Often in business divorce cases, one party will assert that the other party breached fiduciary duties. The defending party may then raise a statute of limitations defense, arguing that the claim is stale and should have been raised earlier. The statute of limitations in Texas for breach of fiduciary duty is four years. The party raising the claim may then argue that the statute was tolled due to the discovery rule and that the party did not know of the claim in time to raise it within the limitations period. The Texas Supreme Court recently issued an opinion addressing the use of the discovery rule for tolling limitations in breach of fiduciary duty cases.
In Marcus & Millichap Real Est. Inv. Servs. of Nev. v. Triex Tex. Holdings, LLC, Triex purchased a gas station in 2008 from Hamilton Holdings. No. 21-0913, 2023 Tex. LEXIS 22 (Tex. January 13, 2023) (per curiam). Both the buyer and seller used Marcus & Millichap as their broker for the transaction. In 2012, the operator of the gas station defaulted on the lease. A little over three years later, Triex sued Hamilton Holdings and others for breach of contract, fraud, and related torts. After some discovery, Triex added Marcus & Millichap to the lawsuit in March 2017 and asserted claims for breach of fiduciary duty, fraud by nondisclosure, and conspiracy. Marcus & Millichap moved for summary judgment, arguing that Triex’s claims were time-barred. The trial court granted the motion, and the court of appeals reversed and remanded, concluding that a fact issue existed as to whether Triex “knew or should have known on [December 1, 2012,] that the injury was the result of wrongful acts committed by Marcus & Millichap.” The Texas Supreme Court granted review.
The Court noted that a claim generally accrues when the defendant’s wrongful conduct causes the claimant to suffer a legal injury. Id. The Court also noted that the discovery rule can defer accrual of limitations:
The discovery rule is a “narrow exception” to the legal injury rule that “defers 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.” It “applies when the injury is by its nature inherently undiscoverable.” “An injury is inherently undiscoverable if it is by nature unlikely to be discovered within the prescribed limitations period despite due diligence.” “The determination of whether an injury is inherently undiscoverable is made on a categorical basis rather than on the facts of the individual case.” The question is whether the injury is “the type of injury that could be discovered through the exercise of reasonable diligence.”
Id. The Court then discussed the application of the discovery rule in fiduciary cases:
We have held that “in the fiduciary context, . . . the nature of the injury is presumed to be inherently undiscoverable” because “[f]iduciaries are presumed to possess superior knowledge.” So “[a] person to whom a fiduciary duty is owed may be unable to inquire into the fiduciary’s actions or may be unaware of the need to do so.” Accordingly, “even if inquiry is made, ‘[f]acts which might ordinarily require investigation likely may not excite suspicion where a fiduciary relationship is involved.'”
Id. The Court then held that the discovery rule applies in this case as a fiduciary relationship existed. “When the discovery rule applies, the statute of limitations does not begin to run ‘until the plaintiff knew or in the exercise of reasonable diligence should have known of the wrongful act and resulting injury.’” Id. The Court discussed recent precedent on application of the discovery rule in fiduciary cases:
We have stated this rule in slightly different ways. But last Term, we explained that this means the discovery rule defers accrual “until the claimant knew or should have known of facts that in the exercise of reasonable diligence would have led to the discovery of the wrongful act.” Or, in other words, accrual is deferred “until the plaintiff knew, or exercising reasonable diligence, should have known of the facts giving rise to the cause of action.” Consistent throughout our cases is the requirement of reasonable diligence. We have also explained that “the discovery rule does not linger until a claimant learns of actual causes and possible cures.” Nor does it defer accrual until the plaintiff knows “the specific nature of each wrongful act that may have caused the injury,” or “the exact identity of the wrongdoer.”
Id. The Court then held that Triex should have discovered its claims, using reasonable diligence, before four years before the claims were filed:
In 2012, Triex had actual knowledge of its injuries and became aware of the need to inquire into Marcus & Millichap’s actions. The court of appeals concluded that “the evidence conclusively establishe[d] that appellants were aware that they had sustained an injury by December 1, 2012,” the date Taylor Petroleum defaulted. But it determined that a fact issue existed as to whether Triex “knew or should have known on [December 1, 2012,] that the injury was the result of wrongful acts committed by Marcus & Millichap.” The court of appeals came to this conclusion by “reliev[ing] [Triex] of the responsibility of diligent inquiry” because of its fiduciary relationship with Marcus & Millichap. But as we reiterated last Term, “those owed a fiduciary duty are not altogether absolved of the usual obligation to use reasonable diligence to discover an injury.” Recognizing that “the presence of a fiduciary relationship can affect application of the discovery rule,” we explained that “it remains the case that ‘a person owed a fiduciary duty has some responsibility to ascertain when an injury occurs.’ ‘[W]hen the fact of misconduct becomes apparent it can no longer be ignored, regardless of the nature of the relationship.'”
Had Triex exercised reasonable diligence, it would have discovered Marcus & Millichap’s allegedly wrongful acts. Part of Triex’s claim against Marcus & Millichap is that it misrepresented that “this was a sure-fire and financially sound investment,” and that “rent would be coming in every month without any issues or risk.” When Taylor Petroleum defaulted on the lease, Triex “knew or should have known that something was amiss.” Indeed, Weiner’s affidavit in response to the summary judgment motion admitted that at the time of the breach, he knew Marcus & Millichap did a “poor job” of representing him. His awareness of his injury and of Marcus & Millichap’s poor representation “obligated him to make further inquiry on his own if he wanted to preserve a timely claim.” Instead, Triex waited three years to sue the initial defendants, and an additional year to take depositions.
Id. For the same reasons, the Court rejected a fraudulent concealment defense. The Court reversed the judgment of the court of appeals and reinstated the trial court’s judgment dismissing all of Triex’s claims against Marcus & Millichap.