                                                                        F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                          SEP 1 1998
                                    TENTH CIRCUIT
                                                                    PATRICK FISHER
                                                                             Clerk

 TIFFANY LYN BENEDETTO,

          Plaintiff - Appellant,
 v.

 PAINEWEBBER GROUP, INC.;
 PAINEWEBBER, INC.; FOURTH                             No. 96-3401
 QUALIFIED PROPERTIES, INC.;                      (D.C. No. 95-CV-2505)
 PAINEWEBBER PROPERTIES, INC.;                      (District of Kansas)
 SECOND QUALIFIED PROPERTIES,
 INC.; SIXTH INCOME PROPERTIES
 FUND, INC.; THIRD QUALIFIED
 PROPERTIES, INC.,

          Defendants - Appellees.




                             ORDER AND JUDGMENT         *




Before PORFILIO , McKAY and LUCERO , Circuit Judges.



       Tiffany Lyn Benedetto sued PaineWebber alleging violations of state tort

and contract law. She also brought claims under state and federal securities law.




      *
         This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
The district court dismissed all her claims at summary judgment as barred by the

statute of limitations. We affirm in part, and reverse and remand in part.

                                          I

      As the parties to this matter are familiar with the facts of this case, we

recite only those portions of the record most directly relevant to the present Order

and Judgment. When she was four, Tiffany Lyn Benedetto received $28,000 in a

settlement arising out of a wrongful death action. The money was entrusted by

Benedetto’s mother and guardian, Deborah Varley, to a branch office of

PaineWebber. Jeffry Heal, the manager of that office, assured Varley that the

money would be kept in “safe investments,” an assurance that he allegedly

repeated over the next several years.

      Benedetto alleges, however, that Heal placed the funds in “unsuitable high-

risk investments.” I Appellant’s App. at 3. Over a six-year period from 1983 to

1989, Heal invested the bulk of the funds in five PaineWebber real estate limited

partnerships: PaineWebber Qualified Plan II (“PWQP II”), PaineWebber

Qualified Plan III (“PWQP III”), PaineWebber Qualified Plan IV (“PWQP IV”),

PaineWebber Mortgage Partners V (“PWMP V”), and PaineWebber Income

Properties VI (“PWIP VI”). Appellant charges that PaineWebber’s

representations as to these partnerships were “false, misleading, and omissive,”

id. at 9, in failing to disclose the high risks associated with these investments, and


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that, because of high fees and commissions, PaineWebber’s promotion and

maintenance of these investments constituted self-dealing,    id. at 14. Moreover,

she asserts that PaineWebber’s misrepresentations as to these investments were

on-going. For instance, she claims that in October 1994 PaineWebber reported

the value of her partnership investments at more than double the prevailing

secondary market price.   See IV Appellant’s App. at 641. Benedetto states that

such manipulations prevented her from discovering “by the exercise of reasonable

diligence” PaineWebber’s misconduct and her resulting injuries.     Id. at 654.

       Varley’s guardianship ended in July 1992 when Benedetto turned eighteen.

In November 1994, a securities class action was filed against PaineWebber in the

Southern District of New York. The action alleged that PaineWebber was liable

to investors for its mismanagement of various investments, including the

partnerships at issue here. Benedetto learned of this action in July 1995. In

November of that year, she filed an individual action against PaineWebber. That

action alleged that PaineWebber breached a contract with the National

Association of Securities Dealers, of which Benedetto was allegedly a

beneficiary, and violated Kansas securities law. It also charged PaineWebber

with breach of fiduciary duty, negligence, and fraud. The parties dispute whether

Benedetto’s initial filings also pleaded a cause of action under federal securities

law.


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                                         II

      The district court granted PaineWebber’s motion for partial summary

judgment in an order dated October 16, 1996. The court accepted PaineWebber’s

argument that as to PWMP V and PWIP VI, the applicable statutes of limitation

barred all causes of action. The district court premised this decision on a

determination that appellant had inquiry notice: first, of defendant’s PWMP V

misconduct from January 1991, when PaineWebber informed her that the value of

that investment had dropped significantly in the course of one month; and,

second, of defendant’s PWIP VI misconduct from February 1991, when

PaineWebber notified her of a suspension in investment distributions from that

investment following a significant increase in the partnership’s net loss.

      The district court then ordered Benedetto to submit an amended complaint

“that should be consistent with the rulings” contained in the order granting partial

summary judgment.    Id. at 587. Following submission of an amended complaint,

the district court indicated that its summary judgment on the PWMP V and PWIP

VI claims would apply to bar all the remaining claims. Appellee’s Supp. App. at

50. Endeavoring not to concede the validity of the court’s partial summary

judgment, Benedetto’s counsel then stipulated that the analysis underlying that

judgment would—if correct—also dispose of the claims stated in the amended

complaint. See id. at 50-54. The district court then granted leave for Benedetto


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to file the amended complaint, and ruled summarily that all of Benedetto’s

additional claims were barred for the reasons stated in the earlier grant of partial

summary judgment.      See id. at 60-61. That order reiterated Benedetto’s

stipulation that the partial summary judgment analysis also disposed of her

remaining claims, albeit—in her view—incorrectly.          See id. Benedetto appeals.

                                             III

       We determine, first, exactly what potential grounds of error are properly

before us. Benedetto’s amended complaint has little bearing on the present appeal

because “[w]hen a motion for summary judgment is made and supported as

provided in this rule, an adverse party may not rest upon the mere allegations or

denials of the adverse party’s pleading, but the adverse party’s response, by

affidavits or as otherwise provided in this rule, must set forth specific facts

showing that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e);    see also

Black v. Baker Oil Tools, Inc.    , 107 F.3d 1457, 1460 (10th Cir. 1997) (party may

not rely on pleadings to demonstrate issue of material fact). In effect, the only

grounds that Benedetto raises in opposition to summary judgment on her PWQP

II-IV claims are those that she earlier asserted when defending her PWMP V and

PWIP VI claims against partial summary judgment.

       “[A] party seeking summary judgment always bears the initial responsibility

of informing the district court of the basis for its motion, and identifying those


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portions of ‘the pleadings, depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any,’ which it believes demonstrate the

absence of a genuine issue of material fact.”     Celotex Corp. v. Catrett , 477 U.S.

317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)). PaineWebber met this burden

with respect to Benedetto’s PWMP V and PWIP VI claims by filing its motion for

partial summary judgment. PaineWebber also effectively met this burden with

respect to Benedetto’s PWQP II-IV claims when, following its grant of partial

summary judgment, the district court requested appellant to consider stipulating

that “the analysis which I have already made in the order dated October 16th

applies equally to the other transactions . . . .” Appellee’s Supp. App. at 51. At

this point, PaineWebber had apprised the court of its view that no issues of

material fact existed as to Benedetto’s remaining claims.

       Once PaineWebber had met this burden, it is beyond dispute that appellant

was on notice that it needed to come forward with its opposition to summary

judgment as to those claims not disposed of by the partial grant of summary

judgment. In effect, however, by accepting the stipulation offered by the district

court, and thus by failing to file any additional arguments supporting the

existence of issues of material fact, Benedetto offered only her initial opposition

to summary judgment as grounds for precluding a similar disposition of her

residual claims.   See id. at 51-54. Appellant explicitly agreed there was no need


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to brief summary judgment on these remaining claims, nor to make an

“independent analysis” of them, for purposes of appeal. Benedetto apparently

determined that the grounds of her opposition to partial summary judgment would

suffice to preserve her remaining claims against summary judgment.       See id. As a

consequence, the stipulation delimits the grounds of Benedetto’s opposition.

      Thus the only asserted grounds of error properly before us are that the

district court erred in concluding that Benedetto’s arguments in opposition to

partial summary judgment—when generalized to cover her claims based on all

five investment funds—presented no genuine issue of material fact on the claims

presented in the amended complaint. Although the amended complaint was

properly filed before the district court, because Benedetto filed it after stipulating

that no new briefing or analysis was required for claims raised in the amended

complaint, such claims are defended against summary judgment on the limited

grounds set forth in Benedetto’s opposition to summary judgment. For instance,

Benedetto argues in her amended complaint and before this panel that Ohio

tolling and limitations principles should apply to certain of her state causes of

action. See, e.g. , IV Appellant’s App. at 660; Appellant’s Br. at 24-26. But her

opposition to partial summary judgment did not invoke any such arguments;

instead, it stated explicitly and repeatedly that Kansas law should govern such

claims. See, e.g. , II Appellant’s App. at 159, 162. We therefore do not consider


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such arguments on appeal.     1
                                  The analysis that follows is therefore limited to

assessing the merits of Benedetto’s arguments made in opposition to partial

summary judgment, and generalized by her stipulation to apply to all her claims.

                                              IV

       We confine our review to two contentions Benedetto raises on appeal: first,

that the district court erred in its inquiry notice determination; second, that the

district court erred in rejecting her cause of action under federal securities law.     2



                                              A

       Appellant’s inquiry notice argument is meritorious. The statute of

limitations on Kansas securities law and common law tort actions runs for three

and two years, respectively, from the time at which wrongful conduct becomes

reasonably ascertainable.     See Kan. Stat. Ann. § 60-513(b) (1994);        Kelly v.

Primeline Advisory, Inc. , 889 P.2d 130, 134, 137 (Kan. 1995);          Knight v. Myers ,

       1
         Fairly construed, the stipulation does not limit Benedetto to the precise
language contained in that earlier brief, but rather to the format of its arguments.
Nonetheless, her argument that Kansas law controls the applicable statute of
limitations and tolling analyses is not broad enough to encompass a later claim
that Ohio law governs instead.
       2
         It is true that appellant did not reference her federal claims in opposition
to partial summary judgment. Under the circumstances, however, that was not her
burden because PaineWebber’s motion for partial summary judgment did not
challenge these claims as inadequate—quite possibly because PaineWebber did
not read the original complaint to state such claims. But given that the district
court appears to have ruled against the merits of any such claims, and the
amended complaint does state federal claims, we think they are properly raised
here.

                                              -8-
748 P.2d 896, 901 (Kan. 1988). The district court appears to have held, first, that

PaineWebber’s sole misconduct was the initial sale of these various investments

to Benedetto, and second, that the injuries caused by these acts of misconduct

were—as a matter of law—reasonably ascertainable as of 1990-91, following the

company’s disclosures about PWMP V and PWIP VI. By extension, the district

court held that Benedetto had inquiry notice from this time with respect to her

remaining investments as well.

       This analysis errs in two respects. First, we cannot agree with the district

court’s implicit assumption that the initial sale of the investments represents the

only “fact of injury” for purposes of determining the application of the statute of

limitations. Accepting,   arguendo , the district court’s characterization that

“[p]laintiff’s tort claims all hinge upon Heal’s representation that plaintiff’s

investments were ‘safe,’” IV Appellant’s App. at 580, there is enough evidence in

the record to indicate that these representations of safety continued past 1989 and

were relied on to her detriment by the plaintiff and her guardian.   See Varley Aff.,

II Appellant’s App. at 166 (“Mr. Heal always assured me that Tiffany’s money

was being kept in safe investments with minimal risk. I relied on these statements

made by Mr. Heal.”). Moreover, it is far from clear that all Benedetto’s tort and

securities law claims hinge on representations of safety, other than as a proximate

cause of her continued investment in PaineWebber’s real estate partnerships. The


                                            -9-
pleadings and materials opposing summary judgment are replete with charges of

PaineWebber breaching fiduciary duties, committing negligence, and otherwise

acting wrongfully, the merits of which do not depend in any way on

representations to Varley or Benedetto that the investments in question were safe,

beyond the fact that such representations left appellant open to injury by these

separate acts of wrongdoing. Even if the events of 1990 and 1991 were sufficient

to create inquiry notice of some of this additional misconduct, appellant has

alleged that such misconduct continued beyond this time. We therefore cannot

agree with the district court that statutes of limitations bar all such claims.

Inasmuch, therefore, as PaineWebber has failed to meet its initial Rule 56 burden

of showing a lack of genuine issues of material fact with respect to these claims,

summary judgment cannot lie.

       Second, Kansas authority indicates that whether Benedetto or her mother

could have continued to rely on PaineWebber’s representations of safety

following the PWMP V and PWIP VI disclosures in 1990 and 1991 is properly a

question for the jury. Benedetto and her mother introduced evidence that they

were unsophisticated investors,   see II Appellant’s App. at 172, 174, which,

contrary to the district court’s view, is a factor that the Kansas courts have taken

into account in determining whether securities misconduct was reasonably

ascertainable.   See, e.g. , Kelly , 889 P.2d at 138 (where party is “unsophisticated


                                          -10-
investor,” date of accrual is matter for factfinder even where investment materials

received explicitly warned of risks of investment).

       Against that background, the record in this case is not sufficiently

conclusive for the court to have resolved    as a matter of law that PaineWebber’s

wrongdoing was necessarily ascertainable in 1990 or 1991 by a reasonable party

in Varley’s position.   Cf. Wolf v. Preferred Risk Life Ins. Co.   , 728 F.2d 1304,

1307 (10th Cir. 1984) (“Questions of when a reasonable person would discover an

injury and what a reasonable person would have done are generally within the

province of the jury.”). An unsophisticated investor, told repeatedly by an

investment manager—acting pursuant to a probate court’s instructions—that her

investments are “safe,” should not necessarily ascertain injury under the

circumstances identified as dispositive by the district court.

       Although payments from PWIP VI were suspended in November 1990,

PaineWebber’s quarterly report for the final fiscal quarter of that year was

equivocal about the partnership’s prospects: three of the five properties were

reported to be performing well; one was reported as performing badly because of

market conditions; and, although a borrower had defaulted on payments on a final

property, a loan on the latter was reported to be adequately secured by the value

of the building. With respect to PWMP V, despite the decline in the value of

Benedetto’s investment, there is no indication that distributions to the partnership


                                            -11-
ceased. Moreover, the very report showing this decline in value also shows that

Heal’s investment strategy since May 1979 had grown Benedetto’s investment

portfolio from $28,000 to $67,847.46 by December 1990, an appreciation of more

than 142% over less than twelve years, or more than 8% per annum.            See I

Appellant’s App. at 94;    compare Waite v. Adler , 716 P.2d 524, 527-28 (Kan.

1986) (party on constructive notice of misrepresentation of creditworthiness

following reduction in bank’s floor plan from $235,000 to $75,000);          Friends

Univ. v. W.R. Grace & Co. , 608 P.2d 936, 941-42 (Kan. 1980) (party on notice of

negligence when new roof on new building leaks). For a reasonable person of

Varley’s sophistication, one month’s poor showing would not            necessarily be

enough to create inquiry notice of wrongdoing against a background of more than

a decade’s proven investment results by the same investment manager. “[W]here

the evidence is in dispute as to when substantial injury . . . becomes reasonably

ascertainable, the issue is for determination by the trier of fact.”      Hecht v. First

National Bank & Trust Co. , 490 P.2d 649, 656 (Kan. 1971).

                                               B

       Benedetto’s claim under federal securities law is without merit. Arguably,

it was never properly pled below; the amended complaint avers a violation of the

“applicable . . . federal securities laws,” IV Appellant’s App. at 658, but makes

no attempt to delineate which such laws might be applicable.           See Phillips v.


                                             -12-
Calhoun , 956 F.2d 949, 953-54 (10th Cir. 1992) (holding that party must support

its argument with legal authority). However, citing the Supreme Court’s decision

in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson             , 501 U.S. 350, 364

(1991), Benedetto’s appellate brief concedes that “claims under the federal

securities laws must be brought within one year of discovery, and in any event,

not more than three years after the alleged violation occurred.” Appellant’s Br. at

28. As Lampf only addresses alleged violations of section 10(b) of the Securities

Exchange Act of 1934, 15 U.S.C. § 78j(b) (“Section 10(b)”) and of 17 C.F.R. §

240.10b-5 (1995) (“Rule 10b-5"), we will construe Benedetto’s pleading under

the “federal securities laws”—inasmuch as it raises claims at all—to lie under

these same provisions.

       To be actionable under Section 10(b) and Rule 10b-5, the fraud alleged

must be “integral to the purchase” of the investment in question.           See Flickinger

v. Harold C. Brown & Co. , 947 F.2d 595, 598 (2d Cir. 1991). Here, the final

purchase of the disputed investments was made in 1989. Therefore the district

court was correct to dismiss the claims as untimely; this action was brought well

in excess of three years after the last possible date of violation.        See Lampf , 501

U.S. at 364.

                                               V




                                             -13-
       The district court’s grant of summary judgment as to appellant’s federal

securities law and state contract law claims is    AFFIRMED . The district court’s

grant of summary judgment on appellant’s tort and state securities law claims is

REVERSED .

                                           ENTERED FOR THE COURT



                                           Carlos F. Lucero
                                           Circuit Judge




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