Opinion ID: 75506
Heading Depth: 2
Heading Rank: 3

Heading: The untimeliness of the Schuette complaint.

Text: Schuette filed her original complaint on October 19, 1998. Claims under Section 10(b) of the Exchange Act and Rule 10b-5 must be brought “within one year after the discovery of the facts constituting the violation.” Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364 (1991).12 “Discovery occurs when a potential plaintiff has inquiry or actual notice of a violation.” Kauthar SDN BHD v. Sternberg, 149 F.3d 659, 670 (7th Cir. 1998). Schuette’s claims are barred, therefore, if she was on inquiry notice of the alleged violations before October 19, 1997. “Inquiry notice is ‘the term used for 11 Notably, the shareholder agreement required Metromedia to vote its shares in favor of Roadmaster’s five board of director designees, and stated that of Metromedia’s four designees, only two could be Metromedia insiders. 12 “Because of the derivative nature of Section 20(a) claims,” the same limitations period applies to claims under that section. See Jolly v. Pittore, No. 92 CIV. 3593 (S.D.N.Y. 1992). 15 knowledge of facts that would lead a reasonable person to begin investigating the possibility that his legal rights had been infringed.’” Id. Roadmaster filed for bankruptcy on August 29, 1997. Roadmaster’s announcement that it was filing for bankruptcy was an indication that its previous reports of solid financial health were inaccurate. Indeed, Roadmaster publicly stated a week before it filed for bankruptcy that “it has been experiencing substantial cashflow deficiencies and financial difficulties, and its manufacturing facilities have been temporarily shutdown until this situation is resolved” (the “August 22 Release”). These facts were sufficient to put Schuette on inquiry notice of the possibility that Roadmaster had violated Section 10(b) with its prior assurances of financial health. Schuette contends that she was not on inquiry notice until after October 19, 1997, because she could not reasonably have known from the August 22 Release or Roadmaster’s filing for bankruptcy that the defendants had acted with the required scienter to violate Section 10(b). This argument fails, however, because “Plaintiff need not ... have fully discovered the nature and extent of the fraud before [he was] on notice that something may have been amiss. Inquiry notice is triggered by evidence of the possibility of fraud, not full exposition of the scam itself.” Sterlin v. Biomune Systems, 154 F.3d 1191, 1203 (10th Cir. 1998) (alterations in original) 16 (emphasis added). Because Schuette had inquiry notice of the alleged violations prior to October 19, 1997, the district court properly dismissed her claims as barred by the statute of limitations.