T h e H on or abl e D av i d M
. La ws on , U n i t ed St at es D i s t r i ct J u dg e f or t h e Eas t er n D i s t r i ct of * M i chi gan, s i t t i ng by desi gnat i o n.

NO T R EC OM M EN DE D F OR F UL L- TEX T P UB LIC AT ION File Na me: 14a0683n.06 No. 14-5090 UN ITED STA TES C OU RT OF AP P EA LS F OR THE SI XT H C IR CU IT J EANE L . SMI TH, Pla int if f- Ap pe lla nt,
v. J .J .B. H I L L I ARD, W.L . L YO NS, L L C, Def endant- Appellee
.

______________________________ ________ )

) ) ) ) ) ) ) ) ) ON APPEALFROM THE UN I TE D ST AT ES D I STR I CT CO UR T F OR

TH E E AST ERN DI STRI CT OF TENNES SEE AT K N O X V ILLE O P I N I O N

Before: G IBBO NS and McK EAGU E, Circuit Judges; LAWSON, District Judge. * DAVID M. LAWSON, Distr ict Judge. Plaintiff J eane L . Smit h, in her c apac ity as the c otr us tee of t est ame nt ary

tr us ts set up by

her d eceas ed aun t, fi led a law su it in Mar ch 20 11 again st J .J .B. Hi lli ard , W. L . Ly on s, L L C, h e r i nv e stm e nt c o u n se lor and br ok e r d e a le r, a lle g ingthat it s a g e nt, Da vid Stanley Shelton, m ade incompetent investment dec isions ten y ear s ear lier that cost the trusts over half their v al u e. T he district cour t gr anted summary

judgme nt to the defe ndant on its statute of limit ations defe n s e. S m i t h ar gu es o nap p ea l t h at t h e d i s t ri ct co u rt m i s ap p l i edT en n es s ee ’s “discove ry rule” and that t h e l i m i t ati ons period wa s tolled by Shelton’s and Hilliard’s a lleg ed fr audulent
conce alment of the true rea sons that the trusts suffer ed such he avy losses. We disagr ee a

nd aff irm the dis tr ic t c ourt ’s jud g me nt.No. 14-5090

Sm ith v . J .J .B . H ill iar d

2 I
. The last will and testame nt of Ms. Ula Doug hty cre ated thre e testame ntary trusts, the life benef iciarie s of which were her relatives and, there afte r, t he University of Tenne ssee at Knox ville. J eane L . Smit h, Doug hty ’s ni ece , is the beneficiar y of one of

the trusts, a co- trustee f

or all three , and afte r the stipulated dismissal of the other na med pl aintiffs, now is the s ole re maining pla intiff and appellant. Smith ha d been employ ed as a bookkeepe r for sever al dec ades be fore Doug hty ’s death, and she me t regularly

with Doug hty

to reviewher inve stments. Doughty stipulated in her will that
eac h of the thre e trusts would be funde d with $1,000,000 of municipal bonds allocate d from the assets held in her

persona l investment acc ount at the time of her death. I n addition to naming Smith as a trustee , Doug hty ’s will also named Da vid Stanley

Shelton
as a c o-trustee and “inve stment cou n s el o r” fo r ea ch of the trusts. Shelton worked as a financ ial consultant in the Knoxvi lle office of defe ndant J .J .B. Hilliard, W.L
. L y ons, L L C, a secur ities broker deale r, fr om Febr

uary 1991 until August 2005. The will dire cted that for e ach tr ust, “the Co-Trustee s shall follow the written dire ctions of the investment counselor with r espec t to the purc hase, sa le . . .
or enc umbranc e of trust princ ipal and the investment and reinvestment of funds held her eunder and shall have no duty to r eview or monitor trust investments.” Shelton c ontends that he did not make
any inv e stm e nt d e c isi on s h ims e lf a s c o- tr us te e of the tr us ts, bu t ma de on ly

“ re c omm e nd a tio ns ” reg arding the investment of trust a ssets, which wer e approve d by Smit h. Smit h does not dispute that she “a g ree d to the investments” that Shelton rec ommended for the trust.No. 14-5090

Sm ith v . J .J .B . H ill iar d

3 Shelton handled Doug hty ’s investment ac count from 1 9 94 or 1995 until her death in the spring of 2000. B efor e Ms. D oug hty ’s death, the investments in he r ac count included a “De clar ation Annuity ” and a “Triple Advantag e Annuity ,” both of whic h had bee n acquir ed using marg in debt (money lent to her a ccount by Hilliard L y ons, on which the a ccount pa id substantial interest). The two annuities wer e purc hased some time in 1998. Af te r Dou ghty

die d, the a sse ts i n h e r i nv e stm e nt a c c ount w e re tr ans fe rr e d to an e state
a c c o u n t , w h i c h h e l d

t h e a s s e t s b e qu e a t h e d

t o t h e s e v e r a l t r

u s t s c r e a t e d u n d e r

D o u g h t y ’ s w i l l
. In Ap ri l 20 00 , th e a sse ts h e ld i n th e e state a c c ount i nc lud e d $ 2, 86 4, 00 0 in munici pal (t a x exem

pt) bonds, along with the Dec lar at i o n an d Triple Adva ntag e annuities, e ach of

which had a

n orig inal contra ct value or acquisition cost of $1,000,000. The acc ount statement from Apr il 2000 does not disclose the mar

ket value of

the Dec laration and Triple Adva ntag e annuities whe n they wer e tr an s f e r r e d i n t o th e e s t a t e a c c o u n t , b u t i t d o e s r e f l e c t t h a t a t t h a t t i m e t h e a c c o u n t ha d ama rg in ba lanc e (o uts tand ing deb t owe d to Hi lli ard L y on s) of

$1 ,4 78 ,0 00 . T he re c or d is un c le ar o n th is point, but the figur es sug g est th at t he ac count had a net asset va lue betwe en $1,386,000 and $3 ,3 86 ,0 00 , d e pe nd ingon the mark e t va lue of

the tw o o ri g ina l annuit ie s. The sole stated i nvestment objective for t he estate acc ount was “ta x fre e income,” which wa s consistent with the desire e x presse d in Doug hty ’s will that the “Truste e maintain all investments of the Tr us t a sse ts i n tax-f

re e mun ic ipa l bo nd s so tha t [th e be ne fi c iari e s] w ill re c e ive ta x-f re e inc ome from th e T r

u s t. ” H o w e v e r , th e c o - tr

u s te e s r e ta in e d d is c r e ti o n to inv e s t th e a s s e ts in an y e qu it y or debt sec urity

they chose.No. 14-5090

Sm ith v . J .J .B . H ill iar d

4 The investments that cause d the dispute in this case oc curr ed in May and August 2000. On May 25, 2000, on Shelton’s rec ommendation, Smit h autho ri z ed the purc hase of a “Pac ific Va lue Va ri a ble Annu ity” by

the e state a c c ount , for

the be ne fi t of

the Ul a L ov e Do ug hty

Cha ri ta ble Remainder T rust of which she was a benef iciary . On Augu s t 2 8 , 2000, Smit h authorized the purcha se o f

a s e c o n d “ A me r ic anE xp r e s s A n n u it y ” b y th e tr u s t a c c o u n t, a ls o o nSh e lton’ s
rec ommendation. The cost of each of the two annuities was $1,000,000. Shelton testified that he could not reme mber the de tails of the transa ctions, but he rec alled that the purcha se was not funded by the sale of

any of the e state’s municipal bonds, and a fter r eviewin g the monthly estate a ccount statements for A

pril and May

2000, he conc eded tha t t h e P ac i fic Va lue annuity must have bee n purcha sed using marg in debt. Shelton also confirmed that in May 2000, the ac count showed a balanc e of $1,200,000 in mar g in debt. Hilliard L y ons contends that the account s tatements for the months of J une, S eptember , and Oc tober 2000, followingthe purc hase of the two annuities, re flec t that in those months the estate ac count had e ither no outstanding marg in d ebt or at most l ess than $500. Neve rtheless, Shelton testified t hat when the Pacific V alue a nd Americ an Express annuities
wer e purc hased by

the estate acc ount, he knew that the estate ow ed $166, 7 7 9 i n s t at e taxes and $620,779 in fede ral taxes that had not bee n paid. The monthly statem en t fo r Dec ember 2000 ref lected that chec ks for the ta x es we re issued f rom the ac count to satisfy the t ax liabiliti es, and for that same mon th t

he state me nts re ve a le d th a t th e a c c ount h a d a ba lanc e of

$8 20 ,0 00 in m arg in d e bt. Mo re ov e r, bo th t

he Pa c if ic Va lue and the Am e ri c an Expr e ss annuit ie s a llo c a te d a ll o f t he ir assets to equity

instrume n t s . T h i s was no sec ret, a s the allocations were c lear ly set out in theNo. 14-5090

Sm ith v . J .J .B . H ill iar d

5 respe ctive applica

tions. The applications wer e equally clea r t hat none of

the funds’ a ssets would be invested in debt instruments, including municipa l bonds. When asked to consider

the disposition of the estate ac count as of A pri l 2000, Shelton
conce ded that the inter est paid on the marg in debt would have c onsumed some of the ta x exempt income produc ed by

the municipal bonds, and the investment of signific ant assets in the two stockholding a nnuities was “pr obably

not” consistent wi t h t h e s tated investment objec tive of tax free income. For her pa rt, Smit h admits that as executor and truste e for the estate acc ount, she rec eived monthly statements for the estate a ccount f rom Hilliard L y ons from April 2000 throug h November 20 05 , a nd qu art e rl y state me nts fr om e a c h o f t he annuit ie s p ur c ha se d b y the accou nt for the same p e r i o d
. S m i t h t e s t i f

i e d t h a ts h e n e v e r

r e v i e w e d

t h e s t a t e m e n t s , b u ts i mp l y f i l e d t h e m a w a y. Ho we ve r, Smith und e rsto od that Sh e lto n w a s th e c o- tr us te e and fi na nc ia l a dv iso r f

or the e state
acc ount, and if she ha d an y co n cer ns about any

thing that a

ppear ed in the ac count statements she could contac t him to ask him questions. But she never contac ted Shelton to tell him that any thing on the statements see med “out of the ordinary” or that any of the invest m ents ref

lected in the statements wer e contr ary

to her dire ctions as trustee. I n Fe bruar

y 2001, Hilliard L y ons direc ted S helton to resig n as trustee from all ac counts for which he w as ser

ving in that c apac ity . Shelton ex plained that s er v ing a s both a trustee a nd an investmen t a d v is o r

o r a g e n t f o r a tr u s t p r e s e n te d

a c o n f li c t o f in te r e s t a n d v io late d H il li ar d L y ons policy . Shelton did not recall if he notifie d the other truste es of his v ar i o u s ac counts that he ha dNo. 14-5090

Sm ith v . J .J .B . H ill iar d

6 resig ned, but he asser

ts that he did r esig n and that he no longe r would have been listed a s a trustee
or co- owner

on any acc ount rec ords af

ter F ebrua

ry 2001. L ess than eig hteen months afte r they wer e purc hased, the co ll e c ti v e v alue of the two annuities ha d d e c lin e d b y

mor e tha n f if ty pe rc e nt f ro m th e ir no min a l to ta l pu

rc ha se c os t of $2 ,0 00 ,000 to $952,532.87. By

the end of 2002, the value of the Pacific Value a

nnuity had fa llen to $485,540.74, and the Ame rica

n Ex press a

nnuity had fa llen to $466,992.13. On J une 9, 2005, Shelton’s supervisor at Hilliard L y ons, Br ian Donaldson, sent Shelton an email re g ardinga “m ar gi n notice,” w hich as Shelton explained relate d to a “mar g in call,” or a situation where “ the value of the sec urities and t h e v al ue of the marg in debt don’t meet the require ments and y o u h av e to put more money into the acc ount so that it m eets the guidelines.” Do na lds on

wr ote : “ Stan, Why

wo uld an e state a c c ount w ithmuni s and an a nnuit y be on marg in any way ? More to the point, let me know how the client will handle the [marg in] call.” Af te r S he lto n le ft

his po sit ion a t H ill iard

L y on s in Au g us t 20 05 , th e e state a c c ount a nd a ll of its a ssets wer e transfe rre d from Hilliard L y ons to Shelton’s new employ er, a nd Hilliard L y ons no lon g e r h e ld a

ny a ss ets or had any

re sp on sib ili ty

fo r t he mana g e me nt o f t

he tr us ts o r t he e state
acc ount. Smit h did not file her state court c omplaint in thi s case until Marc h 2, 2011. The c omplaint alleg es that Hilliard L y ons is liable for the misconduc t of Shelton as its ag ent and is liable for failing to dis c l o s e t o S m i t h m a t e r i a l f a c t s r e g ar d i n g t h e c o n f

l i c to f i n t e r e s ti nS h e l t o n ’ s p o s i t i o na s bo th trustee a nd investment counselor, as well as the fac t that the investments r ecommende d by SheltonNo. 14-5090

Sm ith v . J .J .B . H ill iar d

7 wer e incompatible with the state d investment objective of the estate acc ount. Smit h explained the delay in bring ing suit by alleg ing that until appr ox imately 60 day s befor e filing the complaint, she had no knowledg e of the fac ts that (1) t he assets in Doug hty ’s account at the t ime of her death we re not enoug h to fund all three trusts with $1,000,000 e ach; (2) the purcha ses of the Pac ific Va lue and Americ an Express annuities wer e funde d by marg in debt; and (3) Shelton had resig ned as truste e of the trusts at Hilliard L y ons’ direc tion due to a conf lict of interest. Smith contends that “bef ore the
rec ent disclosures by

Mr. Shel t o n , p l ai n tiffs had only a limited understandingthat the trusts had sustained some investment losses and did not know t hey wer e the result of any leg al misconduct.” She alleg es that Shelton “told plaintiffs that these losses wer e simply the re sult of the g ener al marke t do wn tur n, ” and that he “ a lso state d, un tr

uth fu lly , th a t th e annuit ie s’ de a th b e ne fi ts wo uld ult imate ly reple nish the trusts.” During her deposition, Smit h testified t hat s he was not awar e of a ny fac ts that would support the spec ific alleg ations in pa rag raphs 18 throug h 25 of the complaint, which a lleg ed the details of t he mi sconduct summ arized above; that she could not re call if Shelton made a ny of the alleg ed stateme nts to her re g ardingthe manag ement of the acc ount, or if he did, whe n he had ma de them; and that she c ould not reca ll when was the last time that she spoke to Shelton. Hilliard remove d the ca se to fede ral c ourt, and, a fter a period of disc overy , moved for summary judgme nt on its st atute of limit ations defe nse. The district cour t gr anted the motion and dismiss ed the case . The pa rties ag ree d that Tenne ssee’ s three- y ear statute of limitations gover ned the claims for

breach o f fi d u ci ary

duty , neg lige nce, a

nd rec klessness, and a

three -y ear

statute of
re po se g ov e rn e d th e Te nn e sse e Se c ur iti e s A c t c la im. Th e re wa s a lso no dis pu te tha t th e pla int if

f d idNo. 14-5090

Sm ith v . J .J .B . H ill iar d

8 not file her la

wsuit for more tha

n ten y ear s after

the cha lleng ed investments wer e purc hased, ove r nine y ear s afte r t hey incurre d the precipitous losses cited by the plaintiff, and ove r five y ear s after She lto n left th e def

end ant ’s e mp lo y , al l o f wh ich con cei vab ly cou ldhav e rep res ent ed t he acc rual date for the pla intiff’s claims. The c ourt noted that Smith had si g ned both investment applications and
rec eiv ed re gu l ar state ments over se vera l y ear s from the broke r and the annuities, so she knewor sh ou ld h a ve kn ow n th a t th e inv e stm e nts ha d b e e n ma de and c a us e d h e a vy

los se s to the tr

us ts. There fore , the court rea soned, the plaintiff had all the information nece ssary to disc over the injury and its sourc e in the defe ndant’s wrong ful conduct, and no rea sonable j u ro r c o u l d conclude otherwise. T he district cour t also found that the limitations period was not tolled by any failure by the def endant to disclose infor

mation that preve nted t h e p l ai ntiff from lea rning of the investment los se s and

a ny po te nti a l c la ims sh e mig ht h a ve ha d a g a ins t H ill iard L y on s b a se d o n th os e los se s. Smit h filed a timely

appea l. II. Both sides a ssert in their jurisd i ct i o n al statements that this Court has subject matter jurisdiction over an a

ppeal f rom the district court’ s final j u d gm en t , wh ich in turn was ba sed on div e rs ity ju ri sd ic tio n o ve r t he re mov e d c a se . N e ith e r s ide e xpre sse d d iss a tis fa c tio n w iththo se
re pr e se ntatio ns , a

nd su bje c t matte r j ur isd ic tio n w a s n ot d isc us se d b y the dis tr ic t c ourt . B ut t

he re is
a pr ob le m. A t th e ti me th e c a s e w a s r e mo v e d , th e r e w e r e s e v e r a l n a me d p la in ti f f s , a ll o f w h om were benef iciarie s of the three t est amentar y trusts. The complaint alleg ed that some we re c itiz ens ofNo. 14-5090

Sm ith v . J .J .B . H ill iar d

9 Geor g ia, Tenne ssee, a

nd Californ ia
. T h e c o mp la int a lso alleg ed, incor rec tly , that defe ndant-a

ppellee J.J.B . H ill iard , W. L . L y on s, L L C, a limit e d lia bil ity c omp any , “is an o ut- of -s ta te c or po ra tio n w ith
an o ff ic e in K no x Coun ty

Te nn e sse e .” Th e de fe nd ant ad mit te d the a lle g a tio ns of

pa ra g ra ph5 in its
answe r, b u t did not elaborate on the citizenship or membership of J.J .B. H illiard or its parent HL F ina nc ia l. Whe n de te rm ini ng div e rs ity of c iti zen sh ip, a

lim ite d li a

bil ity c omp any ha s th e c iti zen sh ip of ea ch of its member s. De lay v . R os e nth al C

oll ins Gr ou

p, LLC , 585 F.3d 1003, 1005 ( 6th Cir. 2009). During the c o u r s e o f th e la w s u it , th e p arti e s a g r e e d to d is mi s s a ll o f th e p la in ti f f s e xcept Jeane L . Sm ith , th e c o- tr

us te e of a ll thr e e tr

us ts. Th a t is ho w the c a se c ome s to u s o n a pp e a l. S mith is a citizen of Geor g ia. After direc tions fr o m this court, the parties submitted letter br iefs addr essing the issue of
c omp le te div e rs ity . In it s b ri e f, de fe nd ant- a pp e lle e Hi lli ard

L y on s st a te s: The mem b er s o f Hilliard L y ons are (1) Houc hens Industries, I nc., a K entucky c o r p o r a t i o nw i t h i t s p r i n c i p a l p l a c e o f b u s i n e s s l o c a t e d i n B o w l i n g G r e e n , K e n tu c ky, and (2 ) H LF ina

nc ia l Se rv ic e s, L L C, a Ke ntu c ky lim ite d lia bil ity c omp any wi th i ts principal o ff

ice located in L ouisvill e, Ke ntucky . There are 196 members of HL F i n a n c i a l S e r

v i c e s , L L C , a l l o f

w h o m r e s i d e i nt h e f

o l l o w i n g s t a t e s : K e n tu c ky, I n d ia n a , O hio, Tennessee , Florida , Arka nsas, South Carolina, Michig an, Pe nn sylva

nia , I llino is, Wes t V ir g ini a , a nd No rt h Ca ro lin a . H LF ina

nc ia l Se rv ic e s, L L C has no members who r eside in the State of G eorg ia. (Emphasis adde d.) Hilliard Ly ons contends that bec ause no me mber or sub- member of Hilliard L y on s is a

re sid e nt o f G e or g ia

(t he state o f w hic h Jea

nn e Smith, the so le re ma ini ngpla int if f, is a citizen), complete diver sity exis ts and t his court has subjec t matter jurisdiction. The plaintiff
concur red w ith that posit ion without elaboration.No. 14-5090

Sm ith v . J .J .B . H ill iar d

10 Howeve r, the c omplaint alleg ed that plaintiff “ Scott O. L anfor d is a reside nt of Oltewa h, Te nn e sse e .” “ I n o rd e r f or a de fend ant to re mov e a

c a se to f e de ra l c ourt

ba se d u po n d ive rs ity jur isd ic tio n, the re mus t be c omp le te d iv ers it y of c iti zen sh ip b oth

a t th e tim e that th e c a se is
c omm e nc e d a

nd a t th e tim e that th e no tic e of re mov a l is fi le d, ” and

wh e re “ c omp le te div e rs ity did not exi st when the c ase w as re moved . . ., the d i s t ri ct co u rt lacke d subject matter jur isdiction.” J e ro me -D un c an , I

nc . v . A uto -B

y -T e l, L LC , 176 F.3d 904, 907 ( 6th Cir. 1999) (ci t i n g E asley v

. Pettibone Mich. Corp. , 990 F.2d 905, 908 (6th Cir. 1993) ). I t the ref ore appea rs that the district court did not have subjec t matter jurisdiction at the time of re moval beca use Tennes see c itiz ens we re
a mon g bo th t

he pla int if

fs and the de fe nd ant. Neve rtheless, this court ha s held that “whe re r emoval is improper but a f inal judgme nt issues with jurisdiction ex isting at that time . . . i f the plaintiff did not move to re mand to state cour t, the judgme nt stands.” Gentek Bldg. Products, Inc. v . Sherwin-W illiams Co. , 491 F.3d 320, 327 (6th Cir. 2007). More over, “ ‘an e rrone ous remova l need not ca use the de struction of a f

inal judgme nt, if the require ments of fe d er al s u bject-matter jurisdiction are met at the time the judg ment is entere d.’” Ibid. (q u o t i n g Cat e rp illar In c . v . Le wis , 519 U.S. 61, 73 (1996)). Hilliard L y ons did not address whe ther c omplete diversity exis ted at the time of

remova l, but it does point out t hat 28 U.S.C. § 1441(b)(2) prohibits removal by a re si d en t d ef

en d ant, which Hilliard L y ons was by

virtue of havinga Te nnessee citizen as a sub-membe r. Hilliard Ly ons
c on te nd s th a t any

c on c e rn s o n th is p oin t ou g ht t o b e a lla y e d b e c a us e the pla int if

f w a ive d it s r ig ht t o object to re moval by

failing to file any

motion to remand. That may be true of non-jurisdictionalNo. 14-5090

Sm ith v . J .J .B . H ill iar d

11 defe cts in remova l. Se e So uth we ll v . S um mi t V ie w of Fa rra gu t, L LC , 4 94 F . App ’x 50 8, 51 1 n .2 (6 th Cir. 2012) (“w e have held that § 1441(b)( 2) is non- jurisdictional a

nd must be raised by

the plaintiff i na m o t i o nt o re m an d ”) (c i t i n g Plastic Moldings Corp. v. Park Sherman Co. , 606 F.2d 117, 119 n.1 (6 th C ir . 1 97 9) ; RFF Family Partnership, LP v. W asserman , 316 F. A p p’x 410, 411-12 (6th Cir. 2009)). B ut the failure of complete diversity is not a non-jurisdictional defe ct. See D elay , 585 F.3d at 1005. I n a ny e ve nt, e ve n if

the re mov a l w a s n ot a

uth or ize d b y

the statut e , the gen eral rule s til l would apply that “whe re afte r remova l a case is trie d on the merits without objection and the fe dera l court e nters judg ment, the issue in subsequent proc eeding s on appea l is not whether the case w as proper ly remove d, but whether

the fe dera l district court would have had orig inal jurisdiction of the
case had it been filed in that court.” Grubbs v. Ge n. Elec. Credit Corp. , 405 U.S. 699, 702 (1972). Take n toge ther with the hol dings of Cat e rp illar and Gentek , Gr ub bs sta

nd s f or the g e ne ra l pr inc ipl e that reg ardle ss of whethe r re moval was improperly taken at the outset of the matter, a nd even w here the district court lacke d subject matter jur isdiction at the time of remova l, a final judg ment later rend er ed m ay s t and as long a s the trial cour t in fact ha d subject matter jur isdiction at the time the judgme nt was ente red. We c onclude that c omplete di v er s i t y exis ted at the time the district cour t enter ed its judgme nt beca use t he plaintiff wa s a citizen of Geor g ia and no membe r of the de fenda nt L L C was a c itiz en of that state.No. 14-5090

Sm ith v . J .J .B . H ill iar d

12 III
. T h i s C o u rt “r ev i ew [ s ] d e n o v o [ a] d i s t ri ct co u rt ’s gra n to f s u m m ary j u d gm ent.” Lo ngaberger Co. v . Ko lt , 5 8 6 F. 3 d

4 5 9 , 4 6 5 (6 t h C i r. 2 0 0 9 ) ( ci t i n g W illiamson v. Aetna Life Ins. Co. , 481 F.3d 369, 374 (6th Cir. 2007)). “Summary judgme nt ‘should be rendere d if the plea dings, the discovery and disclosure materia ls on file, and any aff id av i t s s h o w t hat there is no ge nuine issue as to any materia l fac t and that the movant is entitled to judg ment as a matter of law .’” Ibid. (q uo tin g F e d. R. Civ. P . 56(c) ). “The moving pa rt y bear s the burden of proving the abse nce of

g enuine issues of materia l fac t and its entitlement to judgment as a matter of la

w.” Ibid. ( ci t i n g Celotex Corp. v. Cat re tt , 477 U.S. 317, 322-23 (1986))
. “When sitting in diversity , fede ral c ourts are requi re d to apply the substantive law of

the states in w hich t h ey

reside,” In re Darv ocet, Darv on, & Propoxyphe ne Products Liab. Lit ig. , 7 5 6 F. 3 d 9 1 7 , 9 3 7 (6 t h C i r. 2 0 1 4 ) ( ci t i n g Erie R.R. Co. v. Tompkins , 304 U.S. 64, 78 (1938) (holding that a fe dera l court sitting in diver s i t y i s b ound to follow the law of the forum state) ), and w e ar e “bound by the ruli ng s of t he state supr eme c ourt” on que stions of state law, ibid. (c i t i n g Bradley v

. Gen. M otors Corp. , 512 F.2d 602, 604- 05 (6th Cir. 1975)). “ P u rs u ant t o the Erie do c tr ine , s ta te statutes of l imitations must be applied by fede ral courts sitti ng in diversity .” Blaha v. A.H. Robins & Co. , 7 0 8 F. 2 d

2 3 8 , 2 3 9 (6 t h C i r. 1 9 8 3 ) ( p er cu ri am ) ( ci t i n g Gu aran ty Tru st C o. v . York, 3 26 U. S. 9 9 (1 9 4 5 ))
. J u s tas l i m i t at i o n s p er i o d s ar e t ak en fr o m s t at e la w, s o ar e th e r u l es re gar d i n g t o l l i n g. W all ac e v . Ka to , 5 49 U. S. 384 , 394 (2 00 7) (“ We have g e ne ra lly re fe rr e d to st a te law f or tol lin g ru le s, just as we have for the le ng th of statutes of limitation.”).No. 14-5090

Sm ith v . J .J .B . H ill iar d

13 A
. Smit h’s main ar g ument on appea l is that Hilliard failed to c arr y its burden of e stablishing the la c k of a ma te ri a l f

a c t is su e , b e c a

us e it d id n ot dis prove that Smi th discovere d her c laims within t he limit ations period. Howe ver, tha t a r g u me nt misconstrues the allocation of burdens on the limitations iss ue un de r T e nn e sse e law. Th e Te nn e sse e Sup re me Court ha s he ld that on c e a de fe nd ant s e ts f

or th
a pr im a fa c ie limit ations defe nse — i.e., whe re the undisputed fac ts show tha t t h e claim was complete outside of the limit ations period — then the bur den is on the plaintiff to establish that either the discovery

rule or a rec og nized t o l l i n g ex ception should apply in order to de feat that defe nse. Re dwi ng v . Cath oli c Bi sh op for Di oc ese of M

e mp his , 363 S.W .3d 436, 463-64, 467 (Te nn. 2012). As we rec ently explained, “ [b] eca use the statute of limit ations is an aff irmative def

ense, the burd e n is on the de fe nd ant t o s ho w that th e statut e of lim itatio ns ha s r

un , a nd if the de fe nd ant m e e ts this requireme nt then the burde n shifts to th e p l ai n t i ff to establish an exception to the statute of limit ations.” Lut

z v . Ch esa

pe ak e Ap pa lac hia , L. L.C. , 717 F.3d 459, 46 4 (6 t h Cir. 2013) (quoting Ca m p b e ll v . G r a n d Tr u n k W

. R

. R

. Co. , 2 3 8 F. 3 d 7 72, 775 (6th Cir. 2001)) (quotation marks and alterations omi tted). A statute of limitations defense has t hree components: “the length of the limit ations period, the ac crua l of the ca

use of action, and the applicability of any rele vant tolling doctr ines.” Redwing , 363 S.W .3d at 456. The pa rties ag ree that the plaintiff’s c laims (neg lige nce, r eckle ssness, and bre ach of fiducia ry duty) sound in tor

t, f or which the statute of limit ations is thre e y ear s. See Tenn. Code Ann. § 28-3-105. Acause of ac tion accr ues whe n the plaint i ff d iscovers it, that is, “whe n theNo. 14-5090

Sm ith v . J .J .B . H ill iar d

14 plaintiff knows or in the e x erc ise of re asonable car e and dilig ence should know tha t an injury has been sustaine d as a r esult of wrong ful or tortious conduct by the def endant.” PNC

Mu lti fam ily Ca p i tal Inst’l Fund XXVI v. B luff C ity Comty. Dev . Corp. , 3 8 7 S. W. 3 d 5 2 5 , 5 4 4 ( T e nn. Ct. App. 2 0 1 2 ) ( ci t i n g Shadrick v . Coker , 9 63 S.W. 2d 72 6, 73 3 ( Te nn . 1 99 8) ; Stanbury v. Bac ardi , 95 3 S. W.2 d 6 71 , 6 77 (T e nn . 1 99 7) ); see also Pier v . Jungkind, 427 S.W .3d 922, 927 (Tenn. Ct. App. 2 0 1 3 ) ( s t at i n g t h at “[ t ] h e d i s co v ery ru l e d et er m i n e s w h e n a c au s e o f a ct i o nac cr u es ” ( ci t i n g PNC Mu lti fam ily , 387 S.W .3d at 544)). Severa l T en n es s ee s tate cour t decisions have e laborated on the idea that the statute of limit a ti o n s d o e s n o t b e g in to r u n me r e ly w it

h th e d is c o v e r

y o f th e in

ju r y ; a ls o r e qu ired is “the discovery of the sourc e of the injury .” Redwing , 363 S.W .3d at 458 (c iti n g S herrill v. Souder , 325 S.W .3d 584, 595 (Tenn. 2010) (the c ause of action ac crue s when the plaintiff discovers both the inj ur y and the “ ide nti ty

of the pe rs on

or pe rs on s w ho se wr on g fu l c on du c t c a us e d th e inj ur

y ” ); John Kohl & Co. v. Dearborn &Ewing , 977 S.W .2d 528, 532 (Tenn. 1998) (the c ause of action ac crue s when the pla intiff knows or should know that she sustained a n inj u ry “a s a result of wrong ful . . .
c on du c t by

the de fe nd ant” ); W

yatt v. A–Be

st, Co. , 9 10 S.W. 2d 85 1, 85 5 (T e nn . 1 99 5) (“ a pr e re qu isi te to t he ru nn ingof the statut e of

lim itatio ns is [th e ] pla int if f’ s r e a so na

ble kn ow le dg e of

the inj ur y , it s
c a us e and or ig in” ); Fo ste r v . H

ar ris , 6 33 S.W. 2d

30 4, 30 5 ( Te nn . 1 98 2) (“ no jud ic ia l r e me dy [is] available to [a] pla intiff until he [or she ] discover [s] , or rea sonably should have discove red, ( 1) the
occa sion, the man n er and means by which a br eac h of duty

occur red that produce d his [ or her ] injury ; and (2) the identity of the de fenda

nt who brea ched the duty ”))
.No. 14-5090

Sm ith v . J .J .B . H ill iar d

15 Howeve r, “the discovery rule doe s not delay

the ac crua l of a c ause of action and the
commence ment of t he st atute of lim itations unti l the plaintiff knows the full extent of the dama g es,” Redwing , 3 6 3 S
. W
. 3 d

at 4 5 9 (c i t i n g B&

B Enters. of W

ilson Cnt y., LLC v. Cit

y of Lebanon , 318 S.W. 3d 83 9, 84 9 ( Te nn . 2 01 0) ; W eber v . Moses , 938 S.W .2d 387, 393 (Tenn. 1996) ), “or until the plaintiff knows the specific ty pe of leg al claim it has,” ibid. (c i t i n g John Kohl & Co. , 977 S.W .2d
a t 53 3; Sta nb ur

y , 9 53 S.W. 2d

a t 67 7; W y att , 910 S.W .2d at 855). “The discovery rule is not intended to p e rm it a

pla int if f t o de lay fi lin g su it un til the dis c ov e ry of a ll the fa c ts that a ff e c t th e me ri ts o f h is or her claim.” Ibid. (c i t i n g Mi lls v . B oo th , 344 S.W .3d 922, 929 (Tenn. Ct. App. 2010))
. And the Te nnessee courts have clea rly ex p l ai n ed that the statute ca n beg in to run befor e a pla int if f h a s a c tua l kn ow le dg e of he r l e g a l c la im, if

sh e ha s le arn e d o f “‘fac ts su ffi cie nt t o p ut a
rea sonable person on notice that [s] he has suffe red an injury as a result of wr o n gfu l co n d uct.’” Redwing , 3 6 3 S
. W
. 3 d

at 4 5 9 (q u o t i n g Carvell v. Bottoms , 900 S.W .2d 23, 29 (Tenn. 1995) ). “[I ]nqui ry notice cha

rg es a plaintiff with knowledg e of those f acts that a rea sonable investig ation would have disc losed.” Ibid. (q u o t i n g Sh e rri ll , 325 S.W .3d at 59 3 n . 7 ) (i nterna l quotation marks omi tte d) . “ [O]nc e a

pla int if f g a ins inf or ma tio n suf

fi c ie nt to ale rt a re a so na

ble pe rs on

of the ne e d to investigate ‘the injury ,’ the limitation period beg ins to run.” Ibid. I n the mine run of such case s, what a plaintiff knew and when she came to know it is a fact question “inappropr iate for summary judgme nt.” City State Bank v. De an W itter Reynolds, Inc

. , 948 S
. W
. 2 d 7 2 9 , 7 3 5 (T en n . C t
. Ap p . 1 9 9 6 ) ( ci t i n g Prescott v. Adam s , 627 S.W. 2d 13 4, 13 9 ( Te nn . Ct
. Ap p. 19 81 )) . B ut l ike a ll fa c t qu e sti on s, if the re c or d d e mon str a te s “ that th e re is n o g e nu ine dis pu teNo. 14-5090

Sm ith v . J .J .B . H ill iar d

16 a s to [a] mate ri a l f

a c t[, the de fe nd ant a sse rt ingthe statut e of lim itatio ns de fe ns e ] . . . is e nti tle d to judgme nt as a matter

of law.” Fe d. R. Civ. P . 56(a) . A plaintif f o p p o sing a

motion for summary judgme nt must desig nate specific fac ts in aff idavits, de positions, or other fac tual materia l showing “evide nce on which the jury could reasonably find for the pla intiff.” Anderson , 4 7 7 U
. S
. a t2 5 2
. If the plaintiff, af

ter suff icient opportunity

for discove ry , is unable to mee t her bur den of pr oof, summary judgme nt is clearly

proper . Ce lot e

xCor p. v . Ca tre tt , 477 U.S. 317, 322-23 (1986). Her e, the undisputed fa cts pla in ly establish a pr im a fa c ie de fe ns e that Smi th’ s c la ims are tim e barr ed. The larg e investment losses incurr ed by the t rusts mostly

occur red be tween A

pril 2000 and Dec ember

2002. Smit h lay s the cause of those losses — investing trust a ssets in“hig h g rowth” stock based a nnuities, and ag g ravating the losses by the use of ma

rg in debt to fund the annuity purcha ses
— at th e fe e t of

She lto n a nd his re c omm e nd a tio ns . I f we a c c e pt in fu ll Smit h’ s th e or y a s to the c a

us e fo r t he los se s, any

br e a c h o f d

uty or ne g lig e nc e by Hi lli ard L y on s mu st h a ve oc c ur re d at th e e a rl ie st around A pril 2000, when the estate a ccount wa s first opened a nd the assets fr om Doug hty ’s per sonal investment acc ount were transfe rre d, and at the latest in November 2 0 0 5 , afte r Shelton’s employ ment with Hilliard ended. B y any measure , the complaint filed in 2011 was bey ond the three

y ear period of limi tations. “B eca use t he [ defe ndant] has made out a prima fa cie statute of limit ations de fe ns e , th e burd e n is on [the pla intiff

] to de mon str a te that [he r] c la ims a g a ins t th e [de fe nd a nt] should not be time-barr ed.” Redwing , 363 S.W .3d at 467. Smit h cites a number of district c ourt case s for the propositio n t h at t h e “unrebutted” alleg ations in the complaint that support her discovery and tolling c laims must be assumed to be trueNo. 14-5090

Sm ith v . J .J .B . H ill iar d

17 at the summary

judgme nt stag e. But she must ba ck up those alleg ations with evidence
. Alexande r
v. CareSource , 5 7 6 F
. 3 d 5 5 1 , 5 5 8 ( 6 th Ci r . 2 0 0 9 ) ( n o ti n g th a t “ th e p arty o p p o s in g [a motion for summary judgme nt] may

not ‘rely on t he hope that the trier of fac t will dis believe the movant’s de nia l of a dis pu te d f

a c t’ bu t mu st m a ke an a ff ir ma tiv e sh owing wi th p ro pe r e vid e nc e in o rd e r t o d ef ea t t h e m o t i o n ” ( qu o t i n g Street v. J .C. Bradford & Co. , 886 F.2d 1472, 1479 ( 6th Cir. 1989)). Th e re c or d e vid e nc e , h ow e ve r, a c tua lly c on tr a dic ts the a lle g a tio ns in t he c omp la int
. Smith’ s te sti mony

and the un dis pu te d d o c u

m e nt a r y e v i d e n c e i n

t h e r e c o r d p o s i t i v e l y e s ta bli sh that Smit h knew or should have known by Dec ember 2000, and ce rtainly by November

2005, eac h of the c rucia l fac ts that she relies on to support her claims. That i nformation shoul d have pr ompted he r t o ma ke a re a so na

ble inq uir y int o the fa c ts. Ha d Sm ithdo ne so , s he wo uld have dis c ov e re d b oth the injury and the identity

of the pe rsons responsible f or it more than thre e y ear s prior to the date that she filed he r complaint. No jury rea sonably

could conc lude otherw ise. Fi rst , Sm itha lle g e s th a t sh e wa s n ot a wa re of the us e of

marg in d e bt t o p ur c ha se the Pa c if ic Value and Americ an Ex press annuities. But she does not dispute that the April, May , and De cembe r 2000 monthly

statem en t s fr o m Hilliard L y ons disclosed that the estate acc ount had a mar g in debt balanc e for

eac h of those per iods betwee n $800,000 and $1,200,000 dollars. Second , Smit h say s that she wa s not awa

re that Shelton had assumed a conflict of i ntere st by serving as bot h co-truste e and inv e stm e nt c ouns e lor fo r the tr us ts. B ut sh e do e s no t dis pu te that sh e re c e ive d a c c ount s ta te me nts and sig ned purc hase a

uthorizations t hat plainly identified S h el t o n in his dual roles. Thi rd , Sm ith
ma int a ins that sh e did

no t un de rs tand

that th e e state a c c ount ha d s uf fe re d s ig nif

ic ant l os se s a s aNo. 14-5090

Sm ith v . J .J .B . H ill iar d

18 re su lt o f t he imp ro pe r inv e stm e nts , but she do e s not d isp ute that sh e re c e ive d mo nth ly and qu a rt e rl y statements from April 2000 throug h November 2005 that ref

lected the more than 50% decline in the
va lue of the tr

us t’ s inve stm e nts in the tw o an nu iti e s. Th e c omp la int a lle g e s th a t Sh e lto n to ld S mith th o s e lo s s e s w e r e d

u e to a g e n e r a l ma

r k e t d o w n tu

r n an d th a t th e d e a th b e n e f it s o f the annuities
e ve ntu a lly

wo uld re pl eni sh the tru st a sse ts, bu t sh e ha s n ot o ff e re d a ny re c or d e vid e nc e to s us ta in tho se a lle g a tio ns . And

a lth ou g h Sm ithc on te nd s th a t sh e ha d n o k no wl e dg e of

the wr on g fu l c a

us e of the trusts’ losses, she doe s not dispute that information about the allocation of investments and the amount of the losses wa s rea di l y available to her, ha d she take n the time to reviewthe do c ume nts
. That information placed Smith on inquiry notice. Her response — that she neve r questioned She lto n o r e xami ne d the mul tit ud e of state me nts — is no excu se . “ [M]e re ig no ra nc e of a po ssi ble
cause of action does not toll the statute,” In re Es tat e of D av is , 308 S.W .3d 832, 842 (Tenn. 2010) , and Smit h cann ot o ve rc ome Hi lli ard ’s pr im a fa c ie limit ations defe nse by pleadingthat she did not know of he r injuri es or did not under stand the ca uses of them, simply

beca use she f ailed to take notice of the fac ts that lay befor e her
. Smit h relies on Fo ste r v . H arris , 633 S.W .2d 304 (Tenn. 1982) , arguing that even if the fac t of the injury

in the form of losses to the trust asse ts was appa rent, the “ occa sion, the manner a nd
means by which a brea ch of duty occur red that produce d” those losses we re not. Id. a t 30 5. B ut i n Foster , t h e p l ai n t i ff

d i d n o tl ea rn —

an d re a s o n a b l y c o u l d

n o th av e l ea rn ed—

t h e u n d er l y i n g, essential fa cts that led him to the wrong ful cause of his injury until more than six months after theNo. 14-5090

Sm ith v . J .J .B . H ill iar d

19 injury itself beca

me appa rent. Foster wa s diag nosed with hepatitis in J anuar y 1976, but did not learn the so ur c e un til his de nti st a dmi tte d in July 19 76 tha t th e de nti st h a d h e patit is a nd ha d c ut h ims e lf and the plaintiff whil e performing an ora l surg ery in October

1975, causingtheir blood to mingle. T h e co u rt held that the medica l malprac tice cla im accr ued whe n the dentist made the c rucia l admissions in J uly

1976, n o t ea rl ier in January 1976, when the dise ase w as first diag nosed. Foster do e s n ot h e lp Smith , who kn e w or sh ou ld h a ve kn ow n a ll o f t he e sse nti a l pr e dic a te fac ts showing da

mag es and the attribution of her injury at the latest by

November

2005. Smit h also maintains that the i nformation that had been presented to her must be considered in lig ht of her financ ial literac y . She cites a study that conclude s that elderly people a nd women ar e less knowledg eable ab o u t i nvestments than “the a vera g e population.” How that fac tors into the discovery rule c al cu l u s h as not been made clea r, and Smith cites no authority to support that
argume nt. What is c le ar f ro m th e un dis pu te d r e c or d, ho we ve r, is that a ll t he inf or ma tio n th a t Smi th relies upon in her

compl ai n t wa s av ai l able to her in 2005 or ea

rlier. She a

ppare ntly did not appre ciate the signific ance of it until she sought t he advice that led to thi s lawsuit. But the c oncept of inquiry notice includes the obligation to ask those questions when a pe rson suffe rs an injury at the hands of a nother. Redwing , 363 S.W .3d at 459. The discove ry rule doe s not shield a claimant fr om her de lay ed “inve stigat[ ion of] ‘the injury ’” Ibid. The district cour

t corre ctly fo u n d t h at Smit h filed her complaint well af

ter the thre e-y ear statute of limitations ex pired.No. 14-5090

Sm ith v . J .J .B . H ill iar d

20 B
. Smit h also contends that the statute of limitations was toll ed by the def endant’ s silent fraud. Tenne ssee c ourts have longheld that “f raudule nt conce alment will t o l l t h e ru nning of a statute of limit ations.” Redwing , 3 63 S.W. 3d a t 460 -61 (ci ta tio ns omi tte d) . “ As it c ur re ntl y e xists in Tenne ssee, the doc trine of f raudule nt conce alment is alig ned with the discove ry rule.” Id. at 462. I n fac t, they

are two sides of the same coin. But it is the plaintiff that must shoulder the burde n of proving (1) a ffirmative conce alment of the injury or wrong doer ( which ma y b e es t ablished by showing that the def

endant wa s silent in the face of a duty to speak); (2 ) t he plaintiff c ould not discover that information with rea sonable dilig en ce ; (3 ) t he def endant kne w of the injury and the ide nti ty of the wr on gdoe r; and

(4 ) t he de fe nd ant w ith he ld t

he inf or ma tio n u se d “ so me de vic e to mislead the plaintiff in orde r to exclude suspicion or pre vent inquiry .” Id. at 462-63. The district cour

t found that Smit h’s tolling argument failed beca use she could not show, as she must, that she “ex er ci s ed re asonable car e and dilig ence in pursuing [her] claim.” Redwing , 3 6 3 S
. W
. 3 d

at 4 6 3 (c i t i n g Vance v. Schulde r , 54 7 S.W. 2d 92 7, 93 0 ( Te nn . 1 97 7) ; Ra yv . S c he ibe rt , 45 0 S. W.2 d 5 78 , 5 80 -8 1 ( 19 69 )) . We agree. Th e same e vid e nc e that Smi th n owa dv anc e s to
su bs tanti a te he r cl a im that Hill iard L y on s bre a c he d its fid uc iary du ty by no t te lli nghe r w hy

the tr us t incurre d heavy

losses also establishes that if she ha d undertaken a rea sonably diligent investig ation
o f t h e information disclosed to her in the monthly and quar terly statements and in other

acc ount documents — a s h er ex pert witness e vidently did long a fter the fac t, in October 2013 — the n sheNo. 14-5090

Sm ith v . J .J .B . H ill iar d

21 would have disc overed h er cl ai m s ag ainst Hilliard L y ons long be fore November 2005, when the estate a ccount wa s transfe rre d out of Hilliard L y ons’s custody
. Smit h’s ar g ume nts b a s e d

o n a ll e g a tions of positive misrepr esentations — that the losses were the re su lt o f a

g e ne ra l ma

rk e t do wn tur

n, and that th e annuit

y de a th be ne fi ts e ve ntu a lly wo uld re pa ir the los s e s
— ar e n o t s u p p o rt e d b y t h e r e c o r d
. S h e h a s n o t o f f e r e d an y e v i d e n c e t h a t th os e mis re pr e se ntatio ns e ve r w e re ma de , a nd sh e te sti fi e d th at sh e did no t kn owany fact s th a t c ou ld support any of the related alleg ations in the complaint. Smi th alleg ed that mismanag ement occ urre d when Shelton committed trust assets to investment vehi cl es that wer e exposed to the risk of a volatile stock marke t, in a wa y t h at t he alleg edly more suitable municipal bonds would not have been. As Smit h’s expert conclude d in his report: “In light of the Doug hty Trusts’ hig hly

lever ag ed
e xpos ur e to e qu iti e s in

the annuit

y po rt fo lio s, it w a s f

or e se e a ble that the mark e t va lue of the Tr us ts would be cor

related to the volatility

and per formanc e of the equity marke ts. And that is ex actly what
occur red.” I n light of the trust’s stated investment objective, a rea sonable trustee would have taken Shelton’s admission of substantial loss es as a n urg ent prompting to conduct a dilig ent investig ation into Shelton’s and Hilliard L y ons’s handling of the trusts’ a ssets. She lto n’ s st a te me nt t

hat th e ann

uit ie s’ de a th b e ne fi ts w ou ld e ve ntu a ll y repa ir the los se s, assuming that such a re prese ntation was made, is nothing more than an admission by Shelton that losses did in fac t occur . The plainti ff has not explained how t he st atement might constitute a “de vice to mislea d the plaintiff in order to exclude suspicion or preve nt inquiry .” Redwing , 363 S.W .3d at 463.No. 14-5090

Sm ith v . J .J .B . H ill iar d

22 The district cour

t corre ctly found that the plaintiff’s offe ring s on fra ud and conce alment wer e not adequat e t o wi t h s t and summary judgme nt, beca

use they did not establish that the statute of limit ations was tolled by

the def endant’ s conduct.

I V. F or the re a so ns dis c us se d a

bo ve , the dis tr ic t c ourt ’s jud g me nt o f d ism iss a l is AF F IR M ED
.