IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 22, 2009
No. 08-40076 Charles R. Fulbruge III
Clerk
PAUL BEAVERS; EMILIO DELAO, JR; DAVID WILLIAM DARDEN;
HORTENCIA FLORES; NORMA LINDA HUERTA; JOHN KIVICH, JR;
ROBERT MERCHANT
Plaintiffs-Appellants
v.
METROPOLITAN LIFE INSURANCE CO.
Defendant-Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before JONES, Chief Judge, WIENER and BENAVIDES, Circuit Judges.
EDITH H. JONES, Chief Judge:
For many years, the appellants have owned life insurance policies that
were intended also to serve as investment vehicles and provide regular
dividends. In 2007, they sued as a putative class alleging that during the 1980s,
Metropolitan Life Insurance (“MetLife”) breached their investment contracts and
deprived them of dividend income to which they were entitled. They now appeal
the district court’s dismissal of their complaint as barred by the statute of
limitations. Because the district court correctly held that the discovery rule did
not toll Texas’s statute of limitations, we affirm.
No. 08-40076
I. BACKGROUND
Appellants’ participating life insurance policies were managed by
MetLife’s Personal Insurance line of business. Under these contracts, the
policyholders were entitled to receive dividends paid by Personal Insurance from
the surplus accruing on their policies. According to the complaint, during the
1980s, MetLife breached the insurance contract by impermissibly allocating
surplus profits from Personal Insurance to other lines of business. The
misallocations allegedly reduced the dividends the plaintiffs and the class
received from 1984 to 2000.
In 1998, an action entitled Rabouin v. Metropolitan Life Insurance
Company was commenced on these same facts in New York state court. In 2004,
it was certified as a class action on behalf of a nationwide class. See Rabouin v.
Metro. Life Ins. Co., No. 111355/98, 2005 WL 3536441, at *5–6 (N .Y. Sup. Ct.
Nov. 23, 2005) (describing the history of the litigation). In 2005, the trial court
dismissed the plaintiffs’ breach of contract claim against MetLife on statute of
limitations grounds. Id. Shortly thereafter, a New York appellate court
decertified the class, in part due to differing statutes of limitations among the
states.1 Rabouin v . Metro. Life Ins. Co., 806 N.Y.S.2d 584 (N.Y. App. Div. 2006).
On May 7, 2007, Appellants filed this complaint for breach of contract by
MetLife on behalf of a class of persons who owned affected policies.2 MetLife
moved to dismiss, asserting that Texas’s four-year statute of limitations barred
the breach of contract claim because the wrongful allocations alleged in the
1
The trial court granted summary judgment on November 23, 2005. Without
mentioning the grant of summary judgment, the appellate court reversed the order certifying
the class on January 5, 2006.
2
The plaintiffs sought to bring suit on behalf of “all persons who, before January 1,
1982, purchased one or more participating MetLife individual life or other participating policy
within the Personal Insurance line of business that was in force at any time during the period
January 1, 1985 to April 4, 2000.”
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No. 08-40076
complaint occurred in the 1980s alone and no grounds for tolling were
applicable. The district court granted the motion to dismiss, prompting this
appeal.
II. STANDARD OF REVIEW
This court reviews de novo the district court’s dismissal under Federal
Rule of Civil Procedure 12(b)(6). Jones v. Alcoa, Inc., 339 F.3d 359, 362 (5th Cir.
2003). Any well-pled factual allegations must be viewed in the light most
favorable to the plaintiffs, but “conclusory allegations or legal conclusions
masquerading as factual conclusions will not suffice to prevent a motion to
dismiss.” Fernandez-Montes v. Allied Pilots Ass’n, 987 F.2d 278 (5th Cir. 1993).
III. ANALYSIS
In diversity jurisdiction, this court applies Texas substantive law,
including the state statute of limitations and exceptions. Guaranty Trust Co. v.
York, 326 U.S. 99, 111–12, 65 S. Ct. 1464 (1945). If no state court decisions
control, we must make an “Erie guess” as to how the Texas Supreme Court
would apply state law. Travelers Cas. & Sur. Co. of Am. v. Ernst & Young LLP,
542 F.3d 475, 483 (5th Cir. 2008).
Texas applies a four-year statute of limitations to breach of contract
claims. Tex. Civ. Prac. & Rem. Code § 16.051. Although conceding that the
statute of limitations would ordinarily bar this breach of contract suit for
MetLife’s actions more than two decades ago, the appellants contend that the
discovery rule deferred accrual of the cause of action until the Rabouin class
action was filed in 1998, and the American Pipe doctrine tolled the statute of
limitations until decertification of the Rabouin class in 2006.
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No. 08-40076
1. Discovery Rule
The appellants contend that the discovery rule should defer accrual of the
cause of action until 1998, when they learned of their claims through the filing
of the Rabouin class action. The discovery rule provides a “very limited
exception to statutes of limitations.” Computer Associates International, Inc. v.
Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996). Although the doctrine evolved in
different directions over many years, in 1996 the Texas Supreme Court clarified
the rule in two cases, referring to the reasoning in earlier cases as “diverse,
somewhat inconsistent, and often overly broad.” S.V., 933 S.W.2d at 5–6.
Following Altai and S.V., the discovery rule defers accrual of a cause of action
if (1) the nature of the injury incurred is inherently undiscoverable and (2) the
evidence of injury is objectively verifiable. Altai, 918 S.W.2d at 456; S.V.,
933 S.W.2d at 6. The purpose of these criteria is to prevent both stale and
fraudulent claims from being asserted in contravention of the policies behind the
statutes of limitations. Because the appellants’ injury from breach of contract
was not inherently undiscoverable, we do not address whether it is objectively
verifiable.
“An injury is inherently undiscoverable if it is, by its nature, unlikely to
be discovered within the prescribed limitations period despite due diligence.”
Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734–35 (Tex. 2001). The
inquiry focuses categorically on the type of injury alleged rather than on the
circumstances of the particular case. Id. at 736; see also Via Net v. Tig Insurance
Co., 211 S.W.3d 310 (Tex. 2006) (per curiam).
The Texas Supreme Court has applied the discovery rule to a variety of
categories, but neither misappropriation of trade secrets, Altai, 918 S.W.2d at
457, nor failure to notify of the existence of a cause of action, HECI Exploration
Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998), nor failure to add a third party as
additional insured, Via Net, 211 S.W.3d at 313, has been held to constitute an
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No. 08-40076
inherently undiscoverable injury. Indeed, no Texas court has found a breach of
contract to qualify as inherently undiscoverable, yet the Texas Supreme Court
has not foreclosed the possibility. See Via Net, 211 S.W.3d at 314.
Appellants hope to springboard from the holding that in a fiduciary
relationship, the discovery rule normally tolls the statute of limitations because
beneficiaries have little responsibility to verify the fiduciary’s performance. See
Willis v. Maverick, 760 S.W.2d 642, 645 (Tex. 1988) (“As a fiduciary, an attorney
is obligated to render a full and fair disclosure of facts material to the client's
representation. The client must feel free to rely on his attorney’s advice. Facts
which might ordinarily require investigation likely may not excite suspicion
where a fiduciary relationship is involved.” (citation omitted)). While
acknowledging that no fiduciary relationship exists in their relationship with
MetLife, the appellants contend that the “special relationship of confidence and
trust” between insurer and insured should lessen the duty to verify performance.
This distinction is not compelling. Outside a fiduciary relationship, however,
contracting parties must verify each other’s performance. The Texas Supreme
Court explains:
Contracting parties are generally not fiduciaries. Thus, due
diligence requires that each protect its own interests. Due diligence
may include asking a contract partner for information needed to
verify contractual performance. If a contracting party responds to
such a request with false information, accrual may be delayed for
fraudulent concealment. But failing to even ask for such
information is not due diligence.
Via Net, 211 S.W.3d at 314 (internal citations omitted). Via Net draws a clear
line between fiduciary and non-fiduciary contracts, and the Texas Supreme
Court has shown no inclination to recognize an intermediate “special
relationship” standard in the discovery rule context.
Turning to the facts at hand, we ask whether the injury suffered by these
appellants, by its nature, is unlikely to be discovered within the prescribed
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No. 08-40076
limitations period despite due diligence. Wagner & Brown, 58 S.W.3d at 734–35.
Appellants allege that they received smaller dividends on their insurance
policies after 1991 because MetLife impermissibly diverted profits to other
divisions, but no explanation was offered for the decrease.
The appellants’ situation resembles that of the plaintiff in Altai, where the
court disallowed a delayed claim for theft of trade secrets under the discovery
rule. In Altai, the injury, a new product release by a competitor, was well
known, but its cause, theft of a trade secret, was not. 918 S.W.3d at 457.
Similarly, the reduction in MetLife policy dividends was known to the
appellants, even if the cause of that reduction was uncertain. Using due
diligence, appellants could have studied their policies, contacted MetLife, or
posed inquiries to the appropriate insurance regulatory boards concerning the
smaller dividends. As with the Altai plaintiff, they misunderstand the
“inherently undiscoverable” prong of the discovery rule, which “encompasses the
requirement that the existence of the injury is not ordinarily discoverable, even
though due diligence has been used.” Altai, 918 S.W.3d at 456. In contrast,
leaving a foreign object in a patient’s body conceals both source and injury from
the victim. See Gaddis v. Smith, 417 S.W.2d 577, 579 (Tex. 1967) (“It is a virtual
certainty that the patient has no knowledge on the day following the
surgery—nor for a long time thereafter—that a foreign object was left in the
incision.”).
The Texas cases establish that, at a minimum, due diligence would require
the appellants to request information to verify MetLife’s performance of its
contractual duties. See, e.g., Via Net, 211 S.W.3d at 314. The appellants assert
that this inquiry could have been fruitless because MetLife had no legal duty to
supply them with information. Via Net addressed this argument—if MetLife
had refused to provide necessary information to the appellants, fraudulent
concealment would toll the statute of limitations. Id. Had the appellants
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No. 08-40076
exercised due diligence by requesting information from MetLife, either they
would have received information alerting them of their injuries or MetLife’s
fraudulent concealment would have extended the cause of action. With the
exercise of due diligence, which required inquiry into MetLife’s performance, the
appellants’ injuries were not inherently undiscoverable.
This conclusion is also consistent with Wagner & Brown, Ltd. v. Horwood,
58 S.W.3d 732 (Tex. 2001),which involves facts similar to the instant case. In
Wagner & Brown, the oil and gas royalty owners claimed that the lease operator
inflated charges against the gas sales price and reduced their royalty. Id. at 733.
The court determined that “a royalty owner should exercise due diligence to
determine whether charges made against royalty payments are proper and
reasonable” and that due diligence required requesting information from the
lessee. Id. at 736. Investigating improper charges was not too onerous a burden
to impose on contracting parties, and “those who receive statements listing fees
charged should be alerted to the need to perform additional investigation to
protect their interests.” Id. at 737. The district court correctly described the
similarities:
The case at bar is materially indistinguishable from Wagner &
Brown. Just like the lessees who did not diligently investigate the
lessor’s conduct or the reasons for the lower royalty payments, the
plaintiffs in this case have not shown this court that they made
appropriate efforts, or, indeed, any efforts to inquire with MetLife
about any allocations of surplus profits throughout the 1980s to
determine whether defendant was properly performing its
contractual obligations.
The appellants have not meaningfully distinguished this case from Wagner &
Brown. Based on its previous decisions, we conclude that the Texas Supreme
Court would not apply the discovery rule to this type of injury.
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No. 08-40076
2. American Pipe Tolling
American Pipe held that the statute of limitations is tolled for potential
class members during a pending class action: “[T]he commencement of a class
action suspends the applicable statute of limitations as to all asserted members
of the class who would have been parties had the suit been permitted to continue
as a class action.” American Pipe & Const. Co. v. Utah, 414 U.S. 538, 554,
94 S. Ct. 756 (1974); see also Grant v. Austin Bridge Const. Co., 725 S.W.2d 366,
370 (Tex. App.—Houston [14th Dist] 1987, no writ). Because the discovery rule
does not toll the statute of limitations here, the appellants do not dispute that
their cause of action expired before the filing of Rabouin. American Pipe does
not resurrect expired claims and is inapplicable. See Grant, 725 S.W.2d at 370
(“Any time remaining on the statute of limitations . . . on the date of the filing
of the lawsuit was restored and began to run again on the date the class was
decertified.”).
IV. CONCLUSION
Because the appellants’ injury was not inherently undiscoverable, the
discovery rule does not toll the statute of limitations, and the district court
properly dismissed the suit as time-barred.
AFFIRMED.
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