Unpublished Disposition, 908 F.2d 977 (9th Cir. 1990)

MEMORANDUM^* 

Elaine Thorpe's estate appeals the district court's summary judgment order dismissing her claims under the Securities Exchange Act of 1934 (SEA), Montana "blue sky" laws, and the common law. The district court based summary judgment in part on statute of limitations and res judicata bars, and in part on a finding that plaintiff had failed adequately to produce admissible evidence in support of her claim. We affirm.

Congress provided no federal statute of limitations for securities fraud claims arising under the SEA, so this court borrows the forum state's statute of limitations for general fraud actions. Nesbit v. McNeil, 896 F.2d 380, 384 (9th Cir. 1990); Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1411-12 (9th Cir. 1987); United California Bank v. Salik, 481 F.2d 1012, 1015 (9th Cir. 1973). The district court correctly followed this practice in applying the two year statute of limitations period of M.C.A. 27-2-203, rather than the longer period of M.C.A. 30-10-307.

To establish that the SEA claim is time-barred, defendants must demonstrate that Elaine Thorpe discovered or should have discovered the alleged fraud more than two years before filing suit. Volk, 816 F.2d at 1417. A good deal of evidence suggests that Elaine Thorpe had inquiry notice by January of 1985, two years and three months before this action was filed. She had received and retained in her files (1) notice of Baldwin's bankruptcy filing from the Southern District of Ohio, (2) letters from the Chairman and CEO of Petro-Lewis informing investors of the company's financial problems and of the settlement of class action litigation against them, and (3) a Wall Street Journal article discussing losses suffered by investors in Petro-Lewis. She also had been mailed quarterly notifications that showed the market value of her $20,000 Petro-Lewis investment dropping continuously, until it was worth $7,978.86 on December 31, 1984. And the Billings Gazette ran two articles reporting that Petro-Lewis had suffered substantial losses and was closing its Billings office.

Appellant has introduced no contrary evidence creating a genuine issue as to these material facts. Instead, the estate argues as a matter of law that such evidence is insufficient to constitute inquiry notice, emphasizing Elaine Thorpe's ignorance of business matters. But the point at which a plaintiff should have discovered fraud is measured by an objective standard, and courts have found inquiry notice based on less. Volk, 816 F.2d at 1417; Bresson v. Thompson McKinnon Securities, Inc., 641 F. Supp. 338, 345, 349 (S.D.N.Y. 1986).

To survive summary judgment on the remaining state law claims, Elaine Thorpe's estate must introduce evidence that could justify a reasonable fact-finder in ruling in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). That evidence need not be in a form that would be admissible at trial, provided that it meets the requirements of Rule 56(e), Fed. R. Civ. P. United States v. 1 Parcel of Real Property, No. 89-35453, slip op. 5389, 5397 (9th Cir. May 29, 1990). However, Rule 56(e), Fed. R. Civ. P., requires that affidavits "show affirmatively that the affiant is competent to testify to the matters stated therein."

Because Elaine Thorpe died four months before oral argument on the motion for summary judgment, it was clear to the district judge that she would not be competent to testify at trial. Neither would her affidavit and signed answers to interrogatories be admissible under a hearsay exception; the district court correctly found that they did not fit into any of the enumerated exceptions and lacked the "equivalent circumstantial guarantees of trustworthiness" required under Fed.R.Evid. 803(24) and 804(b) (5). Admittedly, Wanda Thorpe-Winter's affidavit corroborates some of her mother's statements, but it falls short of the kind of objective records or special circumstances normally recognized as corroborative of admissible hearsay. Thus, the district court judge properly excluded the documents from consideration.

Appellant has moved to supplement the record on appeal with the depositions of Walter Middlecamp and Terry Thorpe. Neither deposition was before the district judge when he granted summary judgment, although either could have been if appellant had arranged to acquire them earlier or moved, under Rule 56(f), Fed. R. Civ. P., for a continuance. Thus, Rule 10(e), Fed. R. App. P., does not justify supplementing the record on appeal. Daly-Murphy v. Winston, 837 F.2d 348, 351 (9th Cir. 1987). We deny the motion.

The plaintiff's evidence properly before the district court when it ruled on summary judgment failed to create a material dispute of fact to challenge the assertions of defendant Richardson that he had fully informed Elaine Thorpe about the risks associated with her investments. This duty to inform is implied in M.C.A. 30-10-301. Brown, 640 P.2d at 457. Its enforcement has been litigated under the common law of negligence, id., and under M.C.A. 30-10-307, Thiel, 710 P.2d at 35. Defendants Jones and Richardson owed no fiduciary duty beyond this duty to inform because Elaine Thorpe's investment account was nondiscretionary. Caravan Mobile Home Sales v. Lehman Brothers Kuhn Loeb, Inc., 769 F.2d 561, 567 (9th Cir. 1985). Thus the district court rightly granted the defendants' motion for summary judgment on the state law claims.

Res judicata provides an additional ground for dismissing plaintiff's claims with regard to two of her investments. In separate actions, two district courts reached final judgments in class action suits where Elaine Thorpe could have litigated portions of her claim. See Thompson v. Edward D. Jones & co., et al., Cause No. LR-C-87-247 (E.D. Ark.) ; Bedel v. Morley Thompson, et al., C-1-83-1990 (S.D. Ohio) . She was a member of both plaintiff classes, but neither exercised her opportunity to be heard or to opt out. As a result, she is foreclosed from asserting any claim which was or could have been asserted in those actions. Because both cases involved security fraud claims similar to Elaine Thorpe's, and because Jones & Co. and its employees were among the defendants, she cannot relitigate these claims. Thompson bars her claim with respect to the NRM-'83 investment, and Bedel with respect to the Baldwin debentures.

Although the district court initially refused in its May 4, 1989 opinion to dismiss the Baldwin claims, it included them without explanation in the claims dismissed in the May 9, 1989 judgment. This court can uphold the entry of summary judgment on any basis supported by the record. Ford v. Manufacturers Hanover Mortg. Corp., 831 F.2d 1520, 1523. Res judicata, as well as the rationale of sections I and II, provides such a basis.

AFFIRMED.¹