Case: 15-10333 Document: 00513477452 Page: 1 Date Filed: 04/22/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 15-10333
Fifth Circuit
FILED
April 22, 2016
CHARLIE ROWTEN; ROBERT ROWTEN, Lyle W. Cayce
Clerk
Plaintiffs - Appellees
v.
WALL STREET BROKERAGE, L.L.C.; TONI ROBERTSON, Individually
doing business as Wall Street Brokerage, L.L.C.; LARRY GOLDSTON,
Individually doing business as Wall Street Brokerage, L.L.C.; CAPROCK
SECURITIES, INCORPORATED,
Defendants - Appellants
Appeals from the United States District Court
for the Northern District of Texas
USDC No 5:13-CV-111
Before JONES, WIENER, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Defendant-Appellants Wall Street Brokerage, L.L.C., Toni Robertson,
Larry Goldston, and Caprock Securities, Inc. (collectively “Defendants”) appeal
the district court’s denial of their motions for judgment as a matter of law
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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(“JMOL”). Concluding that the Rowtens’ claims are time barred, we reverse
and render judgment for the Defendants.
I.
FACTS AND PROCEEDINGS
In 2008, Charlie Rowten and her husband Robert Rowten (the “Rowtens”
or just “Rowten” when referring to Charlie alone) met with stockbrokers Toni
Robertson (“Roberston”) and Larry Goldston (“Goldston”), of Wall Street
Brokerage, L.L.C. (“Wall Street”), about investing in a Real Estate Investment
Trust (“REIT”), the Behringer Harvard REIT I. Robertson and Goldston, as
independent contractors of Caprock Securities, offered the REIT and
advertised it in local publications for which Rowten works as an advertising
account executive. Each of the advertisements contained a small-print footer
stating: “Securities offered through Caprock Securities.” The Rowtens allege
that the advertisements, Robertson, and Goldston all represented the REIT as
a “guaranteed” investment that would earn a minimum 7% annual return
without loss of, or risk to, principal.
On September 17, 2008, Rowten invested her entire retirement savings
($192,235.36) in the REIT by signing a Subscription Agreement. Her husband
Robert was present when she did so. 1 Rowten signed and initialed the
Subscription Agreement “under penalty of perjury,” stating that she had
received the REIT’s Prospectus at least five days before signing and that she
agreed to be bound by its terms and conditions. Even though the Subscription
Agreement referenced the REIT’s Prospectus eleven times, Rowten denies
having ever received a copy of the Prospectus before she signed the
The district court indicated that Robert Rowten is joined as a plaintiff because
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community funds were used to invest in the REIT.
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Subscription Agreement. She testified at trial that Robertson and Goldston
told her that they had run out of copies of the Prospectus. It is undisputed that
the Prospectus states that investing in the REIT “involves a high degree of risk”
and that investors should purchase shares only if they “can afford a complete
loss.” The Prospectus also contains 29 pages of risk factors that should be
considered before investing. Rowten states that she would not have invested
in the REIT if she had read the Prospectus.
The investment increased initially. In July 2010, however, Rowten
received the June 2010 statement, which indicated that the investment had
lost $115,000, more than half of the principal. Rowten conducted internet
research and called a REIT representative. She learned that her investment
was not “guaranteed.”
The Rowtens brought suit against the Defendants on April 30, 2013—
more than four years after Rowten signed the Subscription Agreement, but less
than four years after they received the June 2010 statement. The Rowtens
asserted 19 causes of action. The Defendants moved for and received summary
judgment on all claims except those relevant in this appeal: (1) promissory
estoppel, (2) breach of warranty, (3) common law fraud, (4) statutory fraud, (5)
breach of fiduciary duty, and (6) breach of oral contract. Each of these claims
carry a four-year statute of limitations under Texas law. 2
The Defendants moved for summary judgment on these claims as well.
One of their arguments in the district court, as here, was that the Subscription
Agreement created constructive or inquiry notice of the Prospectus’s contents
which contradict the alleged representations that the REIT was a guaranteed
investment. The district court noted that there was a fact issue whether the
2 TEX. CIV. PRAC. & REM. CODE §§ 16.004, 16.051.
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Rowtens received the Prospectus, but further noted that the fact was
established that Rowten signed and initialed the statement in the Subscription
Agreement that she had received the Prospectus and agreed to be bound by its
terms. The district court nevertheless denied the Defendants’ motion for
summary judgment on these claims because the Rowtens had alleged reliance
on fraudulent representations in deciding to invest, and “[t]he law does not
allow a party making fraudulent representations to later rely upon the terms
of the agreement as a defense.” 3
The case proceeded to trial, and the Defendants moved for JMOL, again
raising the statute of limitations defense. They renewed this motion after
resting their case and again after the jury’s verdict. The district court denied
their motions in each instance. Caprock Securities also unsuccessfully claimed
in its motions that the evidence is insufficient to support liability against it.
The jury returned a verdict in favor of the Rowtens on all claims. It
specifically found that the Rowtens could not have been aware of any of the
Defendants’ breaches before April 30, 2009, which is less than four years before
the lawsuit was filed and approximately seven months after Rowten signed the
Subscription Agreement.
The district court entered judgment on the jury’s verdict in the amount
of $195,390 in compensatory damages; $20,000 for Charlie’s past mental
anguish; $10,000 for Robert’s past mental anguish; $25,000 in punitive
damages against Robertson; $15,000 in punitive damages against Goldston;
3 Rowten v. Wall Street Brokerage, LLC, No. 5:13-CV-111-C, slip op. at 7 (N.D. Tex.
Dec. 18, 2014) (citing LHC Nashua Partnership, Ltd. v. PDNED Sagamore Nashua, L.L.C.,
659 F.3d 450, 460 (5th Cir. 2011); Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am.,
341 S.W.3d 323, 334 (Tex. 2011)).
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$20,000 in punitive damages against Wall Street Brokerage; and $15,000 in
punitive damages against Caprock Securities.
On appeal, the Defendants again raise the statute of limitations defense
by challenging the district court’s denial of their motion for JMOL. Caprock
Securities also renews its contention that the evidence is insufficient to support
the jury’s verdict against it.
II.
STANDARD OF REVIEW
We review de novo the district court’s denial of a motion for JMOL. 4 A
motion for JMOL challenges the legal sufficiency of the evidence to support the
jury’s verdict. 5 JMOL should be granted only when “a reasonable jury would
not have a legally sufficient evidentiary basis to find for the party on that
issue.” 6
III.
ANALYSIS
Recognizing the inherent risk in financial investments, courts require an
investor seeking “to blame his investment loss on fraud or misrepresentation
[to] . . . exercise due diligence to learn the nature of his investment and the
associated risks.” 7 This means that an investor “cannot close his eyes and
simply wait for facts supporting [his] claim to come to his attention.” 8
Anchoring this principle is the recognition that “even if one has a just claim it
is unjust not to put the adversary on notice to defend within the period of
4 Abraham v. Alpha Chi Omega, 708 F.3d 614, 620 (5th Cir. 2013).
5 Ford v. Cimarron Ins. Co., 230 F.3d 828, 830 (5th Cir. 2000).
6 FED. R. CIV. P. 50(a)(1).
7 Martinez Tapia v. Chase Manhattan Bank, N.A., 149 F.3d 404, 409 (5th Cir. 1998).
8 Id.
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limitation and that the right to be free of stale claims in time comes to prevail
over the right to prosecute them.” 9
This case is resolved by determining when the statute of limitations
began to run on the Rowtens’ claims, all of which are subject to a four-year
statute of limitations. 10 “The controlling date for purposes of the running of the
respective statutes of limitations is when a purchaser of securities knew—or
in the exercise of reasonable diligence, should have known—of the alleged
wrongdoing.” 11 “If a reasonable person would inquire further, a plaintiff must
proceed with a reasonable and diligent investigation of the facts the plaintiff
has learned and is charged with the knowledge of all facts such an
investigation would have disclosed.” 12
Rowten signed the Subscription Agreement on September 17, 2008. The
Defendants contend that, through reasonable diligence, the Rowtens could
have discovered their claims on that date. It is undisputed that, on that date,
Rowten signed that she had received and agreed to be bound by the terms of
the Prospectus, which clearly contradict any allegations that her investment
was guaranteed. Although there is a fact issue whether Rowten actually
received the Prospectus, the Defendants assert that her signing the
Subscription Agreement that contained repeated references to the Prospectus
and agreeing to be bound by its terms constitute “storm warnings” that would
have caused a reasonably diligent investor to inquire further before
9 Maxwell v. Swain, 833 F.2d 1177, 1178 (5th Cir. 1987).
10 TEX. CIV. PRAC. & REM. CODE §§ 16.004, 16.051.
11 Topalian v. Ehrman, 954 F.2d 1125, 1133 (5th Cir. 1992); see also Martinez Tapia,
149 F.3d at 409–11 (applying same rule under Texas law).
12 Bodenhamer v. Shearson Lehman Hutton, Inc., No. 92-2392, 1993 WL 277033, at *2
(5th Cir. July 14, 1993) (unpublished).
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investing. 13 They specifically contend that a reasonable investor would have
obtained and read the Prospectus, and therefore would have learned of the
Defendants’ misrepresentations. We agree.
In Martinez Tapia v. Chase Manhattan Bank, N.A., we addressed similar
facts. The investor had invested in a real estate fund after the fund’s
representatives told him that the fund required a minimum three-year holding
period and one-year’s notice before any redemptions could be made. 14 The
investor was provided with a sales brochure, which instructed the investor to
obtain the Offering Circular and the Subscription Agreement. 15 The Offering
Circular expanded on the fund representative’s representations, giving the
fund manager authority to suspend redemptions indefinitely. 16 After being
unable to redeem his investment because the fund manager had suspended
redemptions, the investor brought numerous state and federal claims, but did
so more than four years after he made the investment. 17 On those facts, we
held that the investor’s claims were time barred, rejecting the investor’s
assertion that the limitations period did not begin to run until he learned that
redemptions had been suspended. 18
Reasonable diligence required the investor “to read the only documents
that contained the details of the offer he accepted.” 19 Because the sales
brochure instructed the investor to obtain the Offering Circular and
13 See Jensen v. Snellings, 841 F.2d 600, 606–10 (5th Cir. 1988); cf. Sudo Props., Inc.
v. Terrebonne Par. Consol. Gov’t, 503 F.3d 371, 376–78 (5th Cir. 2007) (distinguishing
Martinez Tapia and Jensen where no such “storm warnings” were present).
14 149 F.3d at 406.
15 Id. at 410–11.
16 Id. at 406–07.
17 Id. at 407–08.
18 Id. at 409, 411.
19 Id. at 410.
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Subscription Agreement, we held that the investor could not simply rely “upon
the general assertions” of the fund representatives in lieu of reading those
documents. 20 We then held that the investor’s claims were time barred because
“[a] simple reading of the Offering Circular and the Subscription Agreement at
that time would have alerted [the investor] that the written terms of his
investment varied from the alleged assertions and promises of [the fund
representatives].” 21
We conclude, as a matter of law, that Rowten did not perform a
reasonable investigation before investing in the REIT, and further conclude
that had Rowten exercised reasonable diligence and read the Prospectus, she
would have been aware—on the date she signed the Subscription Agreement—
that her investment was not guaranteed. In signing the Subscription
Agreement, Rowten warranted that she had received the Prospectus for the
REIT no later than five business days before signing. She signed her initials
next to the statement: “I have received the Prospectus for the Fund, and I
accept and agree to be bound by the terms and conditions of the organizational
documents of the Fund.” She also separately warranted that she was not an
unacceptable investor as defined by the Prospectus. The Subscription
Agreement further directed Rowten to consult the Prospectus “for a discussion
of risks related to an investment in Shares, by certain tax-exempt or tax-
deferred plans,” a category under which her investment fell. The Subscription
Agreement referenced the Prospectus a total of eleven times.
In spite of this, Rowten testified that she never obtained or read the
Prospectus before investing in the REIT. But, as in Martinez Tapia,
20 Id. at 411.
21 Id.
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“reasonable diligence required [her] to read the only documents that contained
the details of the offer [she] accepted” before investing. 22 Had she done so, she
would have learned that, contrary to the Defendants’ alleged
misrepresentations, investing in the REIT “involves a high degree of risk” and
that she should only purchase shares if she “can afford a complete loss.” At the
very least, as the Defendants argue, a simple review of the Subscription
Agreement would have made a reasonably diligent investor aware that
something titled a “Prospectus” existed and that it included a discussion of
“risks,” “standards,” “suitability requirements,” “conditions,” and “terms” of
the REIT. In other words, Rowten would have discovered the Defendants’
alleged misrepresentations at the time she invested in the REIT if only she had
exercised reasonable diligence.
Rowten nevertheless contends that she should not be charged with notice
of the Prospectus because the Defendants concealed the Prospectus from her.
We observe initially that in Jensen v. Snellings we declined a similar
invitation: “[A]n act of concealment should not relieve the plaintiff of his duty
to exercise reasonable diligence to discover the fraud.” 23 We noted instead that
concealment “is only a factor to be considered in determining when the plaintiff
should have discovered the fraud.” 24 Even though the Rowtens testified that
they did not receive a Prospectus before investing in the REIT, there are no
allegations and no evidence that the Defendants concealed the existence of the
Prospectus from them. Indeed, Rowten testified at trial that Goldston and
Robertson told the Rowtens that a Prospectus existed, but that they had run
22 Id. at 410.
23 Jensen, 841 F.2d at 607; see also BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 67
(Tex. 2011) (“Fraudulent concealment only tolls the running of limitations until the fraud is
discovered or could have been discovered with reasonable diligence.”).
24 Jensen, 841 F.2d at 607.
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out of copies. Further, the Subscription Agreement’s repeated references to the
Prospectus advised Rowten of its existence and of its critical importance to
understanding her investment.
The Rowtens also attempt to distinguish Martinez Tapia because there,
the plaintiff was a sophisticated investor, whereas here they contend that they
are unsophisticated, inexperienced investors. This reasoning ignores that we
apply an objective standard to determine what an investor would have known
through the exercise of reasonable diligence. 25
On these facts, we conclude that a reasonable investigation required
Rowten to read the Prospectus. Had she done so, she would have learned
immediately that her investment in the REIT was not guaranteed, contrary to
the alleged representations from which this lawsuit arises. As in Martinez
Tapia, a “simple reading” of the Prospectus before or at the time she made her
investment “would have alerted [her] that the written terms of [her]
investment varied from the alleged assertions and promises of” the
Defendants. 26 As a matter of law, Rowten was on inquiry notice of her claims
when she signed the Subscription Agreement. Accordingly, no legally sufficient
basis justified the jury’s finding to the contrary. Because the Rowtens waited
more than four years from that date to file the instant suit, their claims are
time barred. 27
25 Id. at 608.
26 149 F.3d at 411; see also Bodenhamer, 1993 WL 277033, at *3 (holding that an
investor is on inquiry notice that a broker misrepresented the nature of an investment when
there are “glaring inconsistencies” between those representations and the prospectus).
27 Because the Rowtens’ claims are barred by the statute of limitations, we need not
resolve Caprock Securities’ challenge to the sufficiency of the evidence.
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IV.
CONCLUSION
We reverse the district court’s denial of the Defendants’ motions for
JMOL as to their limitations defense, vacate the court’s award of damages to
the Rowtens, and render judgment for the Defendants.
REVERSED and RENDERED.
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