Betz v. Trainer Wortham & Co.
829 F. Supp. 2d 860
N.D. Cal.2011Background
- Betz invested $2.2 million managed by Trainer Wortham, under a Portfolio Management Agreement dated June 7, 1999.
- Trainer Wortham is directed and managed by First Republic Bank; Como and Vile are involved as defendants.
- Betz asserts Section 10(b)/Rule 10b-5 claims and state law claims including breach of fiduciary duty and unfair competition under Cal. Bus. & Prof. Code § 17200.
- Court previously held the §10(b) claim time-barred by the pre-SOX three-year repose; Ninth Circuit reversed on discovery issues and remanded for Merck v. Reynolds guidance.
- Merck v. Reynolds holds the limitations period begins when the plaintiff discovers the violation facts or could have discovered them with reasonable diligence; period may be triggered by discovery of scienter.
- Defendants move for partial summary judgment on §10(b) and argue §17200 cannot be based on securities transactions; court must apply Merck and assess continuing violations and post-repose acts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Betz's §10(b) claim time-barred by statute of repose? | Repose starts at first misrepresentation; continuing violations should extend period. | Repose begins with June 1999 misrepresentations; only statistics of the initial period apply; no extension for continuing wrong. | Partially barred: pre-July 31, 1999 misrepresentations barred; post-repose margin-related acts may survive. |
| Are post-repose misrepresentations and margin-related trades actionable under §10(b)? | Misrepresentations after July 1999 sustain §10(b) claim when connected to margin trading and subsequent trades. | Only misrepresentations within repose period are actionable; post-repose acts not tied to the original violation fail. | Survival of §10(b) claim based on margin-related misrepresentations and trades within repose period. |
| Is the §10(b) claim time-barred for actual knowledge under pre/post-SOX statutes? | There are genuine issues about when Betz learned facts constituting scienter; continued assurances delayed discovery. | Actual knowledge under Merck requires discovery of facts constituting the violation including scienter; undiscovered facts do not bar relief. | Genuine issues of material fact exist; not barred by the one- or two-year limitations. |
| Can the §17200 UCL claim be predicated on securities transactions? | UCL may cover tangential securities-related conduct notwithstanding Bowen. | Bowen bars UCL predicated on securities transactions; claims focus on the sale/purchase of securities. | UCL claim cannot be based on securities transactions; barred. |
Key Cases Cited
- Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991) (three-year repose and discovery rule framework for securities actions)
- Merck & Co. v. Reynolds, 130 S. Ct. 1784 (2010) (limitations period begins upon discovery of facts constituting the violation or when discovered with reasonable diligence)
- Betz v. Trainer Wortham & Co., 519 F.3d 863 (9th Cir. 2008) (discovery and notice issues on §10(b) claim; on remand after Merck)
- Bowen v. Ziasun Technologies, Inc., 116 Cal.App.4th 777 (Cal. Ct. App. 2004) (Bowen limits UCL predicated on securities transactions)
- In re Juniper Networks, Inc. Secs. Litig., 542 F. Supp. 2d 1037 (N.D. Cal. 2008) (illustrates continuing wrong and limits on reposes for subsequents)
- In re Maxim Integrated Prods., Inc. Secs. Litig., 574 F. Supp. 2d 1046 (N.D. Cal. 2008) (district court addressing securities-related §17200 issues)
- San Francisco Residence Club, Inc. v. Amado, 773 F. Supp. 2d 822 (N.D. Cal. 2011) (Bowen-like considerations in UCL applications to securities context)