In a per curiam opinion delivered last week, the Texas Supreme Court has reversed an Amarillo Court of Appeals decision holding “that the discovery rule delays accrual and limitations until the claimant also knows of the wrongful acts and actors, without requiring the plaintiff to exercise reasonable diligence.” The Court’s ruling restores the trial court’s summary judgment order dismissing plaintiff’s claims based on the statute of limitations.
Marcus & Millichap Real Estate Investment Services of Nevada, Inc. v. Triex Texas Holdings, LLC and Bryan Weiner(No. 21-0013; delivered January 13, 2023) arose from breach of contract, breach of fiduciary duty, and fraud actions brough by Triex against the owner of Lubbock gas station, which Triex had purchased in a deal in which both parties were represented by the same broker, Marcus & Millichap. Four years after Triex bought the property and leased it back to the seller, Taylor, Taylor defaulted. In February 2016 Triex sued Taylor within the four-year statute of limitations. In February 2017 Triex deposed Taylor and Taylor’s CFO, which caused Triex to suspect that Marcus & Millichap misrepresented the sale to Triex by overvaluing the property to increase its commissions. In March 2017, more than four years after breach of the lease and more than eight years after Marcus & Millichap brokered the sale, Triex brought Marcus & Millichap into the lawsuit, alleging claims for breach of fiduciary duty, fraud by nondisclosure, and conspiracy. Marcus & Millibank moved for summary judgment on the basis that Triex’s claims were time-barred. The trial court granted the motion and severed those claims for appeal. The Amarillo Court of Appeals reversed and remanded, holding that a fact issue existed as to whether Triex knew or should have known on the date Taylor defaulted on the lease (December 2012) that the default resulted from wrongful acts committed by Marcus & Millichap.
SCOTX reversed, holding that the discovery rule did not defer limitations until Triex actually knew of Marcus & Millichap’s wrongdoing. The discovery rule applies to defer accrual of a cause of action “until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to the cause of action” (citations omitted). Whether an injury is “inherently undiscoverable” turns on the “type of injury,” not the facts of an individual case. If the claim involves a type of injury that “could be discovered through the exercise of reasonable care,” the discovery rule does not apply. SCOTX has previously held that a breach of fiduciary is a type of case in which the injury is inherently undiscoverable because “[f]iduciaries are presumed to possess superior knowledge” (citations omitted). The discovery rule, the Court stated, therefore applied to Triex’s claim.
The question then became whether Triex exercised reasonable diligence to discover Marcus & Millichap’s breach. The court of appeals dispensed with this requirement, but SCOTX ruled that when the default occurred in 2012, it put Triex on notice that “something was amiss” because Marcus & Millichap had promised that “rent would be coming in every month without issue or risk.” At the time of the breach, furthermore, Triex’s owner, Weiner, admitted in a deposition that he thought Marcus & Millichap had done “a poor job” representing him. But instead of investigating that representation further, Triex waited three years to sue Taylor and another year to sue Marcus & Millichap. The court of appeals sidestepped this problem by treating Triex’s claim as akin to fraudulent concealment, thereby freeing Triex of the reasonable diligence requirement. SCOTX shot this down, explaining that “deferral in the context of fraud or concealment resembles equitable estoppel. ‘[F]raudulent concealment estops the defendant from relying on the statute of limitations as an affirmative defense to [the] plaintiff’s claim’” (citations omitted). Thus a plaintiff “may rely on fraudulent concealment to avoid application of the statute of limitations when the defendant’s limitations defense is established by the record as a matter of law” (citations omitted). If it is, the burden shifts to the plaintiff to produce summary judgment evidence raising a fact issue on each element of the fraudulent concealment defense to the application of limitations. Triex failed to do that in this case.
This opinion buttresses the principle that the discovery rule, as the Court explicitly states, is a narrow exception to the limitations defense and that plaintiff’s duty of reasonable diligence will be strictly enforced.