### INTHE UNI TED S TATESCOU RT OFAPPEALS FORTHE FIFTH CIRCU IT

N o. 08- 40076
P AULB EAVE RS ; E M I L I O D ELAO , J R; DAVI D WI L L IAM DA RD EN; HO RT ENCIA F LORE S ; NORM A L I NDA H UERTA; J OH N KI VI CH, J R; RO BER T M ERC H AN T P l a i n tiffs-A p p ell a n t s v. M ET RO P OL I T AN L I F E I NS URA NCE C O. D efen da n t
- A pp el l ee

A pp ealf

rom t h e U n i t ed S t ates D i st ri ctC ou rt f or t h e Sou t h ern D i st ri ctof T exas
B ef ore JO N E S , C h i ef

Ju dg e, W IE N E R an d B E N AV ID E S , C i rcui tJu dg es. E D ITH H
. JO N E S , C h i ef Ju dg e: For m any ye ar s, t he ap pel l ant s have o w ned l i fe i nsur ance poli c i es t hat
w er e i n t ended al sot o s erve as i nves t m entve hi c l es and pr ovi de r egul ar divi den ds. In 200 7, t h ey sued as a pu t ative cl ass al l egi n g t h at duri n g t h e 198 0s, M e t r o po lit an Life I n suran ce (“M et L i fe” ) b r e ac he d the irinve s t m e ntc o nt r ac t s a nd depr ived t hem of

di vi dend i nco m e t o w hi c h t hey w er e e nt i t l ed. They now appeal t h e di st ri ctcourt ’ s di sm i ssal o f t h ei r c om pl ai n tas barred by the st atute of lim ita tio n s . B e c a u s e th e d is tr ic t c o u r t c o r r e c tlyh e ld th a t th e d is c o v e r yru le d id
n ott ol lT exas’ s s t atute of l i m i t ati on s, w e af

f i rm . United States Court of App eals Fifth Circuit 

### F I L E D April22, 2009 Cha rl es R. F ulb ru g e II I ClerkN o. 08- 40076

The tri al court granted su mmary ju dgment onNovember23 , 20 05. Without 1 mentioningthe grant of summaryjudgment, the appellatecourt reversed the order certifying the class on January 5, 2 006
. The plaintiffs sought to b ring suit on beh alf of “all person s who, before J anu ary1, 2 198 2, purcha sed one or more participating MetLife individual life or otherparticipating policy withinthe Personal In surance lineof business that was in force at anyti me during the perio d J anu ary1 , 1 9 8 5to April4 , 2 0 0 0 .” 2 I . B A CK GRO UND A ppel l ant s’par t i c i pat i n g l i fei nsur ance poli c i es w er e m anaged by M e t Li fe ’ s P er s o nalI ns ur anc e l i ne o f b us i ne s s . U nde rt he s e c o nt r ac t s , t he pol i cyholders w ere entit l ed to receive divi den ds pa i d byP ersonalI ns urance f rom t he s ur pl us a c c r ui ng o n t he i rpo l i c i e s . Ac c o rdi n g t o the c o m pl ai nt , dur i ng t he 19 8 0 s , M e t Life b r e a c h e dt h e i n s u r a n c e c o n t r a c tb yi m p e r m i s s ib l ya l l o c a t i ng s ur pl us pr o f

i t s f r o m Pe r s o nalI ns ur anc e t o o t he rl i ne s o f b us i ne s s . The
m i sal l ocat i on s al l eged l y redu ced t h e divi den ds t h e pl ain tif fs and t h e cl ass r ec eived f

r om 1984 t o 2 000. I n 1 99 8, a n a c t i o n e nt i t l e d R ab o u i n v. Met ropol i t an L if e I n suran ce Company w as c om m enc ed on t hes e s am e fac t s i n N ew York s t at e c our t
. I n 2004, it w a s ce r tifie da s acla s s a c tio n o n b e h a lf o f an a tio n w id e cla s s . S ee R aboui n v. Met ro. L if

e I n s. Co. , N o. 1 1 1 3 5 5 / 9 8 , 2 0 0 5 W L 35 3 6 4 4 1 , at *5

– 6 ( N
. Y
. S u p . C t. N ov. 23, 200 5) (descr ibi n g t h e h i st ory of t h e lit i gati on )
. In 200 5, t h e t ri alcourt di sm i ssed t h e pl ai n t i f fs’breach of

con t ractcl ai m a gainstM et L i fe on st atute of l im ita tio n s g r o u n d s . I d. Sh ort l y t h ereaf

t er, a N ew Y ork ap pel l ate c ou rt de c e r t i f i e d t he c l as s , i n pa r tduet o dif fe r i ng s t at ut es of

li m i t at i o ns a m o ng t he st ates. R ab ou i n v . Met ro. L if e Ins. Co. , 8 0 6 N .Y .S .2d 5 8 4 (N .Y
. A p p . D iv. 2 0 0 6 ). 1 O n M ay 7, 2007, A ppel l ant s f i l ed t hi s c om pl ai nt f

or br eac h of c ont r ac tby M e tL ife o n b e h a lf o f a c la s s o f p e rs o n s w h o ow n e da ffec te dp o li cie s. M e tL ife 2
m ovedt o di sm i ss, a sser t i n g t h at Texa s’ s f ou r- year st atute of

l i m i t ati on s barred t h e b re ac h o f

c o nt r ac tc l ai m b e c aus e the w r o ngf ula l l o c at i o ns a l l e ge d i n t heN o. 08- 40076

3 com pl ai n tocc u rr e d in th e 198 0s al on e an d n o groun ds f or t ol l i n g w ere a p p lic a b le
. T h e d is tr ic t c o u r t g r a n te dth e m o tio n to d i s m i s s , p r o m p tin gth is
a p p e a l. I I . S TA NDARD OF RE VI EW T h i s c ou rtrevi ew s de no vo t he di st r i c tc ou r t ’ s di sm i ss alunder Feder al R u le o f C iv il P r o c e d u r e 1 2 (b )(6 ). Jon es v. A lcoa, I n c. , 339 F
. 3d359 , 362 ( 5th C i r. 200 3)
. A n y w el l

- pl ed fact u alal l egati on s m u stb e v iew ed i n t h e l i gh tm ost fav o r ab l e t o t he pl ai nt i f fs , but “ c o nc l us o r y all e ga t i o ns o r l e ga lconc l us i o ns m a sq u era d i n g a s fa ctu a lcon cl u sion s w i l ln ot su ff i ce to p rev en t a m oti on to d i sm i ss. ” F

e r n a n d ez -Mo n te s v . A ll ie dP ilo ts A s s ’n , 9 8 7 F .2d 2 7 8 (5 th C ir. 1 9 9 3 ).

III . A N A L Y S IS I n d iv e r s i t yj u r i s d i c t i o n , t h i s c o u r ta p p l i e s T e x a s s u b s t a n t iv e l a w, in c lu d in gth e s ta te s ta tu te o f lim ita tio n s a n de x c e p tio n s . G uaranty Trus tCo. v. Y ork, 3 26 U
. S. 9 9, 1 11 –1 2, 6 5 S. Ct
. 1 46 4 ( 19 45 )
. I f no s t at e c o ur tde c i s i o ns control , w e m us tm ak e a n “E rieg ue s s ” a s t o ho w t he Te xa s Supr e m e C ou rt
w o u lda p p lys ta te la w . Tr a v e le rs Ca s . & Su r . Co
. of Am
. v . Er ns t& Yo ungLLP, 5 4 2 F .3d 4 7 5 , 4 8 3 (5t h C ir. 2 0 0 8 ). T exas a p p li e s a four- year st atute of l i m i t ati on s t o breach of contr act
c l ai m s . Te x. Civ. P rac. & R e m . Cod e § 1 6. 05 1. Al t ho ughc o nc e di ng t hatt he
s t at ut e o f l i m i t at i o ns w o ul d o r di nar i l y ba r t hi s br e ac h o f c o nt r ac t s ui tfor M e t Li fe ’ s a c t i o ns m o r e t han t w o de c ad es ag o, the a ppe l l ant s c o nt e nd thatt he di scovery r u l e deferred acc rua lof t h e cause of

act i on un t i lt h e R a b o u in cl ass act i on w as f

i l ed i n 199 8, an d the Am e r i c an Pi pedoct ri n e t ol l ed the st atute of l i m i t ati on s un t i ldecert i f i cat i on of

t h e R a b o u in c l as s i n 2006.N o. 08- 40076

4 1
. D isc o v eryR u le The ap pe l l ant s c o nt e nd t hat t he di s c o ve r y r ul e s ho ul d d e fe ra c c r ualo f t he
c aus e o f a c t i o n unt i l1 99 8, w he n t he y l e ar ne d of t he i rcl ai m s t hr o ught he f i l i ng of t h e R ab o u in c l ass act i on . Th e di scovery r u l e provi des a “ver y l i m i t ed
ex cep ti on to statu tes of li m i tati on s. ” Comput e r A s s oc i at e s I nt e r nat i onal, I

nc. v. Al t ai, In c. , 9 1 8 S .W .2 d4 5 3 , 4 5 5 (T e x . 1 9 9 6 ). A lth o u g h th e d o c tr in e e v o lv e din di f ferent di rect i on s over m an y years, i n 199 6 t h e T exas S u prem e C ou rtcl ari f i ed t h e rul e i n t w o cases , ref erri n g t o t h e reasoni n g i n earl i er c ases as “ diverse, som ew h a t i n con sist en t, an doft en o v e r lyb r oa d
. ” S .V ., 933 S. W
. 2d at5–6. Fol l ow i ng Al t aia nd S. V. , t h e di scovery r u l e defers accrualof a cause of

act i on i f ( 1) t he nat ur e of

t he i nj ur y i nc ur r e d i s i nhe r e nt l y undi s c o ve r ab l e a nd ( 2) t he
e v id e n c e o f inju r yis o bje c tiv e l yv e r i f i a b le
. Al t ai , 9 1 8 S .W .2 da t 4 5 6 ; S. V. , 93 3 S. W
. 2d a t6
. The pur po s e o f t he s e c r i t e r i a i s t o pr e ve ntb o t h s t al e a nd f r aud ul e ntc l ai m s f

r o m be i ng as s e r t e d i n c o nt r av e nt i o n o f t he po l i c i e s be hi nd t he st atutes of

l i m i t ati on s. B ecau se t h e ap pel l an t s’ i nj u ry f rom breach of

contr act
w a s n o t in h e r e n tly u n d is c o v e r a b le , w e d o n o t a d d r e s s w h e th e rit is o bje c tiv e ly veri f i able. “A n i nj u ryi s i n h ere n tly u n d i scov era b l e if i t i s, byi ts n a tu re, u n lik e lyto b e d is c o v e r e dw ith in th e p r e s c r ib e dlim ita tio n s p e r io dd e s p it e d u e d ilig e n c e .” W ag n er & B row n , L t d
. v. Horw ood , 5 8 S. W
. 3d7 32, 7 34–35 (Tex
. 2 00 1)
. The i nquir y f

o c us e s c at e go r i c all y o n t he t yp e o f i nj ur y all e ge d rathert han o n t he
c ir c u m s ta n c e s o f th e p a r tic u la rca s e . I d. a t 7 3 6 ; seealso V

i a Netv. Tig Insura n ce Co. , 2 1 1 S .W .3d 3 1 0 (T e x . 2 0 0 6 ) (p e r c u ria m ). T h e T exas S u prem e C ou rtha s app l i ed the di scovery ru le to a vari et y of
c a te g o r ie s , b u t n e ith e rm is a p p r o p r ia tio n o f tr a d e s e c r e ts , Alt ai , 918 S. W
. 2d at 4 5 7 , n o rfa ilu r e to n o tifyo f th e e x is te n c e o f aca u s e o f a c tio n , HE CI Explorati on Co. v. Neel , 982 S. W
. 2d 881, 886 (Tex. 1998) , norfai l ure t o a dd a t hi r d par t y as a d d i ti on a li n su red , ViaNet , 211 S. W
. 3d at313, has bee n hel d t o c ons t i t ut e a nN o. 08- 40076

5 i n h erently u n di scoverabl e i nj u ry. I n deed , no Tex as court h as f ou n d a breach of contractt o qu al i f

y as i n h erently u n di scoverabl e, yetthe T exas S u prem e C ou rt h a s n o t fo r e c lo s e dth e p o s s ib ility
. S ee V i a Net , 211 S. W
. 3d at314. A pp el l an t s hop e t o spri n gboa rd fro m th e hol di n g t h at i n a f i du ci ary rel ati on shi p, t h e di scovery rul e n orm al l y t ol l s t h e st atute of l i m i t ati on s because b e n e fic ia r ie s h a v e litt le re s p o n s ib ilityt o v e r ifyth e fid u c ia r y ’ s p e r fo r m a n c e . S ee Wi l l i s v. Maveri ck , 760 S. W
. 2d642 , 6 45 (T ex. 198 8) (“A s a f i du ci ary, an att orney is o b li g a t e dto r e n d e rafu lla n d fa i rd is c lo s u r e o f fa c t s m a t e r ia l t o th e c li e n t 's rep rese n tati on . T h e cli en t m u st feel free to rely on h i s attorn ey ’ s ad vice. F a cts
w h i ch m i gh tordi n ari l y requ i re i n v e stigat i on l i kely m ay n otexci t e suspi ci on w h e r e afid u c ia r yre la tio n s h ip is in v o lv e d .” (c ita tio n o m itt e d)). W h ile
a ck n ow l ed gin g th a t no f i d u c i a ryrelati on sh i p ex i sts i n the i r relati on sh i p w i th M e t Li fe , t he ap pe l l ant s c o nt e nd thatt he “ s pe c i alr e l at i o ns hi p o f c o nf i de nc e a nd t rust”b e t w e en i n surer and i n sured sh ou l d l essen t h e du t y t o verif y perf orm an ce. T h i s di st i n ct i on i s not com pel l i n g. O u t si de a f i du ci ary rel ati on shi p, how ever, contract i n g pa rt i es m u st veri f y each ot h er’ s perf

orm an ce. Th e T exas S u prem e C ou rtexpl ai n s:

Cont r ac t i ng pa r t i e s a r e g e ne r all y no tf i duc i ar i e s . Thus , due di l i gen ce r equ i res t h at each p rot ectit s ow n inter est s. D u e di l i gen ce m a y in cl u d e a s k in g a con tract p a rtn er for i n form a ti on n ee d ed to ve ri fy con tractu a lpe rform a n ce. If a co n tractingpa rty res p on d s to such a request w i t h fal se i n f orm ati on , acc rua lm ay be d el ayed f or f rau du l en tconceal m en t
. B u tfai l i n gto e v en ask f or s u ch i n f orm ati on i s not du e di l i gen ce. V i a Net , 2 1 1 S .W .3 da t 3 1 4 (in te r n a l cit a tio n s o m itt e d). V i a Netdr aw s a c l ear l i n e b e t w e e n f

i d u c i a r ya n dn o n - f

i d u c i a r yc o n t r a c t s , a n dt h e T e x a s S u p r e me C our thas sho w n no i ncl i nat i on t o r ec ogni ze an i nt er m edi at e “ spe c i al relati on sh i p ” st a n d a rdi n the discov eryru l e con tex t. T u rni n g t o t h e fact s at h an d, w e ask w h et h er t h e i nj u ry suf fered by these ap pel l an t s, b yit s nature, i s un l i kely t o be di scovered w i t h i n t h e prescr ibedN o. 08- 40076

6 lim ita tio n s p e r io dd e s p ite d u e d ilig e n c e . W ag n e r& B r o wn , 58 S. W
. 3d at734–35
. A pp el l an t s al l ege t h at t h ey received sm al l er divi den ds on t h e ir i n suran ce pol i ci es af

t er 1991 becau se M et L i fe i m perm i ssibl y divert ed p rof its t o ot h er divi si on s, bu tno exp l an ati on w as of fered f or t h e decrease. The ap pe l l ant s ’ s i t uat i o n r e s e m bl e s t hat o f t he pl ai nt i f f i n Al t ai , w he r e t he court d isa ll o w ed a d el ayed cl ai m f or t h ef tof t rade secret s un der t h e di scovery r ul e . I n Al t ai , th e inju r y , an e w p r o d u c t r e le a s e b yaco m p e t i t o r , w a s w e ll know n, but i t s c ause , t hef t of a t r ade se c r et , w as not
. 918 S
. W
. 3 d at 457. Si m i l ar l y, t he r e duc t i o n i n M e t Li fe po l i c y divi dend s w as kno w n t o t he ap pe l l an t s, eve n if

t he c aus e o f

t hatr e duc t i o n was unc e r t ai n. U s i ng due di l i gen ce, app el l an t s c ou l d h ave studied t h ei r pol i ci es, contact ed M e tL if e, or po s e d i nquir i e s t o t he appr o pr i at e i ns ur anc e re gul at o r y bo ar ds co nc e r ni ng t he
sm al l er divi den ds. A s w i t h t h e Al t aipl ai nt i f f, t he y m i s unde r s t andt he

“ i nhe r e nt l y undi s c o ve r ab l e ” pr o ng o f t he di s c o ve r y r ul e , w hi c h “ e nc o m pa s s e s t he requ i rem en tt h at th e exi st en ce of t h e i nj u ry i s n ot ordi n ari l y di scoverabl e, even th ou gh du e d i l i ge n ce h a s be en u sed
. ” Al t ai , 91 8 S
. W
. 3 dat 45 6
. In co n trast, l eaving a f

orei gn obj ecti n a p ati en t ’ s bod y conceal s bot h source and i nj u ry f rom th e v ic tim
. S ee G a d d is v
. S m ith , 417 S. W
. 2d 577, 579 (Tex. 1967) ( “ I ti s a vir t ual
c e r t ai nt y t hat t he pa t i e nt has no kno w l e dg e o n t he da y f o l l ow i n g t he
s u r g e r y— n o r f

o r a l o n g t i m e t h e r e a f t e r— t h a t a f

o r e i g n o bj e c t wa s l e f t i n t he in cisio n .”)
. T h e T e x a s c a se s e sta b li sh th a t, a t am in im u m , d u e d il ige n ce w o u ldre qu ire th e a p p ell a n ts t o req u est i n form a ti on to ver ify M etL i fe’ s p erform a n ce of i ts
c o n tr a c tu a l d u tie s . See, e . g. , V i a Net , 211 S
. W
. 3d at 314
. T h e ap pel l an t s asser t th a t th i s i n q u i ryco u l dh a ve b ee n fru i tl ess b eca u se M etL ife h a dn o l eg a ld u ty to
s u p p lyth e m w ith in fo r m a tio n . V i a Neta d d re ss e dth is a rg u m e n t— if M e tL ife hadr e f us e d t o pr o vi de ne c e s s ar y i nf o r m at i o n t o t he a ppe l l ant s , f r aud ul e nt
c o n c e a lm e n t w o u ldto ll th e s ta tu te o f l i m ita tio n s . I d. H a dthe ap p ell a n tsN o. 08- 40076

7 exerci sed du e di l i gen ce by requesti n g i n f orm ati on f

rom M et L i fe, ei t h er t h ey w o u ld h a v e r e c e iv e din fo r m a t io n a le r t in gth e m o f t h e irinju r ie s o rM e t L ife ’s f r aud ul e ntc o nc e al m e ntw o ul d ha ve ex t en ded t he c aus e o f a c t i o n. W i t h t he
e xe r c i s e o f

due dil i ge nc e , w hi c h re quir e d i nquir y i nt o M e t Li fe ’ s pe r f o r m anc e , t he ap pel l an t s’i nj u ri es w ere not i n h erently u n di scoverabl e. Thi s c o nc l us i o n i s a l s o c o ns i s t e ntw i t h W ag n er & B row n , L t d
. v. Horw ood , 5 8 S
. W
. 3 d73 2 (T ex . 20 0 1 ), w h i ch i n vo lve s fa cts si m i l a r to the i n stan t case
. In W ag n e r& B r o wn , t h e oi l an d gas royal t y ow n ers cl ai m ed that t h e l ease operator in fla te dch a r g e s a g a in s t th e g a s s a le s p r ic e a n dre d u c e dth e irro y a lty
. I d. at733. T h e cou rt de term i n ed tha t “ aroy a l ty ow n er sh ou l dex ercise d u e d i l i ge n ce to de t e r m i ne w he t he rc har ge s m ad e a ga i ns tr o ya l t y pa ym e nt s a r e pr o pe ra nd
r e as o nab l e” a n d t hatduedil i ge nc e r e quir e d r e que s t i ng i nf o r m at i o n f

r o m t he le s s e e . I

d. at 736
. I n vest i gati n g i m proper cha rges w as n ottoo on erous a bu rden t o i m pose on con t ract i n g pa rt i es, a n d “ t h ose w h o rec eive st atem en t s li st i n g fees ch a rg ed sh ou ld b e a le rtedto t h e n ee dto pe rform ad d i ti on a li n ve sti ga ti on to pro t ec t t hei r i nt er es t s. ” I d. a t7 37
. The di s t r i c tc o ur tc o r r e c t l y de s c r ibe d t he si m i l ari t i es: T h e c a s e a tb a ri s ma t e r i a l l yi n d i s t i n g u i s h a b l e f r o m W ag n er & Bro wn . J us tl i ke t he l e s s e e s w ho di d no t dil i ge nt l y i nve s t i ga t e t he l e s s o r ’ s c o nduc to r t he r e as o ns f o rt he l o w e rr o ya l t y pa ym e nt s , t he pl ai n t i f fs i n t hi s c as e ha ve no ts ho w n t hi s c o ur tt hatt he y m ad e a p p ro p ria te effo rts , o r, i n d e e d , a n yeffo rts to in q u ire w ith M e tL ife a b ou t an y a l l oca ti on s of su rp l u s p rofi ts t h rou gh ou t t h e 1 9 8 0 s to d eterm i n e w h eth er d efen d a n t w a s p r o p erly p erform i n g it s contract u alobl i gati on s. T h e a p p e l l a n t s h a v e n o tm e a n i n g f u l l yd i s t i n g u i s h e dt h i s c a s e f r o m W ag n er & Bro wn . B a s e d o n i t s p r e v i o u s d e c i s i o n s , w e c o n c l u d e t h a t t h e T e x a s S u p r e me C our tw oul d notappl y t he di sc ove r y r ul e t o thi s t ype of i nj ury.N o. 08- 40076

8 2. A m eri can P i pe Tol l i ng Am e r i c an Pi

pehel d t hatt he s t at ut e o f l i m i tati on s i s t ol l ed f orpot ent i al cl ass m em bers du ri n g a pen di n g cl ass a ct i on : “ [T ] h e com m en cem en tof a cl ass act i on suspen ds t h e app l i cabl e st atute of l i m i t ati on s as t o al lasser t ed m em bers
o f t he c l as s w ho w o ul d hav e be e n pa r t i e s had t he s ui t be e n pe r m i t t e d t o c o nt i nue a s a class action
. ” Am e r i c an Pi pe& Cons t . Co. v . Ut ah , 414 U
. S. 538, 554, 9 4 S . C t. 7 5 6 (1 9 7 4 ); seealso G ran t v. A u st i n B ri dge Con st . Co. , 725 S. W
. 2d 366, 3 7 0 (T e x . A p p .— H o u s to n [1 4 th D is t] 1 9 8 7 , n o w r it). B e c a u s e th e d is c o v e r yru le doe s nott ol lt he s t at ut e o f l i m i t at i ons her e, t he appell ant s do notdi sput e t hat th e ir ca u se of a ctio n ex p ire db e for e th e fili n gof R a b o u in
. Ame r i c a n P i pedoes
n o t r e s u r r e c t e x p ir e dc la im s a n dis in a p p lic a b le
. S ee G r ant , 725 S. W
. 2d at370 ( “Any t i m e r e m ai ni n g on t he s t at ut e o f l i m i t at i o ns . . . o n t he da t e o f t he f i l i ng of t he l a w su i t w a s r es t or ed and be gan t o r un agai n on t he dat e the c l as s w as d e ce rtified .”)
. IV . C ONC L US I ON Bec aus e t he a ppe l l ant s ’i nj ur y w as no ti nhe r e nt l y undi s c o ve r ab l e , t he di scover yr u l e does not t ol lt h e st atute of l i m i t ati on s, an d the di st ri ctcourt pr o pe r l y di s m i s s e d t he s ui ta s t i m e - ba r r e d. A F F I RMED.