Duthu v. Pena ( 2000 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 99-40041
PAUL M. DUTHU; LEE ROY DUTHU; REX DUTHU;
HERMAN DUTHU; RUBY M. DUTHU,
Plaintiffs-Appellants,
VERSUS
RUBEN PENA, ETC., ET AL.,
Defendants,
RUBEN PENA, Individually and as Co-Executor and
Co-Trustee of the McGarr Estate and Trust, and as
Member of the Law Firm of Jones, Galligan, Key & Pena,
and as Member of the Law Firm of King & Pena; FOREST L.
JONES, Individually and as Member of the Law Firm of Jones,
Galligan, Key & Pena; ROBERT L. GALLIGAN, Individually and
as Member of the Law Firm of Jones, Galligan, Key and Pena;
HARLINGEN NATIONAL BANK, In Its Corporate Capacity and as
Successor in Interest to Town and Country National Bank;
TERRY D. KEY; JONES, GALLIGAN, KEY & LOZANO, LLP,
Defendants-Appellees.
-------------------------------------------------
No. 99-40190
PAUL M. DUTHU; LEE ROY DUTHU; REX DUTHU;
HERMAN DUTHU; RUBY M. DUTHU,
Plaintiffs-Appellants,
VERSUS
RUBEN PENA, ETC.; ET AL.,
Defendants,
RUBEN PENA, Individually and as Co-Executor and
Co-Trustee of The McGarr Estate and Trust, and as
Member of The Law Firm of Jones, Galligan, Key & Pena,
and as Member of The Law Firm of King & Pena,
Defendant-Cross Defendant-Appellee,
FOREST L. JONES, Individually and as Member of The Law Firm
of Jones, Galligan, Key & Pena; ROBERT L. GALLIGAN,
Individually and as Member of The Law Firm of Jones,
Galligan, Key & Pena; KING & PENA, A Law Firm; NEAL P. KING,
Individually and as Member of The Law Firm of King & Pena;
HARLINGEN NATIONAL BANK, In Its Corporate Capacity and
as Successor In Interest to Town and Country National Bank;
TERRY D. KEY; JONES, GALLIGAN, KEY & LOZANO, LLP,
Defendants-Appellees,
VERSUS
ROBERT E. PEDRAZA,
Defendant-Cross Claimant-Appellant.
Appeal from the United States District Court
For the Southern District of Texas
(B-96-CV-191)
July 20, 2000
2
Before KING, Chief Judge, GARWOOD and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:*
This appeal presents the Court with the bitter remnants of
several factually complex disputes relating to the distribution of
the estate of Texas farmer Rex McGarr, who died more than fourteen
years ago, on January 14, 1986. The case is before the Court on
the basis of complete diversity and the matter is controlled by
Texas law. The primary issue is whether the claims asserted herein
are barred by the applicable state statutes of limitation.
Appellants Paul M, Duthu, Leroy Duthu,2 Rex Duthu, Herman
Duthu, and Ruby Duthu (hereinafter "the Duthus") are beneficiaries
and contingent remainder men under McGarr’s will. In the district
court, the Duthus filed suit against: (1) attorney Ruben Pena and
a host of lawyers and law firms associated with him (hereinafter
"Pena" or "the Pena interests"), (2) Harlingen National Bank
(hereinafter "the Bank"), as successor in interest to Town &
Country National Bank, which was taken over by the RTC, and (3)
Robert H. Pedraza (hereinafter "Pedraza"). Attorney Pena drafted
the will and served as co-executor of McGarr’s estate. Pedraza, a
trusted McGarr employee of long service, was both a named
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
2
We note that this appellant’s name is variously reported in
the record as Lee Roy Duthu and Leroy Duthu. For the purposes of
this opinion, we have adopted the spelling Leroy, as used by the
appellant himself in record evidence.
3
beneficiary and served, together with Pena, as co-executor of the
will. The Bank’s predecessor in interest, Town & Country National
Bank, extended certain loans secured by the estate’s assets and
then sued in Texas state court to collect on those loans,
eventually capturing all of the estate’s assets pursuant to a
settlement agreement consummated in 1989. In December 1999, the
district court entered separate orders granting summary judgment in
favor of Pena and the Bank, finding, inter alia that the Duthus’
claims were barred by both of the potentially applicable Texas
statutes of limitation. The district court then severed the Duthu’s
remaining claims against Pedraza, which are still pending in the
district court, and certified the orders granting summary judgment
to Pena and the Bank for immediate appeal. The Duthus filed a
timely notice appealing the district court’s December 9 orders.
In the district court, appellant Robert Pedraza filed a cross-
action against his fellow executor, attorney Pena. With respect to
Pedraza’s claims, the district court granted summary judgment in
favor of Pena, holding that Pedraza’s claims were likewise barred
by the applicable statute of limitations. Pedraza filed a timely
notice appealing the district court’s order.
Viewed broadly, there are only two issues presented for review
by this Court: (1) whether the district court properly granted
summary judgment in favor of the defendants with respect to the
Duthus’ claims against Pena and the Bank, and (2) whether the
4
district court properly granted summary judgment with respect to
Pedraza’s claims against Pena. We review both of these issues de
novo, and affirm.
I.
The facts, in a light most favorable to the non-movants, are
as follows. In August 1982, an elderly Rex McGarr executed a last
will and testament. The will was drafted by attorney Ruben Pena,
who was recommended by McGarr’s long-time friend and farm employee,
Robert Pedraza. The will provided, in relevant part, for cash
distributions in the amount of $5,000 to certain named
beneficiaries, including (1) McGarr’s sister, Ruby Duthu; (2) his
four nephews, Paul, Leroy, Herman, and Rex Duthu; and (3) Robert
Pedraza. The will further provided for the conveyance of a 114
acre tract owned by McGarr to Pedraza in fee simple. Finally, the
will provided that the residual estate, that portion remaining
after the distribution of the cash bequests and the conveyance of
the 114 acre tract, be placed into a testamentary trust. The
testamentary trust, which was anticipated to include both real and
personal property, was to be administered by Pena and Pedraza as
trustees for the benefit of McGarr’s sister, Ruby Pena, until her
death or for a period of twenty years, with the beneficial interest
to be divided among his nephews and Pedraza at the termination of
the trust. In May 1982, about three months before Pena prepared
McGarr’s will, Pena prepared a report valuing McGarr’s net worth,
5
and thus his estate, at approximately $1.8 million.
The same day the will was drafted, attorney Pena prepared a
power of attorney giving Pedraza control over McGarr’s affairs,
which McGarr signed. The parties have not presented any issues
relating to McGarr’s competence to execute either the will or the
power of attorney. Months later, in March 1984, Pena drafted and
filed documents in a Cameron County, Texas probate court stating
that McGarr was incompetent and requesting that Pedraza be made
McGarr’s guardian. Between the time that McGarr fell ill in 1982
and McGarr’s death in 1986, Pedraza, in his role as McGarr’s
guardian, and as assisted and advised by Pena, borrowed more than
one million dollars from several Texas banks, including Town &
Country National Bank. Pedraza claims that the loans were secured
for the purpose of continuing McGarr’s farming operations. The
Duthus claim the money was secured for Pedraza’s own personal
business ventures. Some of the earlier loans were secured by
McGarr’s property, but some were not. In addition, some of the
loans were obtained without the statutorily required consent of the
probate court administering the guardianship.
McGarr died in January 1986. In February 1986, Pena and
Pedraza filed McGarr’s will in a second Cameron County probate
court, one different from the probate court supervising the McGarr
guardianship. Pena and Pedraza were appointed independent co-
executors of the estate and issued letters testamentary by the
second probate court. At the time of McGarr’s death, his estate
6
was heavily burdened with the debt accumulated by Pedraza as
McGarr’s guardian, including approximately $500,000 owed to Town &
Country National Bank. Of the $500,000 debt owed to Town & Country
National Bank, approximately $200,000 was not secured by any of
McGarr’s assets.
In this action, the Duthus claim they were never aware of any
of these facts. They claim they did not know the value of McGarr’s
estate, did not know about the guardianship, and did not know any
of the details about the timing or nature of the bank loans. To
the contrary, the Duthus claim that Pena contacted them after
McGarr’s death, told them that he was their lawyer, and that
McGarr’s estate was burdened by debt that would obliterate their
interest under the will. Pena further suggested that McGarr
himself had approved the burdensome debt prior to his death, that
their only hope of recovering anything under the will was to sign
releases of their interest under the will, and that they might
become liable for the debt itself if they failed to sign releases.
On May 15, 1986, Pedraza, assisted by Pena, formed a separate
corporation for real estate development, the El Rancho Potrero
Development Co., Inc. El Rancho Potrero was privately held by
Pedraza and was not organized for the benefit of McGarr’s estate.
Later in May, Pena negotiated a settlement of the Duthus’ interest
in the estate with Ruby Duthu. Ruby Duthu and Rex Duthu agreed to
release their interest in exchange for the amount of the cash
bequest and signed releases. The remaining Duthus, however,
7
refused to sign and the deal fell through.
In June 1986, Pena, Pedraza, and the Town & Country National
Bank negotiated a new loan that would permit payment of the cash
bequests in full. Town & Country National Bank agreed to lend the
estate an additional $40,000, to be used for payment of the cash
bequests. Pedraza and Pena, as co-executors and trustees, agreed
to execute a new note and deed of trust consolidating the $500,000
debt, and most importantly, securing the note with all of the
estate’s assets. The new note thus provided the bank with
additional security in the form of previously unpledged assets and
further converted approximately $200,000 of the debt from unsecured
to secured status. As an added incentive to sign the consolidated
note, Town & Country National Bank agreed to extend a separate bank
loan to Pedraza’s corporation El Rancho Potrero in the amount of
$219,000. The proceeds of that loan were to be used to fund
Pedraza’s purchase of 62 acres from the estate. In late June 1986,
Pena and Pedraza signed the note consolidating the various loans
and securing the debt with the assets of the estate. The total
amount of the consolidated and secured loan, however, was $625,000,
rather than $540,000. The Duthus claim that the additional monies
covered loans extended to Pedraza personally. The Duthus challenge
the validity of the consolidated note on various grounds.
Throughout the balance of 1986, Pena tried to negotiate
settlements of the Duthus’ outstanding interest in the pledged
8
estate property. Ruby Duthu and Rex Duthu remained willing to
settle for the negotiated amounts, but the remaining Duthus raised
objections. Eventually, in January 1987, all of the Duthus signed
releases. Ruby Duthu, Rex Duthu, and Herman Duthu signed releases
in exchange for $5,000. Leroy Duthu and Paul Duthu signed releases
in exchange for $7,000. In this action, Ruby Duthu, Herman Duthu
and Rex Duthu claim that, notwithstanding the fact that they were
paid in full under the express terms of the releases, Pena promised
to try and get them an additional $2,000 so that they would
ultimately receive the same amount as Leroy Duthu and Paul Duthu.
The record contains documentation supporting this claim in the form
of subsequent letters from Pena distributing an additional $500 to
these parties, with the comment that Pena hopes to be able to
obtain a remaining balance of $1,500 in the near future. The
Duthus thus dispute the validity of the releases for a variety of
reasons, including failure of promised consideration and fraudulent
inducement based upon misrepresentations by Pena.
Nothing else happened until March 1988, when Pedraza defaulted
on bank notes secured by the estate’s assets. Town & Country
National Bank tried to satisfy the note by selling the estate’s
assets. While in that process, Town & Country National Bank was
taken over by the RTC. In August 1988, the notes were purchased
from the RTC by Harlingen National Bank (referred to herein as "the
Bank").
In 1988, the Bank sued Pena, Pedraza, Pedraza’s wife Olivia,
9
El Rancho Potrero, McGarr’s estate, and its title insurer for
payment on the loans in a Texas state court of general
jurisdiction. In December 1988, and while the state foreclosure
suit was pending, Ruby Duthu, Rex Duthu, and Herman Duthu,
contacted Mississippi attorney Don Barrett about their substantial
rights under McGarr’s will. The Duthus claim that they contacted
Barrett purely and solely for the purpose of obtaining the $1,500
balance owed to them pursuant to Pena’s promise to obtain $2,000
for each of them in addition to the amount recited as consideration
under the terms of the releases executed by them. However,
Barrett’s initial investigatory letter to Pena includes the Duthus’
allegation that they were “induced” to sign a waiver of their
rights under the will. Moreover, the record reflects that attorney
Barrett made a broader investigation, eventually corresponding with
the Texas state probate court and obtaining copies of the public
filings in the court’s file.
In January 1989, Pena responded to Barrett’s inquiry on behalf
of Ruby Duthu, Rex Duthu, and Herman Duthu. Pena informed Barrett
that McGarr’s estate was heavily burdened by debt that exceeded the
value of the estate. Pena forwarded Barrett copies of the releases
in which the Duthus released their claims for $5,000 and explained
that when the releases were signed, Pena was hopeful that
successful negotiations would eventually permit Pedraza to take
over the farm, which could have potentially preserved some value to
the estate. Pena informed Barrett that that was no longer possible
10
because the debt owed to the Bank had been placed in litigation
that would essentially bankrupt the estate, leaving no further
assets to be distributed. Thus, by January 1989, at least three of
the Duthus had actual or constructive notice through their counsel
that the state court foreclosure action threatened to consume all
of the estate’s assets.
In July 1989, the Bank and the estate settled the state court
foreclosure suit by assigning all of the estate’s assets to the
Bank, and the state court entered final judgment dismissing the
action. In August 1989, the estate’s assets were conveyed to the
Bank pursuant to the settlement agreement. The Duthus challenge
the validity of both the Bank’s claims and the settlement agreement
in the state court foreclosure suit on a variety of grounds.
The Duthus claim that they were not aware of either the
$625,000 consolidation loan or the Bank’s foreclosure suit and
final judgment until 1996 when a third-party, Texas attorney
Heriberto Medrano, conducted an independent investigation and then
traveled to Mississippi to inform the Duthus of the relevant
facts.3
Pedraza likewise claims that he has been the victim of the
more sophisticated machinations of a purportedly self-dealing Pena
in the administration of the guardianship and the estate.
Notwithstanding his central role in most of the misconduct
3
Attorney Medrano accepted the case himself and continues to
represent the Duthus in this appeal.
11
identified by the Duthus, Pedraza claims that his only desire was
to have the will enforced as written. Pedraza claims that he wrote
Pena demand letters insisting that Pena establish the trust, pay
the bequests, and convey the 114 acre tract to him, but that Pena
took no action. Pedraza does not, however, explain how Pena would
have been able to accomplish any of those things in light of the
heavy debt accrued by Pedraza himself as guardian of McGarr’s
estate. Pedraza claims that he consolidated the loans and secured
them with the estate’s assets because Pena and a bank officer
convinced him it was necessary to avoid unpleasant ramifications in
a bank audit. Pedraza further claims that he objected to the
formation of El Rancho Potrero, and that he did not understand why
the estate’s property was being conveyed to El Rancho Potrero.
Pedraza also accuses Pena of a variety of other misconduct.
II.
The instant suit began in October 1996, when the Duthus filed
suit against Pena, Pedraza, and the Bank in federal district court.
The Duthus’ Complaint alleges: (1) that Pena and Pedraza breached
certain fiduciary duties owed to the Duthus, committed fraud, and
engaged in a civil conspiracy which damaged the Duthus; (2) that
the Bank’s conduct during the administration of the guardianship
and estate amounted to civil conspiracy; and (3) that Pena and
various law firms and attorneys associated with Pena committed
legal malpractice.
12
In January 1997, Pena moved for dismissal or summary judgment.
Pena argued that the Duthus’ claims were barred by the applicable
Texas statute of limitations. Alternatively, Pena argued that the
claims should be dismissed because the Duthus formally released
their interest in the estate in 1987, or because there was no
privity between the Duthus and the defendant law firms.
In February 1997, the Bank moved for dismissal or summary
judgment. The Bank argued that the Duthus’ claims were barred by
the applicable statute of limitations. Alternatively, the Bank
argued that the Duthus’ claims were barred by the D’Oench Duhme
doctrine, or by the doctrines of compromise and settlement, accord
and satisfaction, release, and res judicata.
In January 1998, Pedraza filed cross-claims against Pena,
alleging legal malpractice and breach of fiduciary duty. In March
1998, the Bank filed conditional cross-claims against Pena seeking
contribution and indemnity in the event that the Bank was held
liable. Also in March 1998, Pena moved to dismiss Pedraza’s cross-
claim against Pena. As in his motion to dismiss the Duthus’
claims, Pena argued that Pedraza’s claims were time barred by the
applicable statute of limitations.
On December 9, 1998, the district court entered separate
orders granting Pena’s motion for summary judgment with respect to
the Duthus’ claims, and granting the Bank’s motion for summary
judgment with respect to the Duthus’ claims. The district court
held that the undisputed facts established that the Duthus’ claims
13
accrued, at the latest, in July 1989 when the state court entered
final judgment in the Bank’s foreclosure suit pursuant to the
settlement agreement providing for the transfer of all of the
estate’s assets to the Bank. Given that the claims were not filed
until more than seven years later, on October 28, 1996, the claims
were time barred by both of the potentially applicable Texas
limitation periods, which would be two years for those claims
sounding in tort, see TEX. CIV. PRAC. & REM. CODE § 16.003, and four
years for those claims sounding in contract, see TEX. CIV. PRAC. &
REM. CODE § 16.004. The Duthus appeal the district court’s grant of
summary judgment with respect to their claims against Pena and the
Bank.
On January 22, 1999, the district court entered an order
granting Pena’s motion for summary judgment as to Pedraza’s cross-
claims, holding that Pedraza’s claims were also barred by
limitations. In this order, the district court noted that Pedraza
was aware of both the operative facts and any available legal
theories against Pena no later that February 10, 1992, when an
attorney retained by Pedraza wrote Pedraza a letter stating that
the statue of limitations for a claim against Pena would expire the
following month. Given that the cross-claims were not filed until
almost 6 years later, on January 29, 1998, the claims were time
barred by both of the potentially applicable Texas limitation
statutes. Pedraza appeals the district court’s January 22, 1999
14
order.
In addition to the proceedings in the district court, there
have been significant developments in two related state court suits
during the pendency of this appeal.4 In Pedraza v. Pena, No. 13-
97-450-CV (Tex. App. - Corpus Christi, Sept. 16, 1999)
(unpublished), Rogerio Pedraza, who is both Robert Pedraza’s father
and a beneficiary under the will, filed suit against Pena for,
inter alia, failure to make the distribution required under the
will. In that case, which was filed in Hidalgo County, Texas, the
state trial court granted Pena summary judgment, holding that
Rogerio Pedraza’s claims were barred by limitations. The state
court of appeals reversed, holding that Pena failed, in that case,
to prove when Rogerio Pedraza’s cause of action accrued as a matter
of law. The court of appeal’s judgment in that case was informed
only by a copy of McGarr’s will and the date that the case was
admitted to probate.
Three months later, the same court of appeals issued a
decision in an adversarial action arising from the Cameron County,
Texas probate court handling the McGarr estate. See In re McGarr,
4
There is also at least one other related third state court
action pending. While this suit was pending, Pena filed Pena v.
Jimenez, No. 98-02-663-A in the 107th District Court of Cameron
County, Texas against certain parties, including Pedraza and the
Duthus. In March 1998, the Duthus removed the action to federal
court and requested consolidation with the instant action. Pena
objected to removal and moved to remand for lack of subject matter
jurisdiction. The district court granted the motion, and Pena v.
Jimenez forms no part of the current case.
15
10 S.W.3d 373 (Tex. App. - Corpus Christi 1999, no writ). In re
McGarr was filed by Robert Pedraza and other non-Duthu
beneficiaries under the will for an accounting and inventory of the
estate. The Duthus later intervened, adding a claim for
distribution under the will. See id. at 374 n.1. The trial court
received extensive evidence before denying all requests, including
evidence relating to the Duthus’ and Pedraza’s reliance upon
counsel, the Duthus’ releases, and the bank foreclosure action.
See id. at 375-76. The court of appeals affirmed the probate
court’s denial of relief.
The rationale and authorities relied upon in this second, and
more pertinent, state court appellate decision are ultimately
controlling in our disposition of this appeal. The court of
appeals began by noting that the issue of which statute of
limitations applies to demands for an accounting, inventory and
distribution, is unclear under Texas law. See id. at 376 (citing
Little v. Smith, 943 S.W.2d 414, 416 (Tex. 1997)). The court of
appeals then held that the plaintiffs’ cause of action accrued and
limitations began to run when the estate closed, which occurred in
July 1989, when the state court handling the foreclosure suit
entered final judgment giving the estate’s assets to the Bank.
See id. at 376. Thus, the plaintiffs’ claims, filed more than four
years later, were barred without regard to which statute applied.
The court of appeals expressly distinguished its decision three
16
months earlier in Pedraza v. Pena on the basis that the record in
that case was inadequate to decisively establish when the McGarr
estate closed. See id. at 376 n.4.
The court of appeals then considered whether the plaintiffs
suit could nonetheless be permitted to proceed by application of
the Texas discovery rule. Where applicable, the discovery rule
provides that a statutory limitation period may be tolled until the
claimant either discovers, or through the exercise of reasonable
diligence should have discovered, the facts establishing the
elements of the cause of action. See, e.g., Little v. Smith, 943
S.W.2d 414, 418 (Tex. 1997); Andress v. Condos, 672 S.W.2d 627, 630
(Tex. App. - Fort Worth 1984, writ ref’d n.r.e.); Eastman v.
Biggers, 434 S.W.2d 439 (Tex. App. - Dallas 1968, no writ). In In
re McGarr, the Texas court of appeals concluded that the
limitations period was not tolled because the plaintiffs’ could be
charged with constructive notice of the actual knowledge that could
be obtained by an examination of public records, including the
record of the guardianship, probate, and foreclosure proceedings.
See id. at 377-78. The court of appeals further concluded that the
fiduciary relationship between the Duthus and Pena, in his role as
an attorney or executor, was insufficient to excuse their failure
to exercise due diligence to discover the basis for their cause of
action from available public records. See id. Thus, the court of
appeals held that the facts of this case supported a holding that
17
the Duthus and Pedraza could have, but did not discover the facts
made the basis of their multiple claims in July 1989,
notwithstanding the fact that certain facts may have been concealed
from them by someone purporting to act as a fiduciary on their
behalf. The plaintiffs later filed a petition from this holding of
the state court of appeals, which was denied. Keeping this
important holding of the state court of appeals in mind, we proceed
to a consideration of the parties’ specific arguments in this
appeal.
III.
The Duthus argue that summary judgment in favor of Pena was
inappropriate because they could not have known the facts giving
rise to their claims until shortly before they filed suit in 1996,
when attorney Medrano visited them in Mississippi. Texas law
provides that a cause of action for an accounting or for
distribution of an estate accrues and the limitation period begins
to run when the independent executor files a final verified account
of the estate or when all of the debts of the estate have been paid
and any remaining estate property has been distributed. See TEX.
PROBATE CODE § 151; see also In re McGarr, 10 S.W.3d at 376. In the
context of this case, the second circumstance occurred, and most of
the Duthus’ claims would have normally accrued in July 1989, when
the state court entered judgment in the foreclosure suit, or at the
latest in August 1989, when the assets of the estate were
18
transferred to the Bank. In addition, all of the operative conduct
giving rise to the Duthus’ remaining claims occurred before or
shortly after August 1989. Thus, there appears to be no dispute
that the Duthus’ remaining claims would likewise have accrued at
that time.
The Duthus did not file suit until October 1996, more than
seven years later. Thus, assuming arguendo that the Duthus’ claims
are governed by the more generous four year state statute of
limitations,5 their claims are time barred if they accrued before
October 1992. The Duthus attempt to deal with the gap between the
last relevant conduct in 1989 and the last possible trigger date in
October 1992 by invoking the Texas version of the discovery rule.
Texas courts have applied the discovery rule in “two types of
cases: fraud or fraudulent concealment, and where the nature of the
5
Precisely which statute of limitations applies to which of
the appellants’ multiple claims is actually a fairly complex issue.
Certainly, some of the Duthus’ and Pedraza’s claims would be
controlled by the shorter two year period of limitations, see Kansa
Reinsurance Co., Ltd., 20 F.3d 1362, 1374 (5th Cir. 1994) (applying
Texas’ two year statute of limitation to breach of fiduciary duty
claims); Willis v. Maverick, 760 S.W.2d 642, 643 (Tex. 1988) (“A
cause of action for legal malpractice is in the nature of a tort
and is thus governed by the two-year limitations statutes.”);
Chandler v. Chandler, 991 S.W.2d 367, 394 (Tex. App.–El Paso,
Texas, writ denied), cert. denied, 120 S. Ct. 2033 (2000) (“The
statute of limitations for civil conspiracy is two years.”), while
others may be controlled by the four year period of limitations,
see Kansa Reinsurance Co., 20 F.3d at 1369 (noting that Texas law
provides a four year limitation period for fraud claims). We need
not definitively resolve the issue in order to dispose of this
case, because we conclude that the appellants’ claims are barred
without regard to which of the two limitations periods apply.
19
injury incurred is inherently undiscoverable, but may be
objectively verified.” Mellon Serv. Co. v. Touche Ross & Co., 17
S.W.3d 432, 436 (Tex. App. - Houston [1st Dist.] 2000, no writ).
The Duthus maintain that Pena’s and the Bank’s wrongful concealment
of the relevant facts prevented them from obtaining notice of their
claims any earlier than 1996. This is the equivalent of a
fraudulent concealment claim. Therefore, the discovery rule is at
least potentially applicable to toll the relevant limitation period
in this case. See, e.g., Andress, 672 S.W.2d at 629-30; Eastman,
434 S.W.2d at 441.
What remains for determination is whether Pena has established
that the Duthus either discovered or should have, through the
exercise of reasonable diligence, discovered the facts made the
basis of their claims. We hold that Pena has met that burden as a
matter of law. All of the operative facts forming the basis of the
Duthus’ claims occurred before the end of 1989. The summary
judgment record conclusively establishes that there were, at that
time, publicly available records placing the Duthus on constructive
notice of the factual basis for their claims. See In re McGarr, 10
S.W.3d at 377; see also Little, 943 S.W.2d at 421 (“Constructive
notice is usually applied when a person knows where to find the
relevant information but failed to seek it out.”); Mooney v.
Harlin, 622 S.W.2d 83, 85 (Tex. 1981) (“When evidence of fraud may
be disclosed by examination of public records this court has held
20
that limitations will begin to run from the time the fraud could
have been discovered by the exercise of ordinary diligence.”; id.(“Persons interested in an estate admitted to probate are charged
with notice of the contents of the probate records.”); Andress, 672
S.W.2d at 630-31 (affirming summary judgment in favor of defendants
on limitation grounds and holding that plaintiffs’ failure to
search publicly available records supported determination that
plaintiffs’ failed to exercise due diligence in the discovery of
their claim as a matter of law); Eastman, 434 S.W.2d at 443 (same).
Indeed, the Duthus do not identify one fact or circumstance which
came into existence or occurred between 1989 and 1996 that made
their previously undiscoverable claim or injury discoverable in
1996. To the contrary, the only thing that happened in that time
period is that attorney Medrano, a stranger to the suit and all
dealings, decided for some undisclosed reason to look into the
matter. The clear implication is that the Duthus could have, with
an exercise of due diligence, done so themselves much earlier.
See, e.g., Andress, 672 S.W.2d 627; Eastman, 434 S.W.2d 439.
The Duthus assert that they are relatively unsophisticated
people who cannot fairly be charged with constructive notice of the
content of the state court files in the guardianship, probate, and
foreclosure proceeding, because they justifiably relied upon
various misrepresentations made by Pena as their attorney and
fiduciary with respect to their interests under the estate.
21
We disagree with both the factual premise and the legal
conclusion underlying the Duthus’ argument. At least three of the
Duthus (Ruby, Rex, and Herman) obtained notice from Pena through
their counsel Barrett that the assets of the estate had been placed
in litigation with a lien holder, and that the litigation was
expected to bankrupt the estate. Had the Duthus investigated the
status of that pending litigation, they would have discovered
virtually all of the facts that they claim were concealed from them
by Pena, including the existence of the guardianship proceeding and
the rapid accumulation of debt by Pedraza on McGarr’s behalf, from
the terms of the note at issue in the foreclosure proceeding.
In addition, the record conclusively establishes that four of
the five Duthus (Ruby, Rex, Herman, and Paul) obtained legal
counsel with respect to the effect of the signed releases. Record
evidence in the form of correspondence from Ruby Duthu states that
Leroy also sought and received legal counsel while the estate was
being administered. Pena may have been proceeding in the technical
role of fiduciary, but the essentially adversarial and conflict-
ridden nature of the relationship between the Duthus and Pena is
obvious in the record. This is, therefore, not the type of
fiduciary relationship were the Duthus were blindly following the
lead of a trusted fiduciary, nor where they were consenting without
question to the fiduciary’s handling of their own affairs. Even if
the Duthus are themselves rather unsophisticated, we have no
22
trouble under the specific circumstances of this case, concluding
that the relevant facts and circumstances placed the Duthus on
sufficient notice that they both could have, and should have
followed up upon Pena’s 1989 disclosure of the pending foreclosure
suit by reviewing publicly available records in lawsuits involving
the estate. Had they done so, they would have discovered the facts
made the basis of their claims against Pena from the face of those
records.
We likewise reject the Duthus’ suggestion that Pena’s alleged
concealment of the guardianship or the nature and origin of the
debt burdening the estate trumps the requirement that they exercise
due diligence to discover their claims. Texas law is clear; while
fraudulent concealment by a fiduciary may be a factor in the
determination of whether a plaintiff exercised due diligence, such
a factor neither supplants nor excuses the requirement for the
exercise of due diligence on the part of the prospective plaintiff.
See, e.g., Colonial Penn Ins. Co. v. Market Planners Ins. Agency,
1 F.3d 374, 377 (5th Cir. 1993) (“Texas cases make clear that
fraudulent concealment does not trump the discovery rule, but is
merely a factor to consider in determining when a plaintiff in a
fiduciary relationship knew or should have known of the facts
giving rise to its cause of action.”); Courseview, Inc. v.
Phillips Petroleum Co., 312 S.W.2d 197, 205 (Tex. 1957) (“a failure
to exercise reasonable diligence is not excused by mere confidence
23
in the honesty and integrity of the other party”); Andress, 672
S.W.2d at 630 (“The fact that parties are fiduciaries does not,
however, change the rule that diligence is required in discovering
the fraud. Rather, the fiduciary relationship is merely one of the
circumstances to be considered in determining whether fraud might
have been discovered by the exercise of reasonable diligence.”);
Eastman, 434 S.W.2d at 442 (“the fact that a fiduciary relation
exists does not justify a party in negligenting every precaution
until something occurs to arose his suspicions.”).
Pena has established that the Duthus’ claim accrued more than
four years before they filed suit in 1996. For that reason, the
Duthus’ claims against Pena were untimely filed and we therefore
affirm the district court’s grant of summary judgment in favor of
Pena as to those claims.
IV.
The same reasoning applies in large part to the Duthus’ claims
against the Bank. We need pause only briefly to consider the
Duthus’ primary arguments. The Duthus argue that summary judgment
was inappropriate with respect to their claims against the Bank for
two reasons. The Duthus first claim that they were denied the
opportunity to engage in the discovery required to fully respond to
the Bank’s motion. The Duthus preserved error on this point by
moving for a continuance for such discovery pursuant to Federal
Rule of Civil Procedure 56(f), which was denied. The Duthus argue
24
that, given the opportunity, they would have explored what the Bank
knew and what documents were in its files when the Bank filed the
foreclosure suit against the estate. We note that virtually all of
the items identified for further discovery related to the merits of
the Duthus’ claim, i.e. the Bank’s conduct during the course of
McGarr’s guardianship, Pena and Pedraza’s administration of
McGarr’s will, and the Bank’s foreclosure suit. There is no
indication in the record that any of the discovery would have been
responsive to or provided any means for avoiding the Bank’s
limitation defense, which was the basis for the district court’s
decision. We conclude, therefore, that the district court’s denial
of the Duthus’ rule 56(f) motion was not an abuse of discretion.
The Duthus next claim that there are genuine issues of
material fact for the jury with respect to the Bank’s limitation
defense. The Duthus’ arguments, however, are tied primarily to the
merits of their civil conspiracy claims against the Bank rather
than the Bank’s limitations defense. The Bank, on the other hand,
correctly responds that there was no fraudulent concealment on its
part, that it dealt openly, in conformity with Texas law, and as a
matter of public record with the estate, and that the Duthus’
claims were inherently discoverable from the pertinent public
records no later than late 1989. There is, therefore, no
justification for applying the discovery rule to extend the
limitations period with respect to the Duthus’ claims against the
Bank, and we therefore affirm the district court’s decision
25
granting summary judgment in favor of the Bank as to those claims.
V.
What remains for review is the district court’s decision
granting summary judgment in favor of Pena with respect to
appellant Pedraza’s claims for breach of fiduciary duty, self-
dealing, fraudulent misrepresentation, and conversion. Pedraza
maintains that the district court’s decision is flawed by two
errors. First, Pedraza argues that the district court’s order
granting summary judgment is premised upon a significant factual
error. Pedraza notes the district court’s observation that:
There is no question but that PEDRAZA through his
attorney was aware of sufficient facts to commence
the running of the statute of limitations by early
1991 and was advised by letter of February 10, 1992
that the “statute of limitations against Pena [and
Sanchez] expires on March 19, 1992, two years after
you fired them.”
The letter quoted by the district court was written by Texas
attorney Elihu Dodier, who agreed to try and find counsel for
Pedraza’s potential claims against Pena, another attorney named
Sanchez, and the Bank. Pedraza claims that he only asked Dodier to
investigate suit against the Bank and that he did not have any
facts supporting suit against Pena until attorney Medrano conducted
his investigation in 1996. Pedraza’s argument in this regard is
without any merit. Both Dodier’s February 10, 1992 letter, and a
previous communication from another prominent attorney, John
O’Quinn, demonstrate that Pena’s conduct was likewise at issue.
26
Pedraza next invokes his ignorance of the law, and his lack of
sophistication. While sympathetic, Pedraza does not cite any
authority that would permit this Court to avoid the quoted
correspondence, or the obvious fact that counsel secured by Pedraza
made him clearly aware of facts that should have given rise, at the
very least, to more investigation.
We are also influenced by the fact that Pedraza played an
active role in every aspect of the conduct he now identifies as
objectionable. Pedraza was the guardian appointed by one of the
probate courts. Pedraza signed the notes that burdened the estate.
Pedraza signed documents forming El Rancho Potrero. Pedraza signed
the consolidated note pledging the estate’s assets and converting
a partially unsecured loan to a completely secured loan backed by
estate assets worth more than the actual debt. Further, Pedraza
was party to the “self-dealing” sale of real estate from McGarr’s
estate to Pedraza’s own corporation. Pedraza was party to the
foreclosure action by the bank. After the Bank foreclosed, Pedraza
retained a lawyer to shop around a lender liability claim against
the Bank. In March 1990, Pedraza fired Pena and apparently began
trying to secure counsel for claims against Pena as well. In early
1991, Pedraza received attorney O’Quinn’s analysis of his case,
which listed Pena as a target defendant. In February 1992, Pedraza
received actual notice from attorney Dodier that the statute of
limitations against Pena was about to expire. Nonetheless, Pedraza
did not file suit until January 1998, almost six years after that
27
date.
Assuming that some or all of Pedraza’s claims are controlled
by the more liberal four year statute of limitations, his cause of
action would be barred unless it accrued some time after January
1994. We agree with the district court that the record is
sufficient to establish as a matter of law that Pedraza was
actually aware of the facts made the basis of his claim well in
advance of that date. We therefore affirm the district court’s
order granting Pena’s motion for summary judgment with respect to
Pedraza’s claims against him.
CONCLUSION
The summary judgment record in this case conclusively
establishes as a matter of law that the appellants’ claims accrued
and limitations began to run more than four years before they filed
suit. For that reason, the district court is AFFIRMED.
28