Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Saturday, March 7, 2015

Accrual of claim for breach of fiduciary duty, and exceptions - Discovery Rule found inapplicable (2015 San Antonio CoA case)


FOUR-YEAR STATUTE OF LIMITATIONS FOR BREACH OF FIDUCIARY DUTY  

A person bringing a claim for breach of fiduciary duty must file suit not later than four years after the day the cause of action accrues. TEX. CIV. PRAC. & REM. CODE ANN. § 16.004(a)(5) (West 2002).

ACCRUAL RULE 

Generally, when a cause of action accrues is a question of law. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003). "[A] cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy." Id. "In most cases, a cause of action accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet to occur." Id. However, two exceptions may defer accrual of a claim: the discovery rule and the doctrine of fraudulent concealment.

SUMMARY JUDGMENT ON LIMITATIONS - WHAT DOES IT TAKE TO PREVAIL WHEN THE DISCOVERY RULE HAS BEEN PLEADED?  

"A defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense." KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). "Thus, the defendant must (1) conclusively prove when the cause of action accrued, and (2) negate the discovery rule, if it applies and has been pleaded or otherwise raised, by proving as a matter of law that there is no genuine issue of material fact about when the plaintiff discovered, or in the exercise of reasonable diligence should have discovered the nature of its injury." Id.

Thus, if the plaintiff pleads the discovery rule as an exception to limitations, the movant must negate that exception as well by proving as a matter of law that either (1) the discovery rule does not apply or (2) there is no genuine issue of material fact about when the plaintiff discovered or, in the exercise of reasonable diligence, should have discovered the nature of the alleged injury. Howard v. Fiesta Texas Park Show, Inc., 980 S.W.2d 716, 719 (Tex. App.-San Antonio 1998, pet. denied). If the movant establishes that the statute of limitations bars the action, the respondent must then adduce summary judgment proof raising a fact issue in avoidance of the statute of limitations. KPMG, 988 S.W.2d at 749.

THE DISCOVERY RULE AS A COUNTER TO LIMITATIONS 

The discovery rule is "a very limited exception to statutes of limitations." Shell Oil Co. v. Ross, 356 S.W.3d 924, 929 (Tex. 2011) (citation omitted). It applies to instances in which the nature of the plaintiff's injury is "inherently undiscoverable and the evidence of injury is objectively verifiable." BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 65-66 (Tex. 2011) (citation omitted).

Requiring both that a plaintiff's injury be inherently undiscoverable and evidence of that injury be objectively verifiable "balance the conflicting policies in statutes of limitations: the benefits of precluding stale or spurious claims versus the risks of precluding meritorious claims that happen to fall outside an arbitrarily set period." S.V. v. R.V., 933 S.W.2d 1, 6 (Tex. 1996).

The supreme court has explained that the "concern that meritorious claims will be barred is . . . taken into account in fashioning these two elements." Id. at 15. "The two elements strike the proper balance between the beneficial purposes of statutes of limitations and the real concern that a person's rights may be cut off." Id. The "preclusion of a legal remedy alone is not enough to justify a judicial exception to the statute." Id. (citation omitted). "The primary purpose of limitations, to prevent litigation of stale or fraudulent claims, must be kept in mind." Id. "

Allowing late-filed claims that are inherently undiscoverable while requiring objectively verifiable injury reduces the likelihood of injustice in cutting off valid claims while affording some protection against stale and fraudulent claims." Id.; see Via Net v. TIG Ins. Co., 211 S.W.3d 310, 313 (Tex. 2006) (explaining that the supreme court has "restricted the discovery rule to exceptional cases to avoid defeating the purposes behind the limitations statutes").

FOURTH COURT OF APPEALS FINDS DISCOVERY RULE  INAPPLICABLE IN THIS CASE 

In this case, Tommy and Harry argue that the discovery rule does not apply because (1) Mary's injury, the allegedly wrongful transfer of the mineral interests, was not inherently undiscoverable, and was in fact easily discoverable if she had simply read the deeds; and (2) the evidence of her injury is not objectively verifiable. We agree with Tommy and Harry that they have met their summary judgment burden of showing that there is no objectively verifiable evidence of Mary's injury.
San Antonio Court of Appeals 

The supreme court has explained that requiring evidence of the nature of an injury to be objectively verifiable prevents fraudulent prosecutions. See S.V., 933 S.W.2d at 6. For example, in Gaddis v. Smith, 417 S.W.2d 577, 581 (Tex. 1967), a plaintiff filed suit after the statute of limitations had run claiming that her doctors were negligent in leaving a sponge insider her body after surgery. "The presence of the sponge in her body—the injury—and the explanation for how it got there—the wrongful act— were beyond dispute." S.V., 933 S.W.2d at 7 (discussing Gaddis). "The facts upon which liability was asserted were demonstrated by direct, physical evidence." Id.

In contrast, in Robinson v. Weaver, 550 S.W.2d 18, 21 (Tex. 1977), the supreme court held there was no objectively verifiable evidence of the plaintiff's injury. In that case, a patient brought a claim against his doctors for misdiagnosis of his back condition. The supreme court explained,

Plaintiff, to prove his cause of action, faces the burden of proving both a mistake in professional judgment and that such mistake was negligent. Expert testimony would be required. Physical evidence generally is not available when the primary issue relevant to liability concerns correctness of past judgment. Unlike Gaddis v. Smith, there exists in the present case no physical evidence which in-and-of-itself establishes the negligence of some person. What physical evidence was to the cause of action alleged in Gaddis v. Smith, expert testimony is to the cause of action in the present case. Even the fact of injury is a matter of expert testimony. Robinson, 550 S.W.2d at 21. The supreme court concluded that such expert testimony could not meet the objective verification of wrong and injury necessary for application of the discovery rule. Id.; see S.V., 933 S.W.2d at 7 (discussing Robinson).

While Mary cites case law for the proposition that "[i]t is well-settled law that the discovery rule applies to almost all actions involving fiduciaries," the supreme court has explained that bringing a breach of fiduciary duty claim does not negate the necessity of the plaintiff's injury being shown through objectively verifiable evidence. In S.V., the supreme court explained that while it has "adhered to the requirement of objective verification fairly consistently in [its] discovery rule cases," it has "not always emphasized the requirement because the alleged injury was indisputable." S.V., 933 S.W.2d at 7 (emphasis added). As an example, the S.V. court cited Willis v. Maverick, 760 S.W.2d 642 (Tex. 1988), noting that the "attorney's error [was] apparent in [the] divorce decree." S.V., 933 S.W.2d at 7. The S.V. court also cited International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567 (Tex. 1963), which involved a corporation suing three of its officers and directors for breach of fiduciary duty because the officers and directors sold "their personal stock in competition with the sale of corporation stock." Holloway, 368 S.W.2d at 579; see S.V., 933 S.W.2d at 7. The S.V. court explained that in Holloway, the objectively verifiable evidence of the plaintiff's injury consisted of "stock transfer records and board meeting minutes prov[ing] officers' and directors' misdealing." S.V., 933 S.W.2d at 7.

The S.V. court also cited Slay v. Burnett Trust, 143 Tex. 621, 187 S.W.2d 377, 385-87 (1945), another fiduciary duty case involving plaintiffs suing trustees to recover alleged secret profits received by former trustees and other defendants, and to recover damages for alleged losses on improper loans of trust funds. The S.V. court explained that the objectively verifiable evidence in Slay consisted of a "paper trail detail[ing] self-dealing." S.V., 933 S.W.2d at 7. Thus, even in the context of a claim for breach of fiduciary duty, for the discovery rule to apply, there must be objectively verifiable evidence of the alleged injury.

NO OBJECTIVELY VERIFIABLE EVIDENCE 

The evidence in this case consists of deposition testimony, which is not objectively verifiable evidence, and copies of the actual deeds showing a transfer of the mineral estate from Mary to Tommy and Harry, respectively. While the deeds are evidence that Mary's mineral interests passed to her sons, they are not evidence that the mineral interests were wrongfully transferred to her sons.

Mary urges that this case is like Gaddis and the mere fact that her mineral interests were transferred shows she was injured; that is, she argues that no one would have chosen to transfer the mineral estate below market value. However, this case involved a transfer of land between a mother and her sons. Mary herself testified that she wanted to transfer her property to her sons at a price lower than market value because they were her sons and they were helping her. Put in that context, we cannot say that the same conclusion as that in Gaddis would apply to these facts.

Thus, we cannot conclude that the mere transfer of mineral interests necessarily equates to Mary having suffered from a wrongful transfer of her property.

Further, Mary agrees that at the time of the transfer of the property, there were no discussions about the mineral interests because she never thought about the mineral interests. In his deposition, Tommy agreed that there were no discussions relating to the mineral interests. Tommy testified the mineral interests never occurred to him either. Thus, Tommy and Harry met their summary judgment burden of showing there is no objectively verifiable evidence of Mary's injury, and the trial court did not err in determining that the discovery rule did not apply to this case.[2]

CONCLUSION

Because the discovery rule does not apply to this case, we affirm the trial court's judgment.

[1] It is undisputed that in the absence of the discovery rule, the statute of limitations bars Mary's breach of fiduciary duty claims against Tommy and Harry.

[2] Because we conclude that there is no objectively verifiable evidence of Mary's injury, we need not reach Mary's other issues of whether the nature of her injury was inherently undiscoverable and whether Mary knew or should have known of her claims more than four years before she filed suit.

SOURCE: SAN ANTONIO COURT OF APPEALS - No. 04-14-00110-CV - 2/18/2015
Opinion by Justice Karen Angelini

CASE DESCRIPTION; Discovery rule did not extend limitation period under the facts of this case decided by the Fourth Court of Appeals in February 2015; summary judgment was proper because lawsuit was brought more than four years after real-estate transaction that allegedly involved a breach of fiduciary duty.