649 F. App'x 611
9th Cir.2016Background
- Plaintiffs participated in a stock-loan program administered with involvement by Wachovia and Derivium; when loans matured plaintiffs did not get their stock back.
- At loan maturity plaintiffs realized something was wrong and acknowledged that an investigation was required; they sued Derivium earlier and later sued Wachovia.
- Plaintiffs waited until November 2010, claiming documents produced in a separate bankruptcy revealed “smoking gun” evidence tying Wachovia to wrongdoing.
- District court held plaintiffs’ claims against Wachovia were time-barred under the applicable statute of limitations and dismissed their complaint with no leave to amend as futile.
- Plaintiffs argued the discovery rule and fraudulent concealment tolled limitations until the 2010 disclosure; the court found plaintiffs failed to plead reasonable diligence or why earlier investigation could not have uncovered facts.
- The Ninth Circuit affirmed, holding plaintiffs had reason to suspect Wachovia earlier, failed to plead specific investigative efforts or inability to discover earlier, and could not rely on the later documents as the sole basis to delay accrual.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether statute of limitations is tolled by the discovery rule | Plaintiffs: only Derivium was suspected earlier; they did not suspect Wachovia until 2010 document production | Wachovia: plaintiffs had reason to suspect Wachovia when loans matured and thus had to investigate within limitations | Held: Discovery rule does not delay accrual; plaintiffs had reason to investigate Wachovia earlier and failed to plead diligence |
| Whether plaintiffs adequately pled time/manner of discovery and inability to discover earlier | Plaintiffs: pleadings and later documents show when and how they discovered Wachovia’s role | Wachovia: complaint lacks facts showing investigations undertaken or why earlier discovery was impossible | Held: Plaintiffs failed to plead the required specifics; allegations insufficient |
| Whether the 2010 documents were necessary to trigger suit (i.e., need for a “smoking gun”) | Plaintiffs: could not have sued until the 2010 disclosures revealed Wachovia’s involvement | Wachovia: plaintiffs need not know specific facts; suspicion of wrongdoing triggers duty to investigate and choose to sue | Held: Plaintiffs’ reliance on a post hoc “smoking gun” is unavailing; suspicion alone starts the limitations clock |
| Whether fraudulent concealment tolls the limitations period | Plaintiffs: Wachovia concealed relevant materials until 2010 | Wachovia: plaintiffs do not allege facts showing Wachovia fraudulently concealed or that plaintiffs exercised due diligence | Held: Fraudulent concealment not established; complaint fails to allege discovery circumstances or absence of fault; leave to amend futile |
Key Cases Cited
- Fox v. Ethicon Endo-Surgery, Inc., 110 P.3d 914 (Cal. 2005) (discovery rule postpones accrual until plaintiff discovers or has reason to discover cause of action)
- Norgart v. Upjohn Co., 981 P.2d 79 (Cal. 1999) (plaintiff has reason to discover when he has reason to suspect factual basis for elements)
- Grisham v. Philip Morris, USA, Inc., 151 P.3d 1151 (Cal. 2007) (pleading requirements to invoke discovery rule: time/manner of discovery and inability to discover earlier despite diligence)
- Jolly v. Eli Lilly & Co., 751 P.2d 923 (Cal. 1988) (once plaintiff suspects wrongdoing and has incentive to sue, she must decide whether to file suit or sit on rights)
- Baker v. Beech Aircraft Corp., 114 Cal. Rptr. 171 (Cal. Ct. App. 1974) (elements required to plead fraudulent concealment)