In a little noticed opinion earlier this week, the United States Court of Appeals for the Ninth Circuit set forth an inquiry notice standard to be applied in securities suits brought under Section 10(b).

That standard, described as the "the inquiry-plus-reasonable-diligence test," is similar to the standard applied by the Tenth Circuit. See, e.g., Sterlin v. Biomune Sys., 154 F.3d 1191, 1201 (10th Cir. 1998). In Sterlin, the Tenth Circuit held that inquiry notice “triggers an investor's duty to exercise reasonable diligence and that the ... statute of limitations period begins to run once the investor, in the exercise of reasonable diligence, should have discovered the facts underlying the alleged fraud.”

The Ninth Circuit has adopted a multi-part analysis for determining when an investor is on inquiry notice of facts giving rise to their securities fraud claim.

The first part of the analysis is split into further steps and will "determine when the plaintiff had inquiry notice of the facts giving rise to his or her securities fraud claim." The standard - "when there exists sufficient suspicion of fraud to cause a reasonable investor to investigate the matter further."

Once a plaintiff is on inquiry notice, the analysis asks "when the investor, in the exercise of reasonable diligence, should have discovered the facts constituting the alleged fraud."

The inquiry notice standard in the Ninth Circuit is objective and looks at the facts under the “reasonable investor” or “reasonable person” standard of other Circuits. See, e.g., Newman v. Warnaco Group, Inc., 335 F.3d 187, 193 (2d Cir. 2003); Mathews v. Kidder, Peabody & Co., 260 F.3d 239, 252 (3d Cir. 2001)

The second part of the inquiry examines whether the plaintiff exercised reasonable diligence in investigating the facts underlying the alleged fraud. This is also meant to be an objective analysis, and "necessarily entails an assessment of the plaintiff's particular circumstances from the perspective of a reasonable investor." Moreover, one of the enumerated factors to be considered is "whether the plaintiff was given any assurances by a defendant after beginning to investigate the suspicious circumstances that would have delayed discovery of the fraud by a reasonable person in the plaintiff's position."

The Court described the overall test as placing a "considerable burden in demonstrating, at the summary judgment stage, that the plaintiff's claim is time barred," on the defendant.

The case is Betz v. Trainer Wortham & Co., Inc., No. 05-15704, --- F.3d ----, 2007 WL 2874369 (9th Cir., Oct. 4, 2007).