Roger Tacey, a named plaintiff in this class action, appeals the district court’s
I.
In reviewing the district court’s grant of summary judgment, we view the facts in the light most favorable to Tacey, the nonmoving party. Kopp v. Samaritan Health System, Inc.,
Farmland Industries, Inc., (Farmland) is an agricultural cooperative headquartered in Kansas City, Missouri, and incorporated in Kansas. In August of 1990, Farmland implemented a business plan known as the Base Capital Plan (BCP). As part of the BCP, Farmland planned to purchase the outstanding equity of its wholly owned subsidiary, Farmland Foods (Foods), with newly created Type 12 Capital Credits. Farmland distributed a letter discussing the BCP. Farmland also held informational meetings (“help sessions”) concerning the BCP and, in particular, Farmland’s offer to exchange Farmland equity for Foods equity. (Appellant’s App. at 240.) In August of 1991, Farmland tendered its exchange offer.
Roger Tacey, a hog farmer from Nebraska, owned equity in Foods. Tacey received the Farmland prospectus and the letter discussing the BCP. He also attended an informational meeting. At the meeting, Tacey inquired about what would happen if he declined Farmland’s offer to exchange Foods equity for Farmland equity. When the
In July of 1992, a complaint was filed against Farmland in the United States District Court for the District of Colorado. Consumers Gas & Oil, Inc. v. Farmland Indus., Inc., No. 92-K-1394 (D.Colo.)[hereinafter Consumers]. This class action involved small, liquidated cooperatives that, pursuant to Farmland’s bylaws, had exchanged common stock for capital credits and allegedly later had discovered that Farmland would not redeem the capital credits. The plaintiffs claimed Farmland had engaged in “freeze-out” schemes that adversely impacted its holders of capital credits. The plaintiffs alleged RICO violations, securities fraud, breach of fiduciary duties, and unjust enrichment.
Tacey read about the Consumers case in a Farmland newsletter in October of 1992. In the article, which was entitled “Co-op sues Farmland over stock issue,” Farmland described the Consumers case as “ridiculous” and “ludicrous.” (Appellant’s App. at 235-36.) The article stated Farmland’s policy and priority schedule for redeeming its outstanding equity. The article explained that Farmland had placed capital credits quite low on its priority schedule, presently planning to redeem only five percent annually, subject to the Board of Directors’ discretion based upon “earnings, capital needs and other factors.” (Id. at 236.)
In late 1992, Tacey contacted a class representative in the Consumers suit and counsel for the class with regard to redemption of stock. Tacey was a member of a Nebraska cooperative that held common stock in Farmland. Tacey inquired whether the Nebraska cooperative would have to go through the Consumers’ process to have its Farmland stock redeemed. Tacey did not inquire or discuss any issue regarding the Foods transaction or the possible redemption of his Type 12 Capital Credits.
The Consumers case settled in June 1993. Tacey first learned of the details of the case when he obtained a copy of the complaint and settlement papers in early 1994. In mid-1994, Tacey contacted a Farmland representative to inquire about redeeming his Type 12 Capital Credits. Tacey learned then that Farmland would redeem the capital credits for not more than three cents on the dollar and that the promised secondary market was a failure.
This class action was filed on July 29,1994, against Farmland and three individuals who had served as officers and directors of either Farmland or Foods.
Farmland moved for summary judgment against Tacey on the basis of time bar. The district court granted this motion as to the
II.
We review a grant of summary judgment de novo, using the same standards under Federal Rule of Civil Procedure 56(c) as applied by the district court. Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett,
A. Inquiry Notice
The applicable statute of limitations for federal securities fraud claims is the one-year period set forth in section 13 of the 1933 Securities Act, 15 U.S.C. § 77m (1994). Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,
No action shall be maintained to enforce any liability created under section 77k or 771(2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence. ... In no event shall any such action be brought to enforce a liability ... more than three years after the security was bona fide offered to the public, or ... more than three years after the sale.
15 U.S.C. § 77m (1994) (emphasis added). Under this provision, even if a victim does not actually know of a misrepresentation, the one-year limitation period begins to run when the victim should have discovered the misrepresentation through the exercise of reasonable diligence. This objective standard is commonly referred to as the doctrine of “inquiry notice.” See Davidson v. Wilson,
At the core of the parties’ first argument is a dispute over how to apply the standard of inquiry notice. Farmland argues that because inquiry notice is an objective standard, knowledge of all the facts available to the public is automatically imputed to the injured party. Thus, the argument goes, because the Consumers ease was filed in Colorado, Tacey was on inquiry notice of Farmland’s allegedly untrue statements as a matter of law. Tacey, on the other hand, argues that he was not on inquiry notice, despite having read about the Consumers case, because he did not have sufficient notice that Farmland would refuse to redeem the type of capital credits he owned. We disagree with both of these versions of the inquiry notice standard.
The determination of whether inquiry notice exists is an objective standard based upon the facts known to the victim. Inquiry notice exists when the victim is aware of facts that would lead a reasonable person to investigate and consequently acquire actual knowledge of the defendant’s misrepresentations. Davidson,
Farmland argues that we should engage only in the second and third prongs of the analysis we have set forth, because, according to Farmland, the question of what a victim actually knows is immaterial to our objective standard for inquiry notice. Thus, Farmland would have us automatically impute to Tacey constructive knowledge of any information available to the public, including all articles published on, and the public records available in, the Consumers case, regardless of Tacey’s actual awareness. We cannot adopt this analysis. As the Seventh Circuit recently stated in rejecting this same argument, “an open door is not by itself a reason to enter a room.” Fujisawa Phar. Co. v. Kapoor,
We pause to note that this requirement of some awareness does not mean that an injured party will necessarily avoid the statute of limitations by turning a blind eye to what is obviously in full view. The determination of awareness is by its terms a factual analysis, and a fact finder may decide that a victim of fraud was indeed aware of public information. Further, there might be circumstances where the evidence of awareness is so overwhelming that there is no genuine dispute on the issue for purposes of summary judgment. Cf. Whirlpool Fin. Corp.,
We therefore turn to the first prong of our analysis. In this summary judgment context, we assume the facts of Tacey’s knowledge as he alleges them. He knew Farmland had been either unable or unwilling to answer his questions about the value of his Foods equity if he were to refuse to exchange it for Farmland equity. He knew he had traded approximately $1100 of equity credits in Foods for approximately $900 in Farmland’s Type 12 Capital Credits and $222.93 in cash. Tacey was upset with the deal, feeling that he had been “bribed” by the cash portion of the offer, especially given the large salaries the executives of Farmland were being paid, and that Farmland was “trying to scr_ [him] out of a thousand.” (Appellant’s App. at 242-43.) He had called Farmland representatives “you son-of-a-b_es” at the informational meeting. (Id. at 243.) In October of 1992, through the article in the Farmland newsletter, Tacey learned that Farmland was subject to a class action suit in Colorado based on Farmland’s failure to redeem other types of Farmland capital credits.
Under the second prong of our analysis, we conclude Tacey had sufficient information to trigger the duty to investigate. Given the circumstances, the article in the Farmland newsletter would make a reasonable person in Tacey’s shoes suspicious that Farmland’s representations regarding the redemption of Type 12 Capital Credits might be false. Ac
Tacey argues that the article in the Farmland newsletter was not a sufficient “storm warning” of Farmland’s fraud. He contends the article did not put him on inquiry notice because it described the Consumers suit as “ludicrous” and “ridiculous”; Farmland’s self-serving statements about the invalidity of the suit do not, however, negate the other pertinent information presented in the article. Tacey also claims that the title of the article, “Co-op sues Farmland over stock issue,” led him to believe that Consumers involved the redemption of stock, not of capital credits; because he admits reading the article, Tacey had actual notice of the article’s contents, which clearly explained that capital credits were at issue. We also reject Tacey’s argument that his duty to investigate would not be triggered in this case because he was not a sophisticated investor and he had capital credits worth only approximately $900. Our inquiry as to whether a duty to investigate arose is an objective standard, and we conclude that a reasonable person would be suspicious of possible misrepresentations upon seeing the article in the Farmland newsletter. Finally, we reject Tacey’s contention that the Consumers ease did not put him on notice because that case arose out of a different transaction and involved a different type of capital credits; the article Tacey read described a general policy regarding capital credits, and that information was sufficient to trigger the duty to investigate.
Lastly, we turn to the third prong of our inquiry. We conclude that upon the exercise of reasonable diligence, a reasonable person would have acquired actual notice of Farmland’s alleged misrepresentations. Our hypothetical person would have acquired information regarding the Consumers suit from the representatives and attorneys of that case.
B. Dismissal of the 14(e) Claims as to the Entire Class
The district court dismissed Count 4, which alleged securities fraud in violation of section 14(e) of the Securities Exchange Act, in its entirety, on the basis that Tacey was the only named plaintiff for that count and his claim was moot pursuant to the statute of limitations. Tacey argues that the district court erred in dismissing Count 4 as to the entire class. He contends that he remains a proper class representative both because his claim is not moot and because of the nature of class actions. Farmland argues that the class fails because Tacey’s claim became moot before the class was certified.
Farmland correctly points out that whether the mootness of a class representative’s claim warrants dismissal of the entire class on that count is a question of timing. Compare Sosna v. Iowa,
Rule 23 of the Federal Rules of Civil Procedure, which sets forth the requirements for class certification, provides an answer to this puzzle. Inherent in Rule 23 is the requirement that the class representatives be members of the class. Fed.R.Civ.P. 23(a) (stating that “one or more members of a class may sue or be sued as representative parties----”); Vervaecke v. Chiles, Heider & Co.,
III.
For the above reasons, we affirm the judgment of the district court.
Notes
. The Honorable Harold D. Vietor, United States District Judge for the Southern District of Iowa.
. The three individual defendants are Harry Cle-berg, H. Wayne Rice, and Albert Shively. Cle-berg is the CEO, President, and a director of Farmland Industries. Rice is a former director of Farmland Foods. Shively serves as a director on and the Chair of the Farmland Industries Board of Directors.
. The other two named plaintiffs are two small farm cooperatives — Great Rivers Cooperative of Southern Iowa, an Iowa corporation, and the Sawyer Cooperative Equity Exchange, a Kansas corporation.
. Although Tacey contacted a Consumers representative, he failed to exercise reasonable diligence when he did not inquire about the redemption of capital credits.
. This striking similarity is not surprising, as the plaintiffs in Consumers were represented by the same counsel representing the class in this case.