Opinion ID: 502715
Heading Depth: 2
Heading Rank: 1

Heading: Defendants Snellings and the Firm

Text: 20 In their complaint, the Jensens base their securities claim against Snellings on numerous material misrepresentations and omissions made by him with the intent to defraud and to induce them to invest in certain programs, the fraud including, but not limited to: (1) the failure to reveal that he had no experience or knowledge in cattle investments; (2) the statement that the risks of the cattle investment program could be fairly easily circumscribed; (3) the statement that he was providing the primary daily management of the cattle investment program; (4) the failure to reveal that commissions to Hutton were increased by hedging through Hutton's Dallas office rather than through Granada; and (5) the failure to reveal the extent of the Jensens' losses. 21 The record shows that the Jensens' substantial losses in the cattle investment program, directly contrary to Snellings' on-going assurances of profits or, at most, minimal losses, were unquestionably apparent by the spring of 1979. Upon learning from Sam Gilmore, the banker for the cattle investment program, that they had not made their hedges, the Jensens repeatedly communicated with David Eller, Granada's president, in March and April 1979 concerning their investment. Eller told the Jensens that their losses were about $290,000. Sterling Jensen contacted feedyards and discovered that Snellings had not supervised the cattle feeding as claimed. He told Eller that Snellings had woven a fairy tale and gouged them, calling him a scalawag and wanting him disbarred. Viewed in their totality, these signs indicate that, as to defendant Snellings, and, indirectly, the Firm, the Jensens had at least the storm warnings that trigger the duty to inquire further and the running of the statute of limitations in the spring of 1979. 22 Even if this were not the case, information revealed to the Jensens in July 1979, more than two years before suit was filed, was surely sufficient to commence the limitations period. In April 1979, the Jensens sought an attorney to assist them in understanding their investment program, and, upon the recommendation of Eller, retained Walter Weathers of the Houston, Texas law firm of Sewell, Junell & Riggs. Weathers conducted an extensive investigation of the Jensens' investment program, focusing on Snellings' involvement. He wrote a thirty-five page memorandum concerning the Jensens' investment program, which was received by the Jensens in July 1979. In his memorandum, Weathers confirmed losses of over $300,000. He spoke of possible secret profits received by Snellings from Bradshaw and Granada, misrepresentations by Snellings as to losses, unjustifiable management fees charged by Snellings, and statements by Snellings that he was a complete novice in the area of cattle investments. Weathers wrote that the Jensens might have a cause of action against Snellings, and referred to claims and recovery. 23 The Jensens undoubtedly understood that the facts revealed in the memorandum might support a suit against Snellings, because their July 1979 letter to Ellers declared that facts known to them could build a case, and referred to Weathers' first memorandum as containing material for consumption by a jury. On the Jensens' copy of the Weathers' memorandum, Esther Jensen wrote, next to the account of Snellings' own description of his activities, the words con job, hoax, absurd, and sheer fabrication. Indeed, Weathers' memorandum provided not merely storm warnings, but nearly all the facts on which the Jensens' federal securities claims against Snellings and the Firm were subsequently brought. 24 When these facts came to the Jensens' attention, they had a duty to exercise reasonable diligence to ferret out the truth and timely bring their claim. We find ample evidence that they did not do so. In a cover letter to a mid-October 1979 memorandum discussing Snellings' misconduct, Weathers advised the Jensens to obtain independent legal counsel concerning the case, including Hutton's and Granada's involvement in their investments. That same month, the Jensens contacted a Louisiana attorney, Martin Feldman, who told them they had a possible malpractice claim against Snellings. Due to a conflict of interest, he declined the case and referred them to attorney Harry Zimmerman, whom they contacted in late November 1979. Zimmerman, upon reviewing the Jensens' materials to date, told them they had a possible federal securities action against Snellings and the Firm, as well as Bradshaw, Hutton and Granada. Subsequently, after more than a year of no activity by Zimmerman, the Jensens reclaimed their materials. They sought the advice of the Washington, D.C. law firm of Steptoe & Johnson in August or September 1981. Suit was finally brought in mid-September. 25 We cannot accept the Jensens' argument that they were unsophisticated, unknowlegeable, and befuddled, and that they therefore did not understand that there was wrongdoing from the information they had by July 1979. The standard for whether facts sufficient to commence the limitations period would have been discovered upon reasonable inquiry is an objective one. Koke v. Stifel, Nicolaus & Co., Inc., 620 F.2d 1340, 1343 (8th Cir.1980) (the proper inquiry is [w]hat facts would alert a reasonable person to the possibility of wrongdoing? (emphasis added)). A reasonable person would have been alerted to a possible fraudulent scheme on the part of Snellings at least upon receipt of Weathers' memo in July 1979, and more likely by the spring of that year. 26 Similarly, we reject Jensens' contention that the limitations period did not begin to run until Zimmerman, in November of 1979, told them they had a possible securities claim. The requisite knowledge, actual or constructive, needed to begin the running of the prescriptive period is merely that of the underlying facts, not that of the legal cause of action itself. Vigman, 635 F.2d at 459. Zimmerman merely reviewed the Jensens' materials and based his assessment on the very facts already available to them. 27 The district court was correct in holding that the Jensens' federal securities claims against Snellings and the Firm were time-barred.