# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

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No. 1 3- 33 15

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Hers ch el Zareco r an d M on a Zarec or , Ind iv id ua ll y an d o n b eh al f of

th ei r IRAs ; Hers ch el Zareco r, III, In di vi du al ly and on be ha lf o f hi s IR A,

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff s - Ap pe ll an ts

,

v.

Mo rg an Keeg an & Co m

pa ny, Inc.,

ll ll ll ll ll ll ll ll ll ll l Defe nd

an t - Ap pe ll ee

.

__ __ __ __ __ __
App eal fro m

Uni te d S ta te s Di st ric t Co ur t fo r th e Eas te rn Dis tri ct of Ark an sa s - Li tt le Ro ck

__ __ __ __ __ __

Su bm it te d: Decem

be r 9, 2 01 4
Fil ed : Se pt em

be r 1, 2 01 5

__ __ __ __ __ __

Befo re WOL LMAN, COLLOTON , and BENTON, Circu it Ju dg es

.

__ __ __ __ __ __

COLLOTON, Ci rcu it Ju dg e.

Hers ch el an d Mo na Zarec or an d th ei r so n Hers ch el Zarec or III br ou gh t

Ark an sa s, New Je rs ey , an d fed eral se cu rit ie s frau d cl ai m s ag ai ns t Mo rg an Keeg an &

Co m pa ny, In c. The Zarec or s al le ge d th at th ey rel ie d on m is rep res en ta ti on s m ad e by

M o r g a n Keeg an , an d m is rep res en ta ti on s by ot he rs th at Mo rg an Keeg an pr ep ared

, in flu en ced

, or ap pr ov ed

, in pu rch as in g se cu rit ie s th at cau se d th em su bs ta nt ia l lo ss es

.The di st ric t co ur t gr an te d Mo r g a n K eeg an ’s m ot io n to di sm is s al l cl ai m s as ti m eba rred

, an d de ni ed th e Zarec or s le av e to a men d th e co m pl ai nt aft er jud gm en t. W e

affi rm th e di sm is sa l of th e Zarec or s’ cl ai m s un de r Ark an sa s la w an d fed eral la w, bu t

co nc lu de th at th e cl ai m un de r New Je rs ey la w was ti m el y fil ed un de r th e la w of th at juri sd ic ti on as be st we can pr ed ic t it

. W e th eref or e affi rm in pa rt an d rev ers e in pa rt.

I.

W e reci te th e fact s acco rd in g to th e am en de d co m pl ai nt an d m at te rs of pu bl ic

reco rd ci te d by th e pa rti es

. Se e Dit tmer Pro ps
., L.P. v. Fed

. Dep os it In s. Co rp

. , 70 8

F.3 d 10 11

, 10 21 (8 th Ci r. 20 13 ). The Zarec or s in ve st ed ne arl y $8 00 ,00 0, in cl ud in g
rei nv es te d di vi de nd s an d di st rib ut io ns , in th e RMK Adv an ta ge In co m e Fu nd

, th e

RMK St rat eg ic In co m e Fu nd

, an d t h e R MK Mu lt i-S ect or Hig h In co m e Fu nd
(co ll ect iv el y, th e RMK Fu nd s) to se cu re th ei r ret ire m en t. Mo rg an Keeg an was th e
le ad un de rwri te r fo r th e RMK Fu nd s an d was he av il y in vo lv ed in th e op erat io ns of

th e Fu nd s.

The Zarec or s al le ge th at Mo rg an Keeg an om it te d fact s reg ard in g th e di vi de nd

po li ci es an d t h e st ru ct ur e of th e RMK Fu nd s an d m is rep res en te d th e qu al it y of th e

RMK Fu nd s in co n v e r s a t i o ns wit h Hers ch el Zarec or

. Acco rd in g to th e Zarec or s,

Mo rg an Keeg an al so “ was in ti m at el y in vo lv ed wit h” mi s r ep res en ta ti on s an d

om is si on s reg ard in g se cu rit ie s th at th e RMK Fu nd s m ad e in fi lin gs wit h th e Secu rit ie s

an d Exc ha ng e Co m

m is si on , pr os pe ct us es , a n d ot he r m ark et in g m at eri al s. The

Zarec or s al le ge t h a t M o r g an Keeg an pr ep ared ke y se ct io ns of th e do cu m en ts

, an d

ap pr ov ed th e S.E.C. fi lin gs an d m ark et in g m at eri al s. Fo r in st an ce, th e Zarec or s al le ge

t h a t al th ou gh th e RMK Fu nd s’ p ub li c fil in gs pr om is ed th at so m e of th e as se ts h e l d
by t he Fu nd s wou ld be ev al ua te d i nd ep en de nt ly and in go od fai th , M or ga n Keeg an

a nd a fu nd m an ag er un il at eral ly se t th e pr ic es fo r th e as se ts

. Thi s un il at eral a c t i o n

al le ge dl y m an ip ul at ed th e sh are p ric es of t he RMK Fu nd s.

-2

-Rel y in g on th es e al le ge d m is rep res en ta ti on s, th e Zar e c o r s in ve st ed m os t of

th ei r ret ire m en t sa vi ng s in th e RMK Fu nd s. W he n th e Fu nd s co ll ap se d in 20 07

, th e

Zarec or s l os t $ 71 8,5 77 , clo se to ni ne ty perce nt of t he ir t ot al in ve st m en t.

So m e hi st or y of li ti ga ti on in vo lv in g th e RMK Fu nd s is rel ev an t to whe th er th e

Zarec or s ti m el y fil ed th ei r cl ai m s in th is act io n. On Decem be r 21

, 20 07

, pl ai nt iff

s

un rel at ed to th e Zarec or s fil ed a cl as s act io n ag ai ns t Mo rg an Keeg an an d o t h er
de fen da nt s in th e Uni te d St at es Dis tri ct Co ur t fo r th e W es te rn Dis tri ct of Ten ne ss ee.

Acco rd in g to an or de r in th e cas e ci te d by th e Zarec or s, th e di st ric t co ur t co ns ol id at ed

two p e n d i ng su it s, an d th e pl ai nt iff s fil ed a co ns ol id at ed am en de d co m pl ai nt in

Feb ru ary 20 11

. The pl ai nt iff s su ed on be ha lf of a cl as s of in di vi du al s an d en ti ti es th at

pu rch as ed se cu rit ie s of fo ur m ut ua l fu nd s, in cl ud in g th e RMK Fu nd s at is su e in th is

cas e.

Th e cl as s act io n pl ai nt iff s cl ai m ed th at Mo rg an Keeg an was li ab l e a s a

“ co nt ro ll in g pe rs on ” un de r § 20 (a) of th e Secu rit ie s Exc ha ng e Act of 19 34

, 15 U.S.C.
§ 78 t(a ), fo r vi ol at io ns of § 10 (b ) of th e Exc ha ng e Act, 15 U.S.C. § 78 j(b), an d S.E.C.

Ru le 10 b- 5, 17 C. F

. R

. § 24 0.1 0b -5

, th at were co m m it te d by ot he r de fen da nt s,

in cl ud in g th e RMK Fu nd s, ov er who m Mo rg an Keeg an ex erci se d co nt ro l. The
pl ai nt iff s al so al le ge d th at Mo rg an Keeg an vi ol at ed §§ 11 an d 12 (a)( 2) of th e

Secu rit ie s Act of 19 33

. 15 U.S.C. §§ 77 k, 77 1. Th e Za r e c o rs were pa rt of th e

pu ta ti ve cl as s be cau se th ey pu rch as ed se cu rit ie s of th re e o f t h e fo ur fu nd s at is su e.
The pa rti es ag ree th at th e Zarec o r s o p t e d ou t of th e cl as s at so m e po in t. The cl as s

act io n e ve nt ua ll y

was re so lv ed by sett le m en t.

On Ju ly 27

, 20 09

, th e Zarec or s fil ed a st at em en t of cl ai m in arb it rat io n wit h th e

Fi na nc ia l In du st ry Reg ul at or y Aut ho rit y (FINRA)

, al le gi ng th at Mo rg an Keeg an ha d

vi ol at ed New Je rs ey se cu rit ie s la w, N.J. St at

. Ann

. § 49 :3 -7 1( a)(2 )-(4 ), an d Ark an sa s

se cu rit ie s la w, Ar k

. C o d e § 23 -4 2- 10 6 (1 99 9)

. Hers ch el an d Mo na Zarec or are
ci ti zen s of Ark an sa s, whi le H e rs ch el Zarec or III is a ci ti zen of New Je rs ey

. On

-3

-Aug us t 12

, 20 10

, th e Zarec or s am en de d th ei r cl ai m to in cl ud e an al le ge d vi ol at io n of

§ 10 (b ) of th e Exc ha ng e Act an d Ru le 10 b- 5. Za re co r v. Mor ga n Kee ga n & Co

. , No.

4: 1 0C V01 64 3 SWW , 2 01 1 W L 5 59 28 61 , a t *1 n.2 (E.D. Ark . J ul y 29 , 2 01 1)

. The

FINRA arb it rat io n pa ne l award ed th e Zarec or s $5 41 ,00 0 on Octo be r 27

, 20 10

, bu t a
di s tri ct co ur t la te r va cat ed th e award

, ho ld in g th at th e di sp ut e was no t su bjec t to

arb it rat io n un de r FINRA ru le s. Id

. at *2

, *6

. The co ur t de ni ed th e Zarec or s’ m ot io n

fo r reco ns id erat io n on Nov em be r 10

, 20 11

. Za re co r v. Mor ga n Kee ga n & Co

. , No.

4: 10 CV0 16 43 SW W , 20 11 W L 55 08 86 0, at *4 (E.D. Ark. Nov . 10 , 20 11 ).

Th e Za r e c o r s fil ed th e cu rren t act io n a week la te r, on Nov em be r 17

, 20 11

. The y al le ge d th at Mo rg an Keeg an is li ab le to Hers ch el an d Mo na Zarec or as a br ok er
de al er un de r Ark an sa s se cu rit ie s l a w , Ark

. Co de § 23 -4 2- 10 6( c) (1 99 9)

, an d to

Hers ch el Zarec or III un de r New Je rs ey se cu rit ie s law. N.J. St at

. Ann

. § 49 :3 -7 1( d)

. I n Aug us t 20 13

, th e Zarec or s m ov ed fo r le av e to fil e an am en de d co m p l a i n t a n d

at ta ch ed th e am en de d co m pl ai nt

. The pr op os ed am en dm en t ad de d fact ua l al le ga ti on s

an d a cl ai m th at Mo rg an Keeg an vi ol at ed § 10 (b ) an d Ru le 10 b- 5 by m ak in g m at eri al

fal se st at em en ts an d om is si on s an d by m an ip ul at in g th e pr ic e of as se ts

. The pr op os ed

am en dm en t al so al te red th e cl ai m s un de r Ark an sa s an d New Je rs ey la w to as se rt th at

Mo rg an Keeg an was li ab le no t on ly as a br ok er de al er, as th e fir st c o mp l ai nt ha d

as se rte d, b ut als o a s a c on tro l p ers on

.

M o r ga n Keeg an op po se d le av e to am en d, bu t m ov ed to di sm is s al l cl ai m s,

in cl ud in g th os e i n th e pr op os ed am en dm en t. The di st ric t co ur t gr an te d le av e to

am en d a n d d i s mi s s ed al l cl ai m s as ti m e-b arre d. The Zarec or s th en m ov ed un de r
Fed eral Ru le s of Ci vi l Pro ced ur e 59 (e) an d 60 (b ) fo r po st -jud gm en t leav e to am en d

th e co m pl ai nt a se co nd ti m e. The Zarec or s so ug ht to in cl ud e a cl ai m fo r co nt ro lpe rs on li ab il it y un de r § 20 (a) of th e Exc ha ng e Act, bu t th e co ur t d en ie d t he m ot io n
ba se d o n u nd ue de la y

.

-4

-II.

The Zarec or s ap pe al the dis tri ct co ur t’s di sm is sa l of th ei r cl ai m s as ti m e-b arre d.

The y arg ue th at th e st at ut es of li m it at io ns go ve rn in g th ei r cl ai m s are each su bjec t to

a di sc ov ery ru le pr ov id in g th at th e li m it at io ns pe rio d do es no t be gi n un ti l th ey co ul d

ha ve di sc ov ered th e frau d. W it h th e be ne fit of a di sc ov ery ru le

, th e Zarec or s arg ue , th e cl ai m s were ti m el y fil ed

. The Zarec or s al so co nt en d th at th e FINRA arbi tra ti on

an d th e 20 07 cl as s act io n to ll ed th e st at u t e s o f l im it at io ns an d ren de red th is act io n

ti m el y

. W e rev ie w th e di st ric t co ur t’s ru li ng de no vo , Bra dl ey Ti mbe rl an d Res. v.

Bra dl ey Lu mbe r Co

. , 7 12 F.3 d 40 1, 40 6 (8 th Ci r. 20 13 ), co ns id eri ng th e co m pl ai nt

it se lf an d m at te rs of pu bl ic reco rd th at are cap ab le of jud ic ia l no ti ce. Tel la bs

, In c. v.
Mak or Is su es & Rig ht

s, Lt d.

, 55 1 U.S. 30 8, 32 2 (2 00 7) ; Dit tmer Pro ps
., L

. P.

, 70 8

F.3 d a t 1 02 1.

The Zarec or s bri ng th ree di ffer en t secu rit ie s fr au d c la im s th at ari se un de r th e

la ws of Ark an sa s, New Je rs ey , an d th e Uni te d St at es , res pe ct iv el y

. The pa rti es ag ree
wit h th e di st ric t co ur t th at t h e l a w of each res pe ct iv e juri sd ic ti on go ve rn in g th e

ti m el in es s of clai m s app li es to th e cl ai m s ari si ng un de r th e la ws of th at juri sd ic ti on

. Acco rd in gl y , t he pa r t i e s ha ve waiv ed an y ob jecti on to th e di st ric t co ur t’s ch oi ce of

la w, an d we wil l de ci de th e ap pe al on th e sa m e ba si s. Se e Ko st el ec v. St at e Far m Fir e

& Ca s. Co

. , 64 F.3d 12 20 , 12 24 (8t h C ir. 1 99 5)

.

A.

The Zarec or s’ cl ai m un de r § 10 (b ) of th e Secu rit ie s Exch an ge Act, 15 U.S.C.
§ 78 j(b), is ti m e l y i f i t was fil ed no la te r th an two y ears “ aft er th e di sc ov ery of th e

fact s co ns ti tu ti ng th e vi ol at io n.” 28 U.S.C. § 16 58 (b )(1 ). Und er th e fed eral di sc ov ery

ru le

, th e st at ut e of li m it at io ns be gi ns to ru n whe n a pl ai nt iff act ua ll y di sc ov ers , or “ a

reas on ab ly di li g e n t pl ai nt iff wou ld ha ve di sc ov ered

, th e fact s co ns ti tu ti ng th e
vi ol at io n.” Merc k & Co . v . Reyn ol ds , 55 9 U.S. 6 33 , 63 7 (2 01 0) (in te rn al qu ot at io n

-5

-mar k s o m it te d)

. The fact s co ns ti tu ti ng th e vi ol at io n in cl ud e sc ie nt er , or “ th at a

de fen da nt m ad e a m at eri al m is st at em en t wi th an in te nt to de cei ve .” Id

. at 64 8- 49

. The li m it at io ns pe rio d do es no t be gi n to ru n whe n a pl ai nt iff is pu t m erel y on “ in qu iry

no ti ce,” or whe n th ere are “ st or m warn in gs ,” su ch th at “ th e fact s wou ld ha ve

pr om pt ed a reas on ab ly di li ge nt pl ai nt iff to be gi n in ve st ig at in g.” Id

. at 65 3 (em ph as is

ad de d) (in te rn al qu ot at io n m ark s o mi t t ed ). In st ead

, th e st at ut e of li m it at io ns is

tri gg ered whe n th e reas on ab ly di li ge nt pl ai nt iff wou ld ha ve di sc ov er e d “t he fact s

co ns ti tu ti ng th e vi ol at io n” aft er an ap pr op ria te in ve st ig at io n. Id

. (in te rn al qu ot at io n

m ark s o mi tt ed ); se e Pen si on Tr

. Fun d v. Mor tg

. Ass et Se cu ri ti za ti on Tr an sa ct io ns
, In c. , 73 0 F .3d 26 3, 2 72 -7 3, 2 76 -7 9 (3 d C ir. 2 01 3)

.

W e co nc lu de th at by th e en d of 20 07

, a reas on ab ly di li ge nt pl ai nt iff wou ld ha ve
be gu n in ve st ig at in g th e de cl in e in va lu e of th e RMK F u n d s

. By th at ti m e, th e

Zarec or s ha d lo st m os t of th ei r in ve st m en t in th e Fu nd s, an d a cl as s act io n co m pl ai nt

ha d be en f

il ed al le gi ng th at Mo rg an Keeg an was li ab le fo r se cu rit ie s frau d in

co nn ect io n wit h at le as t on e of th e RMK Fu nd s. A reas on ab ly di li ge nt pl ai nt iff who

ha d pu rch as ed se cu rit ie s in th e RMK Fu nd s wou ld ha ve no ti ced th at co m pl ai nt

, an d

be gu n t o i nq ui re wh et he r Mo rg an Keeg an was a t fa ul t fo r th e su bs ta nt ia l d ecl in e in

va lu e o f th e Zarec or s’ ass et s. Id

. at 2 78

.

W e ne ed no t pi np oi nt ex act ly whe n a reas on ab ly di li ge nt pl ai nt iff wou ld ha ve

th en di sc ov ered “ th e fact s co ns ti tu ti ng th e vi ol at io n” un de r th e fed eral di sc ov ery ru le

. By Ju ly 20 09

, th e Zarec or s fil ed a st at em en t of cl ai m in arb it rat io n wit h th e Fi na nc ia l

In du st ry Reg ul at or y Aut ho rit y al le ging th at Mo rg an Keeg an di d no t di sc lo se th e ris ky

st r u c t u r e o f th e se cu rit ie s an d “ m is rep res en te d hu nd red s of m il li on s of do ll ars of

as se t- ba ck ed se cu rit ie s as be in g co rp or at e bo nd s an d pr efer red st oc ks .” The se alle ge d

cl ear an d m at eri al m is rep res en ta ti on s of th e s t r u ct ur e an d qu al it y of se cu rit ie s are

su ffi ci en t to sh ow fact s co ns ti tu ti ng th e vi ol at io n al le ge d in th is act io n, in cl ud in g an

in te nt to de cei ve

. Cf

. Mer ck

, 55 9 U.S. at 64 9- 50

. Yet th e Zarec or s di d no t br in g su it

-6

-on th ei r fed eral cla im un ti l m or e th an two y ears la te r, in Nov em be r 20 11

. By

th en , th e two -y ear s ta tu te of l im it at io ns ha d e xp ire d.

The Zarec or s co nt en d, ho wev er, th at th e 20 07 cl as s act io n to ll ed th e st at ut e of

li m it at io ns fo r th ei r fed eral se cu rit ie s frau d cl ai m un de r th e ru le of Ameri ca n Pip e &

Co ns tr uc ti on Co

. v. Uta h

, 41 4 U.S

. 53 8 (1 97 4)

. Ameri ca n Pip e he ld th at whe re a
cl as s act io n is no t cert ifi ed be cau se th e pr op os ed cl as s is no t su ffi ci en tl y nu m ero us ,

“ th e co m m en cem en t of a cl as s act io n su sp en ds th e a p p l i c ab le st at ut e of li m it at io ns

as to al l as se rte d m em

be rs of th e cl as s who wou ld ha ve be en pa rti es ha d th e su it be en

pe rm it te d to co nt in ue as a cl as s act io n.” Id

. at 55 3- 54 ; se e Cr ow n, Cor k & Se al Co

.

v. Par ker

, 46 2 U.S. 34 5, 34 9- 50 (1 98 3)

. The di st ric t co ur t ru le d th at th e Zarec or s’

cl ai m s were no t to ll ed pu rs ua nt to Ameri ca n Pip e be cau se th e do ct rin e to ll s a st at ut e

of li m it at io ns on ly fo r cl ai m s th at are id en ti cal to th os e as se rte d in a cl as s act io n, an d

th e Zarec or s’ cl ai m s were di ffer en t fro m th os e pl ead ed in th e 20 07 cl as s act io n. The

Zarec or s co nt en d th at Ameri ca n Pip e to ll in g sh ou ld ap pl y be cau se th e cl ai m s th ey pl ead ed

, al th ou gh di ffer en t cau se s of act io n, were ba se d on th e sa m e fact ua l

in fo rm at io n t ha t u nd erl ay th e cl as s ac ti on co m

pl ai nt

.

In Ameri ca n Pip e , th e Su pr em e Co ur t co nc lu de d th at a cl as s act io n to ll s

st at ut es of li m it at io ns “ as to al l as se rte d m em be rs of th e cl as s.” 41 4 U.S. at 55 4. The

Co ur t reas on ed th at res tri ct in g th e to ll in g do ct rin e to th os e cl as s m em be rs who fil ed

m ot i o n s t o in te rv en e “ wou ld de pr iv e Ru le 23 cl as s act io ns of th e effi ci en cy an d

eco no m y of li ti ga ti on whi ch is a pr in ci pa l pu rp os e of th e pr oc ed ur e” by en co ur ag in g

“ ne ed le ss du pl ic at io n of m ot io ns .” Id

. at 55 3- 54

. The Co ur t al so ex pl ai ne d th at th e

pu rp os es of a st at ut e of li m it at io ns are to “ en su r[e] es se nt ia l fai rn es s to de fen da nt s”

an d to ba r pl ai nt iff

s who ha ve “ sl ep t on [th ei r] rig ht s.” Id

. at 55 4- 55 (in te rn al

qu ot at io n m ark om it te d)

. Tol li ng a st at ut e of li m it at io ns fo r al l cl as s m em be rs di d no t

fru st rat e th es e pu rp os es , be cau se th e act io n “ n o t i fie [d ] th e de fen da nt s

. . . of th e

su bs ta nt iv e cl ai m s” as well as “the nu m be r an d ge ne ric id en ti ti es of th e po te nt ia l
pl ai nt iff s.” Id

. ; se e Cr ow n, Co rk & Se al Co

. , 46 2 U.S. at 35 2- 53

. Thi s co ur t ha s sa id

-7

-th at whe th er a pl ai nt iff ’s pa rti ci pa ti on in a cl as s act io n en ds wit h a de ci si on to op t ou t

rat he r th an wit h de ni al of cl as s ce rti fic at io n “ is irr el ev an t t o t he ap pl ic ab il it y of th e

Ameri ca n Pipe ru le .” Ada ms Pub

. Sc h. Dis t. v. Asb es to s Co rp

. , 7 F.3d 71 7, 71 8 n.1
(8 th Cir . 19 93 ).

W e co nc lu de

, ho wev er, th at Ameri ca n Pip e to ll in g sh ou ld be li m it ed to cl ai m s

fil ed in a la te r act io n t ha t ar e th e sa m e as th os e p le ad ed in th e p ut at iv e cl as s act io n.

As th e Su pr em e Co ur t la te r ob se rv ed

, “ th e to ll i n g e ffec t gi ve n to th e ti m el y pr io r

fil in gs in Ameri ca n Pip e

. . . de pe nd ed he av il y on th e fact th at th os e fil in gs in vo lv ed

ex act ly th e sa m e cau se of act io n su bs eq ue nt ly as s e r t ed .” Jo hn so n v. Ry. Exp re ss Age nc y, In c. , 42 1 U

. S

. 45 4, 46 7 (1 97 5)

. A br oa de r ru le wou ld no t en ha nc e th e

“ effi ci en cy an d eco no m

y ” of Ru l e 2 3 c l a s s act io ns

. The Su pr em e Co ur t’s co nc ern

was th at wit ho ut to ll in g, pu ta ti ve cl as s m em be rs wou ld ne ed le ss ly br in g m ot io ns to

in te rv en e or a m

ul ti pl ic it y of

act io ns rai si ng id en ti cal cla im s. Cr ow n, Cor k & Se al

, 46 2 U.S. at 35 0- 51 ; Ameri ca n Pipe

, 41 4 U.S. at 55 3- 54

. Bu t where a pu ta ti ve cl as s

m em be r wis he s to pu rs u e a c l ai m th at is ou ts id e th e sc op e of th e cl as s act io n, hi s

se pa rat e ti m el y la wsu it is no t “ ne ed le ss ,” be cau se th e cl as s act io n wou ld no t

pr os ecu te hi s di ffer en t cl ai m

. A cl as s act io n al so do es no t no ti fy de fen da nt s of

su bs ta nt iv e cl ai m s th at are di ffer en t fro m th os e pl ead ed in th e act io n, so to ll in g of th e

ti m e li m it s ap pl ic ab le to th os e di ffer en t cl ai m s do es no t sa feg ua rd “ es se nt ia l fai rn es s

to de fen da nt s.” Ameri ca n Pip e , 41 4 U.S. at 55 3- 55 ; se e Jo hn so n , 42 1 U.S. at 46 7 &

n.1 4. Bec au se th e fed eral cl ai m br ou gh t by th e Zarec or s aga in st Mo rg an Keeg an is

di ffer en t fr om th e cl ai m s th at were al le ge d in th e 20 07 cl as s act io n, Ameri ca n Pi pe

to ll in g do es no t ap pl y

. Acco rd W il li ams v. Boe in g Co

. , 51 7 F.3 d 11 20

, 11 36 (9 th Ci r.

20 08 ); Rai e v. Ch emin ov a, In c. , 33 6 F.3 d 12 78

, 12 83 (1 1t h Ci r. 20 03 ) (p er cu ria m );

Cu ll en v. Mar

gi ot ta

, 81 1 F .2d 69 8, 73 4- 36 (2 d Ci r. 19 87 ) (Me sk il l, J., di ss en ti ng );
cf . In r e Co pp er Ant it ru st Lit ig

. , 43 6 F .3d 78 2, 7 94 (7t h C ir. 2 00 6)

.

The Zarec or s al so co nt en d th at th e fed eral st at ut e of li m it at io ns was to ll ed fro m

th e ti m e th ey fil ed th e FINRA arb it rat io n on Ju ly 27

, 20 09

, un ti l th e di st ric t co ur t

-8

-de ni ed th e Zarec or s’ m ot io n fo r reco ns id erat io n of it s de ci si on to va cat e th e arb it ral

a w a r d o n Nov em

be r 10

, 20 11

. The y rel y on a pr ov is io n of fo rm er FINRA Ru le

12 20 6( c), th en ap pl ic ab le

, th at “ whe re pe rm it te d by ap pl ic ab le la w, whe n a cl ai m an t

fil es a st at em en t of clai m in arb it rat io n, any ti m e li m it s fo r th e fi li ng of t he cl ai m in

co ur t wil l be to ll ed whi le FINRA ret ai ns juri sd ic ti on of th e cl ai m .” Mo rg an Keeg an

res po nd s th at FINRA ne ve r “ ret ai n[ ed ] juri sd ic ti on of th e cl ai m ” u n d e r Ru le

12 20 6( c), b ecau se a di st ric t co ur t l at er ru le d t ha t t he di sp ut e was no t ar bi tra bl e, se e

Z a r e c or , 20 11 W L 55 92 86 1, at *6

, an d be cau se “ ap pl ic ab le la w” di d no t pe rm i t

to ll in g wh il e an arb it ral pro ceed in g was pe nd in g.

W e co nc lu de th at pu r s u i t o f arb it rat io n di d no t to ll th e fed eral st at ut e of

li m it at io ns

. Alt ho ug h th e Su pr em e Co ur t ha s ap pl ie d to ll in g un de r a di ffer en t fed eral

st at ut e whe n a pl ai nt iff in it ia ll y br ou gh t su it in a st at e co ur t whe re ve nu e was

im pr op er, Bur ne tt v. N.Y

. Cen t. R.R. Co

. , 38 0 U.S. 42 4, 42 8- 32 (1 96 5)

, arb it rat io n is

di ffer en t. A pl ai nt iff who pu rs ue s arb it rat io n is no t req ui red to awai t th e ou tc om e to

br in g an acti on in co ur t, and th ere i s an acce pt ed pro ced ur e fo r pu rs ui ng arb it rat io n

an d a la wsu it si m

ul ta ne ou sl y

. As th e Fi fth Ci rcu it ob se rv ed in an an al og ou s si tu at io n,

a pl ai nt iff m ay fil e su it wit hi n th e st at u t e o f l i mi ta ti on s an d th en se ek a st ay of th e

act io n pe nd in g arb it rat io n: “ Su ch a co ur s e w o u l d h a ve gu aran te ed th at th e la wsu it

was br ou gh t wit hi n th e li m it at io ns pe rio d wit ho ut w a iv in g an y rig ht to arb it rat io n
whi ch m ay

ha ve ex is te d.” Fon se ca v. USG In s. Se rv s. , 4 67 F. App ’x 26 0, 2 61 (5t h

Ci r. 20 12 ). The Fi rs t C i r c u i t si m il arl y ex pl ai ne d th at th ere is a m ean s to gi ve

pr oc ed ur al pr io rit y to arb it rat io n wit ho ut fo recl os in g a pl ai nt iff ’s rig ht to br in g a

ti m el y act io n in co ur t— “ th e br in gi ng of su it wit hi n th e li m it at io ns pe rio d, fol lo wed
by a st ay of su ch pr oc eed in gs pe nd in g th e res ul ts of arb it r a t i on .” Uni te d St at es ex.

re l. W re cki ng Co rp

. of Am. v. Edw ar d R. Mar de n Co rp

. , 40 6 F.2 d 52 5, 52 6 (1 st Ci r.

19 69 ) (p er cu ria m). We b e l i ev e th at th is reas on in g is so un d an d sh ou ld be ap pl ie d

in th e co nt ex t of th e fed eral se cu rit ie s st at ut e s

. The di st ric t co ur t th us pr op erl y
di sm is se d t he Zareco rs ’ fed eral cla im as t im e-b arre d.

-9

-B.

The Zarec or s ne xt co nt en d th at th ey ti m el y fil ed th ei r cl ai m al le gi ng se cu rit ie s

frau d un de r New Je rs ey la w. Tha t cl ai m was ti m e-b arre d “ two y ears aft er th e ti m e
whe n th e pe rs on ag gr ie ve d kn ew or sh ou ld ha ve kn own of th e ex is te nc e of hi s cau se

of act io n.” N.J. St at

. Ann

. § 49 :3 -7 1( g)

. The New Je rs ey st at ut e of li m it at io ns be gi ns

to ru n whe n t h e p l ai nt iff “ di sc ov ers , or by an ex erci se of reas on ab le di li ge nc e an d

in te ll ig en ce sh ou ld ha ve di sc ov ered th at he m ay ha ve a ba si s fo r an act io na bl e cl ai m .”

Mar ti ne z v. Co op er Hos

p.-Un iv

. Med

. Ct r. , 74 7 A.2d 26 6, 27 0 (N.J. 20 00 ) (in te rn al

qu ot at io n m ark om it te d) ; se e Hen ry v. N.J. Dep ’t of Huma n Se rv s. , 9 A.3d 88 2,

89 1- 92 (N.J. 20 10 ). Dis co ve ry of th e ba si s for an act io na bl e cl ai m do es no t req ui re

“ kn owl ed ge of a sp eci fic ba si s fo r le ga l li ab il it y or a pr ov ab le cau se of a ct io n.”

Mar ti ne z , 74 7 A.2d at 27 0. Rat he r, th e st a t u t e o f li m it at io ns be gi ns to ru n whe n a pl ai nt iff sh ou ld ha ve kn owl ed ge of in jury an d “ t h at th e in

jury is at tri bu ta bl e to th e

fau lt of a no th er.” Hen ry , 9 A.3 d a t 8 92 (in te rn al qu ot at io n m ark om it te d)

.

W e co nc lu de th at th e Zarec or s s h o u ld ha ve di sc ov ered th ei r in jury by la te

20 07

, whe n th ei r in ve st m en t in th e RMK fu nd s ha d co ll ap se d i n v al ue an d ot he r

pa rti es ha d su ed Mo rg an Keeg an in a pu ta ti ve cl as s act io n. The m ag n i t u d e of th e

Zarec or s’ lo ss es wou ld ha ve pr om pt ed a reas on ab ly di li ge nt an d in te ll ig en t pl ai nt iff

to in ve st ig at e. An in ve st ig at io n wou ld ha ve rev eal ed th e cl as s act io n co m pl ai nt fil ed

on Decem

be r 21

, 20 07

, al le gi ng th at Mo rg an Keeg an was li ab le fo r se cu rit ie s frau d

in co nn ect io n wit h at le as t on e of th e RMK Fu nd s. At th at ti m e, th e Zarec or s sh ou ld

ha ve di s c o v ered no t on ly th at th ey were in jure d, bu t al so “ th at th e in jury is

at tri bu ta bl e to th e fau lt of an ot he r.” Hen ry , 9 A.3d at 89 2 (in te rn al qu ot at io n m ark

om it te d) . The s ta tu te of l im it at io ns th eref or e b eg an to run in Decem be r 20 07

.

The two -y ear st at ut e of li m it at io n s w o u l d ha ve ex pi red in Decem be r 20 09

un le ss it was to ll ed by th e arb it rat io n pr oc eed in g th at was fil ed in Ju ly 20 09 or fo r

so m e ot he r reas on

. Alt ho ug h we ha ve co nc lu de d th at th e arb it rat io n di d no t to ll th e

-1 0-fed eral st at ut e of li m it at io ns , we m us t ack no w l e d g e th at New Je rs ey la w is ve ry

ge ne ro us to a pl ai nt iff w h o pu rs ue s hi s cl ai m in th e wro ng fo ru m

. In Gal li ga n v.

W es tf ie ld Cen tr e Se rv ic e , In c. , 41 2 A.2d 12 2 (N.J. 19 80 ), th e Su pr em e Co ur t of New

Je rs ey he ld th at a t w o

- y ear st at ut e of li m it at io ns fo r pe rs on al in jury act io ns was

eq ui ta bl y to ll ed when th e p la in ti ff sue d in a fed eral co ur t t ha t l ack ed su bjec t m at te r juri sd ic ti on be fo re refi li ng th e sa m e cl ai m in st at e co ur t twen ty- t w o d a ys aft er th e

li m it at io ns pe rio d ex pi red

. The co ur t re a s o ne d th at “ a m is ta ke in th e se le ct io n of a

co ur t ha vi ng qu es ti on ab le or de fect iv e juri sd ic ti on sh ou ld no t de feat t o l l i n g of th e

st at ut e whe n al l ot he r pu rp os es of th e st at ut e of li m it at io ns ha ve be en sa ti sf ie d.” Id

.
at 12 4. Bec au se th e pl ai nt iff ex hi bi te d di li ge nc e by pu rs ui ng hi s cl ai m (al be it in th e

wro ng fo ru m ), th e de fen da nt rece iv ed ti m el y no ti ce th at it co ul d be req ui red to de fen d

ag ai ns t th e cl ai m (al be it th ro ug h th e un co nv en ti on al ve hi cle of a de fic ie nt co m pl ai nt ),

an d th e de fen da nt was no t pr ejud ic ed by “ th e m ere la ps e of 22 da y s” aft er th e st at ut e

of li m it at io n s ex pi red

, th e co ur t he ld th at th e act io n in st at e co ur t was ti m el y

co m m en ced

. Id

. at 1 24 -2 5.

A New Je rs ey ap pe ll at e co ur t la te r co nc lu de d th at G a l l i g an sh ou ld be “ read

br oa dl y

. . . in l i g h t o f N ew Je rs ey ’s freq ue nt refe ren ce to eq ui ta bl e pr in ci pl es to

rel ie ve th e ha rs hn es s of st at ut es of li m it at io ns .” Mit zn er v. W

. Rid ge la wn Cemet er

y,

In c. , 70 9 A.2d 82 5, 82 7 (N.J. Su pe r. Ct

. App

. Div

. 19 98 )

. Th e c ou rt in Mit zn er
al lo wed eq ui ta bl e to ll in g whe re a pl ai nt iff fir st su ed in a fo ru m th at la ck ed pe rs on al
juri sd ic ti on ov er t he de fen da nt , and th en refi le d t he same clai m in New Jer se y st at e

co ur t ap pr ox im at el y on e m on th aft er th e fir st cas e was di sm is se d an d si x m on th s aft er

th e st at ut e of l i mi t a t i o n s ex pi red

. Id

. at 82 7- 29

. The Thi rd Ci rcu it

, ci ti ng “ th e

nu m ero us cas es in whi ch New Je rs ey co ur ts ha ve fle xi bl y ap pl ie d th e New Je rs ey

st at ut e o f l i mi t a t io ns in or de r to av oi d ba rri ng li ti ga nt s on pr oc ed ur al gr ou nd s,”

li ke wis e pr ed ic te d th at th e st at e su pr em e co ur t wou ld ap pl y Ga l l i g a n an d al lo w

to ll in g whe re a fir st act io n was fil ed in a fo r u m t ha t la ck ed pe rs on al juri sd ic ti on

. Ja wo ro ws ki v. Cia su ll i , 49 0 F .3d 33 1, 3 35 (3d Cir . 20 07 ).

-1 1-The di st ric t co ur t ack no wled ge d Gal li ga n bu t th ou gh t eq ui ta bl e to ll in g was

un av ai la bl e he re, b e c a u s e t h e Zarec or s fai le d to fil e su it at al l, ch oo si ng in st ead to

pu rs ue arb it rat io n. Tha t is a reas on ab le di st in ct io n th at wou ld be pe rs ua si ve in so m e juri sd ic ti on s, bu t ou r be st ev id en ce o f New Je rs ey la w i s th at a di li ge nt pu rs ui t of a
cl ai m in arb it rat io n al so to ll s th e st at ut e of li m it at io ns

. I n S ch wa rt z v. Tr av el er

s of

New Jer se y In su ra nc e Co

. , 20 09 W L 14 0 5 86 1 (N.J. Su pe r. Ct

. App

. Div

. May 21

, 20 09 ), a New Je rs ey ap pe ll at e co ur t, co ns id eri ng an in su red ’s cl ai m ag ai ns t an in su rer

fo r un in su red m ot or is t be ne fit s, ag reed wit h a t r i a l jud ge th at a “ de m an d fo r
arb it rat io n— ev en if in co ns is te nt wit h th e type of arb it rat io n r e q u i r ed by th e

po li cy —was su ffi ci en t to to ll th e st at ut e of li m it at io ns .” Id

. at *2

. The c o u r t in

Sc hw ar tz ul ti m at el y he ld th at th e a c t io n was un ti m el y , be cau se th e pl ai nt iff wait ed

ne arl y si x y ears aft er the de fen da nt refu se d to arb it rat e be fo re sui ng , id

. at *3

, bu t it

is si gn ifi can t th at bo th th e tri al co ur t an d th e in te rm ed ia te ap pe ll at e co ur t co nc lu de d

th at a d e man d fo r arb it rat io n to ll ed th e st at ut e of li m it at io ns

. Giv en th e br ead th of

Gal li ga n an d th e br oa d read in g gi ve n to th at de ci si on by ot he r New Je rs ey co ur ts

, ou r
be st pr ed ic ti on of New Je rs ey la w is th at th e Zarec or s’ ti m el y an d di li ge nt pu rs ui t of

th ei r cl ai m in arb it rat io n was su ffi ci en t to to ll th e st at ut e of li m it at io ns

. Tha t a fed eral

co ur t la te r co nc lu de d th at th e arb it rat io n pa ne l la ck ed juri sd ic ti on do es no t pr ecl ud e

eq ui ta bl e to ll in g u nd er t he reas on in g o f Gal li ga n

.

The Zarec or s br ou gh t th is act io n on e week aft er th e di st ric t co ur t de ni ed th ei r

m ot io n to reco ns id er it s de ci si on va cat in g th e arb it ral award in th ei r fav or

. Accep ti ng

th at th e st at ut e of li m it at io ns was to ll ed fro m th e fil in g of th e cl ai m in arb it rat io n on

Ju ly 27

, 20 09

, un ti l th e di st ric t co ur t’s fin al ru li ng on Nov em be r 10

, 20 11

, th e cl ai m
ba se d on New J e r s e y l a w was ti m el y fil ed on Nov em be r 17

, 20 11

. W e ne ed no t

ad dr es s whe th er th e 20 07 cl as s act io n al so to ll ed th e st at ut e of li m it at io ns un de r New

Je rs ey la w. Se e St au b v. Eas tma n Ko da k Co

. , 72 6 A.2d 95 5, 96 3- 67 (N.J. Su pe r. Ct

. App . Div . 19 99 ).

-1 2-C.

Fo r th e Ark an sa s se cu rit ie s frau d cl ai m un d e r A r k. Co de § 23 -4 2- 10 6( c)
(1 99 9)

, th e ti m e li m it is es ta bl is he d by th e st at ut e th en in effe ct

, Ark

. Co de § 23 -4 2-

10 6( f) (1 99 9) : “

No pe rs on m ay su e” un de r th e st at ut e “ aft er th ree (3 ) y ears fro m th e

effe ct iv e da te of th e co nt ract of sa le .” The effe ct iv e da te of th e Zarec or s’ co nt ract of

sa le fo r se cu rit ie s was no lat er tha n th e en d of 20 07

. Alt ho ug h th e Zarec or s di d no t

a l l e g e whe n th ey pu rch as ed th e se cu rit ie s, th ey av er th at th e co ll ap se of th e R M K

Fu nd s cau se d th ei r lo ss es in 20 07

, an d th ey co ul d no t hav e pu rch as ed th e se cu rit ie s

aft er th at da te

. The th ree- y ear ti m e li m it un de r Ark an sa s la w th us co nc lu de d no la te r

th an th e en d of 20 10

. The Zarec or s br ou gh t th ei r cl ai m in Nov em be r 20 11

, an d it is

th eref or e u nt im el y

.

The Zarec or s co nt en d th at th e Ark an sa s cl ai m was ti m el y f il ed be cau se a

“ di sc ov ery ru le ” to ll ed th e ru nn in g of th e th ree- y ea r pe rio d un ti l th ey “ co ul d ha ve
di sc ov ered th e frau d.” The ti m e li m it fo r th e Ark an sa s cl ai m , ho wev e r , r u n s fro m

“ th e effe ct iv e d a t e o f th e co nt ract of sa le ,” no t fro m a la te r da te whe n frau d co ul d

ha ve be en di sc ov ered . The au th or it y ci te d by t he Zareco rs , Van de rb oo m v. Sex to n , 42 2 F.2 d 12 33

, 12 40 (8 th Ci r. 19 70 ), ap pl ie d fed eral la w rat he r th an Ark an sa s la w to

de te rm in e whe n t he st at ut e b eg an to run , so it is in ap pl ic ab le he re.

W e se e no ba si s i n t h e A r k an sa s st at ut e fo r ap pl y in g a di sc ov ery ru le

. The

Ark an sa s Su pr em e Co ur t, in te rp re t i n g a pr io r ve rs io n of Ark

. Co de § 23 -4 2- 10 6( f)
(1 99 9) th at sa id “ [n ]o pe rs on m ay su e

. . . m or e th an two (2 ) y ears aft er the co nt ract

of sa le ,” he ld t h a t t h e two -y ear li m it co ul d no t “ be ex te nd ed by frau du le nt

co nc eal m e n t o f an un tru e st at em en t to su ch ti m e as th e un tru th of th e st at em en t is

di sc ov ered ,” be cau se th e wor ds of th e st at ut e pl ai nl y fo recl os ed su ch an ex cep ti on to

th e ti m e li m it

. Mar ti n v. Pac

. In s. Co

. , 43 1 S.W .2d 23 9, 24 0 (Ark

. 19 68 ). The st at ut e

was te m po rari ly ch an ge d to in co rp or at e a di sc ov ery ru le th at st art ed th e ti m e li m it

“ whe n th e pe rs on in ex erci se of r e as on ab le care co ul d ha ve di sc ov ered th e al le ge d

-1 3-vi ol at io n,” 19 71 Ark

. Acts 32 6, bu t th e le gi sl at ur e th en rev ert ed to a st at ut e li ke th e

o n e a t is su e in Mar ti n

. The ve rs io n ap pl ic ab le he re, Ark

. Co de § 23 -4 2- 10 6( f )
(1 99 9)

, pr ov id es th at “ [n ]o pe rs on m ay su e” m or e th an a fix ed nu m be r of y ears aft er

th e co nt ract of sa le

. W e th eref or e co nc lu de th at Ark an sa s co ur ts wou ld no t in te rp ret

th e st at ut e to all ow fo r to ll in g b y a di sc ov ery ru le

.

The Zarec or s al so arg ue th at th ei r pu rs ui t of th e arb it rat io n wit h FINRA to ll ed

th e Ark an sa s ti m e li m it

. The y ci te no au th or it y fro m Ark an sa s, ho wev er, to su gg es t

th at an arb it rat io n c ou ld to ll th e li m it of Ark. Cod e § 23 -4 2- 10 6( f) (19 99 ). As wit h

th e fed eral cl ai m , we co nc lu de th at Ark an sa s la w do es no t pro vi de fo r to ll in g bas ed

on th e p ur su it of a n a rb it rat io n.

The Zarec or s as se rt th at th ei r cl ai m was no ne th el es s ti m el y fil ed be cau se th e

20 07 cl as s act io n to ll e d t h e t h r e e-year li m it

. The Ark an sa s Su pr em e Co ur t ha s

ap pl ie d Ameri ca n Pip e to ll in g to a pr io r ve rs io n of Ark

. Co d e § 2 3 -4 2- 10 6( f), se e
Bla yl oc k v. Sh ea rs on Leh man Bro s. , 95 4 S.W .2d 93 9, 94 1 ( A r k

. 19 97 ), so we wil l

pr es um e th at th e do ct rin e is av ai la bl e to th e Zarec or s he re. B u t gi ve n th at “ [t]he

to ll in g ru le of Ameri ca n Pip e is a ge ne ro us on e, in vi ti ng ab us e,” Cr ow n, Co rk & Se al

Co

. , 46 2 U.S. at 35 4 (Po well

, J., co nc ur rin g )

, w e a r e no t pr ep ared ba se d on th e

au th or it ie s av ai la bl e to pr ed ic t th at Ark an sa s wou ld br oa de n Ameri ca n Pip e to to ll th e

ti m e li m it s fo r st at e-l aw c l a i ms t h at were no t pl ead ed in th e 20 07 cl as s act io n. W e

th er e f o r e c o n cl ud e th at th e di st ric t co ur t pr op erl y di sm is se d th e Ark an sa s cl ai m as

un ti m el y

.

IV.

The Zarec or s co nt en d th at th e di st ric t co ur t ab us ed it s di s c r e ti on by de nyin g

th ei r p o s t

-

ju d g m en t m ot io n fo r le av e to am en d th ei r co m pl ai nt a se co nd ti m e. W e

ha ve co nc lu de d, ho wev er , t ha t jud gm en t sh ou ld no t ha ve be en en te red fo r th e
de fen da nt s on th e cl ai m un de r N e w Je rs ey la w, so th e m ot io n fo r le av e to am en d

-1 4-sh ou ld no t ha ve be en tre at ed a s a “ di sf av or ed ” po st -jud gm en t m ot io n. Se e Uni te d

S t a t es ex re l. Roo

p v. Hyp og ua rd USA, In c. , 55 9 F.3 d 81 8, 82 4 (8 th Ci r. 20 09 )

. Co ns id erat io ns of un du e de la y are s ti ll rel ev an t t o whe th er le av e sh ou ld be gr an te d

un de r Fed eral Ru le of Ci vi l Pro ced ur e 15 (a)( 2) whi le a cas e is pe nd in g, se e Hammer

v. Ci ty of Osa ge Bea ch , 3 18 F.3d 83 2, 8 44 -4 5 (8 th Cir . 20 03 ), bu t t he di st ric t co ur t

di d no t a d d r e s s th e m ot io n in th at co nt ex t. W e th eref or e rev ers e th e or de r de nyin g
le av e to am en d an d rem an d fo r th e co ur t to co ns id er th e m ot io n an ew in li gh t of ou r
di sp os it io n c on cern in g t he st at ut es of l im it at io ns

.

* * *

Fo r th es e reas on s, th e jud gm en t of t h e d i st ric t co ur t is affi rm ed in pa rt an d

rev ers ed in pa rt, a nd th e cas e is rem an de d fo r fu rth er p ro ceed in gs

.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

-1 5-