Tello v. Dean Witter Reynolds, Inc.

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 03-12545 JUNE 1, 2005
________________________ THOMAS K. KAHN
D. C. Docket No. 02-02115-CV-T-26-EAJ CLERK

MARK TELLO,
on behalf of himself and all
others similarly situated,

Plaintiff-Appellee,

versus

DEAN WITTER REYNOLDS, INC.,
n.k.a. Morgan Stanley DW Inc.,
PAUL GRANDE,

Defendants-Appellants,

MARK RODGERS,

Defendant.
________________________

Appeal from the United States District Court
for the Middle District of Florida
_________________________

(June 1, 2005)

Before EDMONDSON, Chief Judge, and BIRCH and FARRIS *, Circuit Judges.
*
Honorable Jerome Farris, United States Circuit Judge for the Ninth Circuit, sitting by
designation.
BIRCH, Circuit Judge:

This interlocutory appeal presents the issue of whether the amended statute

of limitations in the Public Company Accounting Reform and Investor Protection

Act of 2002, known as the Sarbanes-Oxley Act (“SOA”), 28 U.S.C. § 1658(b),

revives securities fraud actions that were time-barred before the effective date of

the SOA. Determining that the new limitations period revives actions that

previously were time-barred, the district judge denied the motion to dismiss. We

VACATE the district court’s order and REMAND for further proceedings

consistent with this opinion.

I. BACKGROUND

On November 15, 2002, E. Paul Roberts filed a class-action complaint for

securities fraud and alleged that Mark Rodgers,1 a former broker for defendant-

appellant Dean Witter Reynolds, Inc., currently known as Morgan Stanley DW,

Inc., manipulated the price of e-Net stock by engaging in a short squeeze.2 The

1
Mark Tello replaced E. Paul Roberts as lead plaintiff pursuant to the district court’s
April 25, 2003, order granting Roberts’s motion for substitution of plaintiff. R1-38.
2
A “short squeeze” is a
situation when prices of a stock or commodity futures contract
start to move up sharply and many traders with short positions are
forced to buy stocks or commodities in order to cover their
positions and prevent losses. This sudden surge of buying leads to
even higher prices, further aggravating the losses of short sellers
who have not covered their positions.
John Downes & Jordan Elliot Goodman, Barron’s Finance & Investment Handbook 807 (6th ed.
2003). Roberts, who invested in e-Net securities and lost “more than $680,000.00,” purports to

2
conduct allegedly began on January 1, 1998, and ended on August 19, 1998. Dean

Witter, Rodgers, and defendant-appellant Paul Grande (collectively, “Dean

Witter”) purportedly manipulated the stock by deceptively contriving the market

prices of e-Net stock for the purpose of creating and maintaining artificially high

market prices. Dean Witter allegedly accomplished this manipulation by engaging

in unauthorized trading in the accounts of specific Dean Witter customers to

stabilize the price of e-Net stock. Dean Witter purportedly furthered the success of

the scheme by creating and promoting a plan to withhold stock from short sellers

to effect a short squeeze and by making false statements to discourage clients from

selling e-Net stock.

On October 1, 2002, the Securities and Exchange Commission (“SEC”)

issued an Order Instituting Public Administrative and Cease-and-Desist

Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of

1934, Making Findings and Imposing Remedial Sanctions (“SEC Order”). The

SEC Order censured and fined Dean Witter, suspended and fined Grande, and

fined and barred Rodgers from association with any broker or dealer. Alleging

violations of section 10(b) of the Securities Exchange Act of 1934 (the “Exchange

Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act,

have sustained the greatest financial loss of the class members. R1-12 at 2.

3
Roberts filed his complaint on behalf of himself and class members similarly

situated on November 15, 2002.

The SOA, which establishes the applicable statute of limitations for

securities fraud as two years from the date of discovery or five years from the date

of the violation, became effective on July 30, 2002. 28 U.S.C. § 1658(b). On

January 23, 2003, Dean Witter moved to dismiss the complaint based on statute-of-

limitations grounds and argued that the new limitations period under the SOA does

not revive claims that expired before its effective date. The district judge in the

Middle District of Florida determined that the new limitations period revives

previously time-barred claims and denied Dean Witter’s motion to dismiss.3

In an amended order, the original district judge determined that the

complaint, filed after the effective date of the SOA, was timely and overcame Dean

Witter’s motion to dismiss: “The effective date, which is July 30, 2002, hinges on

the date that ‘proceedings’ commence or commenced rather than on the date the

violation occurred. This language, standing alone, seems to presume that the

[Sarbanes-Oxley] Act affords redress for violations that had already occurred

before July 30, 2002.” R1-31 at 6. The district judge further found that the

legislative history supported this conclusion.

3
This order was issued by the Honorable Richard A. Lazzara, who subsequently recused
himself, and the case was transferred to the Honorable Steven D. Merryday.

4
 Nevertheless, the district judge also decided that “[t]he controlling question

of law is whether time-barred claims are revived by the Sarbanes-Oxley Act,” and

that legal interpretation of the new statutory language warranted an interlocutory

appeal to our court. Id. at 8. Consequently, the judge permitted Dean Witter to

seek appellate review in this court. We granted Dean Witter’s petition for

interlocutory appeal. Prior to addressing the statute-of-limitations issue presented,

we explain the necessity for additional factfinding by the district court.

II. DISCUSSION

A. Review Standards

“We review the district court’s interpretation and application of statutes of

limitations de novo.” United States v. Clarke, 312 F.3d 1343, 1345 n.1 (11 th Cir.

2002) (per curiam). Because we have been asked to decide whether the revised

statute of limitations under the SOA revives time-barred claims, we must interpret

§ 1658(b). With securities laws, “as in other contexts, the starting point in

construing a statute is the language of the statute itself.” Randall v. Loftsgaarden,

478 U.S. 647, 656, 106 S.Ct. 3143, 3149 (1986). The “cardinal canon” of statutory

interpretation is “that courts must presume that a legislature says in a statute what it

means and means in a statute what it says there.” Connecticut Nat’l Bank v.

Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 1149 (1992). In addition to the

5
“particular statutory language at issue,” federal courts also must consider “the

language and design of the statute as a whole” to determine “the plain meaning of

the statute.” K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 108 S.Ct. 1811,

1818 (1988).

At the threshold point of our analysis, the statutory language, there is a

telling wording distinction between the formerly used statute of limitations and the

statute of limitations under the SOA. Prior to the effective date of the SOA statute

of limitations, July 30, 2002, the formerly used statute of limitations for federal

securities claims under Section 10(b) and Rule 10b-5 of the Exchange Act provides

that “[n]o action shall be maintained to enforce any liability created under this

section, unless brought within one year after the discovery of the facts constituting

the violation and within three years after such violation.” 15 U.S.C. § 78i(e)

(emphasis added). 15 U.S.C. § 78i(e); Lampf, Pleva, Lipkind, Prupis & Petigrow

v. Gilbertson, 501 U.S. 350, 364 & n.9, 111 S.Ct. 2773, 2782 & n.9 (1991);

Theoharous v. Fong, 256 F.3d 1219, 1228 (11 th Cir. 2001). This statute of

limitations is stated conjunctively. Under the plain terms of that statute of

limitations, the complaint must be filed within one year of the facts that caused the

securities violation and within three years of that violation. Because the class-

action complaint, filed on November 15, 2002, alleges applicable securities fraud

6
violations that occurred from January through August 19, 1998, the two-part

conjunctive test for that statute of limitations was not met, and the class action

would have been untimely under the formerly applicable statute. This would be

true even if discovery of the facts evidencing the securities violation occurred

outside the three-year period from occurrence of the violative conduct.

In contrast, the subject statute of limitations for applicable securities actions

under the SOA, which we have been asked to interpret, provides:

[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, as defined in section
3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(47)), may be brought not later than the earlier of—
(1) 2 years after the discovery of the facts constituting the
violation; or
(2) 5 years after such violation.

28 U.S.C. § 1658(b) (emphasis added). Since the SOA statute of limitations is

stated disjunctively, a complaint filed after July 30, 2002, the effective date, would

be timely if it was filed two years after discovery of the facts evidencing the

securities fraud, inquiry notice, or five years after the fraudulent conduct, a

procedural statute of repose.4 By its explicit terms, the SOA statute of limitations

applies solely to cases concerning securities fraud. The Historical and Statutory

4
Regarding the definiteness of a statute of repose, the Supreme Court recognized that
the purpose of the limitations period “is clearly to serve as a cutoff” and held “that tolling
principles do not apply.” Lampf, 501 U.S. at 363, 111 S.Ct. at 2782.

7
Notes to this section clarify that this “limitations period . . . shall apply to all

proceedings addressed by this section that are commenced on or after the date of

enactment of this Act [July 30, 2002].” 28 U.S.C. § 1658 (Historical & Statutory

Notes) (emphasis added). They further specify: “Nothing in this section . . . shall

create a new, private right of action.” Id. Therefore, the SOA lengthens the

statute of limitations for federal securities fraud cases prospectively from a one-

year/three-year scheme to a two-year/five-year scheme.

B. Plain Meaning

By its plain terms, the purpose of § 1658(b) is to state the two points in time

that a private action for securities fraud may be brought. Under a plain, facial

reading of the SOA statute of limitations, there is built-in, limited retroactive

application for the earlier of two years after discovery of the facts constituting the

securities violation or five years after the violation as to fraudulent securities

conduct that occurred prior to its enactment. These limitation dates necessarily

create a closed class of cases eligible to be filed within two years of discovery of

the securities fraud or within the five-year repose period from the securities

violation.

Regarding the plain meaning of statutes of limitation, the Supreme Court has

held analogously that an EEOC petitioner was able to take advantage of Congress’s

8
enactment of an amended statute of limitations that extended the time within which

to file suit, “[s]ince Congress also applied the enlarged limitations period to

charges, whether or not untimely on” the enactment date. International Union of

Elec., Radio & Machine Workers v. Robbins & Myers, Inc., 429 U.S. 229, 242, 97

S.Ct. 441, 450 (1976). The Court reasoned that application of the statute to all

cases filed after enactment, even if the plaintiff had not filed a complaint before

enactment and, consequently, would have been barred under the old limitations

period, still would have permitted the plaintiff to file a complaint after enactment

of the new limitations period. Since the new statute of limitations authorized filing

of a complaint not previously filed to revive a barred claim, the Court did not

interpret “pending” to mean only claims timely when filed; instead, it interpreted

the statute literally irrespective of whether barred claims would be revived and the

absence of specific revival language in the new statute.5 Id. at 242-43, 97 S.Ct. at

5
The Court has explained the legislative nature of statutes of limitation, which

have come into the law not through judicial process but through
legislation. They represent a public policy about the privilege to
litigate. Their shelter has never before been regarded as what now
is called a “fundamental” right or what used to be called a
“natural” right of the individual. He may, of course, have the
protection of the policy while it exists, but the history of pleas of
limitation shows them to be good only by legislative grace and to
be subject to a relatively large degree of legislative control.

Chase Secs. Corp. V. Donaldson, 325 U.S. 304, 314, 65 S.Ct. 1137, 1142 (1945) (footnote
omitted).

9
450.

In a 1984 amended statute of limitations to the Longshore and Harbor

Workers’ Compensation Act (“LHWCA”), similarly worded to § 1658(b), our

circuit concluded that the respondent, who had worked in shipyards from 1941 to

1969, but who did not have his hearing loss conclusively diagnosed as resulting

from that employment until 1986, when the former statute of limitations would

have barred his claim, was entitled to file his claim and recover under the amended

statute of limitations. Alabama Dry Dock & Shipbuilding Corp. v. Sowell, 933

F.2d 1561 (11 th Cir. 1991), overruled on other grounds, Bath Iron Works Corp. v.

Director, Office of Workers’ Comp. Programs, 506 U.S. 153, 113 S.Ct. 692

(1993). The amended statute stated that “[t]he time for filing . . . a claim for

compensation . . . shall not begin to run in connection with any claim for loss of

hearing . . . until the employee has received an audiogram, with the accompanying

report thereon, which indicates that the employee has suffered a loss of hearing.”

Id. at 1563 (quoting 33 U.S.C. § 908(c)(13)(D) (1986)). Congress provided that

the amended statute, which was effective on enactment, September 28, 1984, “shall

apply both with respect to claims filed after such date and to claims pending on

such date.” Id. at 1563-64 (quoting 33 U.S.C. § 901 note). We determined that

Alabama Dry Dock’s argument that the respondent’s claim “was time-barred years

10
before those amendments were even a gleam in Congress’ eye,” was an

“interpretation . . . at odds with the plain terms of the 1984 amendments.” Id. at

1564. Rejecting Alabama Dry Dock’s argument that Congress did not intend to

resurrect claims for which the statute of limitations had expired and could have

meant the statute to apply retroactively only to claims that were timely under the

old limitations statute when the amended statute was enacted, we reasoned that

such a interpretation

would force upon Congress’ words a rather strained construction. The
provision that “the amendments made by this Act shall be effective on
the date of enactment of this Act and shall apply . . . to claims filed
after such date” (emphasis added) is obviously not necessary to apply
the new law to claims arising after the effective date. The only
sensible reading of the provision, then, is that Congress was
addressing claims that arose before the effective date of the statute but
were filed after the effective date.
Once we have concluded that Congress was addressing claims that
arose before the statute’s effective date, the improbability of
[Alabama Dry Dock’s] reading becomes obvious. Because [Alabama
Dry Dock’s] interpretation posits that Congress could not have meant
to resurrect claims for which the statute of limitations had expired
before the effective date, Congress could not have been addressing
any claims that arose before September 28, 1983, one year before the
effective date of the statute, because such claims would have been
time-barred before Congress ever enacted the amendments. In other
words, [Alabama Dry Dock] argues, when Congress said that the 1984
amendments “shall apply . . . with respect to claims filed after” the
effective date, Congress really meant to say that the amendments
would apply to claims arising no more than one year before
September 27, 1984, and filed after September 27, 1984. To accept
[Alabama Dry Dock’s] interpretation, we would have to believe that
to express this rather precise concept, Congress chose the statutory

11
 command that the amendments “shall apply . . . with respect to claims
filed after such date.” We do not. Instead, we conclude that Congress
intended the natural implication of the language Congress chose: the
1984 amendments apply to claims filed after September 27, 1984,
whenever they arose.

Id. (omissions in original) (fifth emphasis added).

We also noted that our predecessor circuit made a similar decision

concerning the 1972 amendments to the LHWCA. Id. at 1565 (citing Cooper

Stevedoring v. Washington, 556 F.2d 268, 272-73 (5 th Cir. 1977)). Although the

injury had occurred three months before enactment of the 1972 amendments, the

former Fifth Circuit determined “that retroactive application of the 1972

amendments was ‘in accord with the established principle . . . that “statutes of

limitation go to matters of remedy, not to destruction of fundamental rights.’”“ Id.

(quoting Cooper, 556 F.2d at 273 (quoting Chase Secs. Corp. v. Donaldson, 325

U.S. 304, 314, 65 S.Ct. 1137, 1142 (1945))). Given the resolution in our circuit

precedent addressing the statute of limitations in the 1972 amendment to the

LHWCA, a remedial statute, we determined that a plain, literal interpretation of the

subsequent 1984 amendments yielded the same conclusion that previously time-

barred claims were intended by Congress to be appropriately filed under the

extended statute of limitations:

Our research and reflection therefore leave us convinced that when
Congress provided that the 1984 amendments would “apply . . . with

12
 respect to claims filed after” the statute’s effective date, it meant just
that, regardless of when the events underlying the claim occurred. We
are aware of the implications of our decision. We are reluctant to
ascribe to Congress an intent to amend a statute of limitations in a way
that revives a potentially large number of claims that would otherwise
have been time-barred decades ago. However, the plain language of
the statute leaves us no choice but to reach the decision we reach
today.

Id. (emphasis added).

The Supreme Court has endorsed this facial analysis of a statute when the

temporal effect is obvious from the statutory language, which obviates the need to

employ the presumption against the retroactive effect of a new or amended statute

as explained in Landgraf v. USI Film Products, 511 U.S. 244, 114 U.S. 1483

(1994): when “the temporal effect of a statute is manifest on its face, ‘there is no

need to resort to judicial default rules,’ and inquiry is at an end.” Lockheed Corp.

v. Spink, 517 U.S. 882, 896, 116 S.Ct. 1783, 1792 (1996) (quoting Landgraf, 511

U.S. at 280, 114 S.Ct. at 1505). Congress may prescribe the temporal reach of a

statute by stating that it applies to pre-enactment conduct, the first step in the

Landgraf analysis, or a statute may be silent regarding temporal reach, in which

case courts apply the judicial presumption against retroactivity.6 This presumption

6
The Court explained this analysis:

When a case implicates a federal statute enacted after the
events in suit, the court’s first task is to determine whether
Congress has expressly prescribed the statute’s proper reach. If
Congress has done so, of course, there is no need to resort to

13
and analysis, however, is unwarranted when Congress states its unambiguous

intention that the statute apply retroactively to pre-enactment conduct, in language

comparable to § 1658(b), that the new or amended statute applies to proceedings

commenced on or after enactment. See Landgraf, 511 U.S. at 259-60, 114 S.Ct. at

1494 (stating that, if had Congress intended retroactive application, then “it surely

would have used language comparable to . . . ‘shall apply to all proceedings

pending on or commenced after the date of enactment’” (citation omitted); accord

INS v. St. Cyr, 533 U.S. 289, 318-19 & n.43, 121 S.Ct. 2271, 2289-90 & n.43

(2001) (collecting examples of unambiguous temporal statutory language

providing that the statute applies to actions filed “on or after” the date of

enactment, which includes violative conduct that occurred prior to the effective

date of the statute); Martin v. Hadix, 527 U.S. 343, 354, 119 S.Ct. 1998, 2004

(1999) (stating that “‘new provisions shall apply to all proceedings pending on or

commenced after the date of enactment,’ referenced in Landgraf, “unambiguously

judicial default rules. When, however, the statute contains no such
express command, the court must determine whether the new
statute would have retroactive effect, i.e., whether it would impair
rights a party possessed when he acted, increase a party’s liability
for past conduct, or impose new duties with respect to transactions
already completed. If the statute would operate retroactively, our
traditional presumption teaches that it does not govern absent clear
congressional intent favoring such a result.

Landgraf, 511 U.S. at 280, 114 S.Ct. at 1505.

14
addresses the temporal reach of the statute” (citation omitted)); Lindh v. Murphy,

522 U.S. 320, 329 n.4, 117 S.Ct. 2059, 2064 n.4 (1997) (recognizing from

Landgraf that statutory language such as, “‘[This Act] shall apply to all

proceedings pending on or commenced after the date of enactment of this Act,’”

“might possibly have qualified as a clear statement for retroactive effect” (quoting

Landgraf, 511 U.S. at 260, 114 S.Ct. at 1494)); Rivers v. Roadway Express, Inc.,

511 U.S. 298, 307-08, 114 S.Ct. 1510, 1517 (1994) (noting that the subject statute

omitted a provision in the bill that the amendment “‘shall apply to all proceedings

pending on or commenced after’” a fixed date and describing the bill as containing

“express retroactivity provisions”). Since § 1658(b) applies to actions filed on or

after its enactment, it “would necessarily . . . relate[] to conduct that took place at

an earlier date,” which is pre-enactment securities fraud. Republic of Austria v.

Altman, 541U.S. 677, ___, 124 S.Ct. 2240, 2253 n.18 (2004). From analogous

Supreme Court and circuit precedent, the amended, lengthened limitations period

of § 1658(b) applies to a case that was “commenced on or after the date of

enactment” and this temporal reach inherently includes securities fraud that

occurred prior to the date of enactment.7 28 U.S.C. § 1658(b) (Historical &

7
Section 1658(b) contains innate retroactive application, evidenced by the “commenced
on or after the date of enactment” designation for filing suit. 28 U.S.C. § 1658(b) (Historical &
Statutory Notes). Consequently, there is no need to progress to Landgraf’s judicial presumption
against retroactivity. Because of the explanatory notes, § 1658(b) is not silent as to retroactivity

15
Statutory Notes). Accordingly, § 1658(b) is applicable to the alleged fraudulent

securities conduct in this case, provided inquiry notice was not sufficiently

established to enable the plaintiff class to file this class action prior to issuance of

the SEC Order.

C. Inquiry Notice

There is no dispute that this class action was filed on November 15, 2002,

after the effective date of the SOA. What is in dispute is whether the class was

sufficiently on inquiry notice before the effective date of the SOA to have been

governed by the former, one-year/three-year statutory scheme for filing a securities

fraud action, such that this securities class-action is time-barred. See 15 U.S.C. §

78i(e). In our circuit, discovery of facts evidencing securities misconduct “‘occurs

when a potential plaintiff has inquiry or actual notice of a violation.’” Theoharous,

256 F.3d at 1228 (quoting Kauthar SDN BHD v. Sternberg, 149 F.3d 659, 670 (7 th

Cir. 1998)). “‘Inquiry notice is ‘the term used for knowledge of facts that would

lead a reasonable person to begin investigating the possibility that his legal rights

and, hence, there is no reason to utilize a judicial presumption against retroactivity, which
actually overrides an explicit legislative statement to the contrary. Therefore, appellate cases
involving statutory provisions in which Congress was silent on the temporal reach, such as
Resolution Trust Corp. v. Artley, 28 F.3d 1099, 1102-03 n.6 (11th Cir. 1994), are inapplicable.
See, e.g., In re Apex Express Corp., 190 F.3d 624, 642-43 (4th Cir. 1999); Million v. Frank, 47
F.3d 385, 390 (10th Cir. 1994); Chenault v. United States Postal Serv., 37 F.3d 535, 537 (9th Cir.
1994); Resolution Trust Corp. v. Seale, 13 F.3d 850, 853 (5th Cir. 1994); Village of Bellwood v.
Dwivedi, 895 F.2d 1521, 1527 (7th Cir. 1990).

16
had been infringed.’” Id. “‘[F]ull exposition of the scam’” is not necessary;

“‘[i]nquiry notice is triggered by evidence of the possibility of fraud.’” Id. (quoting

Sterlin v. Biomune Sys., 154 F.3d 1191, 1203 (10 th Cir. 1998)); Franze v. Equitable

Assurance, 296 F.3d 1250, 1254 (11 th Cir. 2002).

Significantly, inquiry notice is tantamount to actual notice because “‘the bar

of the statute does not begin to run 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.’” Lampf, 501 U.S. at 363, 111

S.Ct. at 2782 (quoting Bailey v. Glover, 21 Wall. 342, 348 (1875)). An “objective

reasonable person standard” is applied for this determination. Franze, 296 F.3d at

1254. “‘Whether a plaintiff had sufficient facts to place him on inquiry notice of a

claim for securities fraud . . . is a question of fact, and as such is often

inappropriate for resolution on a motion to dismiss under Rule 12(b)(6).’” La

Grasta v. First Union Secs., Inc., 358 F.3d 840, 848 (11 th Cir. 2004) (quoting

Marks v. CDW Computer Cntrs., Inc., 122 F.3d 363, 367 (7 th Cir. 1997)).

Circumstances that create a duty of inquiry frequently are referred to as

“storm warnings.” Levitt v. Bear Stearns & Co., 340 F.3d 94, 101 (2d Cir. 2003).

Consequently, an investor who receives storm warnings and does not investigate

whether a securities fraud has occurred will have this knowledge imputed to him.

17
Id. “[W]hether the securities fraud claim of a plaintiff who receives ‘storm

warnings’ is time barred ‘turns on when, after obtaining inquiry notice,’ the

plaintiff ‘in the exercise of reasonable diligence, should have discovered the facts

underlying the [defendant’s] alleged fraud.” Id. (citation omitted) (second

alteration in original); see Morton’s Market, Inc. v. Gustafson’s Dairy, Inc., 198

F.3d 823, 835 (11 th Cir. 1999) (acknowledging same reasonable diligence standard

regarding a plaintiff’s duty to investigate as to the possibility of fraud pursuant to

receipt of “storm warnings” in an antitrust context), amended on other grounds,

211 F.3d 1224 (11 th Cir. 2000) (per curiam).

In turn, inquiry notice triggers reasonable diligence in investigating the fraud

for which notice has been received in order to obtain sufficient information to file

suit. See Rothman v. Gregor, 220 F.3d 81, 97 (2d Cir. 2000) (“We must further

determine, however, when knowledge of the facts constituting the violation of

Section 10(b) and Rule 10b-5 will be imputed if, after the duty to inquiry arises,

the investor does indeed inquire.”); Fujisawa Pharm. Co. v. Kapoor, 115 F.3d

1332, 1334 (7 th Cir. 1997) (“The one-year statute of limitations applicable to suits

under Rule 10b-5 begins to run not when the fraud occurs, and not when the fraud

is discovered, but when (often between the date of occurrence and the date of

discovery of the fraud) the plaintiff learns, or should have learned through the

18
exercise of ordinary diligence in the protection of one’s legal rights, enough facts

to enable him by such further investigation as the facts would induce in a

reasonable person to sue within a year.”). The determination of when inquiry

notice occurred and how much investigation is reasonable for filing suit are

necessarily fact-specific to each case. Accordingly, we have recognized that

“questions of notice and due diligence are particularly suited for a jury’s

consideration.” Kennedy v. Tallant, 710 F.2d 711, 716 (11 th Cir. 1983).

Regarding reasonable diligence, the Seventh Circuit, whose definition of

factual discovery of a securities fraud and inquiry notice we adopted, Theoharous,

256 F.3d at 1228, has clarified “that inquiry notice does not begin to run unless and

until the investor is able, with the exercise of reasonable diligence (whether or not

actually exercised), to ascertain the information needed to file suit,” Marks, 122

F.3d at 368. Then Chief Judge Posner delineated the considerations that must be

taken into account concerning the reasonable diligence required before suit can be

filed in a securities fraud case:

Inquiry notice . . . must not be construed so broadly that the statute of
limitations starts running too soon for the victim of the fraud to be
able to bring suit within a year [former statute]. The facts constituting
such notice must be sufficiently probative of fraud—sufficiently
advanced beyond the stage of a mere suspicion, sufficiently confirmed
or substantiated—not only to incite the victim to investigate but also
to enable him to tie up any loose ends and complete the investigation
in time to file a timely suit.

19
 But the facts that put the victim of the fraud on notice can fall
short of actual proof of fraud. How short may depend on the victim’s
access to the information that he will need in order to be able to plead
a reasonably well substantiated and adequately particularized case of
securities fraud, bearing in mind that before he files his suit he will
not have the aid of compulsory process. The better his access, the less
time he needs. “Suspicious circumstances, coupled with ease of
discovering, without the use of legal process, whether the suspicion is
well grounded, may cause the statute of limitations to start to run
before the plaintiffs discover the actual fraud.”
....
. . . But more than bare access to necessary information is
required to start the statute of limitations running. There must also be
a suspicious circumstance to trigger a duty to exploit the access; an
open door is not by itself a reason to enter a room.
....
How suspicious the circumstance need be to set the statute of
limitations running—how close, in other words, it needs to be to the
proof that one would have to have in hand in order to be able to file
suit . . . will depend on how easy it is to obtain the necessary proof by
a diligent investigation aimed at confirming or dispelling the
suspicion.
....
. . . [I]nquiry notice is defined . . . to require more than merely
suspicious circumstances—to require that the suspicious circumstance
place the potential plaintiff in possession of, or with ready access to,
the essential facts that he needs in order to be able to sue.

Fujisawa, 115 F.3d at 1335, 1337 (citations omitted) (first, second, fourth, and fifth

emphases added).

Similarly, the Tenth Circuit has struck “a balance between two competing

policies underlying the securities laws”:

While we recognize there is a strong federal interest in
requiring plaintiffs to file suit soon after they are put on

20
 notice of their claims, the applicable statute of limitations
should not precipitate groundless or premature suits by
requiring plaintiffs to file suit before they can discover
with the exercise of reasonable diligence the necessary
facts to support their claims.

Sterlin v. Biomune Sys., 154 F.3d 1191, 1202 (10 th Cir. 1998) (emphasis added).

That court further recognized the potential of valid securities fraud actions being

time-barred simply because the definitive facts evidencing corporate culpability

were not available or obtainable, only the effects were perceptible:

Adopting inquiry notice as the point when the one-year
limitations period begins to run, however, could lead to
valid suits being barred because the plaintiff, although on
inquiry notice, could not reasonably have discovered
within one year sufficient facts to file a suit which
satisfies the particularized pleading requirements of §
9(b). The objective of encouraging investors to file suit
as soon as possible is not undermined by delaying the
accrual of the statute of limitations until the plaintiffs, in
the exercise of reasonable diligence, should have
discovered the facts underlying the alleged fraud.
Delaying the accrual of the one-year limitations period
until this time does, however, ensure the plaintiffs are
given the opportunity to adequately develop the facts and
determine whether those facts merit bringing suit, thus
giving meaning to the term “inquiry.”

Id. (footnote omitted) (emphasis added).

Allowing time for appropriate investigation for financially injured plaintiffs

to obtain the evidence of securities fraud needed to file suit comports with the

purpose of the Public Company Accounting Reform and Investor Protection Act of

21
2002, of which the SOA is a remedial part, enacted by Congress in the wake of

Enron to expand the period for unknowing victims of fraudulent conduct violative

of the securities laws to seek recourse and remedies in federal court. The Senate

committee reviewing this legislation intended to deter fraudulent securities

conduct8 considered the testimony of Former SEC chairman Arthur

8
Deterrence of securities fraud was the critical purpose in Congress’s extending the time
that a perpetrator could be held liable for fraudulent securities conduct with obvious concern
regarding the time plaintiffs would need to elicit the facts necessary to file suit. Concerning
prevalent securities fraud, Senator Harkin explained that perpetrators of securities fraud must be
punished to deter this conduct:

[O]ur economic system is based on transparency. Investors need accurate
financial information about a company so that they can make informed
investment decisions. They need information they can trust. Getting honest
information requires accountability and honesty from three entities: corporate
executives, stock brokers, and public auditors. Clearly, we are seeing
breakdowns, if not outright criminality, at all three levels. And it requires
additional accountability at all three levels in order to restore investor confidence.
First, we must expect that corporations present an honest portrait of the
companies[‘] economic health and wellbeing. Corporate executives who cook[]
the books are no different than used car salesmen who roll back the car
odometers, both are engaged in a fraud. They must be held accountable for their
actions and severely punished.
Second, we must expect [that] brokers provide their investors with honest,
accurate, and unbiased advice. I stress unbiased. Unfortunately, many brokerage
firms have a conflict of interest because they bring in businesses and increase
their own profits by pushing bad stocks. . . .
Third, we have to expect that public accounting firms are acting as
watchdogs over corporate financial statements. Yet many of the auditing firms,
not just Arthur Andersen, have had major failures.

148 Cong. Rec. S6540 (daily ed. July 10, 2002) (statement of Sen. Harkin) (emphasis added).
Promoting the SOA in the House, Representative Jackson-Lee similarly addressed the
need for punishment of corporations and corporate executives to effectuate corporate
responsibility and accountability:

Over the months we have suffered, we have watched the marketplace go up and

22
Levitt that “extending the statute of limitations is warranted because many

securities frauds are inherently complex, and the law should not reward the

perpetrator of a fraud, who successfully conceals its existence for more than three

years.” S. Rep. No. 107-146, at 17 (2002); 148 Cong. Rec. S7420 (daily ed. July

26, 2002) (statement of Sen. Leahy). In his section-by-section analysis of the

extended statute of limitations before the Senate, Senator Leahy discussed and

adopted Justice Kennedy’s view that the Supreme Court’s “‘one and three’” year

limitations established by Lampf made potential securities fraud cases “‘all but a

dead letter for injured investors who by no conceivable standard of fairness or

practicality can be expected to file suit within three years after the violation

down, but, more importantly, I have watched my constituents living in the city of
Houston and those around the Nation see their investments for retirement go
down the drain.
And so I am proud to be able to join the gentleman from New York (Mr.
LaFalce) and the other body who presented one of the strongest corporate
responsibility and accountability bills that this Nation will ever see. It will tell the
poor guy on the street, it will tell the common thief who steals a loaf of bread and
goes to jail for 5 or 10 years, that justice in America reigns not only on the streets,
but in the corporate boardrooms, because we will have a board to oversee auditors
and accounting features as it relates to their work for corporations; we will make
sure that there is no grand profit on consulting fees and you are supposed to be
telling the corporation what they are doing wrong; and we will give shareholders,
the moms and dads and grandparents who have lost their investment, the right to
sue so that they can recover dollars that they have lost; and, yes, we will put in
jail those who have done wrong.
Mr. Speaker, this is a good bill and I will join my colleagues today,
providing leadership to the marketplace of America.

148 Cong. Rec. H5462 (daily ed. July 25, 2002) (statement of Rep. Jackson-Lee) (emphasis
added).

23
occurred.’” 9 148 Cong. Rec. S7420 (daily ed. July 26, 2002) (statement of Sen.

9
Congress clearly was cognizant that the former, shorter statute of limitations was
insufficient for plaintiffs to acquire necessary documentation in complex securities fraud cases.
In his section-by-section analysis of the SOA, Senator Leahy, who introduced the bill in the
Senate, addressed Section 804 and gave insights into the reasoning behind the enactment of the
extended statute of limitations, although his section-by-section analysis subsequently was
included in the Congressional Record, which is not an unusual occurrence:

This section would set the statute of limitations in private securities fraud
cases to the earlier of two years after the discovery of the facts constituting the
violation or five years after such violation. The current statute of limitations for
most private securities fraud cases is the earlier of three years from the date of the
fraud or one year from the date of discovery. This provision states that it is not
meant to create any new private cause of action, but only to govern all the already
existing private causes of action under the various federal securities laws that
have been held to support private causes of action. This provision is intended to
lengthen any statute of limitations under federal securities law, and to shorten
none. The section, by its plain terms, applies to any and all cases filed after the
effective date of the Act, regardless of when the underlying conduct occurred.
....
Section 804 protects victims by extending the statute of limitations in
private securities fraud cases. It would set the statute of limitations in private
securities fraud cases to the earlier of five years after the date of the fraud or two
years after the fraud was discovered. The current statute of limitations for most
such fraud cases is three years from the date of the fraud or one year after
discovery, which can unfairly limit recovery for defrauded investors in some
cases. It applies to all private securities fraud actions for which private causes of
action are permitted and applies to any case filed after the date of enactment, no
matter when the conduct occurred. As Attorney General Gregoire testified at the
Committee hearing, in the Enron state pension fund litigation the current short
statute of limitations has forced some states to forgo claims against Enron based
on alleged securities fraud in 1997 and 1998. In Washington state alone, the short
statute of limitations may cost hard-working state employees, firefighters and
police officers nearly $50 million in lost Enron investments which they can never
recover.
....
In fraud cases the short limitations period under current law is an
invitation to take sophisticated steps to conceal the deceit. The experts have long
agreed on that point, but unfortunately they have been proven right again. As
recent experience shows, it only takes a few seconds to warm up the shredder, but
unfortunately it will take years for victims to put this complex case back together
again. It is time that the law is changed to give victims the time they need to
prove their fraud cases.

24
Leahy) (quoting Lampf, 501 U.S. at 377, 111 S.Ct. at 2790) (Kennedy, J.,

dissenting)).

The Supreme Court has “repeatedly recognized that securities laws

combating fraud should be construed ‘not technically and restrictively, but flexibly

to effectuate [their] remedial purposes.’” Herman & MacLean v. Huddleston, 459

U.S. 375, 386-87, 103 S.Ct. 683, 689 (1983) (quoting SEC v. Capital Gains

Research Bureau, Inc., 375 U.S. 180, 195, 84 S.Ct. 275, 284 (1963)) (alteration in

original). The SOA, of which § 1658(b) is an integral part, was enacted to protect

investors who unknowingly may be subjected to fraudulent securities schemes and

to give them recourse and relief in the federal courts. Given this clear

Congressional purpose of the SOA, we want to be cautious and certain before

denying the plaintiff class an opportunity to have the facts revealed in discovery

and, potentially, a decision following a trial. Importantly, this class action is not a

re-filing of a previous suit under the formerly applicable statute of limitations, but

the initial filing of this case following the issuance of the SEC Order to Dean

Witter, the alleged first knowledge of the plaintiff class of Dean Witter’s securities

fraud concerning e-Net stock. With considerable financial losses at stake by the

plaintiff class members, it seems illogical that they would have neglected to file

148 Cong. Rec. S7418, S7419, S7420 (daily ed. July 26, 2002) (statement of Sen. Leahy)
(emphasis added).

25
suit if they had known of Dean Witter’s securities fraud, particularly given the

alacrity with which suit was filed upon issuance of the SEC Order.

This practical reasoning makes sense because unsubstantiated knowledge is

an insufficient basis for filing actions for violations of the securities laws, and,

waiting until such facts are developed and available, promotes judicial efficiency

and justice. Rather than revert to the former statute of limitations automatically,

the developed facts of this case could show it to be governed by the SOA statute of

limitations and that this is the type of securities fraud case that Congress intended

to be covered when it extended the statute of limitations for filing suit, a remedial

purpose designed to help financially injured plaintiffs by deciding their cases on

the merits and not to shut them out of court procedurally.10 Because of the

congressionally intended purpose of protecting and aiding investors in seeking

relief in federal court from perpetrators who have financially injured them, we

10
Urging passage of the SOA and the importance of the extended statute of limitations as
part of fulfilling its purpose to protect investors, Senator Daschle explained:

Finally, the amendment will protect victims of fraud. By extending the
time period during which victims can bring cases to recoup their losses, the Leahy
bill removes the reward for those fraud artists who are especially gifted at
concealing what they’ve done for lengthy periods of time.
Cases where victims have lost their entire life savings should be decided
on the merits, not based on procedural hurdles that may now be used to throw
legitimate victims out of court.

148 Cong. Rec. S6437 (daily ed. July 9, 2002) (statement of Sen. Daschle) (emphasis added).

26
conclude that inquiry notice designates the point in time when the SOA statute of

limitations begins to run for the purpose of reasonably diligent investigation to

substantiate the securities fraud at issue. Therefore, the task for the district judge

on remand will be to determine the point in time when the plaintiff class had

sufficient information of the alleged fraudulent securities conduct by Dean Witter

to file this class action.

C. Application

Procedurally, this case presenting a statute-of-limitations challenge is before

us on an interlocutory appeal from the denial of a motion to dismiss, limiting our

consideration to the complaint and any exhibits thereto.11 Dismissal under Federal

Rule of Civil Procedure 12(b)(6) “on statute of limitations grounds is appropriate

only if it is ‘apparent from the face of the complaint’ that the claim is time-

barred.”12 La Grasta, 358 F.3d at 845 (quoting Omar ex rel. Cannon v. Lindsey,

11
“When considering a motion to dismiss, all facts set forth in the plaintiff’s complaint
‘are to be accepted as true and the court limits its consideration to the pleadings and exhibits
attached thereto.’” Grossman v. Nationsbank, N.A., 225 F.3d 1228, 1231 (11th Cir. 2000) (per
curiam) (citation omitted). For review under Rule 12(b)(6), federal courts “‘view the allegations
of the complaint in the light most favorable to the plaintiff[s], consider the allegations of the
complaint as true, and accept all reasonable inferences therefrom.’” La Grasta, 358 F.3d at 845
(quoting Omar ex rel. Cannon v. Lindsey, 334 F.3d 1246, 1247 (11th Cir. 2003) (per curiam))
(alteration in original).
12
At the motion-to-dismiss stage, a complaint may be dismissed on the basis of a statute-
of-limitations defense “only if it appears beyond a doubt that Plaintiffs can prove no set of facts
that toll the statute.” Knight v. E.F. Hutton & Co., 750 F. Supp. 1109, 1112 (M.D. Fla. 1990);
see Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957); Summer v. Land & Leisure,
Inc., 664 F.2d 965, 969 (5th Cir. Unit B 1981).

27
334 F.3d 1246, 1251 (11 th Cir. 2003) (per curiam)). Attached to the class action

complaint is the October 1, 2002, SEC Order censuring and fining Dean Witter and

suspending or barring from association with any broker or dealer the specific Dean

Witter brokers implicated. According to the statement of the complaint, this was

the nationwide plaintiff class of lay persons’ first knowledge of Dean Witter’s

fraudulent securities conduct that resulted in their significant financial losses from

Dean Witter’s manipulating the price of e-Net stock through a short squeeze.

In the first section of the complaint filed on November 15, 2002, entitled

“Nature of the Claim,” there are three paragraphs. R1-1 at 1-2. The first paragraph

identifies the parties involved and the specific securities acts violated. Id. at 1.

The second paragraph describes the alleged violative conduct by Dean Witter

implemented by effecting a short squeeze “to discourage clients from selling e-

Net.” Id. at 2. The third paragraph states that the SEC issued on October 1, 2002,

an “Order Instituting Public Administrative and Cease-and-Desist Proceedings

Pursuant to Sections 15(b) and 21C of the Securities Act of 1934, Making Findings

and Imposing Remedial Sanctions.” Id. Regarding this SEC order, the paragraph

continues: “The SEC Order censured and fined Defendant Dean Witter, suspended

and fined Defendant Grande and fined and barred Defendant Rodgers from

association with any broker or dealer. A copy of the SEC Order is attached hereto

28
as Exhibit A, and is incorporated herein in full by reference.” Id.

From the complaint, with the description and attachment of the SEC Order,

it appears that Roberts, although he knew that he had sustained a loss, did not

know of the causative securities violations by Dean Witter until the issuance of the

October 1, 2002, SEC Order. The class-action complaint was filed on November

15, 2002, a month and a half from the date of this SEC Order after learning of the

conduct by Dean Witter that established securities violations in connection with his

loss and that of other investors similarly situated. If this factual inference is

correct, then Roberts and the other members of the class were not “delinquent

plaintiffs who slept on their rights” and possibly could be unjustly rewarded for

pursuing time-barred claims; instead, they fit within the new statute of limitations

under the SOA, which was effective when the subject complaint was filed. Br. of

Defendant-Appellant Dean Witter at 15. Notably, the district judge stated in his

order from which this appeal is taken that plaintiffs’ position was that the new

SOA limitations period from discovery of inculpatory facts “had not expired on the

date of the filing of the Complaint, November 15, 2002.” R1-31 at 5 n.6.13

13
The SOA statute of limitations regarding discovery of facts is misstated in this footnote
as three rather than two years under § 1658(b)(1), but this is a difference without a distinction,
given the filing date of the complaint following issuance of the SEC Order in this case. R1-31 at
5 n.6. This statement occurs in the district judge’s discussion of retroactive application of the
SOA, which was the analysis, complete with legislative history, used by the district judge to
conclude “that Congress intended for the extended statute of limitations to apply retroactively.”
Id. at 8.

29
 Rather than “reviving” their cause of action, about which they purportedly

were unknowing until the SEC Order issued, the plaintiffs’ class action was filed or

commenced after the knowledge of Dean Witter’s fraudulent conduct through the

SEC Order, which was after the new statute of limitations under the SOA had

become effective on July 30, 2002. This class action was filed on November 15,

2002, roughly six weeks following the issuance of the SEC Order, well within the

SOA two-year limitations period for filing an action after discovery of facts

constituting the violation.14

Inquiry notice in our circuit as to securities fraud occurs when a

potential plaintiff discovers facts evidencing securities fraud. Theoharous, 256

F.3d at 1228. Theoharous, consolidated class actions against a corporation and its

chief executive officer for violations of Sections 10(b) and 20(a) of the Securities

Exchange Act of 1934 and Rule 10b-5, concerned allegations that they had made

false and misleading statements and concealed material facts regarding the

financial performance of the corporation. Analyzing the timeliness of one of the

complaints, we determined that announcement by the corporation “that it was filing

14
The filing date of this class action also fits the second part of the SOA statute of
limitations: five years after the securities violation, because the violative conduct allegedly
existed from January 1 through August 19, 1998. Plaintiffs, however, had no reason to file their
class action until they knew that they had been injured financially by Dean Witter’s securities
fraud.

30
for bankruptcy was an indication that its previous reports of solid financial health

were inaccurate” and was sufficient for “inquiry notice of the possibility that [the

corporation] had violated Section 10(b) with its prior assurances of financial

health.” Id. at 1228. Consequently, the bankruptcy announcement marked the

point in time that the one-year discovery period under the formerly applicable

statute began to run, and we determined that the district court properly decided that

the statute of limitations barred the action.

Franze, an interlocutory appeal from a grant of class certification, concerned

whether class certification appropriately was granted for all individuals who had

purchased variable life insurance policies between September 30, 1991, and

January 3, 1996, from Equitable. 296 F.3d at 1251. With the then applicable one-

year limitations period from discovery, the issue before our court was when the

class representatives were put on inquiry notice of the securities fraud to determine

whether the complaint was filed timely. We determined that the class

representatives “could have discovered the alleged misrepresentations simply by

reading” the policy and prospectus provided to them by Equitable. Id. at 1254; see

Dobbs v. Cigna Sec., Inc., 12 F.3d 346, 352 (2d Cir. 1993) (determining that

plaintiff-appellant was “on inquiry notice when she made the investments in

question” because of disclosures of the risks involved in the prospectuses, which

31
made her complaint, filed “more than a year after her claim accrued” untimely).

The class representatives even testified that, if they had read these documents, then

they would not have purchased the variable life insurance policies. Franze, 296

F.3d at 1255. “Because inquiry notice is an objective standard, we conclude[d]

that the prospectus and policy provided sufficient information to put a reasonable

person on inquiry notice.” Id.

While public announcement of corporate bankruptcy was sufficient for

inquiry notice in Theoharous, the public, SEC Order in this case is stronger

because it gave actual notice of the fraudulent securities conduct by Dean Witter

with specific findings and imposing remedial sanctions. If this is the district

court’s determination on remand, then the complaint in this case was timely under

the two-year, SOA statute of limitations from discovery of facts of the securities

violation. Because the district court previously analyzed this case under retroactive

application of the SOA, five-year limitations period from the securities violation, §

1658(b)(2), there was no analysis in the order on appeal of the limitations period

from discovery of the facts of the securities violation, § 1658(b)(1), although this

issue was briefed to the district court.

In support of its motion to dismiss the class-action complaint, Dean Witter’s

position in district court was that the plaintiff class was on inquiry notice of

32
Rodgers’s alleged manipulation of e-Net stock before November 15, 2000, two

years before the subject complaint was filed. R1-17 at 2. To substantiate this

argument, Dean Witter noted other arbitration actions and attached to its

supporting memorandum several articles from local newspapers, such as the St.

Petersburg Times and The Palm Beach Post, and a single Washington Post article,

as well as a Fortune magazine article, ranging in dates from 1998 through 2000, all

of which were obtained from an Internet search, and 1998 comments by an

investor, “watermellonman” on an Internet “chat room” message board on Yahoo

Finance. Id. at Exs. 2, 3, 5, 6, 7, 8, 9, 10. On remand for the development of the

facts in this case, the district judge may be unpersuaded by Dean Witter’s sources

of inquiry notice to a nationwide class of laypersons of its securities violations,

such as local Florida newspapers and an Internet “chat” room.

Regarding articles in local Florida newspapers, available solely online to

non-local residents, or an online chat-room posting by an unidentified person, we

want the district judge on remand with the development of the facts to determine

whether these sources of information could reasonably have reached the class

members, who were geographically dispersed throughout the United States. See

Great Rivers Coop. of Southeastern Iowa v. Farmland Indus., Inc., 120 F.3d 893,

897 (8 th Cir. 1997) (“[Defendant] would have us automatically impute to [plaintiff]

33
constructive knowledge of any information available to the public, including all

articles published on, and the public records available in, the [related] case,

regardless of [plaintiff’s] actual awareness. We cannot adopt this analysis. . . . A

victim must be aware of some suspicious circumstances, some ‘storm warnings,’ to

trigger a duty to investigate.”). Even if this were the case, the district judge on

remand must determine if sufficient information was provided by these sources to

cause the class members to realize that Dean Witter had committed securities

violations that negatively affected their investments to enable them to file a

lawsuit, bearing in mind that many, if not most, of the class members are likely lay

persons unknowing about the intricacies of the securities laws as to what

constitutes a securities violation as opposed to simply losing money because of a

market decline.15 A similar analysis would be required to determine whether the

arbitration cases cited by Dean Witter provided sufficient inquiry notice for the

15
For example, one of the local newspaper articles that Dean Witter gleaned from its
Internet search, a May 16, 1999, article from the St. Petersburg Times, South Pinellas Edition,
merely states that “[t]he Florida Division of Securities said that it is investigating a complaint
regarding Rodgers’ activities.” R1-17, Ex. 6 at 195. It further states: “The SEC said it can
neither confirm nor deny the existence of an investigation.” Id. This does not appear to be
sufficient inquiry notification to enable the class representative to be able to file a complaint
stating the specific securities violations by Dean Witter on behalf of the class members. See In
re Physician Corp. of Am. Secs. Litig., 50 F. Supp. 2d 1304, 1319 (S.D. Fla. 1999) (concluding
that defendant’s press release and Form 10-Q filing were insufficient to provide inquiry notice to
plaintiffs); Lilley v. Charren, 936 F. Supp. 708, 715 (N.D. Cal. 1996) (deciding that a newspaper
article and analysts’ reports of “a decline in the price of . . . stock, standing alone, is not evidence
of fraud”).

34
class members.16

The only two articles of national distribution that Dean Witter has provided

as a basis for inquiry notice by Roberts and the class members are the Washington

Post and Fortune articles. The Washington Post article, published September 14,

1998, and titled “A ‘Doonesbury’ Imitation That’s No Laughing Matter,” does not

mention Dean Witter; therefore, it does not appear to alert the class members to

Dean Witter’s intent to deceive or fraudulent conduct in connection with its sale of

e-Net shares sufficient to file a class-action complaint. R1-17, Ex. 3. The Fortune

article, published August 14, 2000, and titled “Borrower, Beware,” discusses

Rodgers and e-Net stock on page five of a six-page article. Id. Ex. 8 at 110. The

article does not address the broad-reaching scheme alleged by the plaintiff class

members, the involvement of Dean Witter, or its pervasively inadequate internal

checks and balances alleged in the complaint.

16
“While the . . . press release and the subsequent filing of 19 related lawsuits may have
created suspicious circumstances as to the Defendant’s conduct, the Court cannot conclude as a
matter of law that they provided inquiry notice of Defendant’s reckless or intentional
misconduct.” Carley Capital Group v. Deloitte & Touche, L.L.P., 27 F. Supp. 2d 1324, 1341
(N.D. Ga. 1998). In Carley, 19 publicly filed lawsuits were insufficient for inquiry notice, yet
Dean Witter contends that complaints and counterclaims filed in arbitration matters, which were
not even on court dockets and thus publicly available, provided inquiry notice to Roberts and the
class members. Moreover, on a motion to dismiss and “to show that the [former] limitations
period applies,” Dean Witter “improperly relies upon evidence not referenced in the pleadings,”
which more appropriately should be considered on a summary-judgment motion. Id. Indeed, the
district judge on remand may decide that he is unable to determine the date that we seek as to
when Roberts had sufficient notice of Dean Witter’s conduct with respect to e-Net stock to file a
complaint on behalf of the class members without full discovery.

35
 In contrast, our court concluded that an article in a nationally distributed

magazine, Smart Money, was sufficient to put plaintiffs/investors in a class action

on inquiry notice by alleging that a “strong buy” recommendation by a particular

analyst in a securities-investment firm was made under a conflict of interest and

artificially inflated the price of a specific corporate stock. La Grasta, 358 F.3d at

840, 848, 849. Critical to our conclusion was specific exposure in the article not

only of the identities of the securities-investment firm and the particular,

implicated analyst, but also the conflict of interest.17 On remand, the district judge

must determine whether either of the nationally distributed articles in this case

were explicit enough to have provided inquiry notice to the plaintiff class

members.

17
Two other circuits have used a similar analysis to decide whether articles in magazines
of national distribution provided sufficient inquiry notice. In Sterlin, the Tenth Circuit
concluded that a Barron’s article that “questioned whether Biomune’s purpose was to create a
viable product, Immuno–C, or whether it was in business simply to ‘sell shares,’” plus
Biomune’s representation in its SEC filings that a particular investor owned no stock when he
“actually owned more than 35% of Biomune’s stock through a ‘byzantine array of entities,’”
evidenced a fraudulent representation to the SEC to obtain Biomune’s NASDAQ listing was
sufficient information of fraud to put plaintiffs in a securities fraud class on inquiry notice. 154
F.3d at 1204. In comparing the Barron’s article in Sterlin with a Forbes article concerning
Valence Technology, Inc., the Ninth Circuit came to the opposite conclusion in considering
whether the Forbes article provided inquiry notice in a securities fraud, class action by stock
holders: “While the article noted the checkered past of Carl Berg, one of Valence’s principal
investors, it did not state any facts from which it could be inferred that Valence was trying to
mislead market regulators or defraud investors by hiding Berg’s involvement in the company.”
Berry v. Valence Tech., Inc., 175 F.3d 699, 705 n.8 (9th Cir. 1999). That court held that “the
Forbes article was insufficient to induce a reasonable investor to investigate the possibility of
fraud” and “that the district court erred in dismissing Plaintiffs’ suit on statute of limitations
grounds.” Id. at 707.

36
 Dean Witter has not asserted that prospectuses, publicly filed SEC

documents, company press releases, or account statements contained meaningful

disclosures that would have provided notice to the class members of the alleged

fraud sufficient for inquiry notice. “It is beyond dispute that the defendants have

the burden of proof in establishing the elements of the affirmative defense of the

statute of limitations.” Smith v. Duff & Phelps, Inc., 5 F.3d 488, 492 n.9 (11 th Cir.

1993). The applicable SOA statute of limitations does not commence until Roberts

and the class members “discovered, or, in the exercise of reasonable diligence,

should have discovered, the alleged fraud,” and Dean Witter “bear[s] the burdens

of production and persuasion on that question.” Id.

Significantly, general skepticism expressed in a press article about

corporate conduct is insufficient “to excite inquiry into the specific possibility of

fraud.” Berry v. Valence Tech., Inc., 175 F.3d 699, 705 (9 th Cir. 1999). Instead,

“for a press article to put shareholders on inquiry notice, there must be some

reasonable nexus between the allegations made in the article and the nature of the

action subsequently brought.” Id. (emphasis added). In addition to determination

of what established inquiry notice and when that occurred, the district judge on

remand must determine the point in time that Roberts, on behalf of the class

members, had sufficient specific factual information of Dean Witter’s violation of

37
the securities laws to file the class-action complaint. If that did not occur until the

October 1, 2002, SEC Order, then this securities-fraud class action was timely

filed on November 15, 2002, under the applicable SOA statute of limitations,

when the plaintiff class learned that their investment losses were the result of

Dean Witter’s fraudulent conduct rather than a downturn in the stock market.

D. Directions

Review of the facts stated in the class-action complaint, the statutory

language, and applicable securities fraud cases indicates that this case could have

been filed timely under the SOA statute of limitations. From the factual

allegations of the complaint and the attached SEC Order, a reasonable inference is

that the plaintiff class did not know the facts of the fraudulent conduct by Dean

Witter that caused their losses relative to their e-Net stock sufficient to file their

complaint until the SEC Order issued. If the district judge on remand determines

that this is true, then the class-action complaint was filed timely within

approximately a month and a half after this knowledge, and the case should

proceed with discovery and, potentially, trial in district court. See Kennedy, 710

F.2d at 716 (recognizing in a securities-fraud case involving statute of limitations

that issues of notice and due diligence are the province of the jury); see also

Marks, 122 F.3d at 367 (“Whether a plaintiff had sufficient facts to place him on

38
inquiry notice of a claim for securities fraud . . . is a question of fact, and as such

is often inappropriate for resolution on a motion to dismiss under Rule 12(b)(6).”).

Should the district judge on remand be able to determine a date prior to the

issuance of the SEC Order that the class members had sufficient factual

information to file the class-action complaint, depending on when inquiry notice

was effective, the statutory-interpretation issue of whether previously time-barred

claims are revived by the SOA statute of limitations properly will be before us.

The current record is inadequate to permit us to proceed with the statute-of-

limitations issue presented to us without this critical fact. Because of the need for

factual development, we have recognized that whether plaintiffs possessed facts

sufficient to place them on inquiry notice of securities fraud often cannot be

resolved on a Rule 12(b)(6) motion and requires discovery. La Grasta, 358 F.3d

at 848. On the face of the complaint and the undeveloped record at this stage of

the proceedings, it is not apparent that this class-action, securities-fraud claim is

time-barred under the formerly applicable statute of limitations. The district judge

must determine whether the various sources of information provided by Dean

Witter were sufficient to constitute inquiry notice, and, if so, when. See id.

Significantly, at this point, this is not a case about retroactive application of

a new law and revival of time-barred claims. Rather, it is a case where inquiry

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notice first must be determined. Depending on the result of that factual finding,

this case may require only a straightforward application of the new, remedial

statute of limitations designed to encompass the securities fraud conduct at issue.

If that is the case, retroactive analysis circumvents Congressional intent in

enacting the SOA statute of limitations intended to cover a case, such as this, by

defeating the remedial purpose of the statute.

Automatically applying the former statute of limitations, as Dean Witter

urges, instead of first determining the inquiry-notice effective date to decide

which statute of limitations is applicable, would be regression to all the problems

caused by formerly using that statute, which the SOA statute of limitations was

designed to correct by allowing more time for investors injured by securities fraud

to obtain facts evidencing the fraudulent conduct sufficient to enable them to file

suit. This factual determination, however, is for the district judge to make because

the record before that court on a motion to dismiss was insufficient. For justice to

be done, this case may need to proceed through discovery, which will reveal the

actual facts. Since the SEC Order showed that plaintiffs had suffered financial

losses because of securities fraud, and the SOA statute of limitations is part of the

remedy that Congress established to enable injured investors to file suit, deciding

this case technically on the former statute of limitations rather than on the merits

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dodges and obfuscates the appropriate inquiry-notice analysis.

With the clear remedial purpose behind the Congressional enactment of §

1658(b) to protect unwitting investors and to enable them to sue in federal court

when they have suffered financial losses because of securities fraud, we remand

this case to the district court for determining what constituted inquiry notice, when

that occurred, and, following inquiry notice, the time required to file suit.

Specifically, without the SEC Order, could plaintiffs have been alerted to Dean

Witter’s fraudulent conduct concerning their e-Net stock independently to enable

them to file suit before issuance of the SEC order evidencing securities fraud by

Dean Witter regarding plaintiffs’ investments? The district judge must decide the

point in time when inquiry notice occurred and the time necessary under

reasonable-diligence analysis to file suit, the necessary, predicate factfinding for

the legal decision of the timeliness of the class-action complaint in this case.

Following these factual determinations by the district judge, we will be able to

make the legal decision of whether the SOA statute of limitations in § 1658(b)

applies to this case to permit it to proceed in district court.

Accordingly, at this preliminary stage of the proceedings with an

undeveloped record, we remand this case to the district court to determine the

essential, preliminary factual issues that we need to proceed with a legal

41
determination of the applicable statute of limitations:

(1) What established inquiry notice to the plaintiff class, and when
did that occur?

(2) When did the plaintiff class have sufficient information to file
suit?

These factual determinations by the district judge, particularly whether plaintiffs

knew or could have known of Dean Witter’s fraudulent conduct prior to the

October 1, 2002, SEC Order, are critical and necessary to the legal determination

of whether the class-action complaint filed on November 15, 2002, was time-

barred. It would be premature and analytically inappropriate for us to decide the

legal issue presented to us on interlocutory appeal on the basis of this pre-

discovery, undeveloped, motion-to-dismiss record, when a factual determination

concerning inquiry notice is first required.18

18
We recognize that other circuits have decided that § 1658(b) cannot be applied
retroactively to revive securities fraud cases, when the claims were time-barred under the former
statute of limitations. See, e.g., Foss v. Bear, Stearns & Co., 394 F.3d 540 (7th Cir. 2005); In re
Enterprise Mortgage Acceptance Co., 391 F.3d 401 (2d Cir. 2005). On the undeveloped record
in this case, however, it is premature for us to make that legal determination. Under the inquiry-
notice law of our circuit, we first must know the point in time when inquiry notice was
applicable on the facts of this case. Once the district court has provided us with that factfinding,
we can proceed to make the legal determination of the applicable statute of limitations. If the
district judge determines that the plaintiff class was on inquiry notice prior to the effective date
of the SOA statute of limitations, then this case is time-barred under the formerly applicable
statute of limitations, 15 U.S.C. § 78i(e). In contrast, if the district judge determines that the
SEC Order constitutes inquiry notice, then this class action for securities fraud is viable under §
1658(b). At this juncture, we do not yet know which statute of limitations applies to this case,
necessitating our remand so that the district judge can make the factual determinations that we
have directed, that relate to the essential fact of when inquiry notice occurred.

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 III. CONCLUSION

This interlocutory appeal was for the purpose of our deciding whether the

SOA statute of limitations in § 1658(b) is applicable to enable filing a securities

fraud case that was time-barred under the prior statute of limitations. Under our

circuit law, we need to know the point in time when the plaintiff class had

sufficient inquiry notice to file the class-action complaint. The district judge

needs to make this factfinding before we can proceed in deciding the legal issue of

the applicability of § 1658(b) to this case. Therefore, the district court’s order

denying Dean Witter’s motion to dismiss is VACATED and REMANDED for

reconsideration in accordance with our analytical directions for the limited

purpose of determining the date that the plaintiff class had sufficient factual

information of their financial loses being the result of fraudulent conduct by Dean

Witter to constitute inquiry notice to enable the class-action complaint to be filed

in this case.

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EDMONDSON, Chief Judge, concurs in the result.

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