Tuesday, March 4, 2008
In the latest opinion in Betz v. Trainer, Wortham & Co. (Feb. 26, 2008), the Ninth Circuit confirmed its earlier interpretation of an "inquiry notice plus reasonable diligence" standard to determine when the statute of limitations for Rule 10b-5 actions begins to run and refused the defendant's petition for rehearing. The appeals court had previously reinstated plaintiff's claim and held there were material issues of fact preventing a summary dismissal. Judge Kozinski (joined by two other judges) was very unhappy about this outcome and complained, in a sharply worded dissent, that the Ninth Circuit's "unique interpretation" of the statute of limitations puts it "at odds" with ten other Circuits. Plaintiff, a retired art dealer, invested over $2 million with defendant based on an oral promise to achieve high returns with no risk. Judge Kozinksi already has trouble with this, since the oral promise was contradicted by the written contract. He goes on to describe how plaintiff received a statement showing a loss in February 2000 and continued to receive 29 more statements, and waited three and a half years, before filing suit. Judge Kozinski's dissent goes on for some length, but this lament sums it up:
If a securities defendant in a simple case like this cannot use the statute of limitations as a shield against the costs and hazards of trial, then no defendant can, and the statute of limitations Congress passed for 10b-5 cases is pretty much a dead letter in this circuit.