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Click here for the full text of this decision FACTS:Michael Margolies and the Margolies Family Trust were the largest shareholders of a company known as U.S. Transportation Systems (USTS). On March 19, 1998, Precept Business Services Inc. (Precept) acquired USTS. In exchange for Margolies’ ownership interest in USTS, he received Precept common stock. Subsequently, Precept filed for bankruptcy and the Precept stock owned by Margolies became worthless. In November 2002, the trustee appointed for Precept filed a complaint in the adversary bankruptcy proceeding. In this complaint, the trustee claimed that the defendants, Darwin Deason, Douglas R. Deason, and David L. Neely engaged in behavior amounting to self-dealing and fraud which resulted in the collapse of the company. On March 17, 2003, Margolies filed a complaint against Deason alleging eight causes of action relating to this self-dealing and fraud. Margolies subsequently amended the complaint. The first amended complaint contained five causes of action: 1. violation of the Securities Act of 1933; 2. violation of the Securities Exchange Act of 1934; 3. violation of Texas Blue Sky Article 581-33(A)(2); 4. violation of Texas Blue Sky Article 581-33(F); and 5. common law fraud. Deason filed a motion for summary judgment seeking dismissal of all of Margolies’ claims as time-barred. Deason claimed that in 1998 Margolies became either actually or constructively aware of the facts giving rise to the causes of action in the complaint. Conversely, Margolies claimed that he did not and could not reasonably have learned the relevant information until the trustee filed a complaint in the bankruptcy proceeding in November 2002. The district court granted Deason’s motion for summary judgment and entered a final judgment dismissing all of Margolies’ claims as time-barred. Michael Margolies and the Margolies Family Trust appealed the district court’s dismissal of all claims as time-barred, arguing that an extension to the statute of repose in the Sarbanes-Oxley Act of 2002 applies to the federal claims and that the district court erred in finding that Margolies was on inquiry notice of the alleged fraud in 1998. HOLDING:The court affirmed in part and reversed in part, and remanded the case to the district court. Noting a presumption against retroactive legislation, the court found that the previous three-year period applies to the Securities Act claims. The court held that the district court properly dismissed the first and second causes of action as time-barred. Next, the court examined whether the district court improperly concluded on summary judgment that a reasonable plaintiff should have known that these transactions sufficiently raised the specter of fraud as to place him on inquiry notice. The court found insufficient information to conclude that reasonable minds would agree that Margolies had inquiry notice of the fraud. Accordingly, the court held that the district court’s dismissal of the third and fourth causes of action was in error, and that a jury should decide the issue. For the same reasons, the court found that the district erred in dismissing the common law fraud cause of action. “In such cases, the”action does not accrue until the plaintiff knew or in the exercise of reasonable diligence should have known of the wrongful act and resulting injury.’ As previously discussed, the district court erred in determining on summary judgment that Margolies was on inquiry notice in 1998 of the relevant facts. This is a question for the jury. The district court, therefore, erred in dismissing the fifth cause of action.” OPINION:Clement, J; Higginbotham, Dennis, and Clement, J.J.

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