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Review Of Federal Securities Fraud Statute Of Limitations
(December 2009) By Kevin M. Cox, Associate.
For more information, contact Paul Farquharson.
Ferenc K. Csabai v. Martek Biosciences Corp., et al.,
No. CCB-09-2280 (D. Md., Dec. 23, 2009)
Ferenc K. Csabai ("Mr. Csabai"), representing himself, filed
a complaint against Martek Biosciences Corp. ("Martek") and fifteen individuals
(collectively the "Defendants") alleging that they "fraudulently misrepresented
nearly every aspect of Martek Biosciences Corporation, company, to the public
equity market from the time of Martek's purchase of Omega Tech in March of 2002
to the present 2009." The Defendants filed a motion to dismiss or for summary
judgment. The United States District Court for the District of Maryland granted
the motion to dismiss.
The Defendants argued that Mr. Csabai's claims were barred
by the applicable statute of limitations. Claims of Federal Securities Fraud are
governed by the statute of limitations set forth in 28 U.S.C. § 1658(b)
(hereinafter "§ 1658(b)"). The five-year statute of repose in § 1658(b)(2)
barred all of Mr. Csabai's claims as to any misrepresentations or other alleged
illegal acts that occurred before August 28, 2004. Moreover, the two-year
limitations in § 1658(b)(1) begins to run when the alleged fraud is discovered,
or should have been discovered by the exercise of due diligence. As the Fourth
Circuit has explained, inquiry notice is triggered by evidence of the
possibility of fraud; complete exposure of the alleged wrongful conduct is not
required.
Here many of Mr. Csabai's claims were barred by the
five-year statute of repose. More importantly, the entire case was barred by the
two-year statute of limitations given that Mr. Csabai's own writing made clear
that he believed, before August 28, 2007, that the Defendants were committing
the fraudulent acts now alleged in the Complaint. In response to Defendants'
motion, Mr. Csabai argued that he discovered additional evidence within the last
two years; that the fraud was ongoing and therefore, not barred; and that by
filing a complaint with the Securities and Exchange Commission ("SEC"), he
tolled the time to file his suit. The United States District Court for the
District of Maryland did not find these arguments persuasive.
The statute of limitations in § 1658(b) is not tolled until
all evidence is discovered, but only until sufficient evidence to place
Plaintiff on inquiry notice has been, or should have been, discovered. Further,
Mr. Csabai's last transactions with Martek occurred in December 2007, so that
any "fraud" in 2008 or 2009 would not have been actionable. Finally, there is
simply no statutory or case authority nor a logical reason why the filing of Mr.
Csabai's complaint with the SEC would have tolled the time for him to file a
lawsuit. For these reasons, the Defendant's motion to dismiss or for summary
judgment was granted.
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