Court Opinion

ID: 2975516
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:35:49.832051+00
Date Added: 2024-06-11T11:41:32.054095
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                     File Name: 07a0589n.06
                                      Filed: August 15, 2007

                                                   No. 06-4357

                                UNITED STATES COURT OF APPEALS
                                     FOR THE SIXTH CIRCUIT

KATHERINE E. CLINE,                                    )
CLIFFORD E. HARDIN,                                    )
MAXINE L. HARDIN, and JOHN                             )
SPAETH, ON BEHALF OF                                   )
THEMSELVES AND ALL                                     )
OTHERS SIMILARLY SITUATED,                             )
                                                       )
         Plaintiffs-Appellants,                        )
                                                       )    ON APPEAL FROM THE UNITED
v.                                                     )    STATES DISTRICT COURT FOR THE
                                                       )    NORTHERN DISTRICT OF OHIO
RELIANCE TRUST COMPANY,                                )
                                                       )
         Defendant-Appellee.                           )    OPINION
                                                       )

         Before: COLE and GILMAN, Circuit Judges; and MARBLEY, District Judge.*

         RONALD LEE GILMAN, Circuit Judge. Plaintiffs Clifford and Maxine Hardin, along

with other plaintiffs who have since withdrawn from the case, originally brought this action in Ohio

state court, alleging various state-law claims of securities fraud against Reliance Trust Company.

The Hardins seek to recover the retirement savings that they lost in a Ponzi scheme involving the

sale and leaseback of pay telephones. Reliance acted as the custodian of the Hardins’ self-directed

Individual Retirement Accounts (IRAs), which held the investment in the payphones. After Reliance

         *
          The Honorable Algenon L. Marbley, United States District Judge for the Southern District of Ohio, sitting by
designation.
No. 06-4357
Cline v. Reliance Trust Co.

removed the case to federal district court, both sides moved for summary judgment. The district

court granted summary judgment in favor of Reliance, concluding that the plaintiffs’ 2004 lawsuit

was barred by Ohio’s two-year statute of limitations on claims of securities fraud.

        After carefully considering the record on appeal, the briefs of the parties, and the applicable

law, and having had the benefit of oral argument, we find no error in the district court’s grant of

summary judgment in favor of Reliance. The district court thoroughly explained in a well-written

opinion why the two-year statute of limitations operates to bar the claims asserted by the Hardins.

A detailed opinion by us covering the same ground would therefore be unduly duplicative.

        On appeal, however, the Hardins emphasize that although they were aware of Reliance’s

“overt” role in the payphone scheme prior to July 27, 2002, they were unaware of its “covert” role

as a participant in the sale of unregistered securities. They therefore contend that the two-year statute

of limitations is inapplicable because they were never put on inquiry notice as required to trigger the

statute. The claimed fraud is that Reliance participated with National Communications Marketing,

Inc. (the seller of the payphones), sales agent Delbert Cogar, and ETS Payphones, Inc. (the company

that leased the phones from the Hardins), in perpetrating this Ponzi scheme on the Hardins.

        But the Hardins were put on notice of Reliance’s involvement in the alleged scheme on April

5, 2000, the date they opened their IRAs with the company. As part of a single business transaction,

the Hardins contemporaneously funded self-directed IRAs through Reliance, purchased payphones

through their new IRA accounts, and leased the payphones back to ETS. The Hardins were thus on

notice of Reliance’s “participation” in the payphone sale from the very beginning for purposes of

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No. 06-4357
Cline v. Reliance Trust Co.

potential liability under Ohio Rev. Code § 1707.43 (providing that every “participant” in the sale of

unregistered securities is jointly and severally liable to the defrauded purchaser).

        Moreover, the Hardins were put on actual notice of the Ponzi scheme perpetrated by ETS

when they received Attorney Joel Goodman’s letter in December of 2000, more than three and a half

years before they filed suit. See Wyser-Pratte Mgmt. Co. v. Telxon Corp., 413 F.3d 553, 562-63 (6th

Cir. 2005) (holding that the limitations period for securities-fraud claims begins to run “when a

plaintiff should have discovered, by exercising reasonable diligence, the facts underlying the alleged

fraud”); In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1326 (3d Cir. 2002) (“Plaintiffs need not know

all of the details or narrow aspects of the alleged fraud to trigger the limitations period; instead, the

period begins to run from the time at which plaintiff should have discovered the general fraudulent

scheme.”) (emphasis added) (quotation marks omitted). The Hardins are thus barred by Ohio’s two-

year statute of limitations because they knew that Reliance was a participant—whether overt or

covert—in the general fraudulent scheme long before the statute had run on their claims.

        For all of the reasons set forth above, we AFFIRM the judgment of the district court.

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