IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-40076

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.

United States Court of Appeals

Fifth Circuit

F I L E D

April 22, 2009

Charles R. Fulbruge III

Clerk
No. 08-40076

 The trial court granted summary judgment on November 23, 2005. Without

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mentioning the grant of summary judgment, the appellate court reversed the order certifying

the class on January 5, 2006.

 The plaintiffs sought to bring suit on behalf of “all persons who, before January 1, 2

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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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. Rabouin v . Metro. Life Ins. Co., 806 N.Y.S.2d 584 (N.Y. App. Div. 2006). 1

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. MetLife 2

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
No. 08-40076

3

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.
No. 08-40076

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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
No. 08-40076

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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
No. 08-40076

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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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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.
No. 08-40076

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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.