Unpublished Disposition, 865 F.2d 263 (9th Cir. 1988)

MEMORANDUM^* 

Bernard Brandchaft, M.D. ("Brandchaft") appeals the district court's exercise of diversity jurisdiction and its ultimate dismissal on statute of limitations grounds of his state law claims, alleging fraud, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing, against E.F. Hutton & Co. ("Hutton"). The district court ruled some of his claims untimely under the three-year limitations period of California Code of Civil Procedure Sec. 338.4 (1988) and the others barred by the two-year period of section 339.1. Because we find the exercise of federal jurisdiction proper and Brandchaft's claims time-barred, we affirm.

Facts

In March 1981, Brandchaft, through Hutton, purchased an interest in a limited partnership, formed for the purpose of acquiring and operating two offshore oil rigs. The rigs were to be built by an entity known as Baker Marine Corporation ("Baker Marine"). The Introductory Statement to the partnership offering materials described Baker Marine as "a drilling rig and oilfield equipment fabrication contractor." According to Brandchaft, prior to his actual purchase, Hutton had informed him that the partnership intended to lease the rigs to one or more "major oil companies." He further alleged that Hutton had assured him that such leases were a condition precedent to the actual formation of the partnership and that he "strictly relied" on the promise that a major oil company would be brought into the deal when he invested. In October 1982, Brandchaft received a letter from Hutton stating that Baker Marine had itself agreed to lease the oil rigs it was constructing. In June 1984, Hutton informed him that the partnership had defaulted on its loans and was going bankrupt.

Brandchaft filed suit against Hutton and a series of unspecified "Doe" defendants in a California state court in May 1987. Hutton successfully sought removal to federal district court on diversity grounds. In September of that year, the district court dismissed the Doe defendants and all of Brandchaft's claims.

Brandchaft claims that the Doe defendants were improperly dismissed and, consequently, that diversity never existed in the district court. As this claim is a challenge to the subject matter jurisdiction of the district court under 28 U.S.C. § 1332, we review it de novo. Bogan v. Keene Corp., 852 F.2d 1238, 1239 (9th Cir. 1988).

Brandchaft correctly asserts that this court's decision in Bryant v. Ford Motor Co., 844 F.2d 602, 606-07 (9th Cir. 1988) (en banc), establishes that the presence of Doe defendants destroys diversity jurisdiction. The decision nonetheless makes two additional points clear. First, if Doe defendants are properly dismissed, the district court can exercise diversity jurisdiction. 844 F.2d at 606-07 n. 9. Second, while the Bryant holding applies retroactively, it applies only to those cases in which Doe defendants still existed at the time of its decision. 844 F.2d at 606 n. 7.

In Brandchaft's case, the Does were dismissed well before the date of the Bryant decision. Accordingly, his case is not one within the ambit of Bryant's retroactive application. The dismissal of the Does was thus unaffected by the decision and diversity jurisdiction properly lay in the district court. We note that ours is not the first panel of this court to reach this conclusion with respect to Dr. Brandchaft. On Feb. 1, 1988, in a published order, another panel concluded that "Bryant does not require remand [to state court] in cases where "Doe" defendants were stricken by the district court prior to the November 6, 1987 decision in Bryant," and denied Brandchaft's motion to remand.¹  Brandchaft v. E.F. Hutton & Co., 841 F.2d 886 (9th Cir. 1988). This late in the day, Dr. Brandchaft's argument in this regard hardly comes with good grace.

We review an order of dismissal de novo, construing all relevant facts and allegations in favor of the party suffering dismissal. United States Energy Owners Comm., Inc. v. United States Energy Management Systems, Inc., 837 F.2d 356, 360 (9th Cir. 1988).

The district court applied the three-year limitations period contained in Cal.Code Civ.Pro. section 338.4 to most of Brandchaft's claims and the two-year statute contained in section 339.1 to two others.²  The former statute requires a claim to be filed within three years of the accrual of a cause of action. For purposes of the statute, an action accrues upon "the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." The accrual language of the two-year statute, section 339.1, is analogous.

California has consistently applied the rule that "inquiry notice" is sufficient for a claim to accrue and a limitations statute to begin to run. " [T]he limitations period begins to run once the plaintiff 'has notice or information of circumstances to put a reasonable person on inquiry....'." Jolly v. Eli Lilly & Co., 44 Cal. 3d 1103, 751 P.2d 923, 927-28 (1988), quoting Gutierrez v. Mofid, 39 Cal. 3d 892, 896-97, 705 P.2d 886 (emphasis in Gutierrez) (citations omitted). It is well established that all that is necessary to begin the running of the statute is "a suspicion of wrongdoing, and therefore an incentive to sue." Jolly, 751 P.2d at 929. Once this suspicion exists or should have existed, the plaintiff is under a duty to inquire into the specific facts which might give rise to a claim. In the words of the California Supreme Court in Jolly: "the plaintiff must go find the facts; she cannot wait for the facts to find her." Id.

In Brandchaft's case, we agree with the district court that the dispositive statute of limitations issue is whether the letter Brandchaft received in October 1982 stating that the oil rigs were to be leased to Baker Marine was sufficient to constitute the requisite inquiry notice. This question turns on whether it was reasonable for Brandchaft to conclude at the time that Baker Marine could be the long-promised "major oil company" with which the partnership was to deal or whether the naming of Baker Marine as lessee should have made him suspicious enough to inquire further.

While we do not necessarily agree with the conclusion of the court below that, from a poll of a thousand people, none would think Baker Marine Corporation was a "major oil company," we have no trouble concluding that Dr. Brandchaft, the putative plaintiff, should have known that it was not. In the first materials he received about the ill-fated partnership, Baker Marine had been described specifically as "a drilling rig and oilfield equipment fabrication contractor." The incongruence between this description and the "major oil company" label, which according to Brandchaft had been repeatedly attached to the entity which was to lease the partnership's oil rigs, should have been apparent to him. At the very least, he should have inquired into the situation further to ensure that the condition precedent had in fact been satisfied and that no misrepresentations had been made. Accordingly, we hold that the letter was sufficient to constitute the inquiry notice required to begin the running of the limitations statutes.

Thus, the statutes of limitations began to run in October 1982, when Brandchaft was informed that Baker Marine had agreed to lease the rigs it was constructing for the partnership. On that date Brandchaft, who had allegedly been assured that the rigs would be leased to a "major oil company," learned that they had been leased to "a drilling rig and oilfield equipment fabrication contractor." His suspicions should have been aroused by this turn of events; California law obligated him at this point to "go find the facts," supra, in order to determine whether some actionable fraud or breach of duty had occurred. He had three years from October 1982 to file some of his claims, two years to file the others. As he did not file until May 1987, his claims were time-barred.

AFFIRMED.