Opinion ID: 45951
Heading Depth: 2
Heading Rank: 2

Heading: Texas Blue Sky Law Claims

Text: 21 The relevant statute that applies to the third and fourth causes of action under Articles 581-33(A)(2) and 581-33(F) of the Texas Blue Sky Laws states that a cause of action expires after the earlier of (a) more than three years after discovery of the untruth or omission, or after discovery should have been made by the exercise of reasonable diligence; or (b) more than five years after the sale. TEX.REV.CIV. STAT. ANN. art. 581, § 33(H)(2). 22 Margolies brought these causes of action within five years of the sale and therefore part (b) is satisfied. As such, the remaining issue is whether the plaintiff by the exercise of reasonable diligence, should have learned of facts placing him on notice of his claim. See id. This is commonly referred to as inquiry notice. See Jensen v. Snellings, 841 F.2d 600, 607 (5th Cir. 1988). Deason argues that various disclosures made by Precept, consisting primarily of statements contained in filings, placed Margolies on inquiry notice in 1998 of the facts upon which the complaint are based. Margolies counters that these disclosures were not sufficient for inquiry notice and that instead he was not aware of the underlying conduct giving rise to his claims until the trustee filed a complaint in the bankruptcy proceeding in November 2002. 23 This fact-intensive inquiry is typically appropriate for consideration by a jury. Ordinarily, what constitutes reasonable diligence to discover fraud is a question of fact for the jury. Ruebeck v. Hunt, 142 Tex. 167, 176 S.W.2d 738, 740 (1944). Unless the evidence is such that reasonable minds may not differ as to its effect, the question as to whether a party has exercised diligence in discovering fraud is for the jury. Id. ; see also In re Estate of Fawcett, 55 S.W.3d 214, 221 (Tex. App.2001) (reversing a grant of summary judgment on time bar grounds). In moving for summary judgment on the time bar issue, Deason assumed the burden of conclusively establishing that [Margolies] knew or should have known, with the exercise of reasonable diligence, of the alleged fraud. Fawcett, 55 S.W.3d at 221; see also Jensen, 841 F.2d at 607 (noting that, in analogous federal actions, plaintiffs cannot ignore storm warnings that would alert a reasonable investor to the possibility of fraudulent statements or omissions in his securities transaction) (internal quotation omitted). 24 Margolies's claims largely revolve around pieces of property sold by Precept to the defendants, sometimes at allegedly lower than market value and allegedly for no legitimate business purpose. Precept disclosed in its filings that it had entered into sales or sale-leasebacks of a ranch, a restaurant, and a luxury box at Lone Star Park to a company owned by the defendants. Precept also disclosed that it would record a loss on these sales, part of which was because of costs of repair. Precept also disclosed that it sold two condominiums (at least one to Darwin Deason). Precept disclosed that it sold a piece of real property to a company owned by the defendants while not addressing whether the sale was for below market value, as Margolies alleges. Precept also disclosed a sale of stock in another company to Darwin Deason but did not disclose various details about this transaction, including that it was allegedly a sham and was for below market value. The filings also disclosed information about the defendants' compensation but did not provide details that would suggest the improprieties alleged by Margolies's complaint. 25 In addition, the filings disclose that two acquisitions occurred shortly after the USTS-Precept deal closed. Margolies alleges that these acquisitions were the result of impermissible negotiations and the signing of letters of intent which took place before the Precept-USTS deal in a window of time during which Precept had agreed not to enter into any such agreements or arrangements. The disclosure of the closing of the acquisitions did not, however, indicate when letters of intent were signed or when negotiations took place. While these disclosures contain various levels of detail, they essentially do not include any explanation of the purpose or reason for the transactions. The underlying tension between the parties' positions is whether or not disclosure of these details about particular actions taken by the company without accompanying information to indicate the motivation or purpose for the actions is sufficient to place the plaintiff on inquiry notice. In essence, the district court found that these various disclosures amounted to a storm warning. See Jensen, 841 F.2d at 607. We disagree. 26 It is worth mentioning again that, not only do we not consider the merits of Margolies's claims, we also do not decide whether he was on inquiry notice. The narrow inquiry before the court is whether the district court improperly concluded on summary judgment that a reasonable plaintiff should have known that these transactions sufficiently raised the specter of fraud as to place him on inquiry notice. Ruebeck, 176 S.W.2d at 740 (noting that summary judgment with respect to inquiry notice is only appropriate if reasonable minds may not differ as to its effect). 27 We hold that, with respect to the disclosures in this particular case, the information provided is insufficient to conclude that reasonable minds could not disagree as to whether Margolies has exercised diligence in discovering fraud. Ruebeck, 176 S.W.2d at 740. Accordingly, the district court's dismissal of the third and fourth causes of action was in error.