USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-1699
J. GEILS BAND EMPLOYEE BENEFIT PLAN, ET AL.,
Plaintiffs - Appellants,
v.
SMITH BARNEY SHEARSON, INC., ET AL.,
Defendants - Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert E. Keeton, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Bownes, Senior Circuit Judge, ____________________
and Stahl, Circuit Judge. _____________
_____________________
Thomas J. Butters, with whom Cullen & Butters was on brief _________________ ________________
for appellants.
Barry Y. Weiner, with whom Christopher P. Litterio, William _______________ _______________________ _______
E. Ryckman and Shapiro, Israel & Weiner, P.C. were on brief for __________ ______________________________
appellees.
____________________
February 20, 1996
____________________
TORRUELLA, Chief Judge. Appellants, the J. Geils Band TORRUELLA, Chief Judge ___________
Employee Benefit Plan (the "Plan"), and Stephen Bladd (the
"Trustee"), John Geils, Jr., Richard Salwitz and Seth Justman
(the "Participants"), brought this suit alleging fraud and breach
of fiduciary duty under the Employment Retirement Income Security
Act of 1974 ("ERISA"), 29 U.S.C. 1001 et seq. (1994), in ________
connection with certain investment transactions made by Appellees
in 1985, 1986 and 1987. The district court granted the motion
for summary judgment brought by Appellees, Smith Barney Shearson
("Shearson"), Matthew McHugh, and Kathleen Hegenbart, on the
grounds that Appellants' claims are time barred under ERISA's
six-year statute of limitations. For the following reasons, we
affirm.
FACTUAL AND PROCEDURAL BACKGROUND FACTUAL AND PROCEDURAL BACKGROUND _________________________________
The following facts are summarized in the light most
favorable to Appellants, the party opposing summary judgment.
Barbour v. Dynamics Research Corp., 63 F.3d 32, 36 (1st Cir. _______ ________________________
1995).
The Plan, also known as T & A Research and Development,
Inc., was formed as a pension and profit sharing plan for the
employees of the J. Geils Band and, as a common plan and trust,
it is subject to ERISA. In April of 1985, Bladd as the Plan's
Trustee1 opened accounts for the Plan with Shearson Lehman
Brothers, Inc., a registered broker-dealer and a member firm of
____________________
1 The record shows that prior to serving as the Plan's trustee,
Bladd had no significant financial background or experience.
-2-
both the National Association of Securities Dealers (NASD) and
the New York Stock Exchange (NYSE). This appeal stems from
Shearson's management between 1985 and 1990 of the Plan's account
and, specifically, its purchase of three limited partnerships
(the first in June of 1985, the second in September of 1985, and
the third in June of 1987) and execution of a "bond swap" in May
of 1986.
The Plan's accounts were handled by Hegenbart, a
Shearson employee who acted as the Plan's stock broker from 1985
until Appellants transferred the accounts from Shearson in 1990.
McHugh, a Shearson branch manager, supervised the accounts.
Hegenbart would make a recommendation, and if Appellants accepted
it and executed an order, she would receive a commission. If the
recommendation was not accepted, she would not receive any
compensation from Appellants. While Appellants communicated to
Hegenbart that they knew very little about financial management
or investment, Appellants retained decision-making authority over
the Plan accounts. At no time was Hegenbart given power of
attorney or discretionary authority over the accounts.
Upon opening the Plan's accounts, Hegenbart sold the
securities transferred to it and one month later, in June of
1986, purchased over $500,000 of long-term zero coupon bonds
("CATS"), Shearson-managed mutual funds, and certificates of
deposit. In May of 1986, Appellants swapped the CATS purchased
in 1985 for other bonds upon Hegenbart's recommendation. The
bond swap resulted in an overall loss to the Plan and generated
-3-
over $90,000 worth of commissions -- $32,000 for the bonds
purchased in 1985 and $61,000 for their sale in May of 1986, and
the subsequent purchase of the new bonds. The Plan was charged
commissions of about 3.5% for the sale of the CATS purchased in
1985, 3.5% for the 1986 sale, and approximately 6% for the 1986
purchase of the new CATS.
Between 1985 and 1987, Appellants purchased a total of
$165,000 worth of three Shearson-packaged limited partnership
interests. The first was purchased in June of 1985, for
$100,000. On or about the purchase date, Bladd, as Trustee, and
Justman executed a Subscription Agreement under penalty of
perjury. According to this agreement, they acknowledged, inter _____
alia, that (i) they received the prospectus; (ii) there was not ____
expected to be a public market for their investment; and (iii)
there were risks involved, which the prospectus disclosed.
Appellants were sent prospectuses which similarly disclosed risks
involved when they purchased $40,000 worth of the second limited
partnership interest in September of 1985, and when they
purchased $25,000 of the third in June of 1987.
Each of the Participants, including Bladd as Trustee,
received monthly statements, as did Justman's accountant, Nick
Ben-Meir ("Ben-Meir"). The monthly statements disclosed the
transactions which occurred during the particular month as well
as a summary of the Plan's portfolio but did not separately break
out the amount of commissions charged. The monthly statements
listed the "face amount" of the limited partnerships, but not the
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market value. As of January 1986 they included the following
statement: "The face amount does not necessarily reflect current
market value." Appellants also received quarterly "Portfolio
Reviews," which consisted of two documents: (i) a chart setting
forth the Plan's portfolio, including the investment, date of
purchase, amount invested, current market value, and yield, among
other information; and (ii) an investment pyramid showing the
relative safety of each investment and its market value,
including the total account value. Unlike the monthly
statements, the record shows that the portfolio review dated
October 1988 lists as the market value what was actually the face
amount of the interests in the limited partnerships. In the May
1990 portfolio review, the limited partnerships are listed in the
"amount invested" column, with two of them appearing with
undefined subtractions for "ROC" which exceed $19,000; the
corresponding "market value" column is blank. Bladd, as Trustee,
also received letters from McHugh as early as June of 1985 in
which he offered both to help him review the Plan's investment
objectives and results obtained and to discuss how Shearson could
be of greater assistance.
While Ben-Meir did not receive the statements with the
purpose of reviewing Hegenbart's investment decisions, the record
shows he did review some potential investments as early as May of
1986. In October of 1988, Justman received a letter from Ben-
Meir regarding an analysis of Justman's portfolio. In the
letter, Ben-Meir communicated that he had exchanged "some
-5-
extremely sharp words" with Hegenbart regarding some of the
figures shown in the analysis, particularly with respect to the
limited partnership interests. The letter stated that all of
them are worth "far below their cost" and "strongly advise[d]
[Justman] not to enter into any more of these types of ___
investments," because the "'loading' charges (fees and
commissions off the top), together with their continuingly _____________
reduced value for tax purposes . . . make them unattractive . . .
." (Emphasis in original). Ben-Meir then expressed that
"[d]espite [Hegenbart's] repeated statements to me that she only
has your best interest at heart, my instincts say otherwise, and
I would urge you, once again, to request and obtain an accounting
of the fees and commissions earned by Shearson and her as a
result of her placing you in all these [l]imited [p]artnerships."
Finally, the letter closed with the recommendation that "[i]f you
decide to continue using [Hegenbart] to manage your portfolio,
that's okay, but you should clearly change the amount of
discretion you have been allowing, so that no purchases or sales
are made without your complete review of all proposals and
direction."
In late July to August 1990, the Plan accounts were
transferred from Shearson. Some time thereafter, the Plan's new
broker informed Bladd that the limited partnerships were
unsuitable for investors desiring safety and were worth less than
the amount reflected in the latest review, confirming Ben-Meir's
October 1988 observations. Between the summers of 1991 and 1992,
-6-
internal Shearson "activity reports" produced during arbitration
proceedings brought by Justman against Shearson2 revealed
information regarding the excessive commissions, also confirming
Ben-Meir's observations. Appellants maintain that they only
learned of the Plan's losses resulting from the bond swap in
January of 1994, when they were informed by counsel whom they had
retained in October of 1992.
Pursuant to an agreement between the parties to
arbitrate disputes, Appellants commenced arbitration proceedings
with the NASD by filing a Uniform Submissions Agreement dated
August 20, 1993, seeking recovery for alleged breaches of
fiduciary duty by Appellees. On motion by the Appellees, the
NASD Director ruled on May 15, 1994, that virtually all of the
claims were ineligible for arbitration under Section 15 of the
NASD Code of Arbitration Procedure, because all trades giving
rise to the claims occurred more than six years prior to the
filing of the arbitration in August of 1993.
On October 7, 1994, Appellants filed the civil action
below. In their complaint, Appellants allege that Appellees
violated their purported fiduciary duty3 to the Plan under ERISA
____________________
2 In that proceeding, Seth Justman v. Shearson Lehman Hutton and ____________ __________________________
Kathleen Hegenbart, NASD No. 90-02937, Justman sought damages as __________________
a result of alleged unlawful actions resulting in large losses.
The NASD docket reveals that these proceedings were commenced on
October 19, 1990 and closed on June 3, 1992.
3 Appellees' motion for summary judgment also argued that the
claims were barred because Appellees were not fiduciaries under
ERISA. The district court did not rule on this issue. For
purposes of this appeal, we assume, without deciding, that
Appellees were under a fiduciary duty. See Maggio v. Gerard ___ ______ ______
-7-
with respect to the three limited partnership interests and the
"bond swap." Appellants contend the following: (i) that these
transactions were unsuitable for the Plan and were inconsistent
with its investment objectives; (ii) that Hegenbart, in order to
obtain higher commissions, made fraudulent statements to induce
the Participants, whom she knew were unsophisticated investors
relying on her investment advice, into making these transactions;
and (iii) that in connection with the bond swap Appellees charged
commissions grossly exceeding the rate Hegenbart had represented
would be charged. Appellants subsequently filed a motion
compelling arbitration of all claims or, in the alternative,
staying arbitration pending adjudication by jury trial of non-
arbitrable claims. In response, Appellees filed an answer and
counterclaim for declaratory judgment, opposition to Appellants'
motion, and a motion for summary judgment as to the complaint and
counterclaim. Pending disposition of these motions, Appellants
requested review of the decision by the Director of the NASD. On
January 10, 1995, the arbitration panel affirmed the Director's
decision. On May 9, 1995, the district court entered a
memorandum and interlocutory order by which Appellees' summary
judgment motion was granted. The district court concluded that
____________________
Freezer & Ice, Co., 824 F.2d 123, 129 (1st Cir. 1987) (finding no __________________
need to resolve merit of allegations that uncles and brothers, as
fellow shareholders in a close corporation, owed plaintiff a
fiduciary duty). For a recent discussion of ERISA and, in
particular, whether ERISA authorizes suits for money damages
against nonfiduciaries who knowingly participate in a fiduciary's
breach of duty, see J. Mertens v. Hewitt Associates, ___ U.S. ___________ __________________
___, 113 S. Ct. 2063 (1993).
-8-
Appellants' claims were time-barred under ERISA's six-year
statute of limitations on the grounds that, under the fraudulent
concealment doctrine as applied in this Circuit, Appellants had
been placed on inquiry notice -- by their receipt of the
prospectuses and monthly statements -- more than six years before
commencing their cause of action. After voluntary dismissal of
Appellees' counterclaims without prejudice, the court entered a
final judgment on June 23, 1995. This appeal followed.
STANDARD OF REVIEW STANDARD OF REVIEW __________________
We review a district court's grant of summary judgment
de novo and, like the district court, review the record in the _______
light most favorable to the non-moving party. See, e.g., ___ ____
Barbour v. Dynamics Research Corp., 63 F.3d 32, 36-37 (1st Cir. _______ ________________________
1995); Woods v. Friction, 30 F.3d 255, 259 (1st Cir. 1994). Our _____ ________
review is limited to the record as it stood before the district
court at the time of its ruling. Voutour v. Vitale, 761 F.2d _______ ______
812, 817 (1st Cir. 1985), cert. denied, 474 U.S. 1100 (1986). ____________
Summary judgment is appropriate when "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." Fed. R. Civ. P. 56(c). A material
fact is one which "has the potential to affect the outcome of the
suit under the applicable law." Nereida-Gonz lez v. ________________
Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993). If the moving ______________
party demonstrates that "there is an absence of evidence to
-9-
support the non-moving party's case," the burden shifts to the
non-moving party to establish the existence of a genuine material
issue. FDIC v. Municipality of Ponce, 904 F.2d 740, 742 (1st ____ _____________________
Cir. 1990) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325 ______________ _______
(1986)). Thus, the nonmovant bears the burden of placing at
least one material fact into dispute once the moving party offers
evidence of the absence of a genuine issue. Darr v. Muratore, 8 ____ ________
F.3d 854, 859 (1st Cir. 1993); see also Celotex Corp., 477 U.S. ________ ____________
at 322 (1986) (stating that Fed. R. Civ. P. 56(c) "mandates the
entry of summary judgment, ... upon motion, against a party who
fails to make a showing sufficient to establish the existence of
an element essential to that party's case, and on which that
party will bear the burden of proof at trial."). In other
words, neither "conclusory allegations, improbable inferences,
and unsupported speculation," Medina-Mu oz v. R.J. Reynolds ____________ ______________
Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990), nor "[b]rash ____________
conjecture coupled with earnest hope that something concrete will
materialize, is []sufficient to block summary judgment." Dow v. ___
United Bhd. of Carpenters, 1 F.3d 56, 58 (1st Cir. 1993). _________________________
DISCUSSION DISCUSSION __________
Resolution of this appeal requires that we determine
whether the ERISA statute of limitations, which is codified at 29
U.S.C. 1113,4 applies to bar Appellants' action. Section 1113
____________________
4 Section 1113 provides as follows:
No action may be commenced under this
subchapter with respect to a fiduciary's
breach of any responsibility, duty, or
-10-
requires that Appellants commence their action within six years
from the date of the last transaction giving rise to their claim,
unless they demonstrate "fraud or concealment," in which case
they must commence their action within six years from the date
they discover the breach.
The first step requires us to determine "the date when
the last action which constituted a part of the breach or
violation" occurred -- one of a number of temporal determinations
to be made. 29 U.S.C. 1113(1)(A). Here, the purported
violations in connection with the limited partnership interests
occurred in June of 1985, September of 1985, and June of 1987,
____________________
obligation under this part, or with
respect to a violation of this part,
after the earlier of--
(1) six years after (A) the date
of the last action which
constituted a part of the breach of
the violation, or (B) in the case
of an omission, the latest date on
which the fiduciary could have
cured the breach or violation, or
(2) three years after the
earliest date on which the
plaintiff had actual knowledge of
the breach or violation;
except that in the case of fraud or
concealment, such action may be
commenced not later than six years
after the date of discovery of such
breach or violation.
29 U.S.C. 1113 (1994). We note that Section 1113 was amended
by Congress both in 1987 and in 1989. Neither of these
amendments, however, have any bearing on this appeal.
-11-
and those made in connection with the bond swap occurred in May
of 1986.5
The second requires us to determine when the cause of
action was commenced. The district court assumed, without
deciding, that NASD Code 18(a) tolls the statute of limitations
in this case. The district court concluded that August 20, 1993,
the date on which Appellants filed the Uniform Submission
Agreement with the NASD,6 should serve as the date marking
commencement of the action. The district court reasoned that
even by using that date, which was more favorable to the
Appellants, the purported violations -- in June of 1985,
September of 1985, May of 1986 and June of 1987 -- nonetheless
occurred more than six years earlier. Neither party disputes
this reasoning on appeal and, because it has no bearing on the
outcome, we adopt without further comment the district court's
use of August 20, 1993 as the date the action was commenced.
____________________
5 Appellants state in their brief that the last alleged
commission overcharges occurred in December 15, 1988. Appellees
contend that the last commissions were charged in June 1987. Our
review of the record indicates that there was a commission charge
on June 24, 1987 for (what appears to be) about $1,200. The only
evidence we can find of commission charges in 1988 is a March 2,
1988 entry corresponding to a distribution where the initials
"CLP" appear in the "commissions" column. We do not find this
alone to be sufficient evidence supporting resolution of this
"dispute" in favor of Appellants.
6 Section 18(a) of the NASD Code of Arbitration Procedure
provides that "where permitted by applicable law, the time
limitation which would otherwise run or accrue for the
institution of legal proceedings shall be tolled where a duly
executed Submission Agreement is filed by Claimants."
-12-
Because Appellants filed the action below more than six
years after the last transaction giving rise to the alleged
violations, we turn next to the question of whether the "fraud or
concealment" exception applies to toll the limitations period.
Appellants argue that it does, and that the district court erred
when it held to the contrary. The interpretation of the fraud or
concealment clause of Section 1113 is one of first impression for
this Circuit. We address the various issues this question raises
in turn.
-13-
A. Fraudulent Concealment and the Proper Discovery A. Fraudulent Concealment and the Proper Discovery
Standard under Section 1113 Standard under Section 1113
The first issue involves a determination of when the
limitations period begins to run in cases of fraud or concealment
under Section 1113. Resolution of this question requires us to
decide what standard -- objective or subjective -- is to be
applied when determining the "date of discovery." As the
district court noted, other circuits have interpreted Section
1113 to incorporate the federal doctrine of "fraudulent
concealment," which operates to toll the statute of limitations
until the plaintiff in the exercise of reasonable diligence
discovered or should have discovered the alleged fraud or
concealment. See Larson v. Northrop Corp., 21 F.3d 1164, 1172-74 ___ ______ ______________
(D.C. Cir. 1994) (Campbell, J., sitting by designation) (holding
that Section 1113's fraud or concealment exception incorporates
the common law fraudulent concealment doctrine); Martin v. ______
Consultants & Administrators, Inc., 966 F.2d 1078, 1093-96 (7th ___________________________________
Cir. 1992) (same); Schaefer v. Arkansas Medical Society, 853 F.2d ________ ________________________
1487, 1491-92 (8th Cir. 1988) (same); see also Bailey v. Glover, ________ ______ ______
88 U.S. 342, 349 (1875) (discussing fraudulent concealment
doctrine).
After noting the approach followed in Larson and ______
Martin, the district court concluded that, even if we were to ______
hold that Section 1113 could be tolled by showing something less
than "fraudulent concealment," Appellants would still not
prevail. In reaching its conclusion, the district court reasoned
that in light of our interpretation of the fraudulent concealment
-14-
doctrine as applied to limitation periods contained in the
Securities Exchange Act of 1933 and 1934, Appellants will have
failed to meet their burden of production alleging facts of fraud
or concealment if Appellees show that Appellants were on inquiry
notice of the alleged violations more than six years before the
filing date. See Kennedy v. Josephthal & Co., 814 F.2d 798, 802- ___ _______ ________________
03 (1st Cir. 1987) (holding that plaintiffs are on notice where
there are "sufficient storm warnings to alert a reasonable person
to the possibility that there were either misleading statements
or significant omissions involved") (quoting Cook v. Avien, Inc., ____ ___________
573 F.2d 685, 697 (1st Cir. 1978)). The district court found
that Appellants were on "discovery" or "inquiry" notice more than
six years prior to August 20, 1993, due to their receipt of the
prospectuses and monthly statements Appellees sent them. Thus,
it was because the district court found that the documents
received by Appellants contained "sufficient storm warnings,"
which would have alerted them to the possibility of fraud had
they acted with reasonable diligence, that it concluded
Appellants failed to carry their burden of production regarding
the issue of fraud or concealment.
In challenging the decision below, Appellants argue
that the district court erred in its construction of Section 1113
when it applied the objective standard under the fraudulent
concealment doctrine. Specifically, Appellants contend that
because Section 1113 involves breaches of fiduciary duty, the
term "discover" used in connection with fraud or concealment
-15-
should mean that the six-year limitation period begins to run
only when Appellants, who are unsophisticated investors,
subjectively gained knowledge that their fiduciary made material
misrepresentations to them. In support of this argument,
Appellants point to the plain language of Section 1113 and to the
fact that Congress did not include the phrase "knew or should
have known." In addition, they maintain that adopting a
subjective standard comports with Congress' mandate that ERISA be
liberally construed to protect pension beneficiaries and to
ensure the highest standards of fiduciary conduct. See 29 U.S.C. ___
1001(a), (b). In this regard, they contend that the
Congressional mandate is not properly served by requiring that
participants heed storm warnings and exercise reasonable
diligence where affirmative acts of fraud and concealment are
alleged. Finally, Appellants insist that if some standard of
reasonable diligence is to be applied, then, at a minimum,
traditional factors used in assessing reasonable diligence -- the
existence of a fiduciary relationship, the nature of the fraud,
the opportunity to discover the fraud, the subsequent acts of
defendants, and the sophistication of the plaintiffs -- should be
considered before granting summary judgment. See Maggio, 824 ___ ______
F.2d at 128; Cook, 573 F.2d at 697. ____
As always, we begin with the relevant statutory
language. Section 1113's tolling provision provides that "in the
case of fraud or concealment, such action may be commenced not
later than six years after the date of discovery of such breach
-16-
or violation." 29 U.S.C. 1113. As the District of Columbia
Circuit recently noted, this is the only provision in Section
1113 for delaying the accrual of the limitations period until the
date of discovery. See Larson, 21 F.3d at 1172. By its very ___ ______
language, then, Section 1113 explicitly incorporates the federal
common law "discovery rule," which postpones the beginning of the
limitation period from the date when the plaintiff is injured to
the date the injury is discovered. Cada v. Baxter Healthcare ____ __________________
Corp., 920 F.2d 446, 450 (7th Cir. 1990). As we noted when _____
interpreting the statute of limitations contained in Section 13
of the Securities Act of 1933, which is applicable to Section
12(2) of that Act, "the doctrine of fraudulent concealment is the
common law counterpart of the 'discovery' standard prescribed by
13 to limit actions brought under 12(2)." Cook, 573 F.2d at ____
695; see Anixter v. Home-Stake Production Co., 939 F.2d 1420, ___ _______ ________________________
1434 n.18 (10th Cir. 1991) (citing Cook for this proposition). ____
We concluded in Cook that the running of Section 13 was triggered ____
by the very same considerations used to determine when the cause
of action accrues and when the statute is tolled under federal
common law. Cook, 573 F.2d at 695; see Holmberg v. Armbrecht, ____ ___ ________ _________
327 U.S. 392, 397 (1946) (holding that equitable doctrine of
fraudulent concealment is read into every federal statute of
limitations). We find that Section 1113's discovery rule is
almost identical to that of Section 137 and perceive no reason
____________________
7 Section 13 provides in pertinent part:
-17-
why we should not follow Cook's approach and hold that Section ____
1113 also incorporates the fraudulent concealment doctrine.8
Moreover, we have yet to encounter a convincing argument as to
why we should part company from those circuits which have already
addressed this issue and have concluded that Section 1113 indeed
incorporates the fraudulent concealment doctrine. See Larson, 21 ___ ______
F.3d at 424-25; Martin, 966 F.2d at 1093; Schaefer, 853 F.2d at ______ ________
1491-92; see also Barker v. American Mobil Power Corp., 64 F.3d ________ ______ __________________________
1397, 1401-02 (9th Cir. 1995) (noting with approval that other
circuits have so held).9
____________________
No action shall be maintained to enforce
any liability created under Section . . .
[12(2)] of this title unless brought
within one year after the date of
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 (1994).
8 In reaching this decision, we have taken into account the
different policies underlying, and protections afforded by, the
Securities & Exchange Acts of 1933 and 1934 and ERISA. Absent
statutory or other Congressional directive, we find no reason why
our interpretation of the statutes of limitations should not be
guided by the same approach.
9 Where courts differ is on how "in the case of fraud or
concealment" should be construed, specifically whether it
includes both so-called "self-concealing wrongs" as well as
"active concealment" that is separate from the underlying
wrongdoing. See generally Martin, 966 F.2d at 1093-96, 1101-04 ______________ ______
(Posner, J., concurring); Radiology Center, 919 F.2d at 1220-21; _________________
see also footnote 16 infra. Resolution of this appeal does not ________ _____
require us to make a definitive determination as to which side of
this dialogue we adhere. We merely note for the moment that
because the fraudulent concealment doctrine as applied in this
Circuit includes both categories, see, e.g., Kennedy, 814 F.2d at ___ ____ _______
802, and the fact that there is nothing in the language of
Section 1113 to suggest otherwise, we are inclined to think that
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Next, with respect to the scope of "discovery" in the
fraud or concealment exception, we believe that the term
encompasses both actual and constructive discovery. As the
Seventh Circuit noted in Martin, Congress knew how to require ______
"actual knowledge," and did so for the three-year limitations
period under Section 1113(2). Holding that the fraud or
concealment exception extends the limitations period to six years
from the date of actual discovery would conflict with the fact
that the preceding three-year period runs from the date of
"actual knowledge." In addition, incorporating the notion of
constructive discovery comports with the general requirement
under the fraudulent concealment doctrine that there be a showing
of reasonable diligence before tolling is allowed.10 Martin, ______
966 F.2d at 1096; Maggio, 824 F.2d at 127-28; Kennedy, 814 F.2d ______ _______
at 802; Cook, 573 F.2d at 695. ____
We turn, lastly, to the appropriate standard to be
applied when determining the "date of discovery." As we
emphasized in Maggio, whether a plaintiff should have discovered ______
the alleged fraud "is an objective question" requiring the court
to "determine if the plaintiff possessed such knowledge as would
alert a reasonable investor to the possibility of fraud."
____________________
the scope of Section 1113's incorporation of the fraudulent
concealment doctrine includes both. See Martin, 966 F.2d at ___ ______
1094-95.
10 There is authority that reasonable diligence is not required
in cases of active concealment. See, e.g., Martin, 966 F.2d at ___ ____ ______
1096 nn.19, 20, 1098; Lewis v. Herrmann, 755 F. Supp. 1137, 1148 _____ ________
(N.D. Ill. 1991).
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Maggio, 824 F.2d at 128 (citing Cook, 573 F.2d at 697). We are ______ ____
unpersuaded by Appellants' insistence that by adopting such an
objective standard we will undercut ERISA's goals regarding the
protection of pension benefits. First, Appellants' argument
seems to ignore the plain language of Section 1113 explicitly
calling for a "discovery" standard, which has been interpreted to
employ a "known or should have known" standard. See United ___ ______
States v. James Daniel Good Property, 971 F.2d 1376, 1381 (9th ______ ___________________________
Cir. 1992).
Second, while this inquiry is an "objective" question,
the determination of whether a plaintiff actually exercised
reasonable diligence is a more subjective one. In making that
assessment, we "focus[] upon the circumstances of a particular
case, including the existence of a fiduciary relationship, the
nature of the fraud alleged, the opportunity to discover the
fraud, and the subsequent actions of the defendants." Maggio, ______
824 F.2d at 128; Kennedy, 814 F.2d at 803 (stating that "the _______
exercise of reasonable diligence is determined 'by examining the
nature of the misleading statements alleged, the opportunity to
discover the misleading statements, and the subsequent actions of
the parties'") (quoting Cook, 573 F.2d at 696). We believe that ____
because we engage in a "subjective" inquiry when assessing the
exercise of reasonable diligence, ERISA's goals will not be
undercut by applying an objective standard when determining the
"date of discovery." Whatever apparent harshness that may result
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from application of the objective standard will be mitigated by
our consideration of those more subjective factors.
We also remind Appellants that "[a]lthough any statute
of limitations is necessarily arbitrary, the length of the period
reflects a value judgment concerning the point at which the
interests in favor of protecting valid claims are outweighed by
the interests in prohibiting the prosecution of stale ones."
Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 463-64 _______ _____________________________
(1975). Section 1113 explicitly time bars actions against
fiduciaries which are not commenced within six years of either
the date of the last transaction or, in the case of fraud or
concealment, the date of discovery. 29 U.S.C. 1113. In this
regard, we note that Section 1113 states "after the earlier of,"
not "after the later of," which makes it a more stringent statute
of limitations than, for example, ERISA's Section 1451(f).11
The protections Congress established under ERISA are clearly
____________________
11 Section 1451(f) provides that, "An action under this section
may not be brought after the later of--
(1) 6 years after the date on which the
cause of action arose, or
(2) 3 years after the earliest date on
which the plaintiff acquired or should
have acquired actual knowledge of the
existence of such cause of action; except
that in the case of fraud or concealment,
such action may be brought not later than
6 years after the date of discovery of
the existence of such cause of action.
29 U.S.C. 1451(f) (1994). In interpreting this statute, courts
have acknowledged that 1451(f)(2), but not 1451(f)(1),
incorporates a discovery rule. See Larson, 21 F.3d at 427. ___ ______
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available to plaintiffs who do not let their rights pass them by.
Finally, we note further that none of the other circuit courts
which have interpreted Section 1113 have adopted a subjective
standard despite the fact that those cases, as here, involved
alleged breaches of fiduciary duty.12
In summary then, we hold that the fraud or concealment
tolling provision of Section 1113 incorporates the fraudulent
concealment doctrine, which operates to toll the statute of
limitations "where a plaintiff has been injured by fraud and
'remains in ignorance of it without any fault or want of
diligence or care on his part . . . until the fraud is
discovered, though there be no special circumstances or efforts
on the part of the party committing the fraud to conceal it from
the knowledge of the other party.'" Holmberg, 327 U.S. at 397 ________
(quoting Bailey, 88 U.S. at 348); see Maggio, 824 F.2d at 127. ______ ___ ______
Accordingly, in order to toll the limitations period under
Section 1113's fraud or concealment exception, Appellants must
demonstrate that "(1) defendants engaged in a course of conduct
designed to conceal evidence of their alleged wrong-doing and
that (2) [the plaintiffs] were not on actual or constructive
notice of that evidence, despite (3) their exercise of reasonable
diligence." Larson, 21 F.3d at 1172 (quoting Foltz v. U.S. News ______ _____ _________
____________________
12 While the parties did not cite to any legislative history, we
have not found much that is particularly helpful regarding
Congress' intent with respect to Section 1113. Accord, Larson, ______ ______
21 F.3d at 1171; Radiology Center, 919 F.2d at 1221. ________________
-22-
& World Report, Inc., 663 F. Supp. 1494, 1537 (D.C. Cir. ______________________
1987)).13 Furthermore, it is Appellants' burden under Federal
Rule of Civil Procedure 9(b) to plead with particularity the
facts giving rise to the fraudulent concealment claim.
Plaintiffs' attempt to toll the statute will fail if the evidence
shows that they were on discovery notice of the alleged
violations of fiduciary duty more than six years before the
filing date. See Truck Drivers & Helpers Union, Local No. 170 v. ___ ____________________________________________
NLRB, 993 F.2d 990, 998 (1st Cir. 1993) (noting that the burden ____
of showing reasonable diligence normally falls on the party
seeking to toll the statute of limitations by alleging
affirmative acts of concealment under the doctrine of fraudulent
concealment). This Circuit has characterized the facts that
trigger discovery or constructive notice as "sufficient storm
warnings to alert a reasonable person to the possibility that
there were either misleading statements or significant omissions
involved." Cook, 573 F.2d at 697. While discovery does not ____
require that plaintiffs become fully aware of the nature and
extent of the fraud, it is these "storm warnings" of the
possibility of fraud that trigger their duty to investigate in a
reasonably diligent manner, and their cause of action is deemed
to accrue on the date when they should have discovered the
____________________
13 We adopt the formulation most recently reiterated by a member
of this Court in Larson, which sets forth a clear test and does ______
not differ in substance from our usual description of the
fraudulent concealment doctrine. See, e.g., Maggio, 824 F.2d at ___ ____ ______
127 (setting forth Bailey standard). ______
-23-
alleged fraud. Maggio, 824 F.2d at 128. ______
B. Application of the Fraud or Concealment Exception B. Application of the Fraud or Concealment Exception
Having set forth the applicable standard and relevant
considerations, we turn to the application of Section 1113's
fraud or concealment exception. In their complaint, Appellants
allege that Appellees engaged in a fraudulent trading scheme
comprising purchases of unsuitably high risk limited
partnerships, account churning, and commission overcharges.
Appellants contend that Appellees, in furtherance of their
scheme, made material oral and written misrepresentations
regarding the value and safety of the investments, the amount of
profit generated by the trades, and the amounts of commissions
charged.
For purposes of disposing of this appeal, we need not
make any specific findings regarding the issue of whether
Appellees committed or concealed the alleged fraud.
Nevertheless, we review the record in the light most favorable to
Appellants, the non-moving party, as we determine whether the
district court erred when it granted summary judgment based on
its conclusion that Appellants had not offered evidence from
which a reasonable juror could conclude that Appellants would not
have known, in the exercise of reasonable diligence, about
Appellee's alleged violations six years or more before August 20,
1993, i.e., on or before August 20, 1987. We discuss the ____
transactions in turn.
1. The Limited Partnerships 1. The Limited Partnerships ________________________
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A. The Alleged Misrepresentations and the A. The Alleged Misrepresentations and the ______________________________________________
Prospectuses Prospectuses ____________
With respect to the three limited partnerships
purchased in June 1985, September 1985, and June 1987
respectively, Appellants allege that Appellees violated their
fiduciary duty by orally misrepresenting the risks and the
suitability of the these investments. They contend that the
names14 of the limited partnership interests were deceptive
because they suggest safe and suitable pension investments. They
also maintain that the portfolio reviews substantiated
Hegenbart's misrepresentations so that Appellants were induced to
retain the interests. Even assuming that the titles were
"deceptive" and that the reviews were misleading, the record
shows that Appellants received prospectuses on or about the date
each of these interests were purchased. The prospectuses fully
disclosed the suitability requirements and risk factors and, when
read with reasonable diligence, plainly contradict the alleged
oral misrepresentations that these were low-risk investments.
Appellants have not alleged that any of the risk disclosures
contained in the prospectuses are fraudulent. Even viewing the
facts in the light most favorable to the Appellants, we find that
these disclosures provided them with sufficient storm warnings of
the alleged misrepresentations and the possibility of fraud.
Maggio, 824 F.2d at 129 (holding that financial data that ______
____________________
14 The names were "Balcor Pension Investors VI," "Commercial
Development Fund 85" and "Federal Insured Mortgage Investors II."
-25-
contradicted what plaintiffs were led to believe provided
sufficient storm warnings); Kennedy, 814 F.2d at 801 (holding _______
that discrepancy between oral misrepresentations and an offering
memorandum constituted inquiry notice commencing limitations
period). Thus, we conclude that receipt of the prospectuses put
Appellants on discovery notice of the alleged misrepresentations
regarding the suitability and riskiness of the partnerships at or
around June of 1985, September of 1985 and June of 1987.
Appellants insist, however, that there are "numerous
disputed issues of material fact" regarding the limited
partnerships which were relevant on summary judgment. We find
only one relevant -- Appellants' contention that there is a
factual dispute as to whether they ever received the
prospectuses. Appellants bolster their position by pointing to
the fact that Appellees produced a subscription agreement, which
indicates receipt of a prospectus, for only one of the three
limited partnerships -- the first one, purchased in June of 1985.
They also rely on the affidavits submitted by Justman and Bladd
which deny the genuineness of their signatures on the
subscription agreement. Finally, they base the existence of a
disputed material fact on Bladd's third affidavit, in which for
the first time Bladd suggests that Appellees did not tell him
to read any prospecti relating to the
partnerships. In fact, I am certain that
I never received a prospectus from
Hegenbart before purchasing a limited ______
partnership on behalf of the Plan.
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Record Appendix, p. 145 (emphasis in original). Bladd also
states that he has "no recollection" of ever receiving a
prospectus and that his files do not contain copies of any
prospectuses.
As the district court found, Appellants' evidence is
insufficient to create a disputed issue of fact with respect to
whether they received the prospectuses. First, we note that
Bladd's third affidavit, dated February 15, 1995, is the first
instance in which Appellants dispute the argument that they were
on notice by receipt of the prospectuses. What is striking about
this is how late in the proceedings this occurred -- more than
one year after Appellees first raised the argument in their
November 30, 1994 memorandum in support of their motion for
summary judgment. Appellants did not dispute Appellees'
contention that they received prospectuses in either their
initial or supplemental filings in opposition to Appellees'
motion for summary judgment, nor in Bladd's first affidavit. The
first "contradiction" appears in Appellants' supplemental
memorandum, dated February 9, 1995, where the affidavits filed by
Justman and Bladd merely state that the signatures on the
subscription agreement are not their own. Guided by the
principle that when reviewing motions for summary judgment,
courts should "pierce the boilerplate of the pleadings and assay
the parties' proof in order to determine whether trial is
actually required," Rivera-Cotto v. Rivera, 38 F.3d 611, 613 (1st ____________ ______
Cir. 1994) (quoting Wynne v. Tufts Univ. Sch. of Medicine, 976 _____ _____________________________
-27-
F.2d 791, 794 (1st Cir. 1992), cert. denied, ___ U.S. ___, 113 S. ____________
Ct. 1845 (1993)), we view with significant skepticism what
appears to be a last ditch effort to create a disputed fact where
none exists.
Second, and more importantly, Bladd's statements on the
issue of whether the prospectuses were received are merely
conjectural and, thus, not sufficient to sustain a finding that a
disputed issue exists. See Medina-Mu oz v. R.J. Reynolds Tobacco ___ ____________ _____________________
Co., 896 F.2d 5, 8 (1st Cir. 1990) ("[T]he evidence illustrating ___
the factual controversy cannot be conjectural or problematic; it
must have substance in the sense that it limns differing versions
of the truth which a factfinder must resolve."). Not only does
Bladd's third affidavit fail to state that the prospectuses were
never provided or received, his lack of recollection is
insufficient to rebut Appellees' affidavit and the acknowledgment
of receipt evidenced by the subscription agreement. As the
district court found, we face Appellants' conjecture versus
Appellees' direct statement of fact. On this alone, the weight
of the evidence tips the scale in favor of Appellees; and, when
considered together with Bladd's statement that he did not find
any prospectuses after "he searched [his] files carefully," the
scale tips further in their direction. Bladd's statement simply
does not satisfy Appellants' burden of producing evidence that
they did not receive the prospectuses. Absent any evidence that
Bladd had either a set procedure for filing documents or that he
would file prospectuses if received, their mere absence from his
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files does not provide a factfinder with any reasoned basis to
believe either that because Bladd's files did not yield the
prospectuses he did not receive them or that his files would have
contained the prospectuses had they been received. Finally, as
the district court also noted, Bladd's affidavit only indicates
that he is certain that he did not receive any prospectuses
before the transactions. It does not contain any probative ______
evidence to dispute the fact that Appellants received
prospectuses some time on or around the purchase dates.
Thus, we conclude that because Appellants' evidence
lacks "substance in the sense that it [does] not limn[ ]
differing versions of the truth which a factfinder must resolve,"
id., the only reasonable inference a factfinder could reasonably ___
draw is that Bladd received the prospectuses for the limited
partnerships on or around the time when the transactions were
made. This, coupled with the sufficient storm warnings that the
prospectuses revealed, leads us to the conclusion that no
reasonable basis exists for a reasonable factfinder to find that
Appellants were not on discovery notice of the alleged
misrepresentations regarding the limited partnerships.
-29-
B. The Alleged Concealment and the Monthly Statements B. The Alleged Concealment and the Monthly Statements __________________________________________________
Appellants also allege that Appellees concealed the
partnerships' market value by listing them at their purchase
price, rather than at their market value, in the monthly
statements. The district court found that the monthly statements
Appellants received did not conceal the market value of the
limited partnerships, because they listed the "face amount" and
included a statement that "the face amount does not necessarily
reflect the current market value." The district court concluded
that based on these undisputed facts Appellees did not conceal
the market value of these investments. We agree. Beginning in
January of 1986, Appellants were presented every month with a
reminder that the face amount did not reflect the market value.
A simple phone call inquiring about the market value would have
exposed the value and shed light on the wisdom of these
transactions. Cook, 573 F.2d at 696-98 (finding that plaintiffs ____
were on inquiry notice by receipt of ominous financial reports
contradicting oral assurances); Carluzzi v. Prudential ________ __________
Securities, Inc., 824 F. Supp. 1206, 1211-13 (N.D. Ill. 1993) _________________
(finding that legend on monthly statements which disclosed that
face value did not equal market value was sufficient to put
investors on notice); Holtzman v. Proctor, Cook & Co., 528 F. ________ ____________________
Supp. 9, 14 (D. Mass. 1981) (finding that confirmation slips and
monthly statements should have alerted reasonable persons to the
possibility of account mismanagement). Thus, even assuming that
Appellees "concealed" the value of the limited partnership
-30-
interests, Appellants were on discovery notice of the alleged
concealment as early as January 1986. Cook, 573 F.2d at 695 ____
(holding that even where facts are fraudulently withheld a
plaintiff cannot be allowed to ignore the economic status of his
or her investment).
2. The Bond Swap 2. The Bond Swap _____________
Appellants allege that Appellees misrepresented the
value of the 1986 bond swap transaction and that, contrary to the
district court's finding, "a simple reading" of the May 1986,
statement would not have alerted unsophisticated investors to the
possibly fraudulent nature of the transaction. We disagree. It
is undisputed that Appellants were provided with monthly
statements, which disclosed the transactions Appellants had
authorized Hegenbart to make. Simple arithmetic --
straightforward addition and subtraction -- reveals a discrepancy
of more than $68,000 between the debit attributable to the
purchase of the new bonds and their market value. This alone
should have alerted Appellants to the possibility that fraudulent
statements may have been made in connection with the bonds'
value. Thus, while Appellants maintain that they only became
aware of the losses resulting from the bond swap in January of
1994, we find that they received sufficient storm warnings in May
of 1986.
3. The Commissions 3. The Commissions _______________
Appellants also allege that Hegenbart misrepresented
that Shearson's commission charges would be below the market rate
-31-
and that they were overcharged commissions with respect to the
bond swap transaction. They contend that "the first notice that
[they] received of any possible wrongdoing regarding [the]
commissions" was during the summer of 1992, when Bladd was
informed that there may have been commission overcharges. We are
unpersuaded. As with the bond swap, the May 1986 statement
provided Appellants with sufficient storm warnings about the
possibility of excessive commissions. As the district court
found, the discrepancy between the debit and sale prices for the
bonds should have alerted Appellants to the possibility of
excessive commissions and prior misrepresentations regarding the
rate actually charged. These storm warnings were reinforced by
the thunderous sirens contained in Ben-Meir's October 17, 1988
letter "urg[ing] . . ., once again, to request and obtain an ___________
accounting of the fees and commissions" (emphasis added).
Contrary to Appellants' contention, the fact that Appellees have
not contested the allegation of commission overcharging is
irrelevant for purposes of determining whether Appellant's claim
is barred by the statute of limitations. Nor is it relevant that
the monthly statement could have broken out the amount of _____
commissions charged, although such a practice would certainly
have been more helpful to Appellants. What is relevant, and
controlling for purposes of this appeal, is the date of
discovery. Here, that date is May 1986, which is more than six
years before the commencement of this action in August 1993.
4. Reasonable Diligence 4. Reasonable Diligence ____________________
-32-
The storm warnings triggered Appellants' duty to
exercise reasonable diligence. Kennedy, 814 F.2d at 802; Cook, _______ ____
573 F.2d at 696. Appellants contend, however, that the district
court erred when it required them to show reasonable diligence.
First, Appellants assert that because the alleged violations
involved active concealment, as opposed to self-concealing
wrongs, there is no requirement that Appellants show reasonable
diligence. See, e.g., Martin, 966 F.2d at 1096 nn. 19, 20 ___ ____ ______
(noting that courts are divided as to whether the plaintiff must
show due diligence in cases of active concealment); Lewis v. _____
Herrmann, 775 F. Supp. 1137, 1148 (N.D. Ill. 1991) (noting that a ________
plaintiff's due diligence may be excused when a fiduciary with a
duty to disclose engages in active concealment). In this
Circuit, however, we have held that "[i]rrespective of the extent
of the effort to conceal, the fraudulent concealment doctrine
will not save a charging party who fails to exercise due
diligence, and is thus charged with notice of a potential claim."
Truck Drivers & Helpers Union, 993 F.3d at 998. As we noted _______________________________
earlier, when the party seeking to toll the statute by fraudulent
concealment alleges affirmative acts of concealment, the burden
of showing reasonable diligence falls on that party. Id. Thus, ___
in this Circuit, by alleging affirmative acts of fraudulent
concealment Appellants are required to show due diligence. To
cover all of the bases, we note that we place the burden of
showing reasonable diligence on the defendant when the plaintiff
alleges that the statute is tolled by a self-concealing wrong,
-33-
id., such that defendants "'have the burden of coming forward ___
with any facts showing that the plaintiff could have discovered .
. . the cause of action if he had exercised due diligence.'" Id. ___
(quoting Hobson v. Wilson, 737 F.2d 1, 35, (D.C. Cir. 1984), ______ ______
cert. denied, 470 U.S. 1084 (1985)). Even placing this burden on ____________
Appellees, Appellants' complaint will nonetheless be defeated.
Appellants were provided with sufficient information which
reveals, or at a minimum suggests, the possibility of the alleged
violations.
In the alternative, Appellants argue that, even if some
standard of reasonable diligence were applied, a district court
must take into account the traditional factors used in assessing
reasonable diligence before summary judgment is granted. Maggio, ______
824 F.2d at 128; Cook, 573 F.2d at 697. While we agree that the ____
traditional and "more subjective" factors are to be considered,
we disagree that they should affect the outcome of this appeal.
Stressing the subjective nature of the "reasonable diligence"
test, Appellants essentially argue that they acted in a
reasonably diligent manner in light of their unsophistication as
investors and their reliance on Appellees as their fiduciaries.
We remind Appellants that, although subjective factors
are taken into account, "the exercise of reasonable diligence
requires an investor to be reasonably cognizant of financial
developments relating to [their] investment, and mandates that
early steps be taken to appraise those facts which come to the
investor's attention." Cook, 573 F.2d at 698. Even assuming ____
-34-
that Appellees owed Appellants a fiduciary duty, an investor
"must 'apply his common sense to the facts that are given to him
[or her]' in determining whether further investigation is
needed." Id. (quoting Cook, 573 F.2d at 696 n.24). While we ___ ____
recognize, and are genuinely troubled by, the possibility that
the Participants were such unsophisticated investors that they
were not in a position to heed the storm warnings, the stark fact
remains that "it was [their] conduct, in accepting the fraudulent
misrepresentations and omissions as true, that allowed the
fraud." Kennedy, 814 F.2d at 803. This is what does them in. _______
As to the opportunity to discover the misleading nature
of Hegenbart's representations and the monthly statements, it
could not have presented itself more readily. The misleading
information was directly refuted by the plain text of the
prospectuses and simple arithmetic of the numbers on the monthly
statements. Both Hegenbart's representations about the limited
partnerships and the prospectuses' risk disclosures could not be
true. Logically, one or the other must have been false.
Similarly, while the monthly statements may have presented a
misleading "big picture," comparing two numbers (albeit on two
different pages) on the May 1986 statement revealed a significant
discrepancy in the bond swap figures. A minimal attempt to
resolve these contradictions -- for example, asking Ben-Meir,
Hegenbart or McHugh for an explanation or a more comprehensive
accounting -- should have uncovered the fraud or, at a minimum,
prompted Appellants to abandon (as Ben-Meir strongly recommended
-35-
in 1988) their apparent "laissez-faire" approach. Kennedy, 814 _______
F.2d at 803 (noting that any attempt to resolve contradictions
between oral misrepresentations and offering memorandum should
have uncovered the fraud or dissuaded plaintiffs from the folly).
Nor can the subsequent actions of the parties help
Appellants' case. Instead of making a minimal inquiry or
otherwise attempting to resolve the contradictions, Appellants
did absolutely nothing. Even assuming that Appellants did not
see the first storm warnings, "there were yet more dark clouds on
the horizon." Maggio, 824 F.2d at 128. We find that Ben-Meir's ______
letter of October 17, 1988, and Justman's 1990-1992 arbitration
proceedings (which produced documents regarding the excessive
commissions) should have brought Appellants to attention. Even
commencing this action in October of 1988, Appellants still had
until June of 1991 to bring suit for violations in connection
with the first limited partnership interest (purchased in June of
1985) and until September of 1991 for the second (purchased in
September of 1985). Even starting after October of 1991, they
still had until June of 1993 for the third limited partnership
interest (purchased in June of 1987) and, until May of 1992 for
the bond swap and the commissions. Appellants would not have
been time-barred on any of their actions had they acted in
October of 1988 upon the information before them.
In light of the foregoing, we believe that in this
situation even unsophisticated investors, such as Appellants
here, should have sought to learn more about the nature and
-36-
content of the Plan's management. We believe that Appellants'
prolonged failure to investigate the possibility of fraudulent
conduct in light of the multiple storm warnings can hardly be
characterized as reasonable diligence. Unsophisticated or not,
plaintiffs cannot shroud themselves in ignorance or expect that
their unsophistication will thoroughly excuse their lack of
diligence or failure, here, to even inquire. To allow
unsophisticated investors to remain utterly ignorant in the face
of multiple warnings would render meaningless the due diligence
requirement. Requiring due diligence encourages plaintiffs to
take action to bring the alleged fraud to light, grants some
sense of repose to defendants, and assures that evidence
presented on the claim will be fresh. Brumbaugh v. Princeton _________ _________
Partners, 985 F.2d 157, 162 (4th Cir. 1993) (stating that merely ________
bringing suit after the scheme has been laid bare does not
satisfy the due diligence requirement when there have been prior
warnings that something was amiss).
Lastly, Appellants argue that because reasonable
diligence is factually based, it should not ordinarily be decided
on summary judgment. Cook, 573 F.2d at 697. However, "even ____
assuming the question of reasonable diligence is ordinarily to be
decided by the trier of fact, where no conflicting inferences can
be drawn from the testimony an appeals court may make its own
determination." Id.; see Sleeper v. Kidder, Peabody & Co., 480 ___ ___ _______ ______________________
F. Supp. 1264, 1266 (D. Mass. 1979) (noting that although the
issue of reasonable diligence is factually based, it may be
-37-
determined as a matter of law where the underlying facts are
admitted or established without dispute), aff'd mem., 627 F.2d __________
1088 (1st Cir. 1980). Here, the district court properly granted
summary judgment because there is nothing on the record to
support an inference that Appellants were reasonably diligent.
III. CONCLUSION III. CONCLUSION
For the foregoing reasons, the district court's grant
of summary judgment is affirmed. affirmed ________
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