Court Opinion

ID: 9579691
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:57:32.917173+00
Date Added: 2024-06-11T13:35:41.357109
License: Public Domain

Judge KAPELKE
dissenting.
I respectfully dissent.
In my view, the trial court properly granted summary judgment in favor of defendants based on its conclusion that the applicable statutes of limitation barred plaintiffs’ claims.
A cause of action for breach of fiduciary duty or negligence accrues for statute of limitations purposes on the date the plaintiffs have knowledge of facts which, in the exercise of reasonable diligence, would enable them to discover the occurrence of the act or breach complained of. Jones v. Cox, 828 P.2d 218 (Colo.1992); Hansen v. Lederman, 759 P.2d 810 (Colo.App.1988).
When the undisputed facts demonstrate that a plaintiff discovered or reasonably should have discovered the defendants’ conduct as of a particular date, the issue of when the cause of accrued may be decided as a matter of law. Reider v. Dawson, 856 P.2d 31 (Colo.App.1992); Morris v. Geer, 720 P.2d 994 (Colo.App.1986).
Here, defendants contend, and the trial court agreed, that plaintiffs’ claims accrued when plaintiffs received the respective Private Placement Memoranda (PPMs), which contained information highlighting the risks entailed in the investments. The trial court found that such information placed plaintiffs on actual or at least inquiry notice of the unsuitability of the investment vehicles and of the inaccuracy of any of Jacoway’s statements that were inconsistent with the “storm warnings” in the PPMs. I would agree.
A number of federal courts have held that delivery of a PPM or prospectus disclosing investment risks can be sufficient to put the investor on constructive notice of the unsuitability of the investments, thus triggering the commencement of the limitations period.
For example, in Dodds v. Cigna Securities, Inc., 12 F.3d 346 (2d Cir.1993), cert. denied, — U.S. -, 114 S.Ct. 1401, 128 L.Ed.2d 74 (1994), plaintiff was a widow with a tenth-grade education who claimed that the defendants had induced her to invest in limited partnerships that were unsuitable for her because of their risk and illiquidity. Defendants moved for summary judgment based on the running of the pertinent statutory limitation period, contending that the period began to run when plaintiff received the prospectus warning of the high degree of risk inherent in the partnership venture.
In upholding the trial court’s entry of summary judgment for the defendants, the United States Court of Appeals for the Sixth Circuit rejected the plaintiffs contention that the issue of when an investor would be on constructive notice is for the trier of fact and may not be resolved as a matter of law. The court held that the warnings in the prospectus “were sufficient to put a reasonable investor of ordinary intelligence on notice of the commissions, the risk, and the illiquidity of the investments.” Dodds v. Cigna Securities, Inc., supra, at 351.
In Dodds, the court also rejected the plaintiffs arguments that summary judgment should have been denied because she had not read the prospectus and because she had allegedly received oral assurances from the defendants contradicting the warnings in the prospectus materials.
Other federal courts have applied an analysis similar to that in Dodds in concluding that an investor’s receipt of PPMs and similar prospectus-type materials can trigger the accrual of pertinent limitation periods if such materials provide sufficient “storm warnings” of the investment risks. See Kennedy v. Josephthal & Co., 814 F.2d 798 (1st Cir.1987); Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992), cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992); Nerman v. Alexander Grant & Co., 926 F.2d 717 (8th Cir.1991); and Hirschler v. GMD Investments Ltd. Partnership, [1991 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 95,919, 1991 WL 115773 (E.D.Va.1991), aff'd, 972 F.2d 340 (4th Cir.1992).
*651The plaintiff in Dodds, supra, like the plaintiffs here, claimed that the limited partnerships in which she invested were unsuitable to her individual needs and investment strategies. She reasoned that the individual prospectuses did not put her on notice as to the unsuitability of the investments and their effect on her overall portfolio.
In rejecting this contention, the court in Dodds pointed to the language in the prospectuses flagging the “high risk” and illi-quidity of the limited partnerships. As the court emphasized:
Plaintiff was constructively aware of the portion of her total portfolio that included investments described as risky and illiquid. That sufficed to raise a duty to inquire into whether they constituted too substantial a portion of her portfolio. ' Constructive knowledge that roughly a quarter of her assets were being invested in risky, illiquid ventures surely constituted at least a ‘storm warning ...’ to a reasonable investor with conservative instincts sufficient to raise a duty to inquire further.
Dodds v. Cigna Securities, Inc., supra, 12 F.3d at 352.
The plaintiffs here had previously invested in real estate and in other partnerships. According to their financial plans, only 1% of their assets were to be allocated to risky investments, and they had an overall conservative investment strategy.
The PPMs here should have alerted plaintiffs, as reasonable investors of ordinary intelligence, that the partnership ventures were risky, illiquid, and inconsistent with plaintiffs’ conservative investment objectives.
The first pages of all the PPMs received by plaintiffs contain an express warning of the high risk nature of the investments. Additional sections explain the risks in detail. In the section labeled Who Should Invest, the Nashville PPM states: “Investment in the Units involves a high degree of risk....”
The corresponding sections in the Springs and Hotel PPMs state: “The partnership has adopted a general investor suitability standard which is the requirement that each subscriber for Units represent in writing that: ... (b) he can bear the economic risk of losing his entire investment....”
Similarly, the PPM for the Regional Mall contained an acknowledgment that the investor “is able to afford the economic risks of the investment (i.e., can afford a complete loss of his, her or its investment)_” The Risk Factors sections in all the PPMs specifically and extensively describe a variety of risks including conflicts of interest, and emphasize the speculative nature of the investments.
The Subscription Agreements signed by plaintiffs for the Nashville, Spring, and Hotel investments include the following warnings:
(b) the undersigned ... either (A) is an Accredited Investor, ... or (B) has a net worth sufficient to bear the risk of losing his entire investment .... and can bear the economic risk of losing his entire investment herein ..." has, alone or together with his Purchaser Representative ... such knowledge and experience in financial matters that the undersigned is capable of evaluating the relative risks and merits of this investment.
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(e) That (i) it has been called to the undersigned’s attention in connection with his investment in the Partnership that such investment is speculative in nature and involves a high degree of risk....
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(o) the undersigned acknowledges and is aware of the following:
(i) ... the Units are speculative investments which involve a high degree of risk of loss by him of his entire investment in the Partnership.
I would agree with the trial court that these risk warnings in the PPMs were sufficient to put plaintiffs on notice that the four partnership investments were extremely risky and to contradict any oral statements by defendants that might have been inconsistent with the warnings. Such warnings on their face revealed to plaintiffs that the investments were unsuitable to their relatively conservative investment strategy.
*652Accordingly, in my view, upon receipt of the PPMs, plaintiffs were on constructive notice of any negligence or breach of fiduciary duty on the part of defendants. Because plaintiffs received the PPMs on the 1983 investments in 1988, their causes of action accrued no later than when, in that same year, they actually invested the funds following their receipt of the risk disclosures. As to those investments, the five-year statute of limitations governing plaintiffs’ breach of fiduciary duty claim ran in 1988, and the six-year limitations period on their negligence claim expired in 1989.
Similarly, the two-year limitations period on plaintiffs’ negligence claim relating to the 1987 investments accrued in 1987 and expired in 1989.
Since plaintiffs did not even file their original action in federal court until January of 1990, I would agree with the trial court that their claims that are the subject of this appeal are barred by the prior running of the pertinent statutes of limitation.
In concluding that the trial court should not have granted summary judgment for defendants, the majority determines that there is a genuine issue of material fact as to whether defendants and plaintiffs were in a fiduciary relationship. In my view, however, defendants were entitled to summary judgment even assuming that they were fiduciaries.
I recognize that when a fiduciary relationship exists, “facts which would ordinarily require investigation may not excite suspicion, and the same degree of diligence is not required.” Lucas v. Abbott, 198 Colo. 477, 481, 601 P.2d 1376, 1379 (1979). Nevertheless, even if defendants here are considered to be fiduciaries and plaintiffs’ duty of inquiry was, therefore, a lighter one, the storm warnings in the PPMs would so alert a reasonable investor of the high risks of the investments as to trigger an immediate duty of inquiry. That duty arose when plaintiffs received the respective PPMs.
Had plaintiffs alleged an actual fraudulent concealment by defendants following delivery of the PPMs, there might be an issue as to possible equitable tolling of the limitations periods. Plaintiffs have not made such allegations. See Garrett v. Arrowhead Improvement Ass’n, 826 P.2d 860 (Colo.1992); Dodds v. Cigna Securities, Inc., supra.
Finally, the majority opinion finds that the suitability of the investments remains a genuine issue of material fact. That issue, it seems to me, goes to the ultimate merits of plaintiffs’ claims rather than to the critical statute of limitations question posed by the summary judgment motion: when did plaintiffs have knowledge of facts which, in the exercise of reasonable diligence, would have enabled them to discover the alleged negligence and breach of fiduciary duty by defendants.
For these reasons, I would affirm the summary judgment.