Opinion ID: 6444
Heading Depth: 2
Heading Rank: 1

Heading: Dismissal Of United Postal's Cross-Claim

Text: 14 In dismissing United Postal's cross-claim, the district court determined that (i) the pleading did not relate back to the filing of United Postal's original answer and (ii) United Postal's claims accrued at the latest by March 15, 1984, and consequently, the applicable statutes of limitations had run before it filed its cross-claim in October of 1990. United Postal challenges each of these findings on appeal.
15 In reviewing the district court's dismissal of United Postal's cross-claim, we accept all factual allegations made in the pleading as true and ask whether, under the circumstances asserted, the allegations state a claim sufficient to avoid dismissal. See, e.g., United States v. Gaubert, 499 U.S. 315, 327, 111 S.Ct. 1267, 1276, 113 L.Ed.2d 335 (1991); Berkovitz v. United States, 486 U.S. 531, 540, 108 S.Ct. 1954, 1960-61, 100 L.Ed.2d 531 (1988). [W]e may uphold ... [a Rule 12(b)(6) dismissal] only if it appears that no relief could be granted under any set of facts that could be proved consistent with the allegations. American Waste & Pollution Control Co. v. Browning-Ferris, Inc., 949 F.2d 1384, 1386 (5th Cir.1991) (quoting Baton Rouge Bldg. & Constr. Trades Council v. Jacobs Constructors, Inc., 804 F.2d 879, 881 (5th Cir.1986)). While the district court must accept as true all factual allegations in the complaint, Clark v. Amoco Prod. Co., 794 F.2d 967, 970 (5th Cir.1986), it need not resolve unclear questions of law in favor of the plaintiff. Bane v. Ferguson, 890 F.2d 11, 13 (7th Cir.1989). Moreover, when a successful affirmative defense appears on the face of the pleadings, dismissal under Rule 12(b)(6) may be appropriate. Clark, 794 F.2d at 970. 16
17 Federal Rule of Civil Procedure 15(c) is a procedural provision to allow a party to amend an operative pleading despite an applicable statute of limitations in situations where the parties to litigation have been sufficiently put on notice of facts and claims which may give rise to future, related claims. 4 The rationale of the rule is that, once litigation involving a particular transaction has been instituted, the parties should not be protected by a statute of limitations from later asserted claims that arose out of the same conduct set forth in the original pleadings. 6A CHARLES A. WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE Sec. 1496 (1990). Rule 15(c) provides, in relevant part, that: 18 Whenever the claim or defense asserted in the amended pleading arose out of the same conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. 19 FED.R.CIV.P. 15(c). This so-called relation back doctrine does not extend the limitations period, but merely recognizes that the purposes of the statute are accomplished by the filing of the initial pleading. American Tel. & Tel. Co. v. Delta Communications Corp., 114 F.R.D. 606, 612 (S.D.Miss.1986). 20 As the district court observed, [t]he necessary implication of the rule is that in order for an amended pleading to relate back for statute of limitations purposes, there must be a previous pleading to which the amendment dates back. It concluded that no such pleading existed. United Postal argues on appeal that the cross-claim related back to either HGIC's original complaint or to its April 18, 1989, amended answer and counterclaim (the amended answer). The cross-claim filed by United Postal is, however, an original cross-claim against a co-party, not an amendment to a previously filed pleading. Accordingly, it does not appear to be within the province of Rule 15(c). Furthermore, Rule 13(g) governing cross-claims does not permit relation back of a cross-claim seeking affirmative and independent relief to the original complaint. See United States for the use of Bros. Builders Supply Co. v. Old World Artisans, Inc., 702 F.Supp. 1561, 1569 (N.D.Ga.1988) (noting that the common law rule that statutes of limitations do not run against pure defenses does not apply to setoffs, counterclaims or crossclaims that are affirmative, independent causes of action). 21 United Postal relies heavily upon an unpublished opinion from the Southern District of New York, Hemmerick v. Chrysler Corp., 1989 WL 4493 (S.D.N.Y. Jan. 13, 1989), in which the court allowed a plaintiff to amend his original complaint to assert an otherwise untimely cross-claim against his co-plaintiff. Pertinent to that case was the fact that both co-plaintiffs had been previously represented by the same counsel and that the cross-plaintiff sought to assert the cross-claim only after retaining independent counsel. In the instant case, by contrast, Stewart and United Postal have been represented by independent counsel with no potential conflict which would prevent United Postal from asserting the cross-claim. We are not persuaded that the Hemmerick result would be proper under the circumstances of this case. 22 United Postal alternatively argues that its amended answer is the relevant pleading to which we look for Rule 15(c) purposes and argues that this answer was effectively amended by the cross-claim; thus, it concludes, the cross-claim relates back to April 18, 1989. We disagree. The cross-claim does not amend the answer because it does not contain any of the allegations in either the amended answer or the counterclaim; rather, it stands alone. Moreover, the amended answer was a responsive pleading which did not assert--or even intimate--any allegations of wrongdoing against Stewart even though all the facts necessary to give rise to such allegations were present in HGIC's original complaint. In fact, the counterclaim did not even mention Stewart. Further, the counterclaim contained in the amended answer was aimed solely against HGIC and cannot be viewed as having put Stewart on notice that United Postal sought relief against Stewart. See Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 149-50 n. 3, 104 S.Ct. 1723, 1724-25 n. 3, 80 L.Ed.2d 196 (1984) (holding that Rule 15(c) was designed to allow parties to present untimely claims based upon the same transaction so long as it would not work unfair surprise or prejudice). Stewart was not put on notice by the amended answer that it might have to satisfy two separate potential judgments. 5 O'Loughlin v. National R.R. Passenger Corp., 928 F.2d 24, 26-27 (1st Cir.1991) (refusing to allow an amendment to relate back to the original pleading which asserts claims not even suggested in the original). 23 The case presented is not one of joint and several liability where Stewart would at least be aware of the potential of a contribution or indemnification cross-claim by United Postal. See, e.g., B.S. Livingston Export Corp. v. M/V Ogden Fraser, 727 F.Supp. 144 (S.D.N.Y.1989) (allowing amendment to assert cross-claim for indemnification of damages plaintiff might potentially recover from cross-claiming defendant). Rather, the relief HGIC sought against United Postal was merely recissionary; there are no allegations that United Postal was an active participant in any scheme to defraud. This distinction is important because it has been carried over from the common law rule, and the federal courts still employ it. The courts are usually willing to allow a defendant to relate back a cross-claim in the nature of recoupment, indemnity, or contribution which seeks to reduce the amount a plaintiff can recover from that defendant; conversely, however, if the defendant's cross-claim is an affirmative or independent cause of action not in the nature of a defensive claim, the defendant must comply with the applicable statute of limitations. Brothers Builders, 702 F.Supp. at 1569; see also Appelbaum v. Ceres Land Co., 546 F.Supp. 17, 20 (D.Minn.1981), aff'd, 687 F.2d 261 (8th Cir.1982). 24 Acknowledging this distinction, United Postal contends that its cross-claim is a defensive, rather than affirmative, claim because it is defensively postured--similar to a claim for contribution--since if someone is required to pay for a loss incurred in connection with the Prestonwood Green condominiums, it should be Stewart.... This argument does not hold water because HGIC did not sue--and indeed could not have sued--United Postal for money damages. Consequently, United Postal had no right to seek offset damages from Stewart. Simply put, United Postal can only recover from Stewart based upon affirmative claims and must independently satisfy the relevant statutes of limitations without the benefit of relation back. 25 The district court characterized United Postal's argument as requesting that Rule 15(c) be used to ratify all pleadings which would otherwise be time barred, as long as the party who seeks to invoke the rule has an operative pleading on file. The district court properly declined to accept the invitation to adopt such an expansive interpretation of Rule 15(c), 6 and we agree with its conclusion that Rule 15(c) does not apply under the facts presented because United Postal did not have an operative pleading on file with the court below to which the October 23, 1990, cross-claim could relate back.
26 United Postal asserted cross-claims against Stewart for negligence, negligent misrepresentation, fraud, breach of fiduciary duty, and breach of contract. As this is a diversity case, and the causes of action all arise under state law, the district court properly applied the applicable Texas statutes of limitations to the claims presented. See Fluor Eng'g & Constr. v. Southern Pac. Transp. Co., 753 F.2d 444, 448 (5th Cir.1985). 27 The district court applied a four-year statute of limitations to United Postal's claims for negligent misrepresentation, fraud, and breach of fiduciary duty. We agree with the court below that Texas fraud claims prescribe if not brought within four years from accrual. See Williams v. Khalaf, 802 S.W.2d 651, 656-58 (Tex.1990); TEX.CIV.PRAC. & REM.CODE ANN. Sec. 16.004(a)(3) (Vernon 1986). However, as will be discussed further below in section II.B.1.a., and as the lower court recognized in its subsequent order granting summary judgment on HGIC's negligent misrepresentation claims, the two-year limitations period for general torts is the correct measure for this type cause of action. See TEX.CIV.PRAC. & REM.CODE ANN. Sec. 16.003 (Vernon 1986). Moreover, as will be detailed in section II.B.1.b., the limitations period for the fiduciary duty claims is also two years. 7 Id. Finally, a breach of contract claim is governed by a four-year limitation period. TEX.CIV.PRAC. & REM.CODE ANN. Sec. 16.004 (Vernon 1986).
28 The determinative issue on appeal is whether the court below measured the statutes from the appropriate reference point--i.e., whether it chose the correct point of accrual. United Postal's fraud, negligent misrepresentation, and fiduciary duty claims were based upon Stewart's alleged failure to disclose the substitution of the second liens for cash down payments. The second liens were filed in March of 1984, and the district court charged United Postal with constructive knowledge of the existence of these liens at the time they were filed of record. Thus, it concluded, the statutes of limitations ran by March of 1988, and United Postal's cross-claim filed in 1990 was simply too late. Similarly, the court below held that the contract claim--based upon Stewart's purported failure to follow Congressional's closing instructions--accrued no later than March 15, 1985, when the second lien notes were filed in the Dallas County deed records. 29 The court below correctly cited the relevant Texas authority holding that a cause of action for fraud is generally considered to accrue either when the fraud is discovered or when the facts giving rise to the fraud claim are discovered or might reasonably be discovered through reasonable diligence--the so-called discovery rule. See Mooney v. Harlin, 622 S.W.2d 83, 85 (Tex.1981); Lightfoot v. Weissgarber, 763 S.W.2d 624, 626 (Tex.App.--San Antonio 1989, writ denied). We disagree, however, with the district court that the recording date of the second liens started the limitations period. The court below principally relied upon the Texas Supreme Court's opinion in Mooney, which it interpreted as charging United Postal, the mortgage owner, with constructive knowledge of the public records concerning its property. United Postal contends that the opinion below improperly interprets Mooney to provide that a recording in the deed records constitutes a wholesale constructive notice of the contents to anyone having an interest relating to the property. Mooney involved the claims of a former girlfriend and care-giver against the estate of her lover. She did not file her lawsuit for fraud against the estate until over four years after the will had been admitted to probate. Mooney, 622 S.W.2d at 84. The Texas Supreme Court held that her claims were too late because [e]xamination of the probate records would have disclosed that the will made no bequest to the plaintiff. Id. at 85. In this context, the Texas court stated that [a] person is charged with constructive knowledge of the actual knowledge that could have been acquired by examining public records. Id. Important to the holding, however, was the fact that Texas law charges all persons interested in an estate with knowledge of the contents of the probate records. Id. (citing Salas v. Mundy, 59 Tex.Civ.App. 407, 125 S.W. 633, 636 (Amarillo 1910, writ ref'd)). Therefore, the recording of a document in public records serves as constructive notice for limitations purposes only for those persons who are under an obligation to search the records. Lightfoot, 763 S.W.2d at 627; Cox v. Clay, 237 S.W.2d 798, 804 (Tex.Civ.App.--Amarillo 1950, writ ref'd n.r.e.) ([I]t is settled by numerous decisions of our courts that [a duly recorded instrument] carries notice of its contents only to those who are bound to search for it....). 30 Once United Postal acquired its interest as assignee of Congressional, it was not required to make continuous searches of the real property records for interests subsequently secured. Biswell v. Gladney, 213 S.W. 256, 258 (Tex.Comm'n App.1919) (A mortgagee is not charged with constructive notice of a subsequently recorded deed conveying part of the land involved.); see also Cox v. Clay, 237 S.W.2d at 804 ([T]he object of all registration acts is to affect with notice only such persons as have reason to apprehend some transfer or incumbrance prior to their own, because none arising afterwards can affect them or their estate in the land.); Boucher v. Wallis, 236 S.W.2d 519, 526 (Tex.Civ.App.--Eastland 1951, writ ref'd n.r.e.) (observing that the purpose of [the Texas] recording laws is to notify subsequent purchasers ... and not to give protection to the alleged perpetrators of fraud.) (emphasis added); cf. Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 908 (Tex.1982) (noting that recordation gives constructive notice of facts disclosed by the documents within a chain of title to a purchaser). Thus, the recordation of the second liens after United Postal had already acquired its interests as mortgagee was not sufficient to put United Postal on notice of its potential claims against Stewart and commence the limitations period. Cox v. Clay, 237 S.W.2d at 803-04. 31 Thus concluding that the date of recordation is not the relevant focus for our accrual analysis, we must determine what facts were sufficient to put United Postal on notice of any malfeasance and when those facts were, or should have been, discovered. Doubtlessly, when United Postal learned of the existence of the second liens or of the failure to provide cash down payments at closing, its fraud and breach of fiduciary duty claims would have accrued. We agree with Stewart that United Postal's receipt of HGIC's complaint after it was filed on January 22, 1986, was sufficient to start the clock. In that pleading, HGIC set forth ample allegations of wrongdoing on Stewart's behalf and put United Postal on notice of the asserted actions and omissions which form the basis of the October 1990 cross-claim. 32 United Postal concedes that it received the complaint and that its cross-claim contained virtually the same factual allegations against Stewart as [HGIC] had alleged against Stewart [in its 1986 complaint], but argues that it did not have sufficient proof to make such allegations against Stewart until the Baker deposition in May of 1990. Without the evidence from the Baker deposition, United Postal contends that it would have risked violating Federal Rule of Civil Procedure 11 by filing a claim based upon unsubstantiated assertions. What United Postal fails to appreciate, however, is the fact that Rule 11 has absolutely nothing to do with the discovery rule. The cause of action was deferred only until United Postal acquired knowledge of the facts giving rise to its claim, not until it had sufficient facts to prove the allegations. Therefore, we conclude that United Postal was put on notice of sufficient facts as would alert it to its potential fraud claims against Stewart in January of 1986, when it received a copy of the complaint in the case at bar, and its delay in filing a claim for over four years after that date resulted in the claim being barred. 8 33 As will be discussed in greater detail in section II.B.1.a infra, we hold that the discovery rule is not applicable to negligent misrepresentation claims under Texas law and apply the general rules of accrual for negligence causes of action. 9 Because a cause of action sounding in negligence accrues at the time of the act or omission alleged to constitute negligence, Fusco v. Johns-Manville Products Corp., 643 F.2d 1181, 1183 (5th Cir. Unit A 1981), and the events giving rise to potential liability took place in late 1983, the statute ran out long before United Postal filed its cross-claim in 1990. Accordingly, the district court correctly dismissed these claims. 34