A FRIDAY 13th REMINDER THAT NOT JUST MOVIE VICTIMS NEED TO EXERCISE REASONABLE DILIGENCE –  Texas Supreme Court clarifies that a plaintiff pleading the discovery rule, even in a breach of fiduciary duty case, must exercise reasonable diligence.

             While not quite the same jolt as a slasher film, on Friday the 13th the Texas Supreme Court reversed the Seventh District Court of Appeals on a discovery rule decision that could strike fear in the hearts of those owed fiduciary duties. In Marcus & Millichap Real Estate Investment Services of Nevada v. Triex Texas Holdings, LLC and Bryan Weiner, the Court was presented with a case where more than eight years after the transaction forming the basis of the claim occurred, the plaintiff, Triex, who had purchased commercial real estate with Marcus & Millichap serving as the broker, added claims in a suit against the former tenant and former owner against that broker for fraud and conspiracy.

Triex bought the property at issue in 2008, with Marcus & Millichap acting as broker. As part of the transaction, Triex leased the property back to its existing operator in a twenty-year lease. However, in 2012, the operator defaulted on the lease, and three years later, Triex brought claims against the former owner and defaulting operator. A year into that case, Triex took the deposition of the operator, and asserted that in the deposition discovered facts that made Triex believe that the broker had made misrepresentations to Triex in course of that sale and overvalued the property to increase its commission. Triex amended the petition to include breach of fiduciary duty claims against the broker, and in response to motions to dismiss, pled the discovery rule. The trial court (twice) granted summary judgment to the broker on limitations, and Triex appealed. At the appellate court, Triex prevailed with the appellate court finding that the discovery rule delays accrual and limitations until the claimant knows or should know of the injury and until the claimant also knows of the wrongful acts and actors. The Supreme Court found that this ruling did not require the plaintiff to exercise reasonable diligence, and reversed.

It has been a longstanding notion in Texas law that a plaintiff owed a fiduciary duty is given some leeway on limitations because, due to the nature of the fiduciary almost always having superior knowledge, a fiduciary duty injury is presumed to be inherently undiscoverable. However, today the Texas Supreme Court clarified this, holding that nonetheless, fiduciary duty plaintiffs are still required to practice reasonable diligence, citing that accrual is deferred “until the plaintiff knew, or exercising reasonable diligence, should have known of the facts giving rise to the cause of action.” In the instant case, the Court found that Triex had knowledge of its injuries in 2012 when the lease was defaulted on, and this would make them aware of the need to inquire into the fiduciary’s, here the broker’s, actions with regard to that transaction. The Court further cited an affidavit submitted by Triex that at the time in 2012, Triex knew that the broker had done a “poor job” or representing Triex. Thus, the Court essentially found that becoming aware of the injury inherently triggers the duty to look at the fiduciary’s actions in order to meet a reasonable diligence standard. Interestingly here, the Court did not find that the discovery rule did not apply to the case, but instead found that it did apply, but did not save the claims because in exercising diligence, Triex should have discovered the actions of the broker close to the time of the injury, and instead, Triex waited three years to bring suit against the seller and operator, and another year after that to take a deposition. Thus, the Court found that Triex did not exercise reasonable diligence in investigating and discovering the claim.

Also of note, Triex did not plead fraudulent concealment, but apparently made an argument that the broker actively misled Triex to believe that the operator was the sole wrongdoer responsible for Triex’s injury. However, Triex had not pled or raised fraudulent concealment in response to summary judgment, and after explaining that fraudulent concealment and the discovery rules are different doctrines, with fraudulent concealment being more like equitable estopple, the Texas Supreme court found that it was not applicable because it was not raised before the trial court. That said, the Court also found that even if fraudulent concealment applied, it does not extend limitations indefinitely, and for the same reasons that the discovery rule did not save Triex’s fiduciary duty claim, fraudulent concealment would not have either because once it had knowledge of its injury, if Triex would have exercised reasonable diligence, they would have discovered the alleged claims against Marcus & Millichap.

The result of this case is certainly a heightened responsibility put on those who are owed fiduciary duties to investigate thoroughly the actions of those in fiduciary capacity as soon as they discover their injuries, which should put a bit of fright into any potential plaintiff on a fiduciary duty claim. It seems here, that immediate distrust of a fiduciary is expected the minute an injury is discovered.