FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

HEIDE BETZ, 

Plaintiff-Appellant,

No. 05-15704 v.

D.C. No. TRAINER WORTHAM & COMPANY,  CV-03-03231-SI INC.; DAVID P. COMO; FIRST

REPUBLIC BANK, a Nevada OPINION

corporation; ROBERT VILE,

Defendants-Appellees. 

Appeal from the United States District Court

for the Northern District of California

Susan Yvonne Illston, District Judge, Presiding

Argued and Submitted

February 12, 2007—San Francisco, California

Filed May 11, 2007

Before: John T. Noonan, Jr., Ronald M. Gould, and

Johnnie B. Rawlinson, Circuit Judges.

Opinion by Judge Gould

5543
COUNSEL

Joseph M. Alioto, San Francisco, California, Theodore F.

Schwartz, St. Louis, Missouri, and Myron Moskovitz, Berkeley, California, for the plaintiff-appellant. 

Sara B. Brody and Alexander M.R. Lyon, Heller Ehrman,

LLP, San Francisco, California, for the defendants-appellees.

OPINION

GOULD, Circuit Judge: 

We must decide whether Heide Betz’s federal securities

fraud claim is barred by the statute of limitations.1 We hold

that Betz’s claim is not time barred, and we reverse the district court’s summary judgment for the defendants.

1

In a separately-filed memorandum disposition, we resolve Betz’s

appeal of the district court’s disposition of her state law claims. 

BETZ v. TRAINER WORTHAM & CO. 5547
I

On an appeal of summary judgment we, like the district

court, view the evidence in the light most favorable to the

non-moving party and draw all justifiable inferences in the

non-moving party’s favor. Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 255 (1986). Viewed in the light most favorable

to Betz, the facts are as follows: 

In 1999, Betz, a retired art dealer, sold her house for $2.2

million. Betz planned to buy a co-op and invest the proceeds

of the sale of her house to provide interest income. An

employee of First Republic Bank named Carmen Castro introduced Betz to David Como, an employee of Trainer

Wortham, an investment subsidiary of First Republic Bank.

Como and Castro recommended that Betz invest the proceeds

from the sale of her house with Trainer Wortham. Como and

Castro assured Betz that, if she invested her $2.2 million with

Trainer Wortham, she could withdraw $15,000 per month

from her portfolio, for living expenses, without touching the

$2.2 million in principal. Betz told Como and Castro that she

knew nothing about stocks and bonds and that she only would

understand the “bottom line,” or total balance, of her account.

According to Betz, on June 7, 1999, Betz entered into an

oral agreement with Como, who was acting on behalf of

Trainer Wortham, giving the defendants control over her $2.2

million. Betz and Como agreed that Como would invest

Betz’s money “in such a fashion that [Betz] would receive

$15,000 a month from the profit of the investment and that

[the defendants] would not touch the principal.” The same

day, Betz and Como, who was again acting on Trainer

Wortham’s behalf, entered into a written “Letter of Understanding for Portfolio Management and Administration Services” and an “Investment Management Agreement.” These

documents explicitly stated that Betz’s account was subject to

market risk and that “no person has represented to [Betz] that

any particular result can or will be achieved.” 

5548 BETZ v. TRAINER WORTHAM & CO.
After Betz opened her account with Trainer Wortham, she

received account statements at least once per month. In February 2000, Betz received a statement reflecting an account

value below her initial investment of $2.2 million. Between

February 2000 and July 2001, Betz received twenty-nine

more account statements, each reflecting an account balance

of less than $2.2 million. In March 2001, Betz’s account balance had dropped to $848,000. Around that time, Betz spoke

with Robert Vile, a Trainer Wortham employee, to express

concern about the declining value of her account. Vile told

Betz that the declining balance was temporary, that the market

would recover, and that in less than a year her account balance would be back to $2.2 million. 

However, a year later, in the spring of 2002, Betz’s account

balance had not recovered. At that time, Castro told Betz that

there was a “serious problem” with the way Betz’s portfolio

had been managed and that the president of Trainer Wortham,

Charles Moore, would “take care of the account because it

was ‘the right thing to do’ and because [Trainer Wortham]

value[d] their client relationships.” After Betz met with

Moore in person, Castro called Betz to tell her that “Moore

was meeting with other principals and attorneys” regarding

her account, and that Betz “should be patient with them and

not take any legal action.” However, in June 2002, Castro

advised Betz that Trainer Wortham was “not going to do anything at all” to remedy the declining value of her account. 

Betz filed her complaint in this case on July 11, 2003,

alleging that Como, Vile, Trainer Wortham, and First Republic Bank (collectively, “Trainer Wortham” or “defendants”)

had committed securities fraud in violation of § 10(b) of the

Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and

Rule 10b-5 of the Securities Exchange Commission, 17

C.F.R. § 240.10b-5. The defendants moved for summary

judgment on the ground that Betz’s federal securities fraud

claim was barred by the statute of limitations. Section 804(a)

of the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116

BETZ v. TRAINER WORTHAM & CO. 5549
Stat. 745, 801 (codified at 28 U.S.C. § 1658(b)), provides that

a suit for securities fraud under § 10(b) of the Securities

Exchange Act must be filed “not later than the earlier of (1)

2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation.” The district court

held that, because Betz had inquiry notice of the defendants’

violations of § 10(b) before July 11, 2001, Betz’s claims were

time barred, and on this ground the district court granted summary judgment for the defendants. 

II

We review de novo the district court’s grant of summary

judgment. Olympic Pipeline Co. v. City of Seattle, 437 F.3d

872, 877 n.11 (9th Cir. 2006). Federal Rule of Civil Procedure

56(c) entitles a party to summary judgment “if the pleadings,

depositions, answers to interrogatories, and admissions on

file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving

party is entitled to a judgment as a matter of law.” As we

noted above, in deciding a motion for summary judgment, we

view the evidence in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255.

III

The defendants contend that Betz’s suit is time barred

because she had both actual and inquiry notice of the facts

giving rise to her claim. Betz contends that she had neither.

[1] We first address actual notice. Betz’s suit is timely only

if she filed it “not later than . . . 2 years after the discovery

of the facts constituting the violation.” 28 U.S.C. § 1658(b).

Viewing the facts in the light most favorable to Betz, there is

a genuine issue of fact about whether Betz actually discovered

that she had a claim against the defendants for securities fraud

more than two years before she filed her suit on July 11, 2003.

For Betz to have a claim under § 10(b), the defendants must

5550 BETZ v. TRAINER WORTHAM & CO.
have had, among other things, scienter, which is the “mental

state embracing intent to deceive, manipulate, or defraud.”

See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193-94 n.12

(1976); see also Simpson v. AOL Time Warner Inc., 452 F.3d

1040, 1047 (9th Cir. 2006) (listing the elements of a federal

securities fraud claim), petition for cert. filed sub nom. Avis

Budget Group, Inc. v. Cal. State Teachers Ret. Sys., No. 06-

560 (U.S. filed Oct. 19, 2006). In In re Silicon Graphics Inc.

Securities Litigation, 183 F.3d 970, 974 (9th Cir. 1999), we

held that to adequately plead scienter, a § 10(b) plaintiff

“must plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious

misconduct.” 

[2] We cannot say that, as a matter of law, Betz, before July

11, 2001, actually discovered that the defendants consciously

or deliberately and recklessly deceived her. Under the version

of facts presented by Betz, a reasonable factfinder could conclude that Betz did not discover that the defendants intentionally misled her into believing that she could withdraw

$15,000 per month without depleting her principal until June

2002, when Moore told her that Trainer Wortham was “not

going to do anything” to fix her account. 

If the statute of limitations began running only upon Betz’s

actual discovery of the facts giving rise to her securities fraud

claim, this would end our inquiry. However, the defendants

contend that, even if Betz did not actually discover the facts

underlying her claim before July 11, 2001, Betz was on “inquiry notice” of her claim before that date, and that her claim

therefore is still barred by the statute of limitations. We

address that argument in the next section.

BETZ v. TRAINER WORTHAM & CO. 5551
IV

A

[3] We have held that the statute of limitations for a federal

securities fraud claim begins to run when the plaintiff has

either actual or inquiry notice that the defendants have made

a fraudulent misrepresentation. See, e.g., Gray v. First Winthrop Corp., 82 F.3d 877, 881 (9th Cir. 1996); Volk v. D.A.

Davidson & Co., 816 F.2d 1406, 1412 (9th Cir. 1987). In

more recent cases, however, it has been suggested that under

the United States Supreme Court’s decision in Lampf, Pleva,

Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350

(1991), only actual notice of the facts forming the alleged

fraud, and not inquiry notice of those facts, triggers the running of the statute of limitations for a § 10(b) claim.2

See

Berry v. Valence Tech., Inc., 175 F.3d 699, 704 (9th Cir.

1999); see also Livid Holdings Ltd. v. Salomon Smith Barney,

Inc., 416 F.3d 940, 951 (9th Cir. 2005). The uncertainty introduced by our opinion in Berry led us to suggest in Livid Holdings that, notwithstanding our unequivocal pre-Lampf case

law, we had “considered, but not made a final determination

on whether actual or inquiry notice of the alleged fraud triggers the running of Rule 10b-5’s statute of limitations.” Livid

Holdings, 416 F.3d at 951. 

[4] In Lampf, the Supreme Court resolved a split among the

circuits regarding the statute of limitations applicable to a

§ 10(b) claim. See Lampf, 501 U.S. at 354. Some circuits had

borrowed state statutes of limitations, while others had established a unique federal limitations period. See id. at 354 n.1.

The Supreme Court in Lampf held that the statute of limita2Though Gray was decided after the Supreme Court handed down

Lampf, in Gray we applied pre-Lampf statute of limitations principles pursuant to 15 U.S.C. § 78aa-1(a), which provides that pre-Lampf limitations

periods apply to suits filed before Lampf was decided. See Gray, 82 F.3d

at 879 n.1, 880-81. 

5552 BETZ v. TRAINER WORTHAM & CO.
tions provided in § 9(e) of the Securities Exchange Act, 15

U.S.C. § 78i(e), was the appropriate standard. See Lampf, 501

U.S. at 364 n.9. Section 9(e) provides that “[n]o action shall

be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the

facts constituting the violation and within three years after

such violation.”

3

 No one disputes that “discovery” can occur

when a plaintiff actually discovers facts giving rise to his or

her claim. However, Lampf left it to the lower courts to decide

whether “discovery” occurs only upon actual notice or

whether “discovery” can occur on some form of inquiry

notice. 

[5] We hold that either actual or inquiry notice can start the

running of the statute of limitations on a federal securities

fraud claim. While it is unquestioned that actual notice can

mark the beginning of the limitations period, two things happened in the aftermath of Lampf that convince us that an

inquiry notice standard should also apply to federal securities

fraud claims. First, the courts of appeal in our sister circuits,

along with the district courts in our own circuit, have uniformly embraced inquiry notice. In fact, “every circuit to have

addressed the issue since Lampf has held that inquiry notice

is the appropriate standard.” Berry, 175 F.3d at 704; see Fin.

Sec. Assurance, Inc. v. Stephens, Inc., 450 F.3d 1257, 1267-68

(11th Cir. 2006); Shah v. Meeker, 435 F.3d 244, 249 (2d Cir.

2006); Glaser v. Enzo Biochem, Inc., 126 Fed. App’x 593,

597 (4th Cir. 2005) (citing Brumbaugh v. Princeton Partners,

985 F.2d 157, 162 (4th Cir. 1993)); New England Health

Care Employees Pension Fund v. Ernst & Young, LLP, 336

F.3d 495, 500 (6th Cir. 2003); In re NAHC, Inc. Sec. Litig.,

306 F.3d 1314, 1325 (3d Cir. 2002); Young v. Lepone, 305

F.3d 1, 8 (1st Cir. 2002); Ritchey v. Horner, 244 F.3d 635,

638-39 (8th Cir. 2001); Sterlin v. Biomune Sys., 154 F.3d

3The one year/three year limitations period set forth in § 9(e) still

applies to securities fraud suits filed before the enactment date of

Sarbanes-Oxley, July 30, 2002. See Sarbanes-Oxley Act § 804(b). 

BETZ v. TRAINER WORTHAM & CO. 5553
1191, 1199-1200 (10th Cir. 1998); Marks v. CDW Computer

Ctrs., Inc., 122 F.3d 363, 367 (7th Cir. 1997); Topalian v.

Ehrman, 954 F.2d 1125, 1134-35 (5th Cir. 1992). Likewise,

the district courts in our circuit regularly apply an inquiry

notice standard to § 10(b) claims. See, e.g., In re Micron

Techs., Inc. Sec. Litig., No. CV-06-085-S-BLW, 2007 WL

576468, at *4 (D. Idaho Feb. 21, 2007); In re Immune

Response Sec. Litig., 375 F. Supp. 2d 983, 1026 (S.D. Cal.

2005); In re Infonet Servs. Corp. Sec. Litig., 310 F. Supp. 2d

1106, 1113 (C.D. Cal. 2003); Getty v. Harmon, 53 F. Supp.

2d 1053, 1055 (W.D. Wash. 1999); Freedman v. La.-Pac.

Corp., 922 F. Supp. 377, 395 (D. Or. 1996); In re Syntex

Corp. Sec. Litig., 855 F. Supp. 1086, 1099 (N.D. Cal. 1994),

aff’d, 95 F.3d 922 (9th Cir. 1996); Aizuss v. Commonwealth

Equity Trust, 847 F. Supp. 1482, 1486 (E.D. Cal. 1993).

While not binding on us, the reasoned opinions of ten of our

sister circuits and the widespread practices of the district

courts in our own circuit weigh heavily in favor of holding

that inquiry notice can trigger the running of the statute of

limitations on a securities fraud claim. The uniformity of the

precedent in this direction sends a signal message that inquiry

notice, and not merely actual notice, can cause the statute of

limitations for securities fraud to begin to run. 

[6] The second post-Lampf event that convinces us that an

inquiry notice standard is appropriate is an act of Congress.

In the Sarbanes-Oxley Act of 2002, Congress extended the

limitations period for § 10(b) suits from “one year after the

discovery of the facts constituting the violation,” 15 U.S.C.

§ 78i(e), to “2 years after the discovery of the facts constituting the violation” for actions commenced after July 30, 2002,

28 U.S.C. § 1658(b); Sarbanes-Oxley Act, § 804(b). In its

new enactment, Congress opted for language identical to the

language previously in effect in § 9(e) of the Securities

Exchange Act, 15 U.S.C. § 78i(e). The Supreme Court has

instructed that we should assume that Congress is aware of

the prevailing case law and legislates in its light. See Cannon

v. Univ. of Chicago, 441 U.S. 677, 696-97 (1979) (“It is

5554 BETZ v. TRAINER WORTHAM & CO.
always appropriate to assume that our elected representatives,

like other citizens, know the law . . . .”); see also Merrill

Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353,

379 (1982) (interpreting the Commodity Exchange Act in

light of pre-enactment case law). In 2002, the prevailing case

law in the lower federal courts interpreted the language of

§ 9(e) to mean that the limitations period could be commenced upon some form of inquiry notice. By choosing language nearly identical to the language of § 9(e), Congress

implicitly approved of that case law. See Cannon, 441 U.S. at

696-99 (interpreting Title IX to provide a private cause of

action because Congress used language identical to that found

in Title VI, which had already been interpreted by the courts

to provide a private cause of action); Abrego v. Dow Chem.

Co., 443 F.3d 676, 684 (9th Cir. 2006) (per curiam) (holding

that the silence of the Class Action Fairness Act regarding the

burden of proving removal jurisdiction indicated Congressional intent to leave intact the common law rule placing the burden on the defendant); United States v. Male Juvenile, 280

F.3d 1008, 1016 (9th Cir. 2002) (noting that “[i]n construing

statutes, we presume Congress legislated with awareness of

relevant judicial decisions” and holding that Congress’s failure to explicitly include “tribal governments” within the Federal Juvenile Delinquency Act’s definition of “State,” when

amending other parts of the Act, “may be interpreted as an

endorsement of the judicial decisions excluding tribes from

the definition of ‘State’ ”). 

[7] We recognize that the pragmatic effects of applying an

inquiry notice standard to § 10(b) are both positive and negative for individual litigants. As was suggested in Berry, a case

decided under the old one-year limitations period, such a standard may compel plaintiffs to file a suit based on “skimpy

facts.” See Berry, 175 F.3d at 704 n.6 (quoting Charles Benjamin Nutley, Comment, Triggering One-Year Limitations on

Section 10(b) and Rule 10b-5 Actions: Actual or Inquiry Discovery?, 30 San Diego L. Rev. 917, 948 (1993)). However,

Congress’s extension of the relevant limitations period from

BETZ v. TRAINER WORTHAM & CO. 5555
one to two years alleviates this concern and allows us to conclude that an inquiry notice standard strikes an acceptable balance between the interest in requiring plaintiffs promptly to

file suit and the competing interest in avoiding the encouragement of baseless or premature suits by requiring plaintiffs to

sue before they can discover the facts underlying their claims.

See New England Health Care Employees Pension Fund, 336

F.3d at 501; Young, 305 F.3d at 9; Sterlin, 154 F.3d at 1202.

B

[8] We have previously stated that, if we were to adopt an

inquiry notice standard for § 10(b) suits, we would apply a

standard similar to that applied by the Tenth Circuit. See Livid

Holdings, 416 F.3d at 951; Berry, 175 F.3d at 704. Today we

adopt the inquiry-plus-reasonable-diligence test used by the

Tenth Circuit. Under that standard, to determine when the

statute of limitations begins running, we first determine when

the plaintiff had inquiry notice of the facts giving rise to his

or her securities fraud claim. A plaintiff is on inquiry notice

when there exists sufficient suspicion of fraud to cause a reasonable investor to investigate the matter further. Like our sister circuits, we caution that inquiry notice should not be

construed so broadly that the particular plaintiff cannot bring

his or her suit within the limitations period. The facts constituting inquiry notice “must be sufficiently probative of fraud

—sufficiently advanced beyond the stage of a mere suspicion

. . . to incite the victim to investigate.” Fujisawa Pharm. Co.

v. Kapoor, 115 F.3d 1332, 1335 (7th Cir. 1997), quoted in

Tello v. Dean Witter Reynolds, Inc., 410 F.3d 1275, 1284

(11th Cir. 2005). Once a plaintiff has inquiry notice, we ask

when the investor, in the exercise of reasonable diligence,

should have discovered the facts constituting the alleged

fraud. The answer to that second question tells us when the

statute of limitations began to run. 

[9] The question of whether inquiry notice exists is objective. See, e.g., Mathews v. Kidder, Peabody & Co., 260 F.3d

5556 BETZ v. TRAINER WORTHAM & CO.
239, 252 (3d Cir. 2001); Great Rivers Coop. of S.E. Iowa v.

Farmland Indus., Inc., 120 F.3d 893, 896 (8th Cir. 1997).

However, we would be remiss if we ignored the particular circumstances of the plaintiff in the limited cases where equitable considerations properly affect our view of limitations. For

that reason, we have held that the running of the statute of

limitations is tolled for a naive investor who is lulled into

inaction by those that the investor alleges were defrauding

him or her. For example, in Vucinich v. Paine, Webber, Jackson & Curtis, Inc., 739 F.2d 1434, 1436 (9th Cir. 1984) (per

curiam), the defendant argued that Vucinich’s securities

fraud, common law fraud, negligence, and breach of fiduciary

duty claims were barred by the statute of limitations. Id.

Vucinich, like Betz in this case, “had been receiving monthly

statements which, had she been able to interpret them, would

have indicated that the value of her account was declining.”

Id. Vucinich, again like Betz, claimed that “she could not

decipher the statements and that she relied on [the defendant’s] continuing reassurance that a longer time was needed

to realize gains from [the defendant’s] strategy.” Id. Outside

the limitations period, Vucinich had received several margin

calls and been told by a friend that the investments the defendant had made for her were speculative. Id. At this point, one

could argue that a hypothetical “reasonable investor” would

have inquired as to whether her broker had been intentionally

deceiving her. But we considered Vucinich’s inexperience

with investments, lack of financial sophistication, and reliance

on the defendant’s expertise and reversed the district court’s

grant of summary judgment to the defendant. Id. at 1436-37.

We held that “[w]hether the events existing as of [the commencement of the limitations period] were sufficient to put

Vucinich on notice and whether the reassuring statements of

defendant reasonably affected that notice is a disputed question of fact requiring determination by the district court.” Id.

at 1437. 

We have held that a primary purpose of the federal securities laws, and in particular § 10(b), “ ‘is to protect the innoBETZ v. TRAINER WORTHAM & CO. 5557
cent investor, not one who loses his innocence and then waits

to see how his investment turns out before he decides to

invoke the provisions of the Act.’ ” Volk, 816 F.2d at 1413

(quoting Stull v. Bayard, 561 F.2d 429, 433 n.4 (2d Cir.

1977)). Ignoring the particular circumstances of the plaintiff

and gauging the plaintiff’s conduct entirely against that of an

abstract “reasonable investor” would undermine this policy in

cases where the plaintiff is an unsophisticated investor and the

defendants by their words and conduct encourage inaction or

delay.

Under the notice-plus-reasonable-diligence standard we

apply to securities fraud claims, the defendant bears a considerable burden in demonstrating, at the summary judgment

stage, that the plaintiff’s claim is time barred. See SEC v. Seaboard Corp., 677 F.2d 1301, 1309-10 (9th Cir. 1982) (noting

that “the question of notice of fraud is for the trier of fact” and

that “the party seeking summary disposition has an extremely

difficult burden to show that there exists no issue of material

fact regarding notice”). “Summary judgment is appropriate

only when uncontroverted evidence irrefutably demonstrates

plaintiff discovered or should have discovered the fraudulent

conduct.” Gray, 82 F.3d at 881 (internal quotations omitted);

see also Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d

873, 879 (9th Cir. 1984) (“The question of what a reasonably

prudent investor should have known is particularly suited to

a jury determination.”). Our hesitation to approve summary

judgment in securities fraud cases is especially pronounced

where the plaintiff alleges that the defendants’ reassurances

convinced the plaintiff to postpone his or her legal action. See

Vucinich, 739 F.2d at 1436. 

We now turn to the facts of this case. Under our inquiry

notice standard outlined above, and keeping in mind that this

case is before us on summary judgment, we ask whether there

is a genuine dispute about whether there existed facts sufficiently probative of fraud to cause a reasonable investor to

conduct a further investigation. Viewing the facts in the light

5558 BETZ v. TRAINER WORTHAM & CO.
most favorable to Betz, a rational jury could conclude that a

reasonable investor in Betz’s shoes would not have initiated

further inquiry before July 11, 2001. 

[10] The defendants contend that the account statements

Betz received would have spurred a reasonable investor to

inquire further whether Trainer Wortham had defrauded her.

However, the account statements indicated, at most, that the

defendants had broken their promise that Betz could withdraw

$15,000 per month from her account without depleting the

principal. As a matter of law, we cannot say that a declining

account balance, in and of itself, would have spurred a reasonable investor to further inquire whether he or she had been

defrauded. See Gray, 82 F.3d at 881 (“It is well settled that

poor financial performance, standing alone, does not necessarily suggest securities fraud . . . , but could also be

explained by poor management, general market conditions, or

other events unrelated to fraud, creating a jury question on

inquiry notice.”); see also Livid Holdings, 416 F.3d at 951

(“This court has held that financial problems alone are generally insufficient to suggest fraud.”). 

[11] Likewise, Castro’s March 2002 statement that there

was a “serious problem” with Betz’s portfolio did nothing

more than indicate to Betz that the defendants had not been

able to make good on their promise of at least $15,000 per

month in interest income. Because such a statement provided

no evidence that the defendants had intentionally or deliberately and recklessly misled Betz as Silicon Graphics requires

to state a claim for securities fraud, see Silicon Graphics, 183

F.3d at 974, a rational jury could conclude that, upon hearing

such a statement, a reasonable investor would not have initiated further inquiry into the existence of fraud. See Fujisawa

Pharm., 115 F.3d at 1335 (noting that “[t]he facts constituting

[inquiry] notice must be sufficiently probative of fraud”

(emphasis added)). 

BETZ v. TRAINER WORTHAM & CO. 5559
Even if a reasonable investor would have initiated inquiry

into the possibility of fraud, the assurances Betz received

from the defendants tolled the statute of limitations on her

securities fraud claim. When a defendant reassures a plaintiff

that the defendant has not deceived the plaintiff and encourages the plaintiff to defer legal action, and the result is that the

plaintiff postpones filing suit, we should be reluctant to grant

summary judgment in favor of the defendant on statute of limitations grounds. See Vucinich, 739 F.2d at 1436. This holds

especially true when the plaintiff is a naive investor, like Betz,4

who enlists investment professionals and relies on those professionals’ expertise, like Betz did. The case is entirely different for a sophisticated investor who would not normally be

entitled to any equitable tolling of the limitations period. See

Davis v. Birr, Wilson & Co., Inc., 839 F.2d 1369, 1370 (9th

Cir. 1988). 

Moreover, even if Betz was on inquiry notice of fraud,

under the second prong of our inquiry notice standard, we

cannot say that, as a matter of law, Betz, in the exercise of

reasonable diligence, should have discovered the facts constituting the alleged fraud. In this case, Betz questioned the

defendants about her account and the defendants assured her

that they would take care of any problems and asked her not

to file suit. We have held that, when a plaintiff questions a

defendant about possible fraud and receives reassurances

4No person with any degree of investment and financial sophistication

could have believed that it was possible to receive $15,000 per month, or

$180,000 per year, on a portfolio with capital value of $2.2 million, without some significant degree of market risk. Sophisticated investors know

that a return exceeding 8% per year cannot be gained without a substantial

risk, and the safest investments, in government notes, would likely return

not more than half of that rate. When the facts are determined by trial,

Betz’s factual premises might be rejected, but in this case coming before

us after a grant of summary judgment, we must accept as true Betz’s testimony that she was told she could gain this level of monthly income with

defendants managing her investments and without risking the capital she

had gained on the sale of her house. 

5560 BETZ v. TRAINER WORTHAM & CO.
from the defendant, whether the statute of limitations began

running is a question for the trier of fact. See Seaboard Corp.,

677 F.2d at 1310. In this case, “the question of what a reasonable investor would have done is not so certain as to allow a

determination as a matter of law.” Id.

V

[12] In summary, we hold that, once there exists sufficient

indicia of fraud to cause a reasonable investor to inquire into

whether he or she has been defrauded, the statute of limitations on a claim under § 10(b) of the Securities Exchange Act

begins running when the investor, in the exercise of reasonable diligence, should have discovered the facts giving rise to

his or her claim. In this case, we cannot say that, as a matter

of law, a reasonable investor in Betz’s position should have

discovered the facts giving rise to her claim before July 11,

2001. Moreover, the defendants’ express assurances that they

would remedy the problems with Betz’s account lulled Betz,

who was not a sophisticated investor, into inaction and thus

tolled the statute of limitations on her securities fraud claim.

We reverse the district court’s judgment in favor of the defendants and remand this case for further proceedings consistent

with our opinion. 

REVERSED AND REMANDED. 

BETZ v. TRAINER WORTHAM & CO. 5561