- 1 - IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_________________________ No. 05-10928

_________________________ MICHAEL MARGOLIES; ELAINE MARGOLIES, as Trustee on Behalf of the Margol ies Family Trust, Pl aint iffs-Counter Defendants-Appellants,
versus DARWIN DEASON; DOUGLAS R. DEASON; DAVID L. NEELY Defendants-Counter Claimants-Appellees.

__________________________________________________ Appeal from the United States District Court fo r the Northern District of Texas

__________________________________________________ Before HIGGINBOTHAM, DENNIS, and CLEMENT, Circuit Judges. EDITH BROWN CLEMENT, Circuit Judge: Michael Margol

ies and th e Margol

ies Famil y T rust (collectively “Margolies”) appeal the district court’s dismissal of all claims as time-barred, arguing th at an extension to the statute of repose in t he Sarbanes-Oxley Act of 2002 (“SOA”) applies to the federal claims and that the district court erred in finding th at Margol ies was on inquiry notice of the alleged fraud in 1998. We affirm in part and reverse in part, and remand the case to the district court.

I. FACTS AND PROCEEDINGS Michael Margol

ies and th e Margol

ies Family Trust were th e largest shareholders of a United States Court of Appeals

Fifth Circuit 

## F I L E D September 11, 2006 Charles R. Fulbruge III Clerk1 Deason had also filed counterclaims based on a Texas statute permitting certain time-barred

claims arising out of th e same transaction or occurrence as the original claims. T EX . C IV . P RAC . & REM . C ODE § 16.069. These claims were also dismissed in the district court. On appeal, Deason - 2 - com pany known as U.S. Transportation Sy stems (“USTS”). On March 19, 1998, Precept Business Services, Inc. (“Precept”) acquired USTS. In exchange for Margolies’s ownership interest in USTS, he received Precept com

mo n stock. Subsequently, Precept filed for bankruptcy, and the Precept stock owned by Margol

ies became worthless. In November 2002, the trustee appointed for Precept filed a com

plaint in th e adversary bankruptcy proceeding. In this complaint, the trustee claimed that th e defendants, Darwin Deaso n, Dougl as R. Deason, and David L. Neely (collectively “Deason”), engaged in behavior amo unting to self-dealing and fraud which resul ted in t he collapse of the
com pany. On March 17, 2003, Margolies filed a complaint against Deason alleging eight causes of action relating to this self-dealing and fraud. Margolies subsequently amended the com plaint
. The fir st amended com

plaint contained five causes of action: (1) vio lat io n of the Securities Act of 1933, (2) violation of the Securities Exchange Act of 1934, (3) vio lat io n of Texas Blue Sky Article 581- 33(A)(2), (4) violation of Texas Blue Sky Article 581-33(F), and (5) common law fraud. Deason filed a motion for summary judgment seeking dismissal of all o f Margolies’s claims as ti me-barred. Deason claimed that in 1998 Margolies became either actually or constructively
aware of th e facts giving ri se to th e causes of action in the com plaint
. Conversely, Margolies claimed th at he did not and could not reasonably have learned the relevant info rmation until the trustee filed
a com plaint in th e bankruptcy proceeding in November 2002. The district court granted Deason’s
mo tion for summary judgment and entered a final judgment dismissing all of Margol ies’s claims as time-barred. 1does not dispute th e propriety of dismissing these claims, and therefore we do not consider them.

See United States v. Thibodeaux , 211 F.3d 910, 912 (5th Cir. 2000) (“It has lo ng been the rule in this circuit that any issues not briefed on appeal are waived.”). - 3 - II. STANDARD OF REVIEW The district court’s grant of summary judgment is reviewed de novo. Shell Offshore Inc. v. Babbitt , 2 38 F.3d 622, 627 (5th Ci r. 2001). The district court’s grant of “[s]ummary judgment is appropri ate if th e record shows ‘that there is no genuine issue as to any mat erial fact and the mo ving party is entitled to judgment as a mat ter of law.’” Id
. (quoting FED . R. C IV . P. 56(c)). In the summary ju dgment context, the court “views the evidence in the light most favorable to the non-movant.” Abarca v. Metro. Transit Auth. , 404 F.3d 938, 940 (5th Cir. 2005). If a reasonable jury could return
a verdict fo r th e non-movant, a genuine issue of material fact exists and summary judgment is not proper. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986). III. DISCUSSION A. Federal Securities Law Claims The parties dispute which particular statutes set the appl icable periods of time in which to bring th e fir st and second causes of action in the fir st amended com plaint
. In the first cause of action, Margol ies alleges th at Deason viol ated §§ 11 & 12 of the Securities Act of 1933, codified at 15 U.S.C. §§ 77k & 77l. Deason argues that the appropriate time limits for this action are found at 15 U.S.C. § 77m , which impo ses a term of th ree years aft er the sale of the security or it s being offered to the public. In th e second cause of action, Margol ies alleges that Deason violated both § 10(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. § 78j(b), and Rule 10(b)-5, codified at 17- 4 -

C.F.R. § 240.10b-5. In L ampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson , 501 U.S. 350, 364 (1991 ), the Supreme Court held that these claims were barred after the same time period, namely th ree years aft er th e sale or of fering. Under this period, which Deason urges, the first and second
causes of action are clearly time-barred because suit was not filed wit hin th ree years of the sale or of fering. Margol ies argues th at inst ead the time limit fo r the fir st and second causes of acti on is controlled by Section 804 of th e SOA. Enacted on July 30, 2002, the SOA changed the time period to bring any “private right of action th at invo lves 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 th e Securities Exchange Act of 1934.” 28 U.S.C. § 1658(b). The district court correctl y fo und th at th e claims in th e fir st and second causes of action invo lved fraud such th at they were the ty

pe of claims that fall within the confines of this statute. Under th e new statute, such vio lat io ns “may be brought not l ater than the earlier of --(1) 2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation.” Id. The SOA contains two other important provisions. First, one provision states that the new time period “shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act .” Pub. L. No. 107-204, 116 Stat. 745, 801 (2002). Second, another provision states that “[n]othing in this section shall create a new, private right of action.” Id. At this point it is worth noting the difference between statutes of limit ations and statutes of repose. Statutes of limit ations speak to matters of remedy, whereas statutes of repose eliminate the underlying rights when th ey lapse. C hase Securities Corp. v. Donaldson , 325 U.S. 304, 314 (1945) (statutes of limit ations); Lieberman v. Cambridge Partners, L.L.C. , 432 F.3d 482, 490 (3d Cir. 2006)- 5 -

(statutes of repose); Burlington Northern & Santa Fe Ry. Co. v. Poole Chemical Co. , 419 F.3d 355, 362–63 (5th Cir. 2005) (“[T]he differences between statutes of limit ations and statutes of repose are substantive, not merely semantic.”). The statute at issue here is a statute of repose. See Lampf , 501 U.S. at 360 (noting th at the pre-SOA three-year time period under the Securities Exchange Act of 1934 is a statute of repose); Bear Lake & River Waterw orks & Irrigation Co. v. Garland , 164 U.S. 1, 14 (1896) (stating that when a statute creates a right unknown at commo n law, the general rule is that a corresponding statutory time bar is one of repose rather th an limit ation). As such, the right to rel ief it self is extinguished when the relevant time period expires. The SOA was enacted well aft e r the fi rst and second causes of action accrued and subsequently expired u nder the old time limit s. Under the pre-SOA period of three years, these
causes of action were extinguished in early 2001, mo re th an a year prior to the enactment of the SOA. Margol ies would have us ho ld t hat these causes of action that were indisputably time-barred for a period of mo re th an a year prior to th e enactment of the SOA are no lo nger time-barred post-SOA. The Second, Third, Fourth, Seventh, and Eighth Circuits, in cases addressing this issue, have held th at th e SOA did not revive previously extinguished causes of action. S ee In re Enter. Mortgage Acceptance Co. Sec. Litig. (“Enterprise ”), 391 F.3d 401, 411 (2d Cir. 2005); Lieberman , 432 F.3d at 492; Glaser v. Enzo Biochem, Inc. , 126 F. App’x 593, 598 (4th Cir. 2005); Foss v. Bear, Stearns & Co. , 394 F.3d 540, 542 (7th Cir. 2005); In re ADC Telecomms., Inc. Sec. Litig. , 409 F.3d 974, 978 (8th Cir. 2005). The Second Circuit’s opinion in Enterprise contains a well-written retroactivit y analysis th at th e oth er circuit courts have largely fo llo wed. 391 F.3d at 405–10; s ee, e.g., Foss, 394 F.3d at 542 (“We find [ Enterprise ] persuasive and have n oth ing to add to the second circuit’s- 6 -

explanation.”). In an interlocutory appeal, the Eleventh Circuit disagreed with the other circuits and
reman ded f

or f urther fact-finding. T

ello v. Dean Witter Reynolds, Inc. , 410 F.3d 1275, 1281–82 (11th Cir. 2005) (noting th at statutes th at are textually clear as to retroactivit y should be retroactively applied). We conclude that the district court correctly followed the majority of the circuits in holding th at the SOA did not apply retroactively to revive the first and second causes of action. The S u preme Court has stated repeatedly “t hat there is a presumption against retroactive legislat io n th at is deeply rooted in our jurisprudence.” H ughes Aircraft Co. v. United States ex rel. Schumer , 520 U.S. 939, 946 (1997) (int ernal alt eration and quotation om it ted). In L andgraf v. USI Film Products , the Supreme Court established a two-part test for retroactivit y inquiries. 511 U.S. 2 44, 280 (1994); see Rutland v. Moore , 54 F.3d 226, 229–30 (5th Cir. 1995) (refusing to apply a portion of the Civil Rights Act of 1991 retroactively). Under L andgraf , “t he court’s fir st task is t o determ ine whether Congress has expressly prescribed the statute’s proper reach.” 511 U.S. at 280. If Congress has not done so, the second step is: [T]he court m

ust determ

ine whether the new statute would have retroactive effect, i.e. , whether it would impair rights a party possessed when he acted, increase a party ’s liabilit y fo r past conduct, or impo se new duties wit h respect to transactions already com

pleted. If the statute would operate retroactively, our tradi tional presumption teaches th at it does not govern absent clear congressional int ent favoring such a result. Id. Wit h respect to th e first step, the Court has indicated that an express prescription is syno nymo us wit h an “unambiguous directive.” L indh v. Murphy , 521 U.S. 320, 325 (1997) (int ernal quotations om

it ted). In addition, the Court has held that “the existence of ‘plausible’ alternative int erpretations of statutory language meant th at th at language could not qualify as an ‘unambiguous’- 7 -

expression” and th erefore could not meet the fir st part of the two-part Landgraf test. I d. at 329 n.4 (quoting United States v. Nordic Village, Inc. , 503 U.S. 30, 34–37 (1992)). We hold th at th ere is a plausible alt ernative explanation fo r the l anguage in the SOA. The statute contains both a statem ent th at it applies to “all proceedings addressed by this section th at are
com menced on or aft er th e date of enactment of this Act” and a statement th at “[n]othing in this section shall create a new, private right of action.” These two statem ents combined could reasonably
mean th at the statute appl ies to claims (1) not time-barred when the SOA was enacted, (2) filed at
a time aft er th e SOA’s enactment at which they would have been time-barred under the old scheme, and (3) filed at a time when under th e new scheme they are not ti me-barred. As an example, this category of cases might include an action filed six mo nt hs aft er the enactment of the SOA invo lving conduct just over th

ree years old at th e time. In such a case, the old time limit expired after the SOA
was enacted but prior to th e filing o f the action. It i s certainly not clear that Congress intended this particular result in crafting th e statute, but the fact th at the result is ambiguous is it self the very reason th e statute fails the first step of the Landgraf test. 511 U.S. at 280. Further obs curing the intended result of the language is the Supreme Court’s decision in Hughes Aircraft
. There, t he Court exam ined the retroactivity of a statute that eliminated a requirement in qui tam actions. Previously, q ui tam suits could not be brought based on info rmation th at the government already possessed. Id. at 945. A 1986 amendment “permit[ted] qui tam suits based on information in th e government’s possession, except” in certain limit ed circumstances. Id. at 946. The Court’s language in H ughes Aircraft is applicable here. The Court noted th at the amendment “revive[d] th at action” and cit ed approvingly to a Nint h Circuit case applying Landgraf to a time bar questio n not unlike the one here. I d. at 950 (stating th at “extending a statute of2 The Eleventh Circuit in Tello held that the Landgraf “presumption and analysis, however,

[were ] unwarranted when Congress state[d] its unambiguous intention that the statute appl[ied] retroactively to pre-enactment conduct.” 410 F.3d at 1281–82. Essentially, the Eleventh Circuit held th at “t he tem

poral effect [was] obvious from the statutory language” it self. I d. at 1281. We disagree wit h th e court’s determ

inat io n th at th ere i s no ambigui ty regarding retroactivity in the statutory - 8 - limit ations aft er th e pre-existing period of limit ations has expired impermissibly revives a mo ri bund
cause of action”) (citing Chenault v. U.S. Postal Service , 37 F.3d 535, 537, 53 9 (9th Ci r. 1994)). Under Hughes Aircraft , th e SOA’s language th at “[n]othing in this section shall create a new, private right of action” creates an ambiguity in the statute’s meaning. Having held th at th e language of the statute does not unambiguously necessitate retroactivit y, it is necessary to turn to th e statute’s legislat ive hist ory . As the Seco nd Circuit concl uded in Enterprise , “the legislative history of Section 804 does not clearly indicate that Congress intended th at Section 804 apply retroactively to revive expired securities fraud claims.” 391 F.3d at 408. We agree wit h th e Second Circuit and discern nothing in the legislat ive hist ory to indicate congressional int ent that the statute be applied retroactively to previously expired claims. In th e second step of th e Landgraf analysis, we consider whether the statute would have a retroactive effect. The Supreme Court has made clear that L andgraf “does not purport to define the outer limit of impermis sible retroactivit y. ” H ughes Aircraft , 530 U.S. at 947. It i s clear that this statute’s effect would be retroactive. The fact that the statute would permit a cause of action on July 31, 2002, th at was definit ively time-barred on July 29, 2002, indicates a retroactive effect if applied
as such. S ee id. at 950. The presumption against retroactive legislation therefore indicates that the previous th

ree-year period applies. 2 Accordingly, the district court properly dismissed the first andlanguage. - 9 -

second causes of action as time-barred. B. Texas Blue Sky Law Claims The relevant statute th at applies to the thir d and fo urth causes of action under Articles 581- 33(A)(2) and 581-33(F) of the Texas Blue Sky Laws states th at a cause of action expires after the earlier of “(a) mo re th an th ree years aft er discovery of the untruth or om issio n, or after discovery should have been made by t he exercise of reasonable diligence; or (b) mo re th an five years aft er the sale.” T EX . REV . C IV . S TAT . ANN . art. 581, § 33(H)(2). Margol ies brought these causes of action wit hin five years of the sale and therefore part (b) is sati sfied. As such, the remaining issue is whether the plaintiff “by the exercise of reasonable diligence,” should have learned of facts placing him on notice of his claim. S ee id. This is commonly referred to as inquiry notice. S ee Jensen v. Snellings , 841 F.2d 600, 607 (5th Cir. 1988). Deason argues th at various disclosures made by Precept, consisting pr imarily of statements contained in filings, placed Margol

ies on inquiry notice in 1998 of the facts upon which the com plaint are based. Margol ies counters th at th ese disclosures were not sufficient for inquiry notice and th at inst ead he was not aware of the underlying conduct giving rise to his claims until the trustee filed a complaint in t he bankruptcy proceeding in November 2002. This f a ct-int ensive inquiry is ty

pically appropri ate fo r consideration by a jury. “Ordinarily, what constitutes reasonable diligence to discover fraud is a question of fact for the jury.” Ruebeck
v. Hunt , 176 S.W.2d 738, 740 (Tex. 1944). “Unless the evidence is such that reasonable minds may not differ as to it s effect, th e question as to whether a party has exercise d dil igence in discovering fraud is for the jury.” Id. ; see also In re Estate of Fawcett , 55 S.W.3d 214, 221 (Tex. App. 2001)- 10 -

(reversing a grant of summary judgment on time bar grounds). In moving for summary judgment on th e time bar issue, Deason “assumed the burden of conclusively establishing that [Margol ies] knew
or should have known, wit h th e exercise of reasonable diligence, of the alleged fraud.” F awcett , 55 S.W.3d at 221; see also Jensen, 841 F.2d at 607 (noting th at, in analogous federal actions, plaint iffs cannot ignore “storm warnings” th at would “alert a reasonable invest or to the possibilit y of fraudulent statem ents or om

issio ns in his securities transaction”) (internal quotation omitted). Margol ies’s claims largely revolve around pieces of property sold by Precept to the defendants, som

etimes at allegedly lo wer th an market value and allegedly fo r no legit imat e business purpose. Precept di sclosed in its filings that it had entered int o sales or sale-leasebacks of a ranch,
a restaurant, and a luxury box at Lone Star Park to a com pany owned by the defendants. Precept also disclosed th at it would record a lo ss on thes e sales, part of which was because of costs of repair. Precept also disclosed th at it sold two condom iniums (at least on e to Darwi n Deason). Precept disclosed th at it sold a piece of real property to a com pany owned by the defendants while not addressing whether th e sale was fo r belo w market value, as Margol ies alleges. Precept also disclosed
a sale of stock in another com pany to Darwin Deason but did not disclose various details about this transaction, including th at it was allegedly a sham and was fo r belo w market value. The filings also disclosed info rmation about th e defendants’ com pensation but did not provide details that would suggest the improprieties alleged by Margolies’s complaint. In addition, th e filings disclose th at two acquisitions occurred shortl y aft er the USTS-Precept deal closed. Margolies alleges th at th ese acquisitions were the result of impermissible negotiations and th e signing of let ters of int ent which took pl ace before the Precept-USTS deal in a window of time during which Precept had agreed not to enter int o any such agreements or arrangements. The- 11 -

disclosure of th e clo sing of th e acquisitions d id not, however, indicate when letters of intent were signed or when negoti ations took place. While t hese disclosures contain various levels of detail, th ey essentially do not include any explanation of the purpose or reason fo r the transactio ns. The underlying tension between th e parties’ positions is whether or not disclosure of these details about particular actions taken by th e com pany wit hout accompanying info rmation to indicate the mo tivation
or purpose fo r th e actions is sufficient to place the plaint iff on inquiry notice. In essence, the district court fo und th at th ese various disclosures amo unted to a “storm warning.” S ee Jensen , 841 F.2d at 607. We disagree. It is worth ment io ning again th at, not only do we not consider the merit s of Margol ies’s claims, we also do not decide whether he was on inquiry notice. The narrow inquiry before the court is whether the district court improperly concluded on summary judgment th at a reasonable plaint iff should have known th at th ese transactions sufficient ly raised the specter of fraud as to place him on inquiry notice. R uebeck , 176 S.W.2d at 740 (noting th at summary judgment wit h respect to inquiry notice is only appropriate if “reasonable minds may not differ as to its effect”). We hold th at, wit h respect to the disclosures in this particular case, the info rmation provided is insufficient to conclude th at reasonable minds could not disagree as to whether Margol ies “has exercised diligence in discovering fraud.” R uebeck , 176 S.W.2d at 740. Accordingly, t he di strict court’s di smissal o f t he third and fourth causes of action was in error. C. Com

mo n Law Fraud Claim Under present Texas law, “a person must bring suit [for com mo n law fraud] not lat er th an fo ur years aft er th e day th e cause of action accrues.” T EX . C IV . P R AC . & REM . C ODE ANN . § 16.004(a). This statute previously did not include fraud and was amended in 1999 to clarify t he- 12 -

Texas caselaw regarding th e time limit s fo r filing fraud actions. S ee Williams v. Khalaf , 802 S.W.2d 651, 656–57 (Tex. 1990) (detailing confusion regarding whether two or fo ur year time limit applied). It is not necessary fo r this court to inquire further int o this issue, however, as Margol ies’s fraud claim is o nly t imely if t he statute (whether two years or four years) was tolled. In the absence of tolling, th e claim was time-barred either in 2000 or 2002, well before Margolies brought the action. Tolling is appropri ate when the case involves “allegations of fraud or fraudulent concealment.” S .V. v. R.V. , 933 S.W.2d 1, 6 (Tex. 1996). In such cases, the “action does not accrue until th e plaint iff knew or in th e exercise of reasonable diligence should have known of the wrongful act and resulting injury.” Id. at 4. As previously disc ussed, the di strict court erred in determining on summary judgment that Margol ies was on inquiry notice in 1998 of the relevant facts. This is a question for the jury. The district court, therefore, erred in dismissing the fifth cause of action.

IV. CONCLUSION The d i strict court judgment is AFFIRMED IN PART and REVERSED IN PART. The district court judgment wit h respect to th e first and second causes of action is AFFIRMED. The district court judgment wit h respect to the thir d, fo urth, and fift h causes of action is REVERSED. The case is REMANDED for further proceedings not inconsistent with this opinion.