### FILED U.S. COURT OF APPEALS ELEVENTH CIRCUIT January 22, 2004 THOMAS K. KAHN CLERK [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH

CIRCUIT

______________________ No. 02-11319

______________________ D. C. Docket No. 00-08653 CV-DTKH ALAN GRIPPO, Plaintiff-Appel lant,

versus JOHN E. PERAZZO, T.S.C. FINANCIAL CORP., et al., Defendants-Appe llees.

__________________ Appeal from the United States District Court for the Southern District of Florida

___________________ (January 22, 2004) Before EDMON

DSON, Chief Judge, DUBINA , Circuit Judge, a

nd HODGES*, District Judge.

_____________________________ *Honorable Wm. Terrell Hodges, United States District Judge for the Middle District of Florida, sitting by designation.2

DUBINA, Circuit Judge: Alan Grippo appeals the district court’s dismissal of his federal securities claims, state

securities claim

s, and other relat

ed state law clai

ms against John Perazzo, T.S .C. Financial Corp., P.F.C. Ltd., and P.F .C. Financial Corp (the “defendants”) . The district co urt dismissed G

rippo’s compl

aint for failure t

o allege fraud in conn

ection with the purc

hase or sale of a se

curity, for f

ailure to plead fraud with pa

rticularity und

er Federal Rule of Civil Procedure 9(b) and the Private Securiti

es Litigation Refo

rm Act of 1995 (

“PSLRA”) , 15 U.S.C. § 78u4(b), and as barred by the st atute of limitations. For the reasons that fol low, we affirm in par

t, reverse in par

t, and remand

. BACKGROUND A. Facts Perazzo first a

pproached Grippo in N

ew York about inves

ting money w

ith the defendants in for

eign currency exchange mark ets and debt securiti

es. Grippo alleges that Pera

zzo represented th

at the defendants co

uld guarantee profi

ts in foreign currency

trading because the

y were heavil

y involved, knowl

edgeable, and experienced in foreign currency trading and because they were privy to beneficial multi-governm

ental informa

tion. Grippo furthe

r alleges that, thr

oughout 1994 and3

early 1995, Pe

razzo repeatedly

told him that an in

vestment with t

he defendants would return a high pr

ofit with no financi

al risk. Based on Perazzo’ s representations, Grippo began investin

g with the defendants in Febru

ary 1995. Gri

ppo invested approxim

ately $1.4 m

illion with the defendants from

February 1995 th

rough February

1999, making a la

rge percentage of those

investments in 199 7 and 1998. Accordi ng to Grippo, the funds that he invested were sent in the f orm of personal

or bank checks and deposited in the three corporate defendants’ accounts held at the Bank of New York. Perazzo

purportedly told G

rippo that the defend

ants could not provide specific information about the securities in which Grippo’s money was invested at any particular

time because o f a need to shift the investments to at tain the highest rate of return. Grippo alleges that Perazzo then tra

ded the securities i

n his account without first obtaini

ng his permission o

r providing him w

ith confirmati

on of the purchase or sale of

securities. After moving t

o Florida in October

1995, Grippo states

that he kept in daily contact with Pera

zzo, and that Per

azzo advised Grippo to continue to invest w ith the defendants in various types of investments. In the fall of 1997, Perazzo allegedly told G

rippo that he ought to inve st with the defendan ts in a food-for-oil barter deal with I

raq involving T.S. C. Financial Cor p., Kraft Foods , Inc., and the4

Iraqi Embass

y in Canada. G

rippo claims,

however, that K

raft Foods, Inc.and T.S.C. Financial Corp. never co nsummated any such agreement. Grippo alleges that

in August 1998, Pera

zzo told him that

the defendants could make better returns by investing in stocks, particularly the stock of a medical supply company that suppo sedly had a new break-throu gh product. Grippo claims

that “[f]r om Septem

ber 1998 until July 2 000 . . ., PER AZZO falsely represented to GR

IPPO that by m

aking additional invest

ments with DEFENDANTS in stocks, especially the m edical supply company’s stock, that GRIPP O’s in vestme nts ‘w ould grow t o well in exc ess of $10 mi llio n.’” [2 d Am. Compl. ¶ 27] . Grippo alleges t hat he made addi

tional investmen

ts from late 199 8 through early 1999 , totaling $239,000. Grippo further cl

aims that he m

ade numerous re

quests for an accoun

ting of his investments in stock. Grippo received a statement of his investments in March 1998, which showed a

total investment

amount of $1,087, 992, but failed to indicate any se

curity in which

the money w

as invested. In No

vember 1998, Perazzo provided G

rippo with a statem

ent from a Sa

lomon Smith

Barney accou

nt purporting to hold $3,077 ,942.37 of Grippo’ s invested funds. Sim ilarly, this statement failed to delineate any particular securities in which the money was invested, indicat ing only that the monies were i nvested in “stock.”5

Grippo states that f

rom late 1999 to t

he filing of the initia

l complaint in Jul

y 2000, Perazzo cont

inually advised hi

m that the invest

ments held with the defendants were worth in excess of $10 million. In the fall of 1999, Perazzo allegedly repr

esented to Grippo tha

t the defendants had i

nvested in a Nigeria

n oil deal, and that he w

ould repay Gri

ppo’s investme

nts once the deal clos ed. Despite repeated requests , Grippo never re ceived any other

accounting of his inves

tment funds. Furtherm

ore, Grippo clai

ms that from

late 1999 to early

2000, he made demands for t he return o f his money, to wh ich Perazzo responded that Gripp o’s investments we

re safe, and that

payment w

ould be forthcom

ing once the defendants could liquidate the securities and resolve certain foreign currency exchange issues. G

rippo claims tha

t he received only

nominal sum

s between 1995 and 2000, includi ng a check dated July 19 , 2000, for $10,000. In December

1999, Grippo began in

vestigating the safe

ty of his investments. He ultimately concluded that the defendants did not intend to return his mone y. B. Procedural History On July 18, 2000,

Grippo filed his init

ial complaint in

the district court f

or the So uthe rn Dis trict of Flo rida, alleg ing b oth fe deral and st ate se curit ies cl aims and related state law causes of action. On December 22, 2000, the district court1 The second amended complaint set

forth the following claims: (1) violation of Rule 10b-5, 17 C.F.R. § 240.10b-5, as promulgated under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; (2) violation of Sect ion 12 of the S ecurities Act of 1933, 15 U.S.C. § 771; (3) breach of contract; (4) common law fraud; (5) negligent misrepresentation; (6) convers ion; (7) unjust enrichment;(8) violatio

n of the se curities registration provisions of the Florida Securities and Investor ProtectionAct, Fla. Stat. ch. 517.07; (9) violation of the broker registration provisions of the Florida Securities and Investor Protection Act, Fla. Stat. ch. 517.12; (10) fraudulent transactions inviolation of the Florid a Securities and Investor Protection Act, Fla. Stat. ch. 517.12; (11) conspiracy

to defraud; and (12) accounting. While count 10 of Grippo’s complaint refers to Florida Statute Chapter 517.12, based on the allegations in count 10, he is clearly alleg ing a violation of Florida Statute Chapter 517.301. 6 dismissed the complaint with leave to amend, finding that Grippo failed to plead sufficient facts d

emonstrating tha

t he timely

filed his claim

s. On January

25, 2001, Grippo filed a first amended complaint, adding defendants T.S.C. Financial Corp., P.F.C. Ltd., and P.F.C. Financial Corp. On July 7, 2001, the district court dismissed the am

ended complaint,

again granting leave

to amend, aft

er finding that the amende

d complaint fai

led to identify th

e specific dates of

his investments, Perazzo’s specific alleged misrepresentations, or why the statem ents were misleading. On August 6, 2001, G

rippo filed a second a

mended com

plaint against Perazzo, T.S .C. Financial Corp., P.F.C. Ltd., and P.F .C. Financial Corp. 1 The district court agai

n dismissed the co

mplaint, findi

ng that Grippo faile

d to allege fraud in connection with the purchase or sale of a security because Grippo was unable to link his payment of monies to Perazzo with the purchase of an2 Contrary to t he parties’ arg

uments, the distric

t court did not dismiss

Grippo’s state securities claims as barred by the statute of limitations. A two year, rather than a one year, stat ute of limitations applies t

o Grippo’s Florid

a securities cla

ims. Fla. Stat. ch. 95.11(4)(e). We note that the district court cou

ld not have conside

red the relevan

t statute of limitations because Grippo allegedly made investments after July 1998. 7 identifiable secur

ity, or prove th

at his funds were e

ver actually in

vested in anything. Al ternative ly, the distr ict court d ismissed wit h prejudic e Grippo’s federal securiti

es claims as ba

rred by the stat

ute of limitati

ons, 2 and dismissed Grippo’s securi

ties fraud claim

s for failure to ple

ad fraud with speci

ficity. The dist rict c ourt d eclin ed to r etain juris dicti on ov er the remain ing s tate l aw cla ims and dismissed those

claims without

prejudice. Gr

ippo then perfected

this appeal. ISSUES 1. Whether the district court err ed in dismissing the

federal and state securi ties cl aims for failure to alle ge the p urchas e of a sec urity. 2. Whether the district court erred in dismissing the federal securities claims as barr

ed by the statute

of limitations. 3. Whether the district court err ed in dismissing the

federal and state securities claim

s for failure to m

eet the heightened pl

eading requirem

ents for fraud as required under Fed eral Rule of Civil Proce dure 9(b) and the PSLRA. STANDARD OF REVIEW8

We review the district court’s judgment of dis missal de novo and will uphold a dismissal

only if it appear

s beyond doubt that th

e allegations in the complaint, when viewed in the light most favorable to the plaintiff, do not state a claim upon which relief can be granted. Theoharus v. Fong , 256 F.3d 1219, 1224 (11th Cir. 2001). DISCUSSION A. Failure to A

llege the Purchase

of a Security Section 517.301 of the Florida Securities and Investor Protection Act makes it unlawful for any

person “in conne

ction with the offe

r, sale, or purc

hase of any investment or security”:

1. To employ

any device, sc

heme, or art

ifice to defraud; 2. To obtain mo

ney or property

by means of

any untrue statement of a material fact or any omission to state a material fa

ct necessary i

n order to make

the statements made, in light of the circumstances under which they were made,

not misleading; or 3. To engage in any

transaction, pra

ctice, or course

of business which opera

tes or would operate

as a fraud or deceit upon a person. Fla. Stat. ch. 571.301(1 ). In discussing Grippo’s federal securities claims, the district court found that Grippo could not plead

securities claim

s because he faile

d to allege and could not9

prove that any securities were actually purchased with the funds that he invested with Perazzo. Thus, the district court found that Gr

ippo failed to establi sh that any alleged fraud was “in connection with the purchase or sale of any security.” The district court failed to discuss the elements of Grippo’s state securities claims, m erely stating th

at Grippo had to plea

d fraud in connection with the purchase or sale of

a security. A

ssuming that such a

requirement i s an element of all of Grippo’s s

tate securities cl

aims, we con

clude that the distri

ct court erred in finding that Grippo f

ailed to properly

allege state secur

ities claims on t

he ground that Grippo had not al

leged that he actual

ly purchased any

securities. The elements

of a cause of acti

on under § 517.301 are

identical to those under the Federal Rule 10b-5, except that the scienter r equirement unde

r Florida law is satisfied by showi ng of mere negligence. Gochnauer v. A. G. Edwards & Sons, Inc. , 810 F.2d 1042, 1046 ( 11th Cir. 1987). Be cause Florida law

does not answer the question that we examine today, we look to federal law for guidance. Subsequent to the distr

ict court’s order

dismissing Grippo’s second amended com

plaint, the Suprem

e Court made c

lear that a plaintif

f does not need to identify a spec

ific security,

or demonstrate

that his money

was actually invested in securities, to be a

purchaser of secur

ities within the m

eaning of section 10b a

nd Rule 10b-5. SEC v. Zandford , 535 U.S. 813, 819-21, 122 S. Ct. 1899, 1903-04,10

153 L. Ed. 2d 1 (200

2). In Zandford

, a New York broker persuaded William Wood, an elderl

y man, to open a joint investm ents account for him

self and his mentally retarded daughter. Id. at 815, 122 S. Ct. at 1901. Wood entrusted Zandford with over

$400,000 to invest, w

ith the objective f

or the account to be t

he safety of principal and i ncome. Id. Zandford th en sold se curities i n the Wood’s account and made persona l use of the proceeds

. Id. After Zandford was convicted of thirteen counts of wire fraud, the SEC filed a civil complaint alleging that Zandford violated s ection 10(b) and Rule 10b-5 by engaging in

a scheme to defraud the Woods

and by misap

propriating the Woods’ securities w ithout their knowledge or consen t. Id. at 816, 122 S. Ct. at 1901. The district court entered summary judgment in fa

vor of the SEC, a

nd Zandford appeale

d, arguing that his fraud did not have the requisite “connection with” the purchase or sale of a security. Id. The Fourth Circui t reversed, concl

uding that the com

plaint did not sufficiently allege the necessary connection because Zandford’s “schem e was simply to steal the Woods’ assets” rather than to engage “in m anipulation of a particular security.” Id . at 816, 122 S. Ct. at 1901 -02. The Supreme

Court reversed,

construing the statute

“not technical

ly and restrictively

, but flexibly to

effectuate its r

emedial purpose ,” which is “ to achieve a high standard of business ethics in the securities industry.” Id. at 819, 122 S.11

Ct. at 1903 (internal quotatio ns omitted) . The Court s tated that the statut e’s language “in con

nection with the purc

hase or sale of any

security” is a

mbiguous, and looked to the SEC’s construction of the phrase, which maintains that “a broker who accepts pay

ment for secur

ities that he never i

ntends to deliver, or

who sells

customer secur

ities with intent to m

isappropriate the pr

oceeds, violates § 1 0(b) and Rule 10b-5.” Id. The Court fo und reason able and de ferred to th e SEC’s broad construction and, accordingly, reversed the Fourth Circuit, concluding that the securities sale s and Zandford’s fraudulent schem

es were not indepen

dent events and thus his breaches of fiduciary duty were “in connection with” securities sales within the meaning of section 10(b). Id. at 820, 122 S. Ct. at 190 3. Although Zandford

is factually di stinguishable from the instant case, t

he Supreme Court ’s deference t o the SEC’s rea

sonable construction o f the phrase “i n connection with” offers us guidance in determining whether Grippo may state a claim for sec

urities fraud. I

n Zandford

, only the po rtion of th e SEC’s interpretation dea

ling with “a bro

ker who . . . se

lls customer se

curities with inten

t to misappropriate the proceeds” applied to the facts presented. In this case, however, no proof exists that a securi ty was actuall

y bought or sold. T

he defendants engaged i

n an allegedly f

raudulent schem

e involving an investm

ent contract, which is a secu rity, and at least purport ed to buy and sell othe r securities.12

Thus, this case falls within the other portion of the SEC’s interpretation: “a broker who accepts pay

ment for secur

ities that he never i

ntends to deliver.”

Nonetheless, the Supreme Court clearly st ated that the SEC’ s broad interpretat ion of the phrase “in connection with,” which includes the fac tual scenario presente

d in this case , was reasonable and wort hy of deference. Id. at 819, 122 S. Ct.1903. Accordingly,

pursuant to Zandford

, we conclude Grippo adequately pled fraud “in conne

ction with the purcha

se or sale of any

security,” e

ven though he failed to identify

any particular

security purch

ased, because Pe

razzo accepted a

nd deposited Grippo’s monies as payment for securities. Ther efore, Grippo may maintain state

securities claim

s against Perazzo , and the district court erred in finding that Grippo f

ailed to state a cla

im under state l

aw based on his inabil

ity to prove t hat his money was a ctuall y used to purcha se any se curity. B. Statute of Li

mitations Actions under secti

on 12 of the Securiti

es Act of 1933 and sec

tion 10(b) and Rule 10b-5 of the S ecurities Exchang e Act of 1934 mu

st be “brought wi

thin one year after the discovery of the untrue statement or the om ission, or after such discovery should ha

ve been made by

the exercise of due

diligence, . . .and in no event shall any such action be brought . . . more than three years after the sale.” 15 U.S.C. § 77m

; Lampf, Pleva, Lipkind, Prupis, & Petigrow v. Gilbertson , 50113

U.S. 350, 364, 1 11 S. Ct. 2773, 2782, 115 L. Ed. 2d 321 ( 1991) (adopting 15 U.S.C. § 77m as governing sect ion 10(b) and Rule 1 0b-5 claims). Grippo argues that h

e started investigat

ing the safety of

his investments i

n December 1999, after he determined that the defendants did not intend to return his monies as Pe

razzo had repeate

dly promise

d, and filed his com

plaint in July 2000. However,

“[d]iscove

ry occurs whe

n a potential plaintif

f has inquiry or actual notice of a violation.” Theoharous , 256 F.3d at 1228. I n Theoharous , this

court defin ed inq uiry n otice in th e cont ext of secti on 10 (b) an d Rule 10b-5 claims as “the term

used for knowledge o f facts that would l ead a reasonable pe

rson to begin investigating the possibility that his legal rights had been infringed.” Id. We further expl

ained that “[i] nquiry notice is t riggered by evid

ence of the possibility

of fraud, not full exposition of the scam itself.” Id. Applying an obje

ctive reasonable pe

rson standard, we

conclude that Grippo was put on inquiry notice over one year before he filed suit. Regardless of when Grippo actually

discovered the alle

ged fraud, we ar

e persuaded that a r

easonable person would have b egun investigati ng the possibil ity of fraud prior to Jul y 1999. Therefore, the district court correctly found that the statute of limitations bars Grippo’s feder

al securities clai

ms. C. Failure to Ple

ad Fraud with Par

ticularity14

The district court

also found that Grippo failed to plead fr aud with the specificity required by Feder al Rule of Civil Proced ure 9(b) and the PSLRA. Rule 9(b) provides that “[i]n all averments of fraud or m istake, the circumstances constituting fraud or mistake shall be stated with particularity.” Fed. R. Civ. P. 9(b). The PSL

RA also establishes

heightened pleading r

equirements f

or certain private securities actions, requiring the plaintiff to specify each statement alleged to have been misl

eading and the reaso

ns why each sta

tement was m

isleading. 15 U.S.C. § 78u-4(

b)(1). For eac

h alleged misre

presentation, the plaintiff must “ state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Id. § 78u-4(b)(2). The di stric t cour t stat ed tha t it d ismis sed Gr ippo ’s sec uriti es fra ud cla ims for failure to plead with particularity. However, whether the district court intended to dismis s both the federal a nd state securities claims on this ba sis is unclear. Because we conclude that the statute of limitations bars Grippo’s federal

secur ities claims , we nee d not addre ss th e issu e of wh ether he ple aded t hese c laims with the requisite p articularity. Assuming that th

e district court dism

issed both Grippo’s federal and state securities claims for failure to meet the heightened pleading requirem

ents, we note that

the district court f

ailed to address the pleading standards of Florida

securities law,

which are not ident

ical to the federa

l pleading3 On remand, we note that although the district court may in its disc

retion address in

the first instance the pleading re

quirements under

Florida law, it

may also dec

line to exercise

supplemental jurisdiction over those claims, as it has disposed of all of the federal claims. See United Mine Workers of America v. Gibbs , 383 U.S. 715, 726, 86 S. Ct. 1130, 1139, 16 L. Ed. 2d 218 (1966). 15 standards. See In re Sahlen & Assocs. Inc. Se

cs. Litig. , 773 F. Supp. 342 (S.D. Fla. 1991) (explaining that

Florida law im

poses a less stringent

pleading standard as

to the scienter element than does federal law). Thus, we conclude that the district court erred in dism

issing Grippo’s sta

te securities clai

ms for failing to satisfy the heightened pleading r

equirements.

CONCLUSION In light of the Supre

me Court’s d

ecision in Zandford

, we conclude that

the district court erred in finding that Grippo failed to state securities claims under Florida law because he did not allege specific securities in which Perazzo invested his monies. Ho

wever, the distr

ict court correct

ly determi

ned that the statute of limitations bar

s Grippo’s feder

al securities clai

ms. Accordi

ngly, we aff

irm the dismissal of Gr

ippo’s federal se

curities claim

s. We conclude,

however, that the district court erred in dismissing with prejudice Grippo’s state law securities claims by failing to address the applicable plea ding requirements. Therefo re, we reverse the dism

issal of Grippo’s

state securities c

laims and rem

and this case for further proceedin

gs consistent with this

opinion. 34 Appellees’ pending motion for attorneys’ fees is DENI ED. 16 AFFIRMED IN PART, REVERSED IN PART, and REMANDED. 4