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

Heading: Summary Judgment On HGIC's Claims Against Stewart

Text: 35 As noted above, the district court granted summary judgment in favor of Stewart, holding that (i) HGIC's negligent misrepresentation and fiduciary duty claims were barred by limitations, and (ii) there was no evidence of fraud. We review the decision to grant summary judgment de novo, applying the same criteria employed by the district court in the first instance. Federal Deposit Ins. Corp. v. Dawson, 4 F.3d 1303, 1306 (5th Cir.1993). Summary judgment is proper if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once a properly supported motion for summary judgment is presented, the burden shifts to the non-moving party who bears the burden of proof at trial to show with significant probative evidence that there exists a triable issue of fact. In re Municipal Bond Reporting Antitrust Litig., 672 F.2d 436, 440 (5th Cir.1982).
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37 This court has previously interpreted the Texas authorities to apply a two-year statute of limitations to negligent misrepresentation claims. See Sioux Ltd. Sec. Litig. v. Coopers & Lybrand, 914 F.2d 61, 63-64 (5th Cir.1990). HGIC contends, however, that Sioux is inconsistent with the Texas Supreme Court's holding in Williams, 802 S.W.2d at 656-58, and urges us to adopt the four-year statute, citing M & M Distrib. v. Dunn, 819 S.W.2d 639, 640 (Tex.App.--Corpus Christi 1991, no writ) (equating misrepresentation with fraud claims and applying the four-year statute of limitations). This court has already evaluated the effect of Williams upon Texas negligent misrepresentation claims and determined that Williams addresses the limitations period only for fraud claims. It has no application to a claim of negligent misrepresentation. Sioux, 914 F.2d at 64; see also Milestone Properties, Inc. v. Federated Metals Corp., 867 S.W.2d 113, 119 (Tex.App.--Austin 1993, no writ) (holding that, because negligent misrepresentation does not require intent, it sounds in negligence rather than in fraud, and is thus subject to the two-year negligence statute of limitations); Texas Am. Corp. v. Woodbridge Joint Venture, 809 S.W.2d 299, 302 (Tex.App.--Fort Worth 1991, writ denied) (also applying the two-year statute). We expressly determined that the two-year statute covered negligent misrepresentation claims and may not now deviate from the Sioux holding unless the Texas courts issue supervening decisions. See Broussard v. Southern Pac. Transp. Co., 665 F.2d 1387, 1389 (5th Cir.1982) (en banc) (holding that one panel of this court may not overrule another panel's determinations of the law of a state in a diversity case). 38 Alternatively, HGIC argues that the adoption of a two-year statute would not bar its negligent misrepresentation claims because of the application of the discovery rule. In support of its position, HGIC points us to a number of Texas cases in which it contends the discovery rule was applied to similar claims. 10 Further, in HGIC's view, the Texas Supreme Court's decision in Gaddis v. Smith, 417 S.W.2d 577, 580-581 (Tex.1967), is especially instructive. That case involved a medical malpractice claim that the operating physician had left a foreign object in the patient's body. The Texas court applied the discovery rule due to the unusual circumstances presented, which HGIC advocates are analogous to the one at bar in that the negligence was not readily discernible. Id. at 580. 39 The district court found that the discovery rule generally plays no role in a negligence action, such as negligent misrepresentation, under the relevant Texas authorities. In support of its conclusion, it made reference to this court's observation in Sioux that a negligent misrepresentation claim sounds in negligence rather than fraud and determined that the point of accrual was the commission of the negligent act, not the date of the ascertainment of damages. See Fusco, 643 F.2d at 1183 (citations omitted). The court further distinguished all of the cases relied upon by HGIC except Gaddis as involving fraudulent misrepresentation claims and opined that Gaddis was a peculiar type of case and therefore an exception to the general rule expressed in Fusco. Thus concluding that the limitations period should date back to the time of the alleged misrepresentations in December of 1983, the court found HGIC's claims to be barred. 40 We similarly decline to apply the discovery rule to a negligent misrepresentation claim, finding that the Texas courts classify such a cause of action as a negligent tort rather than a fraud action. See Milestone Properties, 867 S.W.2d at 119 ([B]ecause negligent misrepresentation does not require knowledge, it 'is properly identified as being a claim sounding in negligence rather than fraud'....) (quoting Woodbridge, 809 S.W.2d at 303); see also Great American Mortgage Investors v. Louisville Title Ins. Co., 597 S.W.2d 425, 430 (Tex.Civ.App.--Fort Worth 1980, writ ref'd n.r.e.) (demonstrating that the tort of negligent misrepresentation is grounded in principles of negligence). Thus, such a claim should be subject to the rules of accrual governing negligence, and we will apply the general Texas rule that the limitations period for negligence actions runs from the commission of the negligent act, not the date of the ascertainment of damages. Fusco, 643 F.2d at 1183. The cases cited by HGIC do not persuade us otherwise. In Lightfoot, the court of appeals discussed the application of the discovery rule in a pure fraud context; there were no claims for negligent misrepresentation. 763 S.W.2d at 624. After careful review of Fireman's Fund Indem. Co. v. Boyle Gen. Tire Co., 381 S.W.2d 937, 939 (Tex.Civ.App.--Waco 1964), reformed on other grounds, 392 S.W.2d 352 (Tex.1965), we are unable to conclude that the court specifically applied the discovery rule to negligent misrepresentation claims; rather, it appears that the court was also discussing fraud and fraudulent misrepresentation causes of action in that case. The case is ambiguous on the point, and we are not confident in relying upon it for authority that the discovery rule applies to negligent misrepresentation actions. 41 Contrary to HGIC's assertions, the Dallas court of appeals in Cook Consultants, Inc. v. Larson, 677 S.W.2d 718, 721 (Tex.App.--Dallas 1984), aff'd in part, rev'd in part on other grounds, 690 S.W.2d 567 (Tex.1985), did not hold that the discovery rule applied in this context. Instead, that court specifically ruled that it need not determine whether the discovery rule applies in the instant case because, even if it does, the evidence indicates that Larson actually discovered the [alleged misrepresentation] more than two years prior to the institution of suit. Id. 11 Similarly, in Coleman v. Rotana, Inc., 778 S.W.2d 867, 873 (Tex.App.--Dallas 1989, writ denied), the court did not expressly hold that the discovery rule applied, but rather stated in dictum that the latest the claim could have accrued--i.e., when the appellants had knowledge of the misrepresentation--was still beyond the limitations period. Finally, Sioux Ltd. Sec. Litig. v. Coopers & Lybrand, 901 F.2d 51, 53 (5th Cir.), superseded by, 914 F.2d 61 (5th Cir.1990) involved both fraudulent misrepresentation claims--to which the discovery rule unquestionably applies--and negligent misrepresentation allegations. The authorities upon which we relied to set forth the parameters of the discovery rule were pure fraud cases. However, even giving the plaintiffs the benefit of the discovery rule on the negligent misrepresentation claim, we held the claims to have been barred. Id. 42 Given the lack of clear authority to the contrary and the persuasiveness of the Texas cases refusing to apply the discovery rule in this context, the district court did not err in holding that the negligent misrepresentation claims accrued in December of 1983, when it is undisputed that the misrepresentations, if any, were made. HGIC failed to file its suit until January of 1986. We therefore affirm the judgment of the district court dismissing HGIC's negligent misrepresentation claims as being barred by limitations. 43
44 The limitations period for a breach of fiduciary duty claim appears to be similarly unsettled in the Texas courts. Compare Spangler v. Jones, 797 S.W.2d 125, 132 (Tex.App.--Dallas 1990, writ denied) (applying section 16.051 of the Civil Practice and Remedies Code, the four-year residual limitations provision, to fiduciary claims) with Hoover v. Gregory, 835 S.W.2d 668, 676 (Tex.App.--Dallas 1992, writ denied) (holding that the two-year limitations period for torts applies to a fiduciary claim) and Russell v. Campbell, 725 S.W.2d 739, 744 (Tex.App.--Houston [1st Dist.] 1987, writ ref'd n.r.e.) (applying the two-year statute of limitations under section 16.003 of the Texas Civil Practice and Remedies Code to fiduciary duty causes of action). Unfortunately, both the two-year and four-year limitations periods have been employed by our court, resulting in an internal conflict. Compare Resolution Trust Corp. v. Seale, 13 F.3d 850, 852 (5th Cir.1994) (holding that a breach of a fiduciary duty of care is a tort claim subject to the two-year general tort limitations statute) and FDIC v. Dawson, 4 F.3d 1303, 1307 (5th Cir.1993) (same) with McGill v. Goff, 17 F.3d 729, 734 (5th Cir.1994) (relying upon Spangler, 797 S.W.2d at 132, and utilizing four-year rule) and Sheet Metal Workers Loc. Union No. 54 AFL-CIO v. E.F. Etie Sheet Metals Co., 1 F.3d 1464, 1469 (also citing Spangler and concluding that Williams instructs the Texas courts to apply a four-year statute of limitations to fiduciary claims). The general rule in our court is that we look to the earlier line of authority where two lines of panel decisions conflict. Texaco, Inc. v. Louisiana Land and Exploration Co., 995 F.2d 43, 44 (5th Cir.1993). However, as noted above, this court also employs a rule in diversity cases that overrules our prior precedent when there is a significant change in the applicable state's substantive law. Broussard, 665 F.2d at 1389 ([A] prior panel decision should be followed by other panels without regard to any alleged existing confusion in state law, absent a subsequent state court decision or statutory amendment which makes this Court's [prior] decision clearly wrong.) (quoting Lee v. Frozen Food Express, Inc., 592 F.2d 271, 272 (5th Cir.1979)). Thus, rather than trace the two lines of authority to their roots to determine which was earlier, we look to the Texas state courts' recent pronouncements on the issue to resolve the question. We find the Texas Supreme Court's 1990 decision in Williams to be the definitive point to which we must first turn in evaluating this issue. Unquestionably, Williams was a supervening decision which clarified the statute of limitations for fraud in Texas and discussed its impact upon other tort claims. HGIC claims that Williams dictates the application of the four-year residual statute to fiduciary duty claims. It points to Spangler as authority for this proposition. In Spangler, the Dallas court likened a breach of fiduciary duty claim to a cause of action for fraud or deceit for which it claimed there is no express limitations period and concluded that section 16.051 of the Texas Civil Practices and Remedies Code, the residual statute of limitations period, should apply. 797 S.W.2d at 132 (Inasmuch as there is no limitations statute expressly applying to 'fraud,' 'deceit,' 'misrepresentation,' or any similar term, we conclude that [Sec. 16.051], providing for all actions for which there is 'no express limitations period,' the statute of limitations is [sic] four years is applicable.) (citing Williams, 802 S.W.2d at 654). We do not find the reasoning in Spangler to be persuasive. First, despite the fact that the Texas Supreme Court recited in Williams that [t]here is no limitations statute expressly applying to 'fraud' ..., it held that the limitations period governing an action on a debt--section 16.004(a)(3) of the Texas Civil Practices and Remedies Code--was applicable. Moreover, in Williams, Texas' highest court expressly stated that: 45 We do not retreat from our analysis in [First Nat'l Bank v. Levine, 721 S.W.2d 287 (Tex.1986) ]. In general, torts developed from the common law action for 'trespass,' and a tort not expressly covered by a limitation provision nor expressly held by this court to be governed by a different provision would presumptively be a 'trespass' for limitations purposes. The same common law development simply does not apply to fraud as to most other torts. 46 802 S.W.2d at 654-55 (emphasis added). Breach of fiduciary duty is clearly a tort under Texas law, and thus, would appear to fall within this reasoning. Moreover, the Texas Supreme Court declined to overrule prior decisions setting forth a two-year statute of limitations for certain similar tort claims, such as legal malpractice 12 and breach of the duty of good faith and fair dealing, 13 which had been raised as analogies for employing the two-year limitations statute for fraud. Williams, 802 S.W.2d at 654 n. 2. For these reasons, we do not find persuasive the reasoning in Spangler that Williams dictates the application of the four-year statute of limitations for fiduciary duty claims and decline to follow the opinions of this court which rely upon Spangler. 47 Further, the first case by this court to confront the issue after Williams applied the two-year general tort statute of repose set forth in section 16.003 to a Texas fiduciary duty claim. See Russell v. Board of Trustees of the Firemen, Policemen and Fire Alarm Operators' Pension Fund, 968 F.2d 489, 492-93 (5th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1266, 122 L.Ed.2d 662 (1993). Although Russell did not address the Williams decision, it definitively determined the applicable limitations period, and its result further persuades us to apply the two-year period absent a sea change in Texas law. Therefore, we adopt the line of cases applying the two-year tort statute of limitations to such causes of action--see, e.g., Russell, 968 F.2d at 492-93 and Dawson, 4 F.3d at 1307--and affirm the judgment of the district court granting summary judgment on HGIC's fiduciary duty claims. 14 2. HGIC's fraud claims 48 The parties agree that the Texas statute of limitations for fraud is four years, see Williams, 802 S.W.2d at 656-58, and that HGIC filed its lawsuit well within that period. Stewart contends however, that HGIC has not and cannot meet its Celotex burden with respect to several of the elements of its fraud cause of action. 49 Under Texas law, HGIC must prove that (i) Stewart made a false representation as to a past or existing fact (ii) which was material to the transaction, (iii) Stewart knew the representation to be false, (iv) and made the representation for the purpose of inducing HGIC to take certain action, (v) HGIC reasonably relied upon the representation, (vi) to its detriment. Meyers v. Moody, 693 F.2d 1196, 1214 (5th Cir.1982), cert. denied, 464 U.S. 920, 104 S.Ct. 287, 78 L.Ed.2d 264 (1983); DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex.1990), cert. denied, 498 U.S. 1048, 111 S.Ct. 755, 112 L.Ed.2d 775 (1991). 50 The district court evaluated the summary judgment evidence and decided that there was no evidence that Stewart had actual knowledge of any false assertions it may have made in the settlement statements. Further, the court determined that HGIC had failed to introduce evidence to satisfy another of the critical elements of fraud--that Stewart's representations were made with an intent to deceive HGIC or to induce HGIC to act in a particular manner. The court below concluded that: 51 The evidence introduced by HGIC would probably raise issues of fact regarding negligence. However, there is no evidence that Stewart ... engaged in fraudulent activity with respect to the transactions at issue. 52 Accordingly, it dismissed HGIC's fraud claims against Stewart. We agree with the district court's assessment of the summary judgment evidence on this point. The representations which HGIC claims were fraudulent were (i) the HUD-1 settlement statements reflecting earnest money deposits which failed to disclose that they were paid outside the closing, (ii) Baker's purported failure to disclose the existence of the second liens to Congressional, 15 (iii) the FNMA affidavits, notarized by Baker, which reflect that there was no secondary lien financing on the properties, and (iv) the loan applications which reflect that the downpayments were held in escrow by Stewart. 53 The only document alleged to be fraudulent that was prepared by Stewart was the HUD-1 form, which, as discussed previously, failed to recite specifically that the earnest money deposits were made outside closing. Although there is no specific notation that the earnest money was paid outside closing as would be consistent with the instructions on the HUD-1, the earnest money deposit was shown as a reduction in the total amount due from the borrower pursuant to the settlement statement, as well as a reduction in the total amount owed to the seller at closing, indicating that the earnest money had already been transferred from buyer to seller outside the closing. We agree with the district court that there may be issues of fact regarding negligence in the preparation of this document, but, without more, the evidence is insufficient to create a jury issue of fraud. Baker testified that she relied upon Congressional's closing instructions, undisputedly reflecting that the FNMA affidavits--which had been prepared by Congressional and had already been signed by the borrowers and seller--were enclosed for her notarization. The uncontroverted evidence reveals that Stewart was not instructed to confirm that the earnest money deposits had previously been given to the developer and that Baker in fact relied upon the sworn statements of the purchasers and seller that the earnest money had been delivered. Further, Stewart was not instructed to review the loan applications, but instead to present the sealed envelopes to the buyers--who were to sign and reseal them--and simply to send the sealed documents back to Congressional. 54 Moreover, Baker's purportedly inconsistent notarization of the second liens and the FNMA affidavits reflecting that no secondary financing had been obtained does not charge her with knowledge of the contents of either of those sets of documents. Rather, notarization is a certification by the notary only that the persons whose signatures appear on the affidavits swore before a notary that the statements contained in the documents were true. See Shelton v. Swift Motors, Inc., 674 S.W.2d 337, 342 (Tex.App.--San Antonio 1984, writ ref'd n.r.e.). The FNMA affidavits were prepared by Congressional, the mortgage company, and signed prior to closing. As noted above, Stewart was not instructed to verify the accuracy of the affidavits, but rather to notarize them and include them with the closing documents. 55 With respect to the second liens, Baker testified consistently that she had no knowledge of their contents, and neither HGIC nor United Postal showed otherwise. The only controverting evidence offered by HGIC was expert testimony that Baker would have had to have read--or at least noticed--the contents of the documents and understood their implications upon several of the numerous transactions she was in the process of closing. We are unwilling to place such an elevated standard of imputed knowledge upon escrow agents. The second liens were presented to Baker for simple notarization under circumstances wholly outside the closings involved. The persons requesting Baker's notarization were also participants in other transactions which Baker did not close. Although one of the second liens contains a Stewart filing identification number on it, Baker denied having written the number on the document, and HGIC offered only speculation that no one else would have had reason to do this, to controvert her testimony. In light of the undoubtedly countless documents notarized and filed by Baker as a title agent, we cannot presume--absent additional circumstances as would give rise to an inference of fraud--that her notarization of the second liens or FNMA affidavits is significant probative evidence that there exists a triable issue of fact as to either Stewart's knowledge or intent to deceive. In re Municipal Bond Reporting, 672 F.2d at 440.