[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

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No. 13-13081

Non-Argument Calendar

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D.C. Docket No. 2:12-cv-14411-DLG

QUENTIN WALTER, 

WELDON STOUT (Deceased),

 Plaintiffs - Appellants,

versus

FRANK J. AVELLINO, 

and, 

NANCY CARROLL AVELLINO,

together, 

 Defendants - Appellees.

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Appeal from the United States District Court

for the Southern District of Florida

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(April 28, 2014)

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Before TJOFLAT, FAY and COX, Circuit Judges.

PER CURIAM: 

In this securities fraud case, the Plaintiffs, Quentin Walter and Weldon 

Stout, allege that the Defendants, Frank Avellino and Nancy Avellino, fraudulently

invested the Plaintiffs’ money in Bernard Madoff’s ponzi scheme. On the 

Defendants’ motion, the district court dismissed the Plaintiffs’ complaint and 

closed the case, holding that the claim was untimely and failed to meet the 

heightened pleading requirements for security fraud. The Plaintiffs appeal.

I. Facts and Procedural History

The dates and nature of the contentions advanced by the parties are 

important to this appeal, so we relate them in detail.

On November 12, 2012, the Plaintiffs filed a pro se complaint asserting a 

variety of state law claims related to the Defendants’ alleged fraud. (R. 1.) Upon 

the Defendants’ motion, the district court dismissed the complaint for lack of 

subject matter jurisdiction. (R. 21.) On March 18, 2013, the Plaintiffs filed an 

amended complaint alleging securities fraud in violation of Rule 10b-5. (R. 26.) 

According to the amended complaint, Stout invested $175,000 with Frank Avellino 

on December 29, 2006, in accounts for himself and Walter. The investment was 

made with Frank Avellino’s advice. Walter also invested an additional $10,000 

with Frank Avellino on June 1, 2008. On December 9, 2008, Nancy Avellino 

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contacted Stout and told him that the funds had been invested in Madoff’s Ponzi 

Scheme and were entirely lost. The state law claims were not re-alleged in the 

amended complaint. 

The Defendants moved to dismiss the amended complaint on the grounds 

that it was untimely and failed to plead fraud with specificity as required by the 

Private Securities Litigation Reform Act, 109 Stat. 737 (codified as amended in 

scattered sections of 15 U.S.C.) (“PSLRA”). (R. 30.) The Defendants contended 

that a federal securities action had to be brought within one year of discovering the 

fraud and within three years of the violation according to Lampf, Pleva, Lipkind, 

Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363–64, 111 S. Ct. 2773, 2782 

(1991). The Plaintiffs responded that they did not discover the Defendants’ fraud 

until the summer of 2012. (R. 31.) In a separate document, the Plaintiffs also 

contended that under 28 U.S.C. § 1658(b) their claim had to be brought within two 

years of discovering the fraud and within five years of the violation. (R. 36.) 

The district court dismissed the complaint and closed the case. (R. 45.) The 

district court applied 28 U.S.C. § 1658(b)1 to determine whether the claim was 

timely. The court held that the statute of limitations commences when a potential 

 1 “Notwithstanding subsection (a), 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, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 

78c(a)(47)), may be brought 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.” 28 U.S.C. § 1658(b).

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plaintiff has inquiry notice of a violation. According to the district court, the 

Plaintiffs had inquiry notice when they received Nancy Avellino’s phone call

admitting that their investment had been lost. Thus, the statute of limitations began 

to run on December 9, 2008 and concluded two years later on December 9, 2010. 

The district court also held in the alternative that the Plaintiffs failed to meet the 

heightened pleading standard for fraud. The Plaintiffs appeal.

II. Standard of Review

We review de novo a motion to dismiss for failure to state a claim. Timpson 

v. Sampson, 518 F.3d 870, 872 (11th Cir. 2008).

III. Discussion

A. The Statutes of Limitation and Repose

On appeal, the parties’ contentions on this issue have dramatically changed. 

In the Appellants’ Brief, the Plaintiffs contend that the district court erred by 

holding that inquiry notice triggered the statute of limitations because the Supreme 

Court has rejected the inquiry notice standard. (Appellants’ Br. at 16.) In 

response, the Defendants do not dispute that the district court erred by applying the 

inquiry notice standard. Nor do the Defendants dispute that the Plaintiffs’ 

complaint met the statute of limitations under the Merck & Co., Inc. v. Reynolds, 

559 U.S. 633, 130 S. Ct. 1784 (2010), standard. Instead, the Defendants contend 

that we should affirm anyway because the Plaintiffs’ complaint was untimely 

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under the five year statute of repose. (Appellees’ Br. at 8.) The Plaintiffs reply 

that at least one investment (Walter’s $10,000 investment in 2008) is within the 

statute of repose and that Walter’s other investments should be brought in under 

the continuing fraud doctrine. (Appellants’ Reply Br. 2, 4.)

We agree with both parties that the district court erred by applying the 

inquiry notice standard. In Merck, the Supreme Court specifically rejected the 

inquiry notice standard and in doing so overruled Theoharous v. Fong, 256 F.3d 

1219, 1228 (11th Cir. 2001), and implicitly overruled Tello v. Dean Witter 

Reynolds, Inc., 410 F.3d 1275, 1283 (11th Cir. 2005), which the district court 

relied on. Merck, 559 U.S. at 652, 130 S. Ct. at 1798.

In the ordinary case, we would accept the Defendants’ invitation and 

consider whether the district court’s order should be affirmed on an alternative 

basis, the five year statute of repose. However, at least one claim, Walter’s 

$10,000 investment, appears to be timely under the statute of repose. And, the 

Plaintiffs contend that other violations may be timely under the continuing fraud 

doctrine. The district court has not had the opportunity to consider this issue. So, 

under these circumstances, we vacate the district court’s order and remand for the 

district court to consider first these contentions about the statute of repose.

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B. The Heightened Pleading Standard for Securities Fraud

The district court dismissed the Plaintiffs’ pro se complaint in the alternative

for failing to meet the heightened pleading standards under the PSLRA. The

Plaintiffs acknowledge that the amended complaint does not meet the heightened 

pleading standard, but contend that they should be allowed to amend their 

complaint to comply. (Appellants’ Reply Br. at 3, 6.) The Plaintiffs never brought 

a motion to amend the complaint before the district court. Of course, the Plaintiffs 

could not have brought a motion for leave to amend the complaint because the 

district court had already ruled that the claims were untimely and closed the case—

amendment was futile and this appeal was their only option.

In this procedural posture, the district court has never denied a motion to 

amend the pleadings. Thus, we have no district court order to review on this issue. 

Furthermore, whether the Plaintiffs should have leave to amend will depend on the 

district court’s resolution of whether their claims are timely. If the claims are not 

timely, then amendment will still be futile. The Plaintiffs should bring their 

motion for leave to amend before the district court on remand. 

IV. Conclusion

Accordingly, we vacate the district court’s order dismissing the complaint 

and remand for further proceedings consistent with this opinion and the Supreme 

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Court’s opinion in Merck & Co., Inc. v. Reynolds. The Plaintiffs should bring their 

motion to amend the complaint before the district court on remand.

VACATED AND REMANDED.

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