Cline v. Reliance Trust Co.

NOT RECOMMENDED FOR PUBLICATION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with other plaintiffs who have since withdrawn from the case, originally brought this action in Ohio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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