PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

No. 12-3454

______

PENSION TRUST FUND FOR OPERATING ENGINEERS;

Individually and on behalf of itself 

and all others similarly situated,

Appellant

v.

MORTGAGE ASSET SECURITIZATION

TRANSACTIONS, INC.; DAVID MARTIN; 

PER DYRVIK; HUGH CORCORAN;

PETER SLAGOWITZ; UBS REAL ESTATE

SECURITIES, INC.;

UBS SECURITIES, LLC; UBS AMERICAS INC.

______

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 2-10-cv-00898)

District Judge: Honorable Claire C. Cecchi

______

Argued June 25, 2013

Before: FUENTES, FISHER

and CHAGARES, Circuit Judges.
2

(Filed: September 17, 2013)

Douglas S. Wilens, Esq. (ARGUED)

Robbins Geller Rudman & Dowd

120 East Palmetto Park Road, Suite 500

Boca Raton, FL 33432

Counsel for Appellant Pension Trust Fund for 

Operating Engineers

Peter S. Pearlman, Esq.

Cohn, Lifland, Pearlman, Herrmann & Knopf

Park 80 West – Plaza 1

250 Pehle Avenue, Suite 401

Saddle Brook, NJ 07663

Counsel for Appellant Pension Trust Fund for 

Operating Engineers

Rukhsanah Singh, Esq.

Liza M. Walsh, Esq.

Connell Foley

85 Livingston Avenue

Roseland, NJ 07068

Counsel for Appellees Mortgage Asset

Securitization Transactions,

Inc., David Martin, Per Dyrvik,

Hugh Corcoran, UBS Real

Estate Securities, Inc.,

UBS Securities, LLC, Peter Slagowitz,

and UBS Americas Inc.
3

Lawrence J. Zweifach, Esq. (ARGUED)

Gibson Dunn

200 Park Avenue, 47th Floor

New York, NY 10166

Counsel for Appellees Mortgage Asset

Securitization Transactions,

Inc., David Martin, Per Dyrvik,

Hugh Corcoran, UBS Real

Estate Securities, Inc.,

UBS Securities, LLC, Peter Slagowitz,

and UBS Americas Inc.

______

OPINION OF THE COURT

______

FISHER, Circuit Judge.

Lead Plaintiff Pension Trust Fund for Operating 

Engineers (the “Operating Engineers”) appeal from the 

District Court’s initial order dismissing without prejudice 

their amended class action complaint (the “Amended 

Complaint”), which alleged violations of the Securities Act of 

1933, 15 U.S.C. § 77a et seq., by subsidiaries and employees 

of UBS AG (“UBS”), for failure to plead compliance with the 

one-year statute of limitations set forth in Section 13 of the 

Securities Act, 15 U.S.C. § 77m. The Operating Engineers 

also appeal from the District Court’s subsequent order 

dismissing with prejudice their second amended class action 

complaint (the “Second Amended Complaint”) as untimely 
4

under an inquiry notice standard. Although we hold that a 

Securities Act plaintiff need not plead compliance with

Section 13 and that Section 13 establishes a discovery 

standard for evaluating the timeliness of Securities Act 

claims, we nonetheless conclude that the class action claims 

in the original complaint (the “Original Complaint”) were

untimely. Therefore, we will affirm.

I.

A.1

This appeal involves mortgage-backed securities, 

investment vehicles that were among the casualties of the 

financial crisis of the late 2000s. In a traditional mortgage, a

lending institution, known as the originator, extends credit to 

a borrower. In exchange, the borrower promises to repay 

principal and interest on the loan, and the borrower’s real 

property serves as collateral in case of her default. The 

originator follows guidelines, known as underwriting 

standards, to ensure that it receives a return on its investment. 

 

1

The factual background is drawn from the Second 

Amended Complaint and public records. See Lum v. Bank of 

Am., 361 F.3d 217, 222 n.3 (3d Cir. 2004) (noting, in 

deciding a motion to dismiss under Federal Rule of Civil 

Procedure 12(b)(6), that a court may consult “the allegations 

in the complaint, exhibits attached to the complaint, matters 

of public record, and documents that form the basis of a 

claim” (citations omitted)). The Operating Engineers do not 

contest our consideration of this external evidence.
5

For example, to evaluate the borrower’s creditworthiness, the 

originator assesses the ratio of her monthly mortgage-related

obligations to her monthly gross income (the “debt-to-income 

ratio”). And to assess the collateral’s worth, the originator 

evaluates the ratio of the outstanding mortgage obligation to 

the property’s appraised value (the “loan-to-value ratio”).

For mortgage-backed securities, the originator sells the 

loan to a financial institution to realize immediate profit and 

to reduce future risk of default. The financial institution 

pools the loan with others, deposits the loans into a trust, and 

sells certificates issued by the trust to investors. Investors are 

entitled to receive cash flows from the principal and interest 

payments made by the borrowers on the loan pool in the trust. 

The rate of return on the securities partially depends on the 

riskiness of the underlying loans, which, in turn, is partially 

measured by the debt-to-income and loan-to-value ratios.

The mortgage-backed securities in this case, known as 

the MASTR Pass-Through Certificates, Series 2007-3 (the 

“Certificates”), were offered to the public on May 14, 2007. 

UBS Real Estate Securities, Inc. (“UBS Real Estate”), the 

sponsor of the Certificates, purchased the underlying loans 

from originators, including Countrywide Home Loans, Inc. 

(“Countrywide”) and IndyMac Bank, F.S.B. (“IndyMac”). 

UBS Real Estate then sold the loans to Mortgage Asset 

Securitization Transactions, Inc. (“MASTR”), the depositor 

of the Certificates. MASTR next placed the loans into the 

MASTR Adjustable Rate Mortgages Trust 2007-3 (the 

“MASTR Trust”), the issuer of the Certificates. UBS 

Securities, LLC (“UBS Securities”), the underwriter of the 

Certificates, finally sold the Certificates to investors like the 
6

Operating Engineers, who purchased Series 12A1 Certificates 

with a face value of $5,123,977 on September 18, 2007.2

The Certificates were issued pursuant to a Securities 

and Exchange Commission (“SEC”) Form S-3 Registration 

Statement filed on December 16, 2005, as amended by an

SEC Form S-3/A supplemental pre-effective Registration 

Statement on April 4, 2006 (together, the “Registration 

Statement”), and an SEC Form 424B5 Prospectus 

Supplement filed on May 14, 2007 (the “Prospectus 

Supplement” and, together with the Registration Statement, 

the “Offering Documents”). The Registration Statement was 

signed by MASTR’s officers and directors, including David 

Martin, Per Dyrvik, Hugh Corcoran, and Peter Slagowitz.

The Offering Documents stated that Countrywide 

originated about 52% and IndyMac originated about 40% of 

the mortgages backing the Certificates. The Offering 

Documents assured investors that the underlying loans were 

originated pursuant to particular underwriting policies, 

practices, and procedures and in compliance with federal and 

state laws and regulations. For example, the Offering 

Documents indicated that the availability of the loans was 

limited to those borrowers whose creditworthiness, as 

revealed by the debt-to-income ratio, was within accepted 

limits. Additionally, the Offering Documents provided that 

 

2

The MASTR Trust is owned and controlled by 

MASTR. MASTR, UBS Real Estate, and UBS Securities are 

subsidiaries of UBS Americas Inc. (“UBS Americas”), which 

is, in turn, a subsidiary of UBS.
7

the real property that was collateral for the loans was 

appraised pursuant to the generally-accepted Uniform 

Standards of Professional Appraisal Practice and that certain 

quantities of the loans were within specific ranges of loan-tovalue ratios. Finally, the Offering Documents represented 

that no material legal proceedings were pending against “the 

sponsor, the depositor or the issuing entity” of the 

Certificates. App. at 1728. Based on these guarantees, 

Moody’s Investors Service, Inc. (“Moody’s”) and Standard & 

Poor’s (“S&P’s” and, together with Moody’s, the “Ratings 

Agencies”) rated the Series 12A1 Certificates as AAA, the 

highest quality investment grade, in September 2007.

However, because Countrywide and IndyMac 

“systematically ignored” and “completely” and “wholly 

disregarded” proper underwriting standards, UBS’s

statements in the Offering Documents about the loans

underlying the Certificates were materially false and 

misleading. Id. at 382 ¶ 9, 384 ¶ 14, 411 ¶ 86. In particular, 

the debt-to-income ratios were inaccurate because they were 

based on inflated income figures, and the loan-to-value ratios 

were skewed because they were based on inflated property 

appraisals. As a result of UBS’s untrue statements and 

omissions about the underwriting standards, the Certificates 

were substantially more risky than disclosed in the Offering 

Documents.

From late 2007 through early 2009, many news articles

linked the high delinquency rates of mortgages originated by 

Countrywide and IndyMac to the abandonment of accepted 

underwriting standards. For example, on April 30, 2008, the 

Wall Street Journal reported on the “mounting evidence of 
8

serious problems with [Countrywide’s] underwriting of many 

home loans,” which included allegations that the company 

“deliberately overlooked inflated income figures for many 

borrowers,” and relaxed its lending standards regarding the 

estimated values of the real estate. Id. at 1949. Also in 2008, 

the non-profit Center for Responsible Lending released a pair 

of reports criticizing Countrywide’s and IndyMac’s 

underwriting standards. See, e.g., id. at 1960 (describing how 

Countrywide’s “appraiser was being ‘strongly encouraged’ to 

inflate property values on homes,” and “employees were 

coaching borrowers to falsify their incomes on their 

applications”). Throughout this time, numerous class action 

securities suits were filed against Countrywide and IndyMac 

related to their lax underwriting standards.

On February 20, 2009, citing inappropriate 

underwriting standards, Moody’s reduced the rating of the 

Series 12A1 Certificates to B2, a speculative grade. 

Similarly, on August 13, 2009, S&P’s reduced the rating of 

the Series 12A1 Certificates to B. By February 2010, because 

of the deficient underwriting standards, about 61% of the 

underlying loans were in delinquency, default, or foreclosure, 

and the value of the Certificates on the secondary market had 

decreased by 40% to 50%. As a result, the monthly 

distributions that the Operating Engineers received from the 

MASTR Trust for their Certificates were significantly

reduced. And if the Operating Engineers had sold their 

Certificates on the secondary market, then they would have 

suffered a substantial loss.
9

B.

On February 22, 2010, one year after Moody’s 

downgraded the rating of the Certificates,3an investor filed 

the Original Complaint asserting claims under Sections 11, 

12(a)(2), and 15 of the Securities Act, 15 U.S.C. §§ 77k, 

77l(a)(2), and 77o, against MASTR, UBS Real Estate, UBS 

Securities, Martin, Dyrvik, Corcoran, Moody’s, and S&P’s 

parent company in the United States District Court for the 

District of New Jersey. “On March 29, 2010, in the course of 

the usual monitoring of its investment portfolio,” the 

Operating Engineers “learned of significant losses to the 

value of the Certificates” and “the existence of potential 

claims.” App. at 464 ¶ 193. Pursuant to the Private 

Securities Litigation Reform Act (“PSLRA”), Pub. L. No. 

104-67, 109 Stat. 737 (1995), the Operating Engineers 

petitioned to be appointed as Lead Plaintiff, and the District 

Court granted their request on October 18, 2010.

The Operating Engineers then retained a consultant to 

research potential claims, “result[ing] in the substantive 

allegations set forth” in the Amended Complaint, which was 

filed on December 13, 2010. App. at 464 ¶ 194. The 

Amended Complaint dropped the claims against Moody’s and 

S&P’s, but added claims against UBS Americas, the MASTR 

Trust, and Slagowitz. UBS moved to dismiss the Amended 

 

3 Because February 20, 2010 fell on a Saturday, one 

year from the date Moody’s downgraded the rating of the 

Certificates includes Monday, February 22, 2010 for statuteof-limitations purposes. See Fed. R. Civ. P. 6(a)(1)(C).
10

Complaint for failure to state a claim on which relief can be 

granted under Federal Rule of Civil Procedure 12(b)(6), 

arguing that the Operating Engineers had failed to plead 

compliance with Section 13 of the Securities Act. The 

District Court agreed with UBS and dismissed the Amended 

Complaint without prejudice for the Operating Engineers to 

re-plead compliance with the statute of limitations.

The Operating Engineers finally filed the Second 

Amended Complaint, which dropped the claims against the 

MASTR Trust and added ten paragraphs alleging compliance 

with the statute of limitations. See App. at 461 ¶ 187 - 465 ¶ 

196. UBS moved to dismiss the Second Amended Complaint 

on the basis that the Securities Act claims were untimely. 

The District Court, applying an inquiry notice standard, 

determined that the claims were untimely under Section 13 

and dismissed the Second Amended Complaint with 

prejudice. The Operating Engineers timely appealed.

II.

The District Court had jurisdiction over this case under 

15 U.S.C. § 77v(a) and 28 U.S.C. § 1331. We have 

jurisdiction over this appeal under 15 U.S.C. § 77v(a) and 28 

U.S.C. § 1291.

We exercise plenary review over a district court’s 

dismissal of a claim as untimely under a statute of limitations, 

In re Merck & Co. Sec., Derivative & ERISA Litig., 543 F.3d 

150, 160 (3d Cir. 2008), and for failure to state a claim under 

Rule 12(b)(6), Morrow v. Balaski, 719 F.3d 160, 165 (3d Cir. 

2013) (en banc). We must accept all well-pleaded factual 
11

allegations in the complaint as true and view them in the light 

most favorable to the plaintiff, but “we are not compelled to 

accept unsupported conclusions and unwarranted inferences, 

or a legal conclusion couched as a factual allegation.” Id.

(quotation omitted). Pursuant to these principles, we may 

only dismiss claims that “lack facial plausibility.” Id.

(quotation omitted).

III.

Both the Amended Complaint and the Second 

Amended Complaint asserted claims under Sections 11, 

12(a)(2), and 15 of the Securities Act. Section 11 “concerns 

material misstatements or omissions in registration 

statements;” Section 12(a)(2) “concerns material 

misrepresentations in prospectuses and other solicitation 

materials;” and Section 15 “provides for joint and several 

liability on the part of one who controls a violator of Section 

11 or Section 12.” In re Suprema Specialties, Inc. Sec. Litig., 

438 F.3d 256, 269, 284 (3d Cir. 2006) (citations omitted). All 

three provisions are governed by the same statute of

limitations, DeBenedictis v. Merrill Lynch & Co., 492 F.3d 

209, 216 (3d Cir. 2007), which is set forth in Section 13 of 

the Securities Act, and which requires actions to be 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,” 15 U.S.C. § 77m.

On appeal, the Operating Engineers raise two claims of 

error. First, the Operating Engineers assert that the District 

Court erred in dismissing the Amended Complaint because 

they should not have been required to plead compliance with 
12

the statute of limitations. Second, the Operating Engineers 

contend that the District Court erred in dismissing the Second 

Amended Complaint because the timeliness of Securities Act 

claims under Section 13 should be evaluated under a 

discovery standard, not an inquiry notice standard, and 

because the class action claims in the Original Complaint 

would be timely under such a standard.4 We address these 

arguments below.

A.

The Operating Engineers first argue that the District 

Court erred in requiring them to plead compliance with the 

statute of limitations. UBS responds that this issue is outside 

the scope of this appeal, and that, regardless, the Operating 

Engineers are incorrect on the merits. We conclude that this 

issue is within the scope of this appeal, and we hold that a 

Securities Act plaintiff is not required to plead compliance 

with Section 13.

UBS contests our jurisdiction to consider this question 

because the Operating Engineers’ notice of appeal “clearly” 

references “only” the District Court’s order dismissing the 

Second Amended Complaint. Response Br. at 55. While the 

 

4

The Operating Engineers expressly disclaim any 

argument that the District Court abused its discretion in 

dismissing the Second Amended Complaint with prejudice. 

See Reply Br. at 25 (“[T]he Operating Engineers d[o] not 

argue on appeal that the district court should have permitted 

another opportunity to file an amended complaint.”).
13

Operating Engineers’ notice of appeal does identify “the 

Opinion and Order . . . dismissing with prejudice the Second 

Amended . . . Complaint,” it also expressly “encompasses . . . 

all prior rulings made by the district court.” App. at 28. 

Thus, we disagree with UBS’s characterization of the 

Operating Engineers’ notice of appeal.

UBS is correct that “[w]hen an appeal is taken from a 

specified judgment . . . , the court of appeals acquires thereby 

no jurisdiction to review other judgments . . . not so 

specified.” Response Br. at 56 (quoting Elfman Motors, Inc. 

v. Chrysler Corp., 567 F.2d 1252, 1254 (3d Cir. 1977)). 

Nonetheless, we “liberally construe[] notices of appeal,” 

Wiest v. Lynch, 710 F.3d 121, 127 (3d Cir. 2013) (quotation 

omitted), and exercise jurisdiction over “other judgments” 

that are “fairly to be inferred from the notice,” Elfman 

Motors, 567 F.2d at 1254 (citations omitted). Thus, under the 

merger rule, the designated final judgment “draws in question 

all prior non-final orders and rulings which produced the 

judgment,” id. at 1253 (citation omitted), where “(1) there is a 

connection between the specified and unspecified orders; 

(2) the intention to appeal the unspecified order is apparent; 

and (3) the opposing party is not prejudiced and has a full 

opportunity to brief the issues,” Wiest, 710 F.3d at 127 

(quotation omitted).

Here: (1) the specified order dismissing the Second 

Amended Complaint and unspecified order dismissing the 

Amended Complaint concerned Section 13 of the Securities 

Act; (2) the Operating Engineers’ intention to appeal the 

unspecified order is apparent from the text of their notice of 

appeal; and (3) UBS has not alleged any prejudice and has
14

fully briefed the issue. Therefore, we have jurisdiction over 

this issue. See In re Westinghouse Sec. Litig., 90 F.3d 696, 

704-06 (3d Cir. 1996) (exercising appellate jurisdiction over 

two unspecified prior interlocutory orders dismissing some 

claims where notice of appeal only specified later final order 

dismissing other claims).

On the merits, the Operating Engineers challenge the 

District Court’s ruling that they were required to plead with 

particularity compliance with Section 13 of the Securities 

Act. The District Court relied on a line of precedent in the 

District of New Jersey which requires securities plaintiffs to 

plead with particularity compliance with the applicable 

statutes of limitations, Kress v. Hall-Houston Oil Co., No. 92-

cv-543, 1993 U.S. Dist. LEXIS 6350, at *5-6 (D.N.J. May 12, 

1993), by setting forth “the time and circumstances of the 

discovery of the fraudulent statement, the reason why 

discovery was not made earlier, and the diligent efforts 

plaintiff undertook in making such discovery,” Urbach v. 

Sayles, 779 F. Supp. 351, 364 (D.N.J. 1991) (citations 

omitted). This rule is purportedly necessary because a 

securities statute of limitations “sets forth . . . a substantive 

requirement rather than a procedural one.” In re The 

Prudential Ins. Co. of Am. Sales Practices Litig., 975 F. Supp. 

584, 598 (D.N.J. 1996) (citations omitted).

The propriety of this rule is an issue of first impression 

for us. It is true that we have recognized that “when a statute 

creating a new cause of action contains in itself a statute of 

limitations, the limitation imposed becomes an integral part of 

the right of action created by the statute.” Pa. Co. for Ins. on 

Lives & Granting Annuities v. Deckert, 123 F.2d 979, 985 (3d 
15

Cir. 1941). Applying this principle, we have held that 

“Section 12 [of the Securities Act] creates a new cause of 

action,” and that “the provisions of Section 13 [of the 

Securities Act] are part of and a limitation upon the right of 

action given by Section 12(2).” Id. (citations omitted). 

Notwithstanding these pronouncements, we have never 

directly addressed whether a Securities Act plaintiff must 

plead compliance with Section 13.

Three courts of appeals have historically held that a 

Securities Act plaintiff must plead compliance with Section 

13. See Davidson v. Wilson, 973 F.2d 1391 (8th Cir. 1992); 

Anixter v. Home-Stake Prod. Co., 939 F.2d 1420 (10th Cir. 

1991), vacated on other grounds under the name Dennler v. 

Trippet, 503 U.S. 978 (1992); Cook v. Avien, Inc., 573 F.2d 

685 (1st Cir. 1978). The Tenth Circuit provided no 

justification for this rule. See Anixter, 939 F.2d at 1434. The 

Eighth and First Circuits advanced the same rationale as the 

District Court. See Davidson, 973 F.2d at 1402 n.8 (“[T]he 

timeliness requirement is substantive.”); see also Cook, 573 

F.2d at 695 (“[W]hen the very statute which creates the cause 

of action also contains a limitation period, the statute of 

limitations not only bars the remedy but also destroys the 

liability.” (quotation omitted)).

In contrast, three other courts of appeals have recently 

held that a plaintiff need not plead compliance with the 

statute of limitations in the Securities Exchange Act of 1934, 

which, as we discuss below, is similar to the statute of 

limitations in the Securities Act. See Johnson v. Aljian, 490 

F.3d 778 (9th Cir. 2007); La Grasta v. First Union Sec., Inc., 

358 F.3d 840 (11th Cir. 2004), abrogated on other grounds 
16

by Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Tregenza 

v. Great Am. Commc’ns Co., 12 F.3d 717 (7th Cir. 1993), 

abrogated on other grounds by Merck & Co. v. Reynolds, 130 

S. Ct. 1784 (2010). In Tregenza, the Seventh Circuit noted 

that the Eighth, Tenth, and First Circuits relied on “the 

archaic rule that in the case of common law claims the statute 

of limitations merely limits the remedy, while in the case of 

statutory claims it limits or defines the substantive right.” 12 

F.3d at 719 (citation omitted). But the court rejected this 

theory as “a conclusion rather than an explanation,” that was 

“especially dubious” because “the statute of limitations isn’t 

even found in the statute that creates the substantive right.” 

Id. The court also observed that secondary sources suggested 

“that statutory claims are disfavored,” and “that because 

tolling principles do not apply to statutes of limitations 

governing statutory claims, it is efficient to permit judges to 

dispose of untimely statutory claims” at the motion to dismiss 

stage. Id. However, the court dismissed both of these 

reasons as “certainly false today.” Id. Because the old rule 

“persisted . . . by blind inertia,” and “ma[de] no sense,” the 

court concluded, albeit in dicta, that it was “time that it was 

discarded.” Id. at 718-19.

In La Grasta, the Eleventh Circuit followed the 

Seventh Circuit’s recommendation in Tregenza. 358 F.3d at 

845. And in Johnson, the Ninth Circuit acknowledged that it 

had previously adhered to the old rule for the Securities Act’s 

statute of limitations, but the court refused to extend “such a 

disapproved pleading rule,” which had incurred “forceful” 

and “justified” criticism, to the Exchange Act’s statute of 

limitations. 490 F.3d at 781 n.13 (citations omitted). The 
17

court also recognized that the PSLRA “may require a plaintiff 

to plead certain facts with particularity, which may establish 

that the action is time-barred,” but the court nonetheless 

rejected the possibility that the PSLRA required a different 

result. Id.

We agree with the Seventh Circuit’s analysis in 

Tregenza, which is consistent with our statute of limitations 

precedent. For example, we have ruled, in a Securities Act 

suit, that “[a] statute of limitations defense is an affirmative 

one, and in order to undergird a dismissal, must appear on the 

face of the complaint.” Benak v. Alliance Capital Mgmt. 

L.P., 435 F.3d 396, 400 n.14 (3d Cir. 2006); see also 

Tregenza, 12 F.3d at 718 (same). We have also repeatedly 

held that because a statute of limitations is an affirmative 

defense, “the burden of establishing its applicability to a 

particular claim rests with the defendant.” Drennen v. PNC 

Bank Nat’l Assoc., 622 F.3d 275, 292 (3d Cir. 2010) (quoting 

Bradford-White Corp. v. Ernst & Whinney, 872 F.2d 1153, 

1161 (3d Cir. 1989)); see also Tregenza, 12 F.3d at 718 (“[A] 

plaintiff is not required to negate an affirmative defense in his 

complaint.” (citing Gomez v. Toledo, 446 U.S. 635, 640 

(1980)). Indeed, requiring a plaintiff to plead compliance 

with a statute of limitations would effectively ensure that a 

timeliness issue would always appear on the face of a 

complaint, thereby shifting the burden to the plaintiff to 

negate the applicability of the affirmative defense. Therefore, 

we hold that a Securities Act plaintiff need not plead 

compliance with Section 13.

In a last-ditch argument for affirmance, UBS asserts 

that the Amended Complaint “facially shows noncompliance 
18

with the limitations period and the affirmative defense clearly 

appears on the face of the pleading.” Response Br. at 56 

(quoting Oshiver v. Levin, Fishbein, Sedran & Berman, 38 

F.3d 1380, 1384 n.1 (3d Cir. 1994)). The problem, of course, 

is that the District Court dismissed the Amended Complaint 

for precisely the opposite reason – the Operating Engineers’ 

failure to plead any particularized facts related to the

timeliness of the claims. Nonetheless, UBS is correct that, in 

ruling on a motion to dismiss, we may consider “matters of 

public record, orders, exhibits attached to the complaint and 

items appearing in the record of the case.” Id. (quoting 

Oshiver, 38 F.3d at 1384 n.2). Because, as we discuss below, 

matters of public record and items appearing in the record of 

the case reveal that the claims in the Original Complaint were 

untimely, we will not reverse the District Court’s erroneous 

dismissal of the Amended Complaint.

B.

The Operating Engineers next argue that the District 

Court erred in applying an inquiry notice standard and in 

determining that the claims in the Original Complaint were 

untimely. UBS counters that the District Court correctly 

refused to adopt a discovery standard, and that, in any event, 

the claims in the Original Complaint were also untimely 

under that standard. Although we hold that a discovery 

standard governs Section 13 of the Securities Act, we 

conclude that the claims in the Original Complaint were 

untimely.
19

1.

We first consider whether the District Court erred in 

applying an inquiry notice standard to determine whether the 

Securities Act claims in the Original Complaint were timely 

under Section 13 pursuant to our decision in Benak. There, 

we held that “to the extent a securities fraud plaintiff was on 

inquiry notice of the basis for claims more than one year prior 

to bringing the action, his or her claim is subsequently timebarred by the requisite statute of limitations.” 435 F.3d at 400

(quotation omitted). We explained that under the inquiry 

notice standard, statutes of limitations start to run when 

plaintiffs “discovered or in the exercise of reasonable 

diligence should have discovered the basis for their claim[s] 

against the defendant[s].” Id. (quotation omitted). Whether 

reasonably diligent plaintiffs should have discovered the basis 

for their claims, in turn, depends on “whether they had 

sufficient information of possible wrongdoing to place them 

on ‘inquiry notice’ or to excite ‘storm warnings’ of culpable 

activity.” Id. (quotation omitted). And whether information 

is sufficient to excite storm warnings depends on “whether a 

reasonable investor of ordinary intelligence would have 

discovered the information and recognized it as a storm 

warning.” Id. (quotation omitted). Importantly, a reasonably 

diligent plaintiff is on inquiry notice when she would have 

discovered general facts about the fraudulent scheme by the 

defendant rather than specific facts about the fraud 

perpetrated on her. Id.

If defendants carry their burden of establishing the 

existence of storm warnings, then “the burden shifts to the 

plaintiffs to show that they exercised reasonable due diligence 
20

and yet were unable to discover their injuries.” Id. (quotation 

omitted). Plaintiffs on inquiry notice have “a duty to exercise 

reasonable diligence to uncover the basis for their claims.” 

Id. at 401 (quotation omitted). If plaintiffs cannot 

demonstrate the requisite diligence, then they “are held to 

have constructive notice of all facts that could have been 

learned through diligent investigation during the limitations 

period.” Id. (quotation omitted). Plaintiffs may not excuse 

their failure to inquire merely because “reasonable diligence 

would not have uncovered their injury.” Id. (quotation

omitted).

In applying this standard, the District Court refused to 

extend the Supreme Court’s holding in Merck that a discovery 

standard applies to the Exchange Act’s statute of limitations. 

130 S. Ct. at 1798. The court reasoned that the discovery 

standard “applied to a securities fraud action under [the 

Exchange Act], and not to . . . claims under the Securities 

Act,” and that “while some other Circuits have adopted the 

Merck standard for [Securities Act] claims, the Third Circuit 

has yet to do so.” App. at 19 n.5. Merck’s impact on Benak

is another issue of first impression for us.

In Merck, the Supreme Court affirmed our reversal of 

the district court’s dismissal of securities claims as untimely, 

but rejected and replaced our inquiry notice standard with a 

discovery standard. Merck concerned the Exchange Act’s 

statute of limitations, which provides that a claim involving 

“fraud, deceit, manipulation, or contrivance in contravention 

of a regulatory requirement concerning the securities laws . . . 

may be brought not later than . . . 2 years after the discovery 

of the facts constituting the violation,” 130 S. Ct. at 1790 
21

(quoting 28 U.S.C. § 1658(b)(1)). Because “the word 

‘discovery’ is often used as a term of art in connection with 

the ‘discovery rule’” in statutes of limitations, the Court first 

adopted a discovery standard, holding that an Exchange Act 

claim accrues “(1) when the plaintiff did in fact discover, or 

(2) when a reasonably diligent plaintiff would have 

discovered, ‘the facts constituting the violation’ – whichever 

comes first.” Id. at 1789-90, 1793.

The Court next rejected the inquiry notice standard, 

which it understood to refer “to the point where the facts 

would lead a reasonably diligent plaintiff to investigate 

further,” id. at 1797, as the statute of limitations trigger, even 

when “the actual plaintiff fails to undertake an investigation 

once placed on ‘inquiry notice,’” id. at 1798. The Court 

explained that inquiry notice “is not necessarily the point at 

which the plaintiff would already have discovered . . . ‘facts 

constituting the violation.’” Id. at 1797. For this reason, the 

inquiry notice standard conflicts with the text of the statute, 

which “says that the plaintiff’s claim accrues only after the 

‘discovery’ of [the facts constituting the violation],” and 

“contains no indication that the limitations period should 

occur at some earlier moment before ‘discovery,’ when a 

plaintiff would have begun investigating.” Id. Thus, the 

Court held that “the ‘discovery’ of facts that put a plaintiff on 

‘inquiry notice’ does not automatically begin the running of 

the limitations period.” Id. at 1798.

We agree with the Operating Engineers that the 

discovery standard announced by the Supreme Court in 

Merck applies not only to the Exchange Act’s statute of 

limitations, but also to the Securities Act’s statute of 
22

limitations. Importantly, both statutes incorporate the word 

“discovery,” which the Merck Court identified as a term of art 

representing the discovery rule. Compare 28 U.S.C. § 

1658(b)(1) (“[A] private right of action that involves a claim 

of fraud, deceit, manipulation, or contrivance in contravention 

of a regulatory requirement concerning the securities laws . . . 

may be brought not later than . . . 2 years after the discovery 

of the facts constituting the violation.” (emphasis added)), 

with 15 U.S.C. § 77m (“No action shall be maintained to 

enforce any liability created under [the Securities Act] 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 due diligence.” (emphasis 

added)). Neither statute includes any language suggesting 

that the limitations period begins to run before discovery. Cf. 

Gabelli v. SEC, 133 S. Ct. 1216, 1220 (2013) (declining to 

graft the discovery rule onto 28 U.S.C. § 2462 because “the 

most natural reading” of that statute of limitations, which 

expressly referenced “accrual” not “discovery,” was that the 

“clock begins to tick [] when a defendant’s allegedly 

fraudulent conduct occurs”).

Moreover, the Merck Court pointed out that the 

Exchange Act’s statute of limitations is indirectly based on 

the Securities Act’s statute of limitations. 130 S. Ct. at 1794-

96. Indeed, the Exchange Act’s statute of limitations repeats 

the language of the Supreme Court’s decision in Lampf, 

Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 

350, 364 (1991). That decision, in turn, looked to the 

Securities Act’s statute of limitations, among others. Id. at 

360 & n.7.
23

Furthermore, both the Supreme Court and this Court 

have treated as interchangeable precedent dealing with the 

different statutes of limitations. For example, immediately 

before rejecting the inquiry notice standard for Exchange Act 

claims, the Merck Court defined that standard by citing three 

court of appeals cases that dealt with Securities Act claims. 

See 130 S. Ct. at 1797 (citing, inter alia, Franze v. Equitable 

Assurance, 296 F.3d 1250, 1254 (11th Cir. 2002); Great 

Rivers Coop. of Se. Iowa v. Farmland Indus., Inc., 120 F.3d 

893, 896 (8th Cir. 1997); Dodds v. Cigna Sec., Inc., 12 F.3d 

346, 350 (2d Cir. 1993)). Similarly, in Benak, we first 

described and applied the inquiry notice standard to claims 

under the Securities Act, 435 F.3d at 400-03, and in Merck, 

we then adopted and applied the Benak inquiry notice 

standard to claims under the Exchange Act, 543 F.3d at 160-

72.

UBS attempts to distinguish Merck on the basis that 

the Exchange Act’s statute of limitations deals with “claim[s] 

of fraud,” 28 U.S.C. § 1658(b), and that fraud “is not a 

necessary element to establish a prima facie claim under 

Section 11 or Section 12(a)(2)” of the Securities Act, 

Suprema Specialties, 438 F.3d at 270 (citation omitted). 

UBS’s reasoning is incorrect. The Supreme Court has 

repeatedly made clear that the critical inquiry is whether the 

statutory language incorporates the discovery rule, not 

whether the underlying claim sounds in fraud. See, e.g., 

Merck, 130 S. Ct. at 1794 (explaining that “[l]egislatures have 

codified the discovery rule in various contexts” other than 

fraud (citations omitted)); Gabelli, 133 S. Ct. at 1224 

(declining to apply the discovery rule to fraud claims under 
24

the Investment Advisers Act of 1940 due, in part, to the lack 

of textual support in the general statute of limitations for civil 

penalty actions). And, in any event, we have indicated that 

while fraud is not an essential element of Securities Act 

claims, such claims “can be, and often are, predicated on 

allegations of fraud.” Suprema Specialties, 438 F.3d at 270 

(citation omitted).

UBS also asserts that the Second Circuit has 

“concluded that Merck applies only to securities fraud claims 

arising under the Exchange Act, and not to non-fraud 

Securities Act claims.” Response Br. at 36 (citing Koch v. 

Christie’s Int’l PLC, 699 F.3d 141, 149-50 (2d Cir. 2012)). 

But UBS overstates the Second Circuit’s holding. In Koch, to 

distinguish the Racketeer Influenced and Corrupt 

Organizations Act (“RICO”) statute of limitations, the court 

stated that “[n]othing in Merck’s discussion of [28 U.S.C.] 

§ 1658(b) purports . . . to apply [the discovery standard]

outside the context of the statute at issue in that case.” 669 

F.3d at 149. However, the RICO statute of limitations is 

“silent on the issue” of accrual, and for this reason, the 

general discovery accrual rule applies to a RICO claim, 

whereby the “discovery of the injury, not discovery of the 

other elements of a claim, is what starts the clock.” Id. 

(quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)). In 

contrast, Merck “involved a statutory exception to the 

common law rule” because the Exchange Act statute of 

limitations “was not silent, but rather stated that discovery of 

the facts constituting the ‘violation’ lead to accrual.” Id. 

Because the Securities Act statute of limitations is also 

expressly contingent on the discovery of the facts constituting 
25

the violation, namely, “the discovery of the untrue statement 

or the omission,” 15 U.S.C. § 77m, Koch is distinguishable. 

Therefore, pursuant to the Supreme Court’s decision in 

Merck, we hold that the discovery standard governs whether 

Securities Act claims are timely under Section 13.5

Regarding the amount of information a reasonably 

diligent plaintiff must have about a particular fact before she 

is deemed to have “discovered” it under the new standard, we 

agree with the Second Circuit’s analysis in City of Pontiac 

General Employees’ Retirement System v. MBIA, Inc., 637 

F.3d 169, 174-75 (2d Cir. 2011). As the MBIA court pointed 

out, the Merck Court “specifically referenced pleading 

requirements when discussing the limitations trigger.” Id. at 

175 (citing Merck, 130 S. Ct. at 1796). Also, it is logical to 

link the statute of limitations standard with the pleading 

standard; the purpose of statutes of limitations is to prevent 

stale claims, but claims cannot be stale until they have 

accrued, and claims cannot accrue until they can be 

adequately pled. Id. Thus, we adopt the MBIA court’s 

holding that “a fact is not deemed ‘discovered’ until a 

reasonably diligent plaintiff would have sufficient 

information about that fact to adequately plead it in a 

complaint . . . with sufficient detail and particularity to 

survive a 12(b)(6) motion to dismiss.” Id.

 

5 Although this panel lacks the authority to overrule a 

binding precedential opinion of a prior panel, we may 

reevaluate our precedent in light of an intervening Supreme 

Court decision. Inst. Inv. Grp. v. Avaya, Inc., 564 F.3d 242, 

276 n.50 (3d Cir. 2009).
26

Despite our holding that the inquiry notice standard no 

longer governs the statute of limitations under Section 13 for 

Securities Act claims, we disagree with the Operating 

Engineers’ recommendation that we discard Benak and its 

progeny. The Merck Court clearly preserved a limited role 

for the old standard, acknowledging that “terms such as 

‘inquiry notice’ and ‘storm warnings’ may be useful to the 

extent that they identify a time when the facts would have 

prompted a reasonably diligent plaintiff to begin 

investigating.” 130 S. Ct. at 1798. This information may be 

helpful because the “limitations period puts plaintiffs who fail 

to investigate once on ‘inquiry notice’ at a disadvantage 

because it lapses [a certain time] after a reasonably diligent 

plaintiff would have discovered the necessary facts,” and a

“plaintiff who fails entirely to investigate or delays 

investigating may well not have discovered those facts by that 

time.” Id. (citation omitted). However, we caution that the 

inquiry notice standard can only play a supporting role 

because “the limitations period does not begin to run until the 

plaintiff . . . discovers or a reasonably diligent plaintiff would 

have discovered ‘the facts constituting the violation,’ . . . 

irrespective of whether the actual plaintiff undertook a 

reasonably diligent investigation.” Id.

We also disagree with UBS’s suggestion that because 

Section 11 and Section 12(a)(2) claims do not include a 

scienter element, there is no practical difference between the 

discovery standard and the inquiry notice standard for 

Securities Act claims. On the one hand, the two standards 

will not automatically yield the same result for Securities Act 

claims. See id. at 1797 (“[T]he point where the facts would 
27

lead a reasonably diligent plaintiff to investigate further . . . is 

not necessarily the point at which the plaintiff would already 

have discovered facts showing scienter or other ‘facts 

constituting the violation.’” (emphasis added)). On the other 

hand, the difference between the two standards will normally 

fluctuate in tandem with the level of specificity of the 

information about a fact that is available to a reasonably 

diligent plaintiff. See id. at 1798 (“[A] reasonably diligent 

investigation . . . may consume as little as a few days or as 

much as a few years.” (quotation omitted)); MBIA, 637 F.3d 

at 175 (“[T]he amount of particularity and detail a plaintiff 

must know before having ‘discovered’ the fact will depend on 

the nature of the fact.”). Thus, if the information is 

generalized, – i.e., does not refer to a specific security or 

defendant – then there will typically be a larger temporal 

disparity between the start of the investigation and the 

discovery of the facts constituting the violation. But if the 

information is particularized, – i.e., does refers to a specific 

security or defendant – then there will usually be a smaller

temporal disparity between the start of the investigation and 

the discovery of the facts constituting the violation.

2.

We next decide whether the District Court erred in 

determining that the claims in the Original Complaint were 

untimely. The court rejected the Operating Engineers’ 

argument that general storm warnings referencing 

Countrywide and IndyMac “were not specific enough to place 

[a reasonably diligent plaintiff] on inquiry notice” because 

they did not reference UBS, the Certificates, or the Offering 

Documents. App. at 22. Instead, in light of the “sheer 
28

volume of reports, articles, and lawsuits concerning the 

mortgage lending industry and [mortgage-backed securities] 

available prior to February of 2009,” the court opined that “a 

reasonable investor of ordinary intelligence would not need to 

know the details of the specific loans that comprised their 

certificates in order to trigger an investigation.”6 Id. at 24.

On appeal, the Operating Engineers admit that there 

were storm warnings about Countrywide and IndyMac more 

than a year before the Original Complaint was filed, Reply 

 

6

The District Court also determined that, even if it 

were true that a reasonably diligent plaintiff “could not have 

discovered the facts underlying [her] claims until after 

February 20, 2009, when the ratings agencies Moody’s and 

S&P downgraded the . . . Certificates,” App. at 22, the 

Operating Engineers had not demonstrated reasonable 

diligence because they admitted “that [they] did not learn of 

significant losses to the value of [their] Certificates until 

March 29, 2010, over a year after the Certificates’ ratings 

were downgraded,” id. at 24 (citing id. at 464 ¶ 193). Under 

the discovery standard, the statute of limitations “begins to 

run once the plaintiff did discover or a reasonably diligent 

plaintiff would have ‘discovered the facts constituting the 

violation’ – whichever comes first.” Merck, 130 S. Ct. at 

1798 (emphasis added). Because we conclude, as discussed 

below, that a reasonably diligent plaintiff would have 

discovered the untrue statements or the omissions more than a 

year before the Original Complaint was filed, the fact that the 

Operating Engineers did not discover their claims until more 

than a year following the Moody’s downgrade is irrelevant.
29

Br. at 19 (“Beginning as early as August 2006, numerous 

lawsuits, governmental investigations, and press reports 

revealed significant misconduct at numerous mortgage loan 

originators, such as Countrywide and IndyMac, concerning 

various mortgage loan underwriting practices.”),7and that the 

Offering Documents indicated that Countrywide and 

IndyMac collectively originated about 92% of the loans 

underlying the Certificates, App. at 1596. But based on 

Merck and MBIA, the Operating Engineers argue that because 

a reasonably diligent plaintiff does not discover a fact 

constituting a violation until she can state a plausible claim 

about her particular security, the storm warnings must be 

certificate-specific. We disagree.

 

7

In determining that the claims in the Original 

Complaint were untimely, the District Court relied, in part, on 

an “August 2006 class action suit against IndyMac . . . [that] 

alleged [a] ‘systematic and continued failure to provide 

independent and effective appraisals and evaluations,’ which 

caused damage to [mortgage-backed securities] holders.” 

App. at 21 (citation omitted). The District Court’s 

consideration of storm warnings that pre-dated the Operating 

Engineers’ purchase of the Certificates on September 18, 

2007 was error. See MBIA, 637 F.3d at 176 (“[I]f the statute 

of limitations cannot begin to run until a claim has accrued, 

and a securities fraud claim does not accrue until the plaintiff 

has bought or sold the relevant security, then the statute of 

limitations cannot begin to run until after the plaintiff’s 

transaction.”).
30

As discussed above, the Merck Court preserved a 

limited role for inquiry notice in a statute of limitations 

analysis. 130 S. Ct. at 1797-98. Thus, we look to our preMerck precedent, which instructs that a reasonably diligent 

plaintiff would undertake an investigation based on “[t]he 

filing of related lawsuits,” “news articles and analyst’s 

reports,” and “prospectuses, quarterly reports, and other 

information related to their investments,” Benak, 435 F.3d at 

400, 403 n.20 (quotations omitted), even when the 

information therein is not “company-specific” or securityspecific, DeBenedictis, 492 F.3d at 217. Nonetheless, the 

Merck Court ultimately rejected the inquiry notice standard as 

the trigger for the statute of limitations. 130 S. Ct. at 1797-

98. Thus, while a reasonably diligent plaintiff would have 

started an investigation based on these non-security-specific 

storm warnings, the statute of limitations would not have 

begun to run until she discovered the untrue statements or the

omissions concerning her particular Certificates.

The Operating Engineers next contend that a 

reasonably diligent plaintiff would not have discovered the 

untrue statements or the omissions regarding the Certificates

until the rating downgrade by Moody’s on February 20, 2009 

because UBS made two reassuring, specific statements about 

the Certificates that dissipated the general storm warnings 

about Countrywide and IndyMac. First, on September 18, 

2007, when the Operating Engineers purchased the 

Certificates, the Offering Documents reassured that there 

were “no material legal proceedings currently pending against 

any of [UBS Real Estate], [MASTR] or the [MASTR Trust].” 

App. at 1728. Second, on March 31, 2008, MASTR filed a 
31

public SEC Form 10-K reassuring that MASTR “kn[ew] of 

no material pending legal proceedings involving 

[Countrywide or IndyMac], other than routine litigation 

incidental to the duties” of those companies.”8 Reply Br. at 

18 (quotation omitted).

We have recognized that “reassurances can dissipate 

apparent storm warnings if an investor of ordinary 

intelligence would reasonably rely on them to allay the 

investor’s concerns.” Merck, 543 F.3d at 168 n.14. Here, we 

agree that, despite widely-publicized reports about 

widespread problems with underwriting standards at 

Countrywide and Indy-Mac, an investor of ordinary 

intelligence would reasonably rely on UBS’s reassurances 

that the particular loans underlying its specific Certificates 

were not afflicted with the common ailment. Thus, as of 

 

8 UBS argues that we should not take judicial notice of 

the Form 10-K, which the Operating Engineers failed to 

produce before the District Court or in their Opening Brief. 

In Oran v. Stafford, we took judicial notice of a public SEC 

filing, which had not been presented to the district court, but 

which had been referenced in the opening brief, concluding 

that there was “no risk of unfair prejudice or surprise.” 226 

F.3d 275, 289 (3d Cir. 2000) (citation omitted). Here, while 

the Operating Engineers waited to reference the document

until their Reply Brief, we conclude that there is no danger of 

unfair prejudice or surprise since we have carefully 

considered UBS’s eight-page motion addressing the 

document, and since UBS itself filed the document with the 

SEC. Thus, we will take judicial notice of the Form 10-K.
32

March 31, 2008, a reasonably diligent plaintiff would not 

have inquired about potential claims related to the 

Certificates.

However, we conclude that by September 9, 2008, a 

reasonably diligent plaintiff would have begun investigating

his Certificates. The record reflects that on that date, a class 

of plaintiffs – including the Operating Engineers – filed an 

amended class action complaint in the California Superior 

Court against both Countrywide and UBS Securities, 

asserting claims under Sections 11, 12(a)(2), and 15 of the 

Securities Act that were substantially similar to those in this 

case. That complaint specifically alleged that Countrywide 

was the “originator of the majority of the underlying 

mortgages supporting the securitization transactions,” and 

that UBS Securities “drafted and disseminated the offering 

documents for the Certificates,” and “issued false and 

misleading Prospectuses in connection therewith.” App. at 

1296 ¶ 19, 1298-99 ¶ 29. In particular, the “Prospectus 

Supplements” were “false and misleading” because they 

contained “omissions and misrepresentations” related to “the 

underwriting process for the mortgages,” including 

“creditworthiness of borrowers, debt-to-income levels and 

loan-to-value ratios.” Id. at 1320 ¶ 59.

A reasonably diligent plaintiff who had purchased 

mortgage-backed securities from UBS Securities based on 

loans that were largely originated by Countrywide would 

have noticed that complaint. Benak, 435 F.3d at 403 n.20. 

The allegations in the complaint, which suggest that UBS 

Securities could not be trusted to verify Countrywide’s 

underwriting standards for the loans underlying the securities 
33

it sold, would have undermined UBS’s prior reassurances 

about the Certificates. Thus, a reasonably diligent plaintiff 

would have begun to inquire about her Certificates by 

September 9, 2008.

Because UBS has established the existence of storm 

warnings, we must evaluate whether a reasonably diligent 

plaintiff who began investigating in September 2008 would 

have discovered the untrue statements or the omissions about 

the Certificates in the Offering Documents before February 

2009. The Operating Engineers claim that no reasonably 

diligent plaintiff would have discovered the facts underlying 

their claims because “[t]he mortgage loan files for the 

borrowers whose mortgage loans were included in the 

mortgage pools underlying the Certificates have never been 

available to investors.” App. at 461 ¶ 187. The Operating 

Engineers admit that UBS made available certain loan-level 

data about the underlying mortgages in March 2007 and June 

2008. Id. at 461 ¶ 188. But the Operating Engineers allege 

that the information was inadequate to enable them to 

discover their claims because it did not include “specific 

borrower’s names and addresses,” and so did not allow them 

to “determine whether the loans satisfied the represented loan 

criteria, including such important and material data points as 

[loan-to-value] and [debt-to-income ratios].” Id. at 462 ¶ 189.

According to the Operating Engineers, they acted as a 

reasonably diligent plaintiff with respect to the Certificates at 

all times. Id. at 463-64 ¶ 192. In particular, the Operating 

Engineers aver that they retained a consultant to investigate 

their potential claims after they were appointed Lead Plaintiff 

on October 19, 2010. Id. at 464 ¶ 194. The consultant “used 
34

a proprietary process” that involved “combing through court 

filings and numerous databases” in order to “uncover 

financial information for certain of the individual borrowers 

of the loans underlying the Certificates in order to back test 

the accuracy of the [debt-to-income], occupancy and [loan-tovalue] ratios disclosed by [UBS].” Id. Based on this 

investigation, the consultant constructed the substantive 

allegations in the Amended Complaint,9 which was filed on 

December 13, 2010. Id. In other words, by the Operating

Engineers’ own timeline, their reasonably diligent 

investigation took about two months to uncover the facts 

underlying their claims in 2010.

The question then becomes whether a comparable 

investigation would have been equally successful in 

September 2008. The Operating Engineers respond in the 

negative because the consultant could not have “solely [used] 

the limited loan-level data” made available by UBS in March 

2007 and June 2008. Id. at 464-65 ¶ 195. We conclude that a 

 

9

The Operating Engineers actually alleged, in the 

Second Amended Complaint, that their consultant’s 

investigation “resulted in the substantive allegations set forth 

[t]herein.” App. at 464 ¶ 194. However, this admission also 

applies to the Amended Complaint. As the District Court 

explained, the difference between the Second Amended 

Complaint and the Amended Complaint is that the former 

added ten paragraphs about the statute of limitations (not 

about the underlying substantive allegations) to the latter. Id.

at 15. Thus, the consultant’s investigation resulted in the 

substantive allegations set forth in the Amended Complaint.
35

reasonably diligent plaintiff’s investigation would have been

no less fruitful in 2008 than in 2010.

Although the Operating Engineers do not elaborate, 

the consultant’s “proprietary process” apparently involved an 

analysis of “court filings.” Id. at 464 ¶ 194. Rather than the 

court filings – such as the complaint filed in California 

Superior Court in September 2008 – that gave rise to the 

storm warnings, it seems as though the consultant sought out 

court filings related to bankruptcy or foreclosure proceedings 

on the loans underlying the Certificates. See id. (“This 

‘reverse-engineering’ process included combing through 

court filings . . . to uncover financial information for certain 

of the individual borrowers of the loans underlying the 

Certificates.”). As early as June 2008, UBS disclosed that 

about 12.5% of the loans underlying the Certificates were tied 

up in either bankruptcy or foreclosure proceedings. Id. at 461 

¶ 188, 2018. Thus, in 2008, the consultant would have known 

of these cases and would have used them to back engineer the 

actual debt-to-income and loan-to-value ratios for the 

borrowers in bankruptcy or foreclosure proceedings.

The consultant’s “proprietary process” also apparently 

involved an analysis of “numerous databases.” Id. at 464 ¶ 

194. If, as the Operating Engineers allege, the consultant’s 

investigation were reasonably diligent, it would have included 

a review of the SEC’s databases. Benak, 435 F.3d at 400. In 

March 2007, UBS publicly filed a Free Writing Prospectus 

pursuant to SEC Rule 433 that set forth granular loan-level 

details, including purported debt-to-income and loan-to-value 

ratios as well as occupancy rates for the underlying 
36

mortgages.

10

 Id. at 1526-38. Thus, in 2008, the consultant 

would have compared the actual debt-to-income and loan-tovalue ratios gleaned from bankruptcy and foreclosure 

proceedings with UBS’s represented values, thereby 

discovering the facts underlying the Operating Engineers’ 

claims.

For these reasons, we conclude that a reasonably 

diligent investigation would have yielded the same results in 

both 2008 and 2010. Thus, a reasonably diligent plaintiff 

would have discovered the untrue statements or the omissions 

about the Certificates in the Offering Documents in 

November 2008, two months after she was alerted by the 

complaint filed in California Superior Court in September 

2008 to the possibility that she might have claims. Because a 

reasonably diligent plaintiff would have been able to plead 

viable Securities Act claims in November 2008, the Section 

13 statute of limitations would have run, at the latest, in 

November 2009. Therefore, the Original Complaint, which 

was not filed until February 2010, was untimely.

 

10 It would be inappropriate to consider UBS’s March 

2007 SEC filing as a storm warning, since the Operating 

Engineers did not purchase their Certificates until September 

2007. See MBIA, 637 F.3d at 176. Nonetheless, it stands to 

reason that once a plaintiff is on inquiry notice, a reasonably 

diligent investigation would uncover information that predates her purchase of her securities.
37

IV.

In sum, we hold that a Securities Act plaintiff need not 

plead compliance with Section 13, and that the timeliness of 

Securities Act claims under Sections 11, 12(a)(2), and 15 

should be measured against a discovery standard. We 

conclude, however, that the claims in the Original Complaint 

were untimely. Therefore, we will affirm the District Court’s 

order dismissing the Second Amended Complaint with 

prejudice.