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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 21-10818
Non-Argument Calendar
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D.C. Docket No. 9:20-cv-80651-DMM
TERRY V. WOODS,
Plaintiff-Appellant,
versus
STEVEN MICHAEL,
ANDREW GREENBAUM,
et al.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(August 3, 2021)
Before MARTIN, ROSENBAUM, and ANDERSON, Circuit Judges.
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PER CURIAM:
Terry Woods appeals the Rule 12(b)(6) dismissal of his claims under the
Racketeer Influenced and Corrupt Organizations Act (the “RICO Act”) and under
the Securities Act of 1933. In his 299-parargraph complaint, Woods alleged that
Steven Michael, Andrew Greenbaum, and their various companies repeatedly
defrauded him in connection with a series of financial transactions that took place
between April of 2014 and June of 2018. The district court dismissed Woods’
RICO claims because it found that the conduct alleged in the complaint, if true,
amounted to securities fraud—and therefore any RICO claims were barred by the
Private Securities Litigation Reform Act (“PSLRA”), which forecloses RICO
liability for “any conduct that would have been actionable as fraud in the purchase
or sale of securities.”
18 U.S.C. § 1964(c). The district court then went on to
dismiss Woods’ securities-fraud claims as untimely. Finally, having dismissed all
of Woods’ federal claims on their merits, the district court declined to exercise
supplemental jurisdiction over Woods’ remaining claims under state law.
Woods raises three arguments on appeal. First, he argues that the
transactions in dispute did not involve “securities” as defined by the Securities Act,
and therefore his RICO claims were not barred by the PSLRA. Second, he argues
that the district court erred in dismissing his securities-fraud claims as untimely
because, in doing so, it improperly resolved the factual question of when
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“reasonable diligence” would have uncovered the alleged fraud—which is an issue
that he contends should have gone to a jury. Third, he argues that the doctrine of
equitable estoppel should have tolled the statute of limitations in this case.
For the following reasons, we affirm.
I. STANDARD OF REVIEW
We review de novo the dismissal of a civil complaint under Rule 12(b)(6).
Gonsalvez v. Celebrity Cruises Inc.,
750 F.3d 1195, 1197 (11th Cir. 2013). To
survive a motion to dismiss, the complaint must contain enough factual allegations
to set forth “a plausible entitlement to relief.” Fin. Sec. Assur., Inc. v. Stephens,
Inc.,
500 F.3d 1276, 1282 (11th Cir. 2007). At this stage of litigation, we accept
all allegations in the complaint as true and construe them in the light most
favorable to the plaintiff.
Id. However, the plaintiff cannot merely allege “labels
and conclusions,” but instead must plead sufficient facts to “raise a right to relief
above the speculative level.”
Id.
II. DISCUSSION
A. The RICO Claims
The RICO Act makes it unlawful for any person who has received income
from “a pattern of racketeering activity”—whether directly or indirectly—to use
that income “in acquisition of any interest in, or the establishment or operation of,
any enterprise which is engaged in . . . interstate or foreign commerce.” 18 U.S.C.
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§ 1962. Any person “injured in [his or her] business or property” by a violation of
the RICO Act may sue the violator in federal court and “shall recover threefold the
damages [he or she] sustains . . . except that no person may rely on any conduct
that would have been actionable as fraud in the purchase or sale of securities to
establish [a RICO violation].” Id. § 1964(c) (emphasis added).
The Securities Act of 1933 provides a private cause of action to victims of
securities fraud. It states:
Any person who . . . offers or sells a security . . . by means of a prospectus
or oral communication, which includes an untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were
made, not misleading . . . shall be liable . . . to the person purchasing such
security from [him or her].
15 U.S.C. § 77l(a). Thus, to state a securities-fraud claim, a plaintiff must
allege (1) a material misrepresentation or materially misleading omission,
(2) that the misrepresentation or misleading omission occurred in
connection with the offer or sale of a security, (3) scienter, (4) justifiable
reliance, (5) and damages. S.E.C. v. Morgan Keegan & Co.,
678 F.3d
1233, 1244 (11th Cir. 2012).
The Act defines the term “security” to mean:
[A]ny note, stock, treasury stock, security future, security-based swap,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for a
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security, fractional undivided interest in oil, gas, or other mineral rights,
any put, call, straddle, option, or privilege on any security, certificate of
deposit, or group or index of securities (including any interest therein or
based on the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign
currency, or, in general, any interest or instrument commonly known as
a “security”, or any certificate of interest or participation in, temporary
or interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
15 U.S.C. § 77b(a)(1). Although this definition is extraordinarily broad on its face,
the Supreme Court has held that “the phrase ‘any note’ should not be interpreted to
mean literally ‘any note,’ but must be understood against the backdrop of what
Congress was attempting to accomplish in enacting the Securities Acts.” Reves v.
Ernst & Young,
494 U.S. 56, 63 (1990). “Congress’ purpose in enacting the
securities laws was to regulate investments, in whatever form they are made and by
whatever name they are called.”
Id. at 61 (emphasis in original). Thus, to
determine whether a note qualifies as a “security,” we must assess whether the
underlying transaction was an investment. In doing so, we consider four factors:
(1) the motivations underlying the transaction, (2) the “plan of distribution” for the
instrument, (3) the reasonable expectations of the investing public, and (4) whether
there is another regulatory scheme—apart from the securities laws—minimizing
the risk associated with the instrument.
Id. at 66-67.
Having reviewed the lengthy allegations of Woods’ complaint, we conclude
that the promissory notes at issue in this case were “securities.” When read in the
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light most favorable to Woods, the complaint alleges that Michael and Greenbaum
persuaded Woods—through various misrepresentations—to loan them $1,000,000
for the development of one of their properties. In exchange, they promised to
repay the loan with 9% annual interest and to give Woods an equity share in the
entity that owned the property. Shortly afterward, Michael and Greenbaum also
convinced Woods to provide millions of dollars toward several of their other
projects, on identical terms. When Michael and Greenbaum failed to fulfill their
end of these agreements on time, they repeatedly promised Woods that they would
repay him with additional interest and additional equity if he would forbear from
filing a lawsuit. Those promises went unfulfilled as well, and this litigation
eventually followed.
These transactions, in which Woods sought to finance another person’s
business ventures with the expectation receiving a share of the profits, were
quintessential investments—and therefore the promissory notes offered to Woods
by Michael and Greenbaum were “securities.” A note is most likely to be a
“security” where, as here, “the seller’s purpose is to raise money for the general
use of a business enterprise or to finance substantial investments and the buyer is
interested primarily in the profit the note is expected to generate.”
Id. at 66. In
this context, “profit” refers to any “valuable return on an investment,” which
includes interest.
Id. at 67 n.4. Significantly, most of the notes at issue in this case
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entitled Woods not only to interest on his loans, but also to ownership shares in the
defendants’ various properties. And so far as we can discern from Woods’
allegations, those promises of profit through interest and equity were his sole
motivations for supplying funds to the defendants. We therefore hold that the
transactions described in Woods’ complaint constituted sales of “securities.”1
Accordingly, because a plaintiff may not rely on conduct “that would have
been actionable as fraud in the purchase or sale of securities” to establish a
violation of the RICO Act, the district court did not err in dismissing Woods’
RICO claims. 2
1
Woods argues that a subset of the notes at issue cannot be deemed “securities,” even if
they would otherwise qualify, because they fall within a statutory exception for notes with a
maturity period of less than nine months. The Securities Exchange Act of 1934 states that the
term “security” shall not include “any note, draft, bill of exchange, or banker's acceptance which
has a maturity at the time of issuance of not exceeding nine months.” 15 U.S.C. § 78c.
However, our precedent has interpreted this provision to apply only to “commercial paper,” not
“investment paper.” Bellah v. First Nat. Bank of Hereford, Tex.,
495 F.2d 1109, 1111 (5th Cir.
1974); see also Bonner v. City of Prichard, Ala.,
661 F.2d 1206, 1209 (11th Cir. 1981) (adopting
as binding precedent all “decisions of the United States Court of Appeals for the Fifth Circuit, as
that court existed on September 30, 1981, handed down by that court prior to close of business
on that date.”) Because we have concluded that Woods’ loans to Michael and Greenbaum were
investments, it follows that the promissory notes in dispute were investment paper not subject to
the exclusion in § 78c. See Bellah, 495 F.2d at 1112-13 (explaining that the application of the
exclusion “ultimately hinges upon whether the note executed . . . can be characterized as
commercial or investment in nature”).
2
Because no party argues otherwise on appeal, we assume—without deciding—that the
allegations of Woods’ complaint also satisfy the remaining elements of a securities-fraud claim,
such that the conduct alleged “would have been actionable as fraud in the purchase or sale of
securities.”
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B. The Securities-Fraud Claims
A Rule 12(b)(6) dismissal on statute-of-limitations grounds is appropriate
where “it is apparent from the face of the complaint that the claim is time-barred.”
Gonsalvez, 750 F.3d at 1197. The limitations period for civil claims under the
Securities Act is set by 15 U.S.C. § 77m, which provides:
No action shall be maintained to enforce any liability created under
section 77k or 77l(a)(2) of this title unless brought within one year after
the discovery of the untrue statement or the omission, or after such
discovery should have been made by the exercise of reasonable diligence
. . . . In no event shall any such action be brought to enforce a liability
created . . . under section 77l(a)(2) of this title more than three years after
the sale [of the security].
15 U.S.C. § 77m (emphasis added). The one-year limitations period of § 77m
begins to run when the victim of securities fraud is first placed on “inquiry notice.”
Franze v. Equitable Assurance,
296 F.3d 1250, 1254 (11th Cir. 2002). In this
context, the term “inquiry notice” refers to “knowledge of facts that would lead a
reasonable person to begin investigating the possibility that his legal rights had
been infringed.”
Id. “Inquiry notice is triggered by evidence of the possibility of
fraud, not full exposition of the scam itself.”
Id.
As discussed above, this case arises from a series of transactions that
occurred between April of 2014 and June of 2018. The most recent of these took
place on June 13, 2018, at which time Michael and Greenbaum assured Woods that
he would receive full repayment of his loans—as well as several additional forms
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of compensation—within six months. Woods therefore would have been aware, by
December of 2018 at the latest, that Michael and Greenbaum had broken their
promises once again. In our view, that knowledge would have led any reasonable
person “to begin investigating the possibility that his legal rights had been
infringed,” even if that person did not have “full exposition” of the defendants’
fraudulent scheme at that time. This is especially true in light of the fact that
Michael and Greenbaum already had failed to repay Woods multiple times before.
Yet Woods did not raise his securities-fraud claims until October 30, 2020—more
than one year after he was placed on inquiry notice of the alleged deception. Thus,
we deem it apparent from the face of Woods’ complaint that his claims under the
Securities Act are time-barred.3
3
Woods argues that, even if he did receive inquiry notice of the defendants’ fraud in
December of 2018, the doctrine of equitable estoppel should have tolled the limitations period.
He relies on Cook v. Deltona Corp., in which this Court held that equitable estoppel applies
“where the parties recognize the basis for suit, but the wrongdoer prevails upon the other to
forego enforcing his right until the statutory time has lapsed.”
753 F.2d 1552, 1563 (11th Cir.
1985). According to Woods, the defendants deceptively persuaded him to forego enforcing his
rights by offering him additional money and equity in exchange for not filing suit.
But even if we assume that the tolling rule of Cook applies to a situation such as this,
Woods’ claims would still be untimely. As discussed above, the defendants’ failure to fulfill
their end of the bargain by December of 2018, as they had promised, would have given Woods
reason to investigate potential fraud. Woods has not alleged that the defendants made any
further attempts to stave off litigation after that point. Consequently, Woods’ reliance on Cook is
misplaced.
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III. CONCLUSION
For the foregoing reasons, we affirm the judgment of the district court.4
AFFIRMED.
4
Woods did not challenge the district court’s decision to decline supplemental jurisdiction
over his state-law claims after dismissing his federal ones. We therefore do not address that
issue.
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