evaluating the timeliness of Securities Act
claims, we nonetheless conclude that the class action claims
in the original complaint (the “Original Complaint”) were
untimely. Therefore, we will affirm.

I.

A.1

This appeal involves mortgage-backed securities,
investment vehicles that were among the casualties of the
financial crisis of the late 2000s. In a traditional mortgage, a
lending institution, known as the originator, extends credit to
a borrower. In exchange, the borrower promises to repay
principal and interest on the loan, and the borrower’s real
property serves as collateral in case of her default. The
originator follows guidelines, known as underwriting
standards, to ensure that it receives a return on its investment.

1
The factual background is drawn from the Second
Amended Complaint and public records. See Lum v. Bank of
Am., 361 F.3d 217, 222 n.3 (3d Cir. 2004) (noting, in
deciding a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), that a court may consult “the allegations
in the complaint, exhibits attached to the complaint, matters
of public record, and documents that form the basis of a
claim” (citations omitted)). The Operating Engineers do not
contest our consideration of this external evidence.

4
For example, to evaluate the borrower’s creditworthiness, the
originator assesses the ratio of her monthly mortgage-related
obligations to her monthly gross income (the “debt-to-income
ratio”). And to assess the collateral’s worth, the originator
evaluates the ratio of the outstanding mortgage obligation to
the property’s appraised value (the “loan-to-value ratio”).

For mortgage-backed securities, the originator sells the
loan to a financial institution to realize immediate profit and
to reduce future risk of default. The financial institution
pools the loan with others, deposits the loans into a trust, and
sells certificates issued by the trust to investors. Investors are
entitled to receive cash flows from the principal and interest
payments made by the borrowers on the loan pool in the trust.
The rate of return on the securities partially depends on the
riskiness of the underlying loans, which, in turn, is partially
measured by the debt-to-income and loan-to-value ratios.

The mortgage-backed securities in this case, known as
the MASTR Pass-Through Certificates, Series 2007-3 (the
“Certificates”), were offered to the public on May 14, 2007.
UBS Real Estate Securities, Inc. (“UBS Real Estate”), the
sponsor of the Certificates, purchased the underlying loans
from originators, including Countrywide Home Loans, Inc.
(“Countrywide”) and IndyMac Bank, F.S.B. (“IndyMac”).
UBS Real Estate then sold the loans to Mortgage Asset
Securitization Transactions, Inc. (“MASTR”), the depositor
of the Certificates. MASTR next placed the loans into the
MASTR Adjustable Rate Mortgages Trust 2007-3 (the
“MASTR Trust”), the issuer of the Certificates. UBS
Securities, LLC (“UBS Securities”), the underwriter of the
Certificates, finally sold the Certificates to investors like the

5
Operating Engineers, who purchased Series 12A1 Certificates
with a face value of $5,123,977 on September 18, 2007.2

The Certificates were issued pursuant to a Securities
and Exchange Commission (“SEC”) Form S-3 Registration
Statement filed on December 16, 2005, as amended by an
SEC Form S-3/A supplemental pre-effective Registration
Statement on April 4, 2006 (together, the “Registration
Statement”), and an SEC Form 424B5 Prospectus
Supplement filed on May 14, 2007 (the “Prospectus
Supplement” and, together with the Registration Statement,
the “Offering Documents”). The Registration Statement was
signed by MASTR’s officers and directors, including David
Martin, Per Dyrvik, Hugh Corcoran, and Peter Slagowitz.

The Offering Documents stated that Countrywide
originated about 52% and IndyMac originated about 40% of
the mortgages backing the Certificates. The Offering
Documents assured investors that the underlying loans were
originated pursuant to particular underwriting policies,
practices, and procedures and in compliance with federal and
state laws and regulations. For example, the Offering
Documents indicated that the availability of the loans was
limited to those borrowers whose creditworthiness, as
revealed by the debt-to-income ratio, was within accepted
limits. Additionally, the Offering Documents provided that

2
The MASTR Trust is owned and controlled by
MASTR. MASTR, UBS Real Estate, and UBS Securities are
subsidiaries of UBS Americas Inc. (“UBS Americas”), which
is, in turn, a subsidiary of UBS.

6
the real property that was collateral for the loans was
appraised pursuant to the generally-accepted Uniform
Standards of Professional Appraisal Practice and that certain
quantities of the loans were within specific ranges of loan-to-
value ratios. Finally, the Offering Documents represented
that no material legal proceedings were pending against “the
sponsor, the depositor or the issuing entity” of the
Certificates. App. at 1728. Based on these guarantees,
Moody’s Investors Service, Inc. (“Moody’s”) and Standard &
Poor’s (“S&P’s” and, together with Moody’s, the “Ratings
Agencies”) rated the Series 12A1 Certificates as AAA, the
highest quality investment grade, in September 2007.

However, because Countrywide and IndyMac
“systematically ignored” and “completely” and “wholly
disregarded” proper underwriting standards, UBS’s
statements in the Offering Documents about the loans
underlying the Certificates were materially false and
misleading. Id. at 382 ¶ 9, 384 ¶ 14, 411 ¶ 86. In particular,
the debt-to-income ratios were inaccurate because they were
based on inflated income figures, and the loan-to-value ratios
were skewed because they were based on inflated property
appraisals. As a result of UBS’s untrue statements and
omissions about the underwriting standards, the Certificates
were substantially more risky than disclosed in the Offering
Documents.

From late 2007 through early 2009, many news articles
linked the high delinquency rates of mortgages originated by
Countrywide and IndyMac to the abandonment of accepted
underwriting standards. For example, on April 30, 2008, the
Wall Street Journal reported on the “mounting evidence of

7
serious problems with [Countrywide’s] underwriting of many
home loans,” which included allegations that the company
“deliberately overlooked inflated income figures for many
borrowers,” and relaxed its lending standards regarding the
estimated values of the real estate. Id. at 1949. Also in 2008,
the non-profit Center for Responsible Lending released a pair
of reports criticizing Countrywide’s and IndyMac’s
underwriting standards. See, e.g., id. at 1960 (describing how
Countrywide’s “appraiser was being ‘strongly encouraged’ to
inflate property values on homes,” and “employees were
coaching borrowers to falsify their incomes on their
applications”). Throughout this time, numerous class action
securities suits were filed against Countrywide and IndyMac
related to their lax underwriting standards.

On February 20, 2009, citing inappropriate
underwriting standards, Moody’s reduced the rating of the
Series 12A1 Certificates to B2, a speculative grade.
Similarly, on August 13, 2009, S&P’s reduced the rating of
the Series 12A1 Certificates to B. By February 2010, because
of the deficient underwriting standards, about 61% of the
underlying loans were in delinquency, default, or foreclosure,
and the value of the Certificates on the secondary market had
decreased by 40% to 50%. As a result, the monthly
distributions that the Operating Engineers received from the
MASTR Trust for their Certificates were significantly
reduced. And if the Operating Engineers had sold their
Certificates on the secondary market, then they would have
suffered a substantial loss.

8
 B.

On February 22, 2010, one year after Moody’s
downgraded the rating of the Certificates,3 an investor filed
the Original Complaint asserting claims under Sections 11,
12(a)(2), and 15 of the Securities Act, 15 U.S.C. §§ 77k,
77l(a)(2), and 77o, against MASTR, UBS Real Estate, UBS
Securities, Martin, Dyrvik, Corcoran, Moody’s, and S&P’s
parent company in the United States District Court for the
District of New Jersey. “On March 29, 2010, in the course of
the usual monitoring of its investment portfolio,” the
Operating Engineers “learned of significant losses to the
value of the Certificates” and “the existence of potential
claims.” App. at 464 ¶ 193. Pursuant to the Private
Securities Litigation Reform Act (“PSLRA”), Pub. L. No.
104-67, 109 Stat. 737 (1995), the Operating Engineers
petitioned to be appointed as Lead Plaintiff, and the District
Court granted their request on October 18, 2010.

The Operating Engineers then retained a consultant to
research potential claims, “result[ing] in the substantive
allegations set forth” in the Amended Complaint, which was
filed on December 13, 2010. App. at 464 ¶ 194. The
Amended Complaint dropped the claims against Moody’s and
S&P’s, but added claims against UBS Americas, the MASTR
Trust, and Slagowitz. UBS moved to dismiss the Amended

3
Because February 20, 2010 fell on a Saturday, one
year from the date Moody’s downgraded the rating of the
Certificates includes Monday, February 22, 2010 for statute-
of-limitations purposes. See Fed. R. Civ. P. 6(a)(1)(C).

9
Complaint for failure to state a claim on which relief can be
granted under Federal Rule of Civil Procedure 12(b)(6),
arguing that the Operating Engineers had failed to plead
compliance with Section 13 of the Securities Act. The
District Court agreed with UBS and dismissed the Amended
Complaint without prejudice for the Operating Engineers to
re-plead compliance with the statute of limitations.

The Operating Engineers finally filed the Second
Amended Complaint, which dropped the claims against the
MASTR Trust and added ten paragraphs alleging compliance
with the statute of limitations. See App. at 461 ¶ 187 - 465 ¶
196. UBS moved to dismiss the Second Amended Complaint
on the basis that the Securities Act claims were untimely.
The District Court, applying an inquiry notice standard,
determined that the claims were untimely under Section 13
and dismissed the Second Amended Complaint with
prejudice. The Operating Engineers timely appealed.

II.

The District Court had jurisdiction over this case under
15 U.S.C. § 77v(a) and 28 U.S.C. § 1331. We have
jurisdiction over this appeal under 15 U.S.C. § 77v(a) and 28
U.S.C. § 1291.

We exercise plenary review over a district court’s
dismissal of a claim as untimely under a statute of limitations,
In re Merck & Co. Sec., Derivative & ERISA Litig., 543 F.3d
150, 160 (3d Cir. 2008), and for failure to state a claim under
Rule 12(b)(6), Morrow v. Balaski, 719 F.3d 160, 165 (3d Cir.
2013) (en banc). We must accept all well-pleaded factual

10
allegations in the complaint as true and view them in the light
most favorable to the plaintiff, but “we are not compelled to
accept unsupported conclusions and unwarranted inferences,
or a legal conclusion couched as a factual allegation.” Id.
(quotation omitted). Pursuant to these principles, we may
only dismiss claims that “lack facial plausibility.” Id.
(quotation omitted).

III.

Both the Amended Complaint and the Second
Amended Complaint asserted claims under Sections 11,
12(a)(2), and 15 of the Securities Act. Section 11 “concerns
material misstatements or omissions in registration
statements;” Section 12(a)(2) “concerns material
misrepresentations in prospectuses and other solicitation
materials;” and Section 15 “provides for joint and several
liability on the part of one who controls a violator of Section
11 or Section 12.” In re Suprema Specialties, Inc. Sec. Litig.,
438 F.3d 256, 269, 284 (3d Cir. 2006) (citations omitted). All
three provisions are governed by the same statute of
limitations, DeBenedictis v. Merrill Lynch & Co., 492 F.3d
209, 216 (3d Cir. 2007), which is set forth in Section 13 of
the Securities Act, and which requires actions to be brought
“within one year after the discovery of the untrue statement or
the omission, or after such discovery should have been made
by the exercise of reasonable diligence,” 15 U.S.C. § 77m.

On appeal, the Operating Engineers raise two claims of
error. First, the Operating Engineers assert that the District
Court erred in dismissing the Amended Complaint because
they should not have been required to plead compliance with

11
the statute of limitations. Second, the Operating Engineers
contend that the District Court erred in dismissing the Second
Amended Complaint because the timeliness of Securities Act
claims under Section 13 should be evaluated under a
discovery standard, not an inquiry notice standard, and
because the class action claims in the Original Complaint
would be timely under such a standard.4 We address these
arguments below.

A.

The Operating Engineers first argue that the District
Court erred in requiring them to plead compliance with the
statute of limitations. UBS responds that this issue is outside
the scope of this appeal, and that, regardless, the Operating
Engineers are incorrect on the merits. We conclude that this
issue is within the scope of this appeal, and we hold that a
Securities Act plaintiff is not required to plead compliance
with Section 13.

UBS contests our jurisdiction to consider this question
because the Operating Engineers’ notice of appeal “clearly”
references “only” the District Court’s order dismissing the
Second Amended Complaint. Response Br. at 55. While the

4
The Operating Engineers expressly disclaim any
argument that the District Court abused its discretion in
dismissing the Second Amended Complaint with prejudice.
See Reply Br. at 25 (“[T]he Operating Engineers d[o] not
argue on appeal that the district court should have permitted
another opportunity to file an amended complaint.”).

12
Operating Engineers’ notice of appeal does identify “the
Opinion and Order . . . dismissing with prejudice the Second
Amended . . . Complaint,” it also expressly “encompasses . . .
all prior rulings made by the district court.” App. at 28.
Thus, we disagree with UBS’s characterization of the
Operating Engineers’ notice of appeal.

UBS is correct that “[w]hen an appeal is taken from a
specified judgment . . . , the court of appeals acquires thereby
no jurisdiction to review other judgments . . . not so
specified.” Response Br. at 56 (quoting Elfman Motors, Inc.
v. Chrysler Corp., 567 F.2d 1252, 1254 (3d Cir. 1977)).
Nonetheless, we “liberally construe[] notices of appeal,”
Wiest v. Lynch, 710 F.3d 121, 127 (3d Cir. 2013) (quotation
omitted), and exercise jurisdiction over “other judgments”
that are “fairly to be inferred from the notice,” Elfman
Motors, 567 F.2d at 1254 (citations omitted). Thus, under the
merger rule, the designated final judgment “draws in question
all prior non-final orders and rulings which produced the
judgment,” id. at 1253 (citation omitted), where “(1) there is a
connection between the specified and unspecified orders;
(2) the intention to appeal the unspecified order is apparent;
and (3) the opposing party is not prejudiced and has a full
opportunity to brief the issues,” Wiest, 710 F.3d at 127
(quotation omitted).

Here: (1) the specified order dismissing the Second
Amended Complaint and unspecified order dismissing the
Amended Complaint concerned Section 13 of the Securities
Act; (2) the Operating Engineers’ intention to appeal the
unspecified order is apparent from the text of their notice of
appeal; and (3) UBS has not alleged any prejudice and has

13
fully briefed the issue. Therefore, we have jurisdiction over
this issue. See In re Westinghouse Sec. Litig., 90 F.3d 696,
704-06 (3d Cir. 1996) (exercising appellate jurisdiction over
two unspecified prior interlocutory orders dismissing some
claims where notice of appeal only specified later final order
dismissing other claims).

On the merits, the Operating Engineers challenge the
District Court’s ruling that they were required to plead with
particularity compliance with Section 13 of the Securities
Act. The District Court relied on a line of precedent in the
District of New Jersey which requires securities plaintiffs to
plead with particularity compliance with the applicable
statutes of limitations, Kress v. Hall-Houston Oil Co., No. 92-
cv-543, 1993 U.S. Dist. LEXIS 6350, at *5-6 (D.N.J. May 12,
1993), by setting forth “the time and circumstances of the
discovery of the fraudulent statement, the reason why
discovery was not made earlier, and the diligent efforts
plaintiff undertook in making such discovery,” Urbach v.
Sayles, 779 F. Supp. 351, 364 (D.N.J. 1991) (citations
omitted). This rule is purportedly necessary because a
securities statute of limitations “sets forth . . . a substantive
requirement rather than a procedural one.” In re The
Prudential Ins. Co. of Am. Sales Practices Litig., 975 F. Supp.
584, 598 (D.N.J. 1996) (citations omitted).

The propriety of this rule is an issue of first impression
for us. It is true that we have recognized that “when a statute
creating a new cause of action contains in itself a statute of
limitations, the limitation imposed becomes an integral part of
the right of action created by the statute.” Pa. Co. for Ins. on
Lives & Granting Annuities v. Deckert, 123 F.2d 979, 985 (3d

14
Cir. 1941). Applying this principle, we have held that
“Section 12 [of the Securities Act] creates a new cause of
action,” and that “the provisions of Section 13 [of the
Securities Act] are part of and a limitation upon the right of
action given by Section 12(2).” Id. (citations omitted).
Notwithstanding these pronouncements, we have never
directly addressed whether a Securities Act plaintiff must
plead compliance with Section 13.

Three courts of appeals have historically held that a
Securities Act plaintiff must plead compliance with Section
13. See Davidson v. Wilson, 973 F.2d 1391 (8th Cir. 1992);
Anixter v. Home-Stake Prod. Co., 939 F.2d 1420 (10th Cir.
1991), vacated on other grounds under the name Dennler v.
Trippet, 503 U.S. 978 (1992); Cook v. Avien, Inc., 573 F.2d
685 (1st Cir. 1978). The Tenth Circuit provided no
justification for this rule. See Anixter, 939 F.2d at 1434. The
Eighth and First Circuits advanced the same rationale as the
District Court. See Davidson, 973 F.2d at 1402 n.8 (“[T]he
timeliness requirement is substantive.”); see also Cook, 573
F.2d at 695 (“[W]hen the very statute which creates the cause
of action also contains a limitation period, the statute of
limitations not only bars the remedy but also destroys the
liability.” (quotation omitted)).

In contrast, three other courts of appeals have recently
held that a plaintiff need not plead compliance with the
statute of limitations in the Securities Exchange Act of 1934,
which, as we discuss below, is similar to the statute of
limitations in the Securities Act. See Johnson v. Aljian, 490
F.3d 778 (9th Cir. 2007); La Grasta v. First Union Sec., Inc.,
358 F.3d 840 (11th Cir. 2004), abrogated on other grounds

15
by Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Tregenza
v. Great Am. Commc’ns Co., 12 F.3d 717 (7th Cir. 1993),
abrogated on other grounds by Merck & Co. v. Reynolds, 130
S. Ct. 1784 (2010). In Tregenza, the Seventh Circuit noted
that the Eighth, Tenth, and First Circuits relied on “the
archaic rule that in the case of common law claims the statute
of limitations merely limits the remedy, while in the case of
statutory claims it limits or defines the substantive right.” 12
F.3d at 719 (citation omitted). But the court rejected this
theory as “a conclusion rather than an explanation,” that was
“especially dubious” because “the statute of limitations isn’t
even found in the statute that creates the substantive right.”
Id. The court also observed that secondary sources suggested
“that statutory claims are disfavored,” and “that because
tolling principles do not apply to statutes of limitations
governing statutory claims, it is efficient to permit judges to
dispose of untimely statutory claims” at the motion to dismiss
stage. Id. However, the court dismissed both of these
reasons as “certainly false today.” Id. Because the old rule
“persisted . . . by blind inertia,” and “ma[de] no sense,” the
court concluded, albeit in dicta, that it was “time that it was
discarded.” Id. at 718-19.

In La Grasta, the Eleventh Circuit followed the
Seventh Circuit’s recommendation in Tregenza. 358 F.3d at
845. And in Johnson, the Ninth Circuit acknowledged that it
had previously adhered to the old rule for the Securities Act’s
statute of limitations, but the court refused to extend “such a
disapproved pleading rule,” which had incurred “forceful”
and “justified” criticism, to the Exchange Act’s statute of
limitations. 490 F.3d at 781 n.13 (citations omitted). The

16
court also recognized that the PSLRA “may require a plaintiff
to plead certain facts with particularity, which may establish
that the action is time-barred,” but the court nonetheless
rejected the possibility that the PSLRA required a different
result. Id.

We agree with the Seventh Circuit’s analysis in
Tregenza, which is consistent with our statute of limitations
precedent. For example, we have ruled, in a Securities Act
suit, that “[a] statute of limitations defense is an affirmative
one, and in order to undergird a dismissal, must appear on the
face of the complaint.” Benak v. Alliance Capital Mgmt.
L.P., 435 F.3d 396, 400 n.14 (3d Cir. 2006); see also
Tregenza, 12 F.3d at 718 (same). We have also repeatedly
held that because a statute of limitations is an affirmative
defense, “the burden of establishing its applicability to a
particular claim rests with the defendant.” Drennen v. PNC
Bank Nat’l Assoc., 622 F.3d 275, 292 (3d Cir. 2010) (quoting
Bradford-White Corp. v. Ernst & Whinney, 872 F.2d 1153,
1161 (3d Cir. 1989)); see also Tregenza, 12 F.3d at 718 (“[A]
plaintiff is not required to negate an affirmative defense in his
complaint.” (citing Gomez v. Toledo, 446 U.S. 635, 640
(1980)). Indeed, requiring a plaintiff to plead compliance
with a statute of limitations would effectively ensure that a
timeliness issue would always appear on the face of a
complaint, thereby shifting the burden to the plaintiff to
negate the applicability of the affirmative defense. Therefore,
we hold that a Securities Act plaintiff need not plead
compliance with Section 13.

In a last-ditch argument for affirmance, UBS asserts
that the Amended Complaint “facially shows noncompliance

17
with the limitations period and the affirmative defense clearly
appears on the face of the pleading.” Response Br. at 56
(quoting Oshiver v. Levin, Fishbein, Sedran & Berman, 38
F.3d 1380, 1384 n.1 (3d Cir. 1994)). The problem, of course,
is that the District Court dismissed the Amended Complaint
for precisely the opposite reason – the Operating Engineers’
failure to plead any particularized facts related to the
timeliness of the claims. Nonetheless, UBS is correct that, in
ruling on a motion to dismiss, we may consider “matters of
public record, orders, exhibits attached to the complaint and
items appearing in the record of the case.” Id. (quoting
Oshiver, 38 F.3d at 1384 n.2). Because, as we discuss below,
matters of public record and items appearing in the record of
the case reveal that the claims in the Original Complaint were
untimely, we will not reverse the District Court’s erroneous
dismissal of the Amended Complaint.

B.

The Operating Engineers next argue that the District
Court erred in applying an inquiry notice standard and in
determining that the claims in the Original Complaint were
untimely. UBS counters that the District Court correctly
refused to adopt a discovery standard, and that, in any event,
the claims in the Original Complaint were also untimely
under that standard. Although we hold that a discovery
standard governs Section 13 of the Securities Act, we
conclude that the claims in the Original Complaint were
untimely.

18
 1.

We first consider whether the District Court erred in
applying an inquiry notice standard to determine whether the
Securities Act claims in the Original Complaint were timely
under Section 13 pursuant to our decision in Benak. There,
we held that “to the extent a securities fraud plaintiff was on
inquiry notice of the basis for claims more than one year prior
to bringing the action, his or her claim is subsequently time-
barred by the requisite statute of limitations.” 435 F.3d at 400
(quotation omitted). We explained that under the inquiry
notice standard, statutes of limitations start to run when
plaintiffs “discovered or in the exercise of reasonable
diligence should have discovered the basis for their claim[s]
against the defendant[s].” Id. (quotation omitted). Whether
reasonably diligent plaintiffs should have discovered the basis
for their claims, in turn, depends on “whether they had
sufficient information of possible wrongdoing to place them
on ‘inquiry notice’ or to excite ‘storm warnings’ of culpable
activity.” Id. (quotation omitted). And whether information
is sufficient to excite storm warnings depends on “whether a
reasonable investor of ordinary intelligence would have
discovered the information and recognized it as a storm
warning.” Id. (quotation omitted). Importantly, a reasonably
diligent plaintiff is on inquiry notice when she would have
discovered general facts about the fraudulent scheme by the
defendant rather than specific facts about the fraud
perpetrated on her. Id.

If defendants carry their burden of establishing the
existence of storm warnings, then “the burden shifts to the
plaintiffs to show that they exercised reasonable due diligence

19
and yet were unable to discover their injuries.” Id. (quotation
omitted). Plaintiffs on inquiry notice have “a duty to exercise
reasonable diligence to uncover the basis for their claims.”
Id. at 401 (quotation omitted). If plaintiffs cannot
demonstrate the requisite diligence, then they “are held to
have constructive notice of all facts that could have been
learned through diligent investigation during the limitations
period.” Id. (quotation omitted). Plaintiffs may not excuse
their failure to inquire merely because “reasonable diligence
would not have uncovered their injury.” Id. (quotation
omitted).

In applying this standard, the District Court refused to
extend the Supreme Court’s holding in Merck that a discovery
standard applies to the Exchange Act’s statute of limitations.
130 S. Ct. at 1798. The court reasoned that the discovery
standard “applied to a securities fraud action under [the
Exchange Act], and not to . . . claims under the Securities
Act,” and that “while some other Circuits have adopted the
Merck standard for [Securities Act] claims, the Third Circuit
has yet to do so.” App. at 19 n.5. Merck’s impact on Benak
is another issue of first impression for us.

In Merck, the Supreme Court affirmed our reversal of
the district court’s dismissal of securities claims as untimely,
but rejected and replaced our inquiry notice standard with a
discovery standard. Merck concerned the Exchange Act’s
statute of limitations, which provides that a claim involving
“fraud, deceit, manipulation, or contrivance in contravention
of a regulatory requirement concerning the securities laws . . .
may be brought not later than . . . 2 years after the discovery
of the facts constituting the violation,” 130 S. Ct. at 1790

20
(quoting 28 U.S.C. § 1658(b)(1)). Because “the word
‘discovery’ is often used as a term of art in connection with
the ‘discovery rule’” in statutes of limitations, the Court first
adopted a discovery standard, holding that an Exchange Act
claim accrues “(1) when the plaintiff did in fact discover, or
(2) when a reasonably diligent plaintiff would have
discovered, ‘the facts constituting the violation’ – whichever
comes first.” Id. at 1789-90, 1793.

The Court next rejected the inquiry notice standard,
which it understood to refer “to the point where the facts
would lead a reasonably diligent plaintiff to investigate
further,” id. at 1797, as the statute of limitations trigger, even
when “the actual plaintiff fails to undertake an investigation
once placed on ‘inquiry notice,’” id. at 1798. The Court
explained that inquiry notice “is not necessarily the point at
which the plaintiff would already have discovered . . . ‘facts
constituting the violation.’” Id. at 1797. For this reason, the
inquiry notice standard conflicts with the text of the statute,
which “says that the plaintiff’s claim accrues only after the
‘discovery’ of [the facts constituting the violation],” and
“contains no indication that the limitations period should
occur at some earlier moment before ‘discovery,’ when a
plaintiff would have begun investigating.” Id. Thus, the
Court held that “the ‘discovery’ of facts that put a plaintiff on
‘inquiry notice’ does not automatically begin the running of
the limitations period.” Id. at 1798.

We agree with the Operating Engineers that the
discovery standard announced by the Supreme Court in
Merck applies not only to the Exchange Act’s statute of
limitations, but also to the Securities Act’s statute of

21
limitations. Importantly, both statutes incorporate the word
“discovery,” which the Merck Court identified as a term of art
representing the discovery rule. Compare 28 U.S.C. §
1658(b)(1) (“[A] private right of action that involves a claim
of fraud, deceit, manipulation, or contrivance in contravention
of a regulatory requirement concerning the securities laws . . .
may be brought not later than . . . 2 years after the discovery
of the facts constituting the violation.” (emphasis added)),
with 15 U.S.C. § 77m (“No action shall be maintained to
enforce any liability created under [the Securities Act] unless
brought within one year after the discovery of the untrue
statement or the omission, or after such discovery should
have been made by the exercise of due diligence.” (emphasis
added)). Neither statute includes any language suggesting
that the limitations period begins to run before discovery. Cf.
Gabelli v. SEC, 133 S. Ct. 1216, 1220 (2013) (declining to
graft the discovery rule onto 28 U.S.C. § 2462 because “the
most natural reading” of that statute of limitations, which
expressly referenced “accrual” not “discovery,” was that the
“clock begins to tick [] when a defendant’s allegedly
fraudulent conduct occurs”).

Moreover, the Merck Court pointed out that the
Exchange Act’s statute of limitations is indirectly based on
the Securities Act’s statute of limitations. 130 S. Ct. at 1794-
96. Indeed, the Exchange Act’s statute of limitations repeats
the language of the Supreme Court’s decision in Lampf,
Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S.
350, 364 (1991). That decision, in turn, looked to the
Securities Act’s statute of limitations, among others. Id. at
360 & n.7.

22
 Furthermore, both the Supreme Court and this Court
have treated as interchangeable precedent dealing with the
different statutes of limitations. For example, immediately
before rejecting the inquiry notice standard for Exchange Act
claims, the Merck Court defined that standard by citing three
court of appeals cases that dealt with Securities Act claims.
See 130 S. Ct. at 1797 (citing, inter alia, Franze v. Equitable
Assurance, 296 F.3d 1250, 1254 (11th Cir. 2002); Great
Rivers Coop. of Se. Iowa v. Farmland Indus., Inc., 120 F.3d
893, 896 (8th Cir. 1997); Dodds v. Cigna Sec., Inc., 12 F.3d
346, 350 (2d Cir. 1993)). Similarly, in Benak, we first
described and applied the inquiry notice standard to claims
under the Securities Act, 435 F.3d at 400-03, and in Merck,
we then adopted and applied the Benak inquiry notice
standard to claims under the Exchange Act, 543 F.3d at 160-
72.

UBS attempts to distinguish Merck on the basis that
the Exchange Act’s statute of limitations deals with “claim[s]
of fraud,” 28 U.S.C. § 1658(b), and that fraud “is not a
necessary element to establish a prima facie claim under
Section 11 or Section 12(a)(2)” of the Securities Act,
Suprema Specialties, 438 F.3d at 270 (citation omitted).
UBS’s reasoning is incorrect. The Supreme Court has
repeatedly made clear that the critical inquiry is whether the
statutory language incorporates the discovery rule, not
whether the underlying claim sounds in fraud. See, e.g.,
Merck, 130 S. Ct. at 1794 (explaining that “[l]egislatures have
codified the discovery rule in various contexts” other than
fraud (citations omitted)); Gabelli, 133 S. Ct. at 1224
(declining to apply the discovery rule to fraud claims under

23
the Investment Advisers Act of 1940 due, in part, to the lack
of textual support in the general statute of limitations for civil
penalty actions). And, in any event, we have indicated that
while fraud is not an essential element of Securities Act
claims, such claims “can be, and often are, predicated on
allegations of fraud.” Suprema Specialties, 438 F.3d at 270
(citation omitted).

UBS also asserts that the Second Circuit has
“concluded that Merck applies only to securities fraud claims
arising under the Exchange Act, and not to non-fraud
Securities Act claims.” Response Br. at 36 (citing Koch v.
Christie’s Int’l PLC, 699 F.3d 141, 149-50 (2d Cir. 2012)).
But UBS overstates the Second Circuit’s holding. In Koch, to
distinguish the Racketeer Influenced and Corrupt
Organizations Act (“RICO”) statute of limitations, the court
stated that “[n]othing in Merck’s discussion of [28 U.S.C.]
§ 1658(b) purports . . . to apply [the discovery standard]
outside the context of the statute at issue in that case.” 669
F.3d at 149. However, the RICO statute of limitations is
“silent on the issue” of accrual, and for this reason, the
general discovery accrual rule applies to a RICO claim,
whereby the “discovery of the injury, not discovery of the
other elements of a claim, is what starts the clock.” Id.
(quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)). In
contrast, Merck “involved a statutory exception to the
common law rule” because the Exchange Act statute of
limitations “was not silent, but rather stated that discovery of
the facts constituting the ‘violation’ lead to accrual.” Id.
Because the Securities Act statute of limitations is also
expressly contingent on the discovery of the facts constituting

24
the violation, namely, “the discovery of the untrue statement
or the omission,” 15 U.S.C. § 77m, Koch is distinguishable.
Therefore, pursuant to the Supreme Court’s decision in
Merck, we hold that the discovery standard governs whether
Securities Act claims are timely under Section 13.5

Regarding the amount of information a reasonably
diligent plaintiff must have about a particular fact before she
is deemed to have “discovered” it under the new standard, we
agree with the Second Circuit’s analysis in City of Pontiac
General Employees’ Retirement System v. MBIA, Inc., 637
F.3d 169, 174-75 (2d Cir. 2011). As the MBIA court pointed
out, the Merck Court “specifically referenced pleading
requirements when discussing the limitations trigger.” Id. at
175 (citing Merck, 130 S. Ct. at 1796). Also, it is logical to
link the statute of limitations standard with the pleading
standard; the purpose of statutes of limitations is to prevent
stale claims, but claims cannot be stale until they have
accrued, and claims cannot accrue until they can be
adequately pled. Id. Thus, we adopt the MBIA court’s
holding that “a fact is not deemed ‘discovered’ until a
reasonably diligent plaintiff would have sufficient
information about that fact to adequately plead it in a
complaint . . . with sufficient detail and particularity to
survive a 12(b)(6) motion to dismiss.” Id.
5
Although this panel lacks the authority to overrule a
binding precedential opinion of a prior panel, we may
reevaluate our precedent in light of an intervening Supreme
Court decision. Inst. Inv. Grp. v. Avaya, Inc., 564 F.3d 242,
276 n.50 (3d Cir. 2009).

25
 Despite our holding that the inquiry notice standard no
longer governs the statute of limitations under Section 13 for
Securities Act claims, we disagree with the Operating
Engineers’ recommendation that we discard Benak and its
progeny. The Merck Court clearly preserved a limited role
for the old standard, acknowledging that “terms such as
‘inquiry notice’ and ‘storm warnings’ may be useful to the
extent that they identify a time when the facts would have
prompted a reasonably diligent plaintiff to begin
investigating.” 130 S. Ct. at 1798. This information may be
helpful because the “limitations period puts plaintiffs who fail
to investigate once on ‘inquiry notice’ at a disadvantage
because it lapses [a certain time] after a reasonably diligent
plaintiff would have discovered the necessary facts,” and a
“plaintiff who fails entirely to investigate or delays
investigating may well not have discovered those facts by that
time.” Id. (citation omitted). However, we caution that the
inquiry notice standard can only play a supporting role
because “the limitations period does not begin to run until the
plaintiff . . . discovers or a reasonably diligent plaintiff would
have discovered ‘the facts constituting the violation,’ . . .
irrespective of whether the actual plaintiff undertook a
reasonably diligent investigation.” Id.

We also disagree with UBS’s suggestion that because
Section 11 and Section 12(a)(2) claims do not include a
scienter element, there is no practical difference between the
discovery standard and the inquiry notice standard for
Securities Act claims. On the one hand, the two standards
will not automatically yield the same result for Securities Act
claims. See id. at 1797 (“[T]he point where the facts would

26
lead a reasonably diligent plaintiff to investigate further . . . is
not necessarily the point at which the plaintiff would already
have discovered facts showing scienter or other ‘facts
constituting the violation.’” (emphasis added)). On the other
hand, the difference between the two standards will normally
fluctuate in tandem with the level of specificity of the
information about a fact that is available to a reasonably
diligent plaintiff. See id. at 1798 (“[A] reasonably diligent
investigation . . . may consume as little as a few days or as
much as a few years.” (quotation omitted)); MBIA, 637 F.3d
at 175 (“[T]he amount of particularity and detail a plaintiff
must know before having ‘discovered’ the fact will depend on
the nature of the fact.”). Thus, if the information is
generalized, – i.e., does not refer to a specific security or
defendant – then there will typically be a larger temporal
disparity between the start of the investigation and the
discovery of the facts constituting the violation. But if the
information is particularized, – i.e., does refers to a specific
security or defendant – then there will usually be a smaller
temporal disparity between the start of the investigation and
the discovery of the facts constituting the violation.

2.

We next decide whether the District Court erred in
determining that the claims in the Original Complaint were
untimely. The court rejected the Operating Engineers’
argument that general storm warnings referencing
Countrywide and IndyMac “were not specific enough to place
[a reasonably diligent plaintiff] on inquiry notice” because
they did not reference UBS, the Certificates, or the Offering
Documents. App. at 22. Instead, in light of the “sheer

27
volume of reports, articles, and lawsuits concerning the
mortgage lending industry and [mortgage-backed securities]
available prior to February of 2009,” the court opined that “a
reasonable investor of ordinary intelligence would not need to
know the details of the specific loans that comprised their
certificates in order to trigger an investigation.”6 Id. at 24.

On appeal, the Operating Engineers admit that there
were storm warnings about Countrywide and IndyMac more
than a year before the Original Complaint was filed, Reply
6
The District Court also determined that, even if it
were true that a reasonably diligent plaintiff “could not have
discovered the facts underlying [her] claims until after
February 20, 2009, when the ratings agencies Moody’s and
S&P downgraded the . . . Certificates,” App. at 22, the
Operating Engineers had not demonstrated reasonable
diligence because they admitted “that [they] did not learn of
significant losses to the value of [their] Certificates until
March 29, 2010, over a year after the Certificates’ ratings
were downgraded,” id. at 24 (citing id. at 464 ¶ 193). Under
the discovery standard, the statute of limitations “begins to
run once the plaintiff did discover or a reasonably diligent
plaintiff would have ‘discovered the facts constituting the
violation’ – whichever comes first.” Merck, 130 S. Ct. at
1798 (emphasis added). Because we conclude, as discussed
below, that a reasonably diligent plaintiff would have
discovered the untrue statements or the omissions more than a
year before the Original Complaint was filed, the fact that the
Operating Engineers did not discover their claims until more
than a year following the Moody’s downgrade is irrelevant.

28
Br. at 19 (“Beginning as early as August 2006, numerous
lawsuits, governmental investigations, and press reports
revealed significant misconduct at numerous mortgage loan
originators, such as Countrywide and IndyMac, concerning
various mortgage loan underwriting practices.”),7 and that the
Offering Documents indicated that Countrywide and
IndyMac collectively originated about 92% of the loans
underlying the Certificates, App. at 1596. But based on
Merck and MBIA, the Operating Engineers argue that because
a reasonably diligent plaintiff does not discover a fact
constituting a violation until she can state a plausible claim
about her particular security, the storm warnings must be
certificate-specific. We disagree.

7
In determining that the claims in the Original
Complaint were untimely, the District Court relied, in part, on
an “August 2006 class action suit against IndyMac . . . [that]
alleged [a] ‘systematic and continued failure to provide
independent and effective appraisals and evaluations,’ which
caused damage to [mortgage-backed securities] holders.”
App. at 21 (citation omitted). The District Court’s
consideration of storm warnings that pre-dated the Operating
Engineers’ purchase of the Certificates on September 18,
2007 was error. See MBIA, 637 F.3d at 176 (“[I]f the statute
of limitations cannot begin to run until a claim has accrued,
and a securities fraud claim does not accrue until the plaintiff
has bought or sold the relevant security, then the statute of
limitations cannot begin to run until after the plaintiff’s
transaction.”).

29
 As discussed above, the Merck Court preserved a
limited role for inquiry notice in a statute of limitations
analysis. 130 S. Ct. at 1797-98. Thus, we look to our pre-
Merck precedent, which instructs that a reasonably diligent
plaintiff would undertake an investigation based on “[t]he
filing of related lawsuits,” “news articles and analyst’s
reports,” and “prospectuses, quarterly reports, and other
information related to their investments,” Benak, 435 F.3d at
400, 403 n.20 (quotations omitted), even when the
information therein is not “company-specific” or security-
specific, DeBenedictis, 492 F.3d at 217. Nonetheless, the
Merck Court ultimately rejected the inquiry notice standard as
the trigger for the statute of limitations. 130 S. Ct. at 1797-
98. Thus, while a reasonably diligent plaintiff would have
started an investigation based on these non-security-specific
storm warnings, the statute of limitations would not have
begun to run until she discovered the untrue statements or the
omissions concerning her particular Certificates.

The Operating Engineers next contend that a
reasonably diligent plaintiff would not have discovered the
untrue statements or the omissions regarding the Certificates
until the rating downgrade by Moody’s on February 20, 2009
because UBS made two reassuring, specific statements about
the Certificates that dissipated the general storm warnings
about Countrywide and IndyMac. First, on September 18,
2007, when the Operating Engineers purchased the
Certificates, the Offering Documents reassured that there
were “no material legal proceedings currently pending against
any of [UBS Real Estate], [MASTR] or the [MASTR Trust].”
App. at 1728. Second, on March 31, 2008, MASTR filed a

30
public SEC Form 10-K reassuring that MASTR “kn[ew] of
no material pending legal proceedings involving
[Countrywide or IndyMac], other than routine litigation
incidental to the duties” of those companies.”8 Reply Br. at
18 (quotation omitted).

We have recognized that “reassurances can dissipate
apparent storm warnings if an investor of ordinary
intelligence would reasonably rely on them to allay the
investor’s concerns.” Merck, 543 F.3d at 168 n.14. Here, we
agree that, despite widely-publicized reports about
widespread problems with underwriting standards at
Countrywide and Indy-Mac, an investor of ordinary
intelligence would reasonably rely on UBS’s reassurances
that the particular loans underlying its specific Certificates
were not afflicted with the common ailment. Thus, as of
8
UBS argues that we should not take judicial notice of
the Form 10-K, which the Operating Engineers failed to
produce before the District Court or in their Opening Brief.
In Oran v. Stafford, we took judicial notice of a public SEC
filing, which had not been presented to the district court, but
which had been referenced in the opening brief, concluding
that there was “no risk of unfair prejudice or surprise.” 226
F.3d 275, 289 (3d Cir. 2000) (citation omitted). Here, while
the Operating Engineers waited to reference the document
until their Reply Brief, we conclude that there is no danger of
unfair prejudice or surprise since we have carefully
considered UBS’s eight-page motion addressing the
document, and since UBS itself filed the document with the
SEC. Thus, we will take judicial notice of the Form 10-K.

31
March 31, 2008, a reasonably diligent plaintiff would not
have inquired about potential claims related to the
Certificates.

However, we conclude that by September 9, 2008, a
reasonably diligent plaintiff would have begun investigating
his Certificates. The record reflects that on that date, a class
of plaintiffs – including the Operating Engineers – filed an
amended class action complaint in the California Superior
Court against both Countrywide and UBS Securities,
asserting claims under Sections 11, 12(a)(2), and 15 of the
Securities Act that were substantially similar to those in this
case. That complaint specifically alleged that Countrywide
was the “originator of the majority of the underlying
mortgages supporting the securitization transactions,” and
that UBS Securities “drafted and disseminated the offering
documents for the Certificates,” and “issued false and
misleading Prospectuses in connection therewith.” App. at
1296 ¶ 19, 1298-99 ¶ 29. In particular, the “Prospectus
Supplements” were “false and misleading” because they
contained “omissions and misrepresentations” related to “the
underwriting process for the mortgages,” including
“creditworthiness of borrowers, debt-to-income levels and
loan-to-value ratios.” Id. at 1320 ¶ 59.

A reasonably diligent plaintiff who had purchased
mortgage-backed securities from UBS Securities based on
loans that were largely originated by Countrywide would
have noticed that complaint. Benak, 435 F.3d at 403 n.20.
The allegations in the complaint, which suggest that UBS
Securities could not be trusted to verify Countrywide’s
underwriting standards for the loans underlying the securities

32
it sold, would have undermined UBS’s prior reassurances
about the Certificates. Thus, a reasonably diligent plaintiff
would have begun to inquire about her Certificates by
September 9, 2008.

Because UBS has established the existence of storm
warnings, we must evaluate whether a reasonably diligent
plaintiff who began investigating in September 2008 would
have discovered the untrue statements or the omissions about
the Certificates in the Offering Documents before February
2009. The Operating Engineers claim that no reasonably
diligent plaintiff would have discovered the facts underlying
their claims because “[t]he mortgage loan files for the
borrowers whose mortgage loans were included in the
mortgage pools underlying the Certificates have never been
available to investors.” App. at 461 ¶ 187. The Operating
Engineers admit that UBS made available certain loan-level
data about the underlying mortgages in March 2007 and June
2008. Id. at 461 ¶ 188. But the Operating Engineers allege
that the information was inadequate to enable them to
discover their claims because it did not include “specific
borrower’s names and addresses,” and so did not allow them
to “determine whether the loans satisfied the represented loan
criteria, including such important and material data points as
[loan-to-value] and [debt-to-income ratios].” Id. at 462 ¶ 189.

According to the Operating Engineers, they acted as a
reasonably diligent plaintiff with respect to the Certificates at
all times. Id. at 463-64 ¶ 192. In particular, the Operating
Engineers aver that they retained a consultant to investigate
their potential claims after they were appointed Lead Plaintiff
on October 19, 2010. Id. at 464 ¶ 194. The consultant “used

33
a proprietary process” that involved “combing through court
filings and numerous databases” in order to “uncover
financial information for certain of the individual borrowers
of the loans underlying the Certificates in order to back test
the accuracy of the [debt-to-income], occupancy and [loan-to-
value] ratios disclosed by [UBS].” Id. Based on this
investigation, the consultant constructed the substantive
allegations in the Amended Complaint,9 which was filed on
December 13, 2010. Id. In other words, by the Operating
Engineers’ own timeline, their reasonably diligent
investigation took about two months to uncover the facts
underlying their claims in 2010.

The question then becomes whether a comparable
investigation would have been equally successful in
September 2008. The Operating Engineers respond in the
negative because the consultant could not have “solely [used]
the limited loan-level data” made available by UBS in March
2007 and June 2008. Id. at 464-65 ¶ 195. We conclude that a
9
The Operating Engineers actually alleged, in the
Second Amended Complaint, that their consultant’s
investigation “resulted in the substantive allegations set forth
[t]herein.” App. at 464 ¶ 194. However, this admission also
applies to the Amended Complaint. As the District Court
explained, the difference between the Second Amended
Complaint and the Amended Complaint is that the former
added ten paragraphs about the statute of limitations (not
about the underlying substantive allegations) to the latter. Id.
at 15. Thus, the consultant’s investigation resulted in the
substantive allegations set forth in the Amended Complaint.

34
reasonably diligent plaintiff’s investigation would have been
no less fruitful in 2008 than in 2010.

Although the Operating Engineers do not elaborate,
the consultant’s “proprietary process” apparently involved an
analysis of “court filings.” Id. at 464 ¶ 194. Rather than the
court filings – such as the complaint filed in California
Superior Court in September 2008 – that gave rise to the
storm warnings, it seems as though the consultant sought out
court filings related to bankruptcy or foreclosure proceedings
on the loans underlying the Certificates. See id. (“This
‘reverse-engineering’ process included combing through
court filings . . . to uncover financial information for certain
of the individual borrowers of the loans underlying the
Certificates.”). As early as June 2008, UBS disclosed that
about 12.5% of the loans underlying the Certificates were tied
up in either bankruptcy or foreclosure proceedings. Id. at 461
¶ 188, 2018. Thus, in 2008, the consultant would have known
of these cases and would have used them to back engineer the
actual debt-to-income and loan-to-value ratios for the
borrowers in bankruptcy or foreclosure proceedings.

The consultant’s “proprietary process” also apparently
involved an analysis of “numerous databases.” Id. at 464 ¶
194. If, as the Operating Engineers allege, the consultant’s
investigation were reasonably diligent, it would have included
a review of the SEC’s databases. Benak, 435 F.3d at 400. In
March 2007, UBS publicly filed a Free Writing Prospectus
pursuant to SEC Rule 433 that set forth granular loan-level
details, including purported debt-to-income and loan-to-value
ratios as well as occupancy rates for the underlying

35
mortgages.10 Id. at 1526-38. Thus, in 2008, the consultant
would have compared the actual debt-to-income and loan-to-
value ratios gleaned from bankruptcy and foreclosure
proceedings with UBS’s represented values, thereby
discovering the facts underlying the Operating Engineers’
claims.

For these reasons, we conclude that a reasonably
diligent investigation would have yielded the same results in
both 2008 and 2010. Thus, a reasonably diligent plaintiff
would have discovered the untrue statements or the omissions
about the Certificates in the Offering Documents in
November 2008, two months after she was alerted by the
complaint filed in California Superior Court in September
2008 to the possibility that she might have claims. Because a
reasonably diligent plaintiff would have been able to plead
viable Securities Act claims in November 2008, the Section
13 statute of limitations would have run, at the latest, in
November 2009. Therefore, the Original Complaint, which
was not filed until February 2010, was untimely.

10
It would be inappropriate to consider UBS’s March
2007 SEC filing as a storm warning, since the Operating
Engineers did not purchase their Certificates until September
2007. See MBIA, 637 F.3d at 176. Nonetheless, it stands to
reason that once a plaintiff is on inquiry notice, a reasonably
diligent investigation would uncover information that pre-
dates her purchase of her securities.

36
 IV.

In sum, we hold that a Securities Act plaintiff need not
plead compliance with Section 13, and that the timeliness of
Securities Act claims under Sections 11, 12(a)(2), and 15
should be measured against a discovery standard. We
conclude, however, that the claims in the Original Complaint
were untimely. Therefore, we will affirm the District Court’s
order dismissing the Second Amended Complaint with
prejudice.

37