Gloria Baker, Connie Cornwall, Carolyn Greer, Daniel Morris, and Judy Travis v. Raymond James & Associates Inc., Logan B. Phillips Jr., and Steven Kane Savell ( 2020 )


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  •         IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI
    NO. 2019-CA-00073-COA
    GLORIA BAKER, CONNIE CORNWALL,                                            APPELLANTS
    CAROLYN GREER, DANIEL MORRIS, AND
    JUDY TRAVIS
    v.
    RAYMOND JAMES & ASSOCIATES INC.,                                            APPELLEES
    LOGAN B. PHILLIPS JR., AND STEVEN KANE
    SAVELL
    DATE OF JUDGMENT:                          12/06/2018
    TRIAL JUDGE:                               HON. JEFF WEILL SR.
    COURT FROM WHICH APPEALED:                 HINDS COUNTY CIRCUIT COURT,
    FIRST JUDICIAL DISTRICT
    ATTORNEY FOR APPELLANTS:                   FRANK CHANDLER BREESE III
    ATTORNEYS FOR APPELLEES:                   JEFFREY R. BLACKWOOD
    ALAN W. PERRY
    STEVIE FARRAR RUSHING
    STEFANIE M. WAYCO
    TERRY R. WEISS
    JAMES WILBOURN VISE
    ROBERT T. HIGGINBOTHAM JR.
    NATURE OF THE CASE:                        CIVIL - CONTRACT
    DISPOSITION:                               AFFIRMED IN PART; REVERSED AND
    REMANDED IN PART - 04/07/2020
    MOTION FOR REHEARING FILED:
    MANDATE ISSUED:
    EN BANC.
    CARLTON, P.J., FOR THE COURT:
    ¶1.    Gloria Baker, Connie Cornwall, Carolyn Greer, Daniel Morris, and Judy Travis
    (plaintiffs) sued certain defendants for claims relating to their financial advisor’s alleged
    malfeasance. The plaintiffs appeal after the Hinds County Circuit Court dismissed their
    claims as time-barred. Finding error with respect to the plaintiffs’ common-law claims, we
    reverse and remand so that the plaintiffs may proceed in the circuit court on these claims. We
    affirm the circuit court’s grant of summary judgment in these certain defendants’ favor on
    the plaintiffs’ claims under the Mississippi Securities Act of 2010, Mississippi Code
    Annotated sections 75-71-501 and 75-71-502 (Rev. 2016).
    STATEMENT OF FACTS AND PROCEDURAL HISTORY
    ¶2.    On October 19, 2017, Baker, Cornwall, Greer, Morris, Travis, and a sixth person
    named Janice Stricklin sued Raymond James & Associates Inc., a brokerage firm; Regions
    Financial Corporation (Regions), the former owner of Morgan Keegan (acquired by
    Raymond James); Logan B. Phillips Jr., a branch manager of Raymond James and Morgan
    Keegan; and Steven Kane Savell, the plaintiffs’ financial advisor who worked with Morgan
    Keegan and Raymond James.1 The plaintiffs alleged that Savell engaged in financial-advisor
    malfeasance in handling their retirement investment accounts to enrich himself and his
    employer; that Raymond James2 was liable pursuant to the doctrine of respondeat superior;
    and that Raymond James and its manager, Phillips, failed to properly supervise Savell in his
    management of the plaintiffs’ accounts. The plaintiffs alleged they were damaged by these
    actions because they suffered substantial losses in their retirement investment accounts.
    1
    Stricklin’s claims against the defendants were subsequently dismissed with
    prejudice, and the remaining plaintiffs dismissed their claims against Regions in an agreed
    order approved and entered by the circuit court on July 3, 2018.
    2
    Savell worked for Morgan Keegan from 2004 until it was acquired by Raymond
    James. The plaintiffs allege in their complaint that Raymond James “acquired Morgan
    Keegan . . . and acquired its liabilities[,] including liability for claims that are the subject of
    [their] complaint.”
    2
    Specifically, the plaintiffs alleged common-law claims, including false representation,
    negligent representation, negligence, fraud, and breach of contract. The plaintiffs also
    alleged violations of the Mississippi Securities Act of 2010, supra.
    ¶3.    After deposing each of the plaintiffs, Raymond James and Phillips moved for
    summary judgment, asserting that the plaintiffs’ claims were time-barred under the applicable
    statutes of limitations. Savell, the other remaining defendant, later joined in their summary
    judgment motion. The defendants attached to their summary judgment motion the monthly
    and year-end account statements and trade confirmations furnished to the plaintiffs relating
    to their investment accounts, as well as excerpts from the plaintiffs’ depositions in which the
    plaintiffs acknowledged, among other things, that they had received this information.
    ¶4.    In opposition to the defendants’ motion for summary judgment, the plaintiffs
    submitted a response, along with affidavits from each plaintiff, among other exhibits. In
    their affidavits, the plaintiffs state that they are retirees from blue-collar or clerical jobs with
    BellSouth3 and had no formal education beyond high school. Between 2002 and 2005, the
    plaintiffs rolled over either all or a sizable portion of their retirement assets to Savell. Savell
    was their financial advisor until he left Raymond James in 2013.
    ¶5.    According to the plaintiffs, they did not have any investment experience before they
    opened their investment accounts through Savell, other than their BellSouth pension and
    401k plans, with which they had had minimal involvement. The plaintiffs also stated in their
    3
    The plaintiffs began their careers with the phone company when it was South
    Central Bell. It then became BellSouth, and it later became AT&T. The phone company
    will be referred to as BellSouth.
    3
    affidavits that in encouraging them to invest with him, Savell told them that if they would
    invest their money with him “he would invest [their] money in a way that would provide
    [them] with income for the remainder of [their] life and that [their] principal would grow
    over time.” The record reflects that the plaintiffs continued to receive monthly “retirement
    checks” from their investment accounts during the relevant time period.
    ¶6.    Between 2003 and, at the latest, 2013, Savell purchased various variable annuities for
    the plaintiffs. According to the plaintiffs, Savell liquidated these investments “in the short-
    term,” when they were “designed to be held long-term,” causing the plaintiffs to incur
    surrender charges and other losses. Savell also purchased penny stocks of small companies
    in the oil business (Canwest and Ridgeway penny stocks) during this time period. These
    purchases, according to the plaintiffs, were “high-risk [and] unsuitable” and also “violated
    Morgan Keegan’s own policy against purchasing stocks selling for less than [five dollars per
    share].” The plaintiffs also experienced significant losses on these penny stock investments.
    The plaintiffs also assert that Savell was engaging in “‘reverse churning,’ a term used in the
    brokerage industry to denote an account being charged a fixed fee although there is little or
    no trading in that account.”
    ¶7.    The plaintiffs received monthly and year-end account statements that reflected the
    change in value of the investor’s assets from the beginning to the end of the reporting period.
    The plaintiffs also received all trade confirmations. Savell left Raymond James in 2013. The
    plaintiffs had stopped using Savell by that time. The plaintiffs concede that “[a]ll acts of
    [Savell’s] alleged malfeasance [relating to the plaintiffs’] account[s] took place more than
    4
    three years before they filed suit” in October 2017.
    ¶8.    In their affidavits, the plaintiffs state that during the years Savell handled their
    accounts, they noticed their accounts had sustained sizeable losses, and they would speak
    with Savell about these losses. Savell “always assured [them] that everything was fine, and
    that [they] would fully recover. He told [them] things like ‘stay the course,’ ‘hang in there,’
    ‘we’re still okay’ and other such assurances.”
    ¶9.    The plaintiffs also state in their affidavits that in 2016 they learned from former co-
    workers, who had also been customers of Savell, that they had filed an arbitration claim
    against Raymond James because of alleged mishandling of their accounts by Savell.4 Shortly
    after receiving the information that Savell may have mishandled their accounts, each plaintiff
    contacted an attorney to determine whether they may have any potential claims against
    Savell. Before that time, according to the plaintiffs, they believed their losses were because
    they just had bad luck in the stock market. As noted, their lawsuit was filed in October 2017.
    4
    The record contains a 2017 decision in a Financial Industry Regulatory Authority
    arbitration case that was brought against Raymond James and Logan Phillips in 2014 on
    behalf of twenty-six people, many of whom were BellSouth retirees, involving acts similar
    to the types of acts described in the plaintiffs’ lawsuit in this case. In its 2017 decision, the
    arbitration panel found as follows:
    The Panel finds that the financial advisor [Savell] acted in reckless disregard
    of the interests of the [claimants] by failing to exercise reasonable care in
    handling of their investments, recommending the purchase of penny stocks,
    which were highly speculative, risky, and unsuitable for their financial
    circumstances, failing to provide [the claimants] with risk and suitability
    information concerning the penny stock transactions, soliciting the purchase
    of penny stock in violation of SEC regulations and Morgan Keegan &
    Company, LLC’s internal policies and procedures, and by misrepresenting
    material facts by “mismarking” the confirmations of the penny stock purchase
    as “unsolicited.”
    5
    ¶10.     The circuit court ruled on the defendants’ summary judgment motion without a
    hearing. Finding that all the plaintiffs’ claims were time-barred, the circuit court granted
    summary judgment in the defendants’ favor and dismissed the plaintiffs’ claims with
    prejudice. The final judgment of dismissal was entered on December 6, 2018. The plaintiffs
    appealed.
    STANDARD OF REVIEW
    ¶11.     In Weathers v. Metropolitan Life Insurance Co., 
    14 So. 3d 688
    , 691 (¶12) (Miss.
    2009), the Mississippi Supreme Court set forth the standard of review applicable in this case:
    This Court applies a de novo standard of review to the statute of limitations.
    Furthermore, this Court reviews grants of summary judgment under the de
    novo standard.” Pursuant to Rule 56 of the Mississippi Rules of Civil
    Procedure, summary judgment “shall be rendered forthwith if the pleadings,
    depositions, answers to interrogatories and admissions on file, together with
    the affidavits, if any, show that there is no genuine issue as to any material fact
    and that the moving party is entitled to a judgment as a matter of law.” Miss.
    R. Civ. P. 56(c).
    (Citations and internal quotation marks omitted). Additionally, “[t]he court views the
    evidence in the light most favorable to the nonmoving party[,]” and “[t]he moving party
    bears the burden of demonstrating there is no genuine issue of material fact.” 
    Id.
     Finally,
    “where there is doubt whether a fact issue exists, the non-moving party is the beneficiary of
    that doubt.” Id.
    ¶12.     “[A]s the [parties] asserting that [their] case is not barred by the statute of limitations,
    [the plaintiffs bear] the burden of proving that the limitations period should be tolled.”
    Commercial Bank v. Smith Shellnut Wilson LLC, 
    270 So. 3d 136
    , 146 (¶26) (Miss. Ct. App.
    2018).
    6
    DISCUSSION
    I.     Time-Bar with Respect to Plaintiffs’ Common-Law Claims
    ¶13.   The circuit court found that the plaintiffs’ complaint was filed outside the applicable
    limitations period and that they failed to meet their burden to prove a genuine issue of
    material fact regarding any basis for tolling the statute-of-limitations period with respect to
    their common-law claims. The plaintiffs assert that the statute-of-limitations period on their
    claims was tolled until 2016 because it was not until then that they learned of Savell’s
    potential wrongdoing—i.e., that their losses may constitute an “actionable injury.” First
    Trust Nat. Ass’n v. First Nat. Bank of Commerce, 
    220 F.3d 331
    , 336 (5th Cir. 2000). For the
    reasons addressed below, we find that the circuit court was in error. We therefore reverse
    and remand on this issue so that the plaintiffs may proceed with their common-law claims
    against the defendants.
    ¶14.   Mississippi Code Annotated section 15-1-49 (Rev. 2019), Mississippi’s catch-all
    three-year statute of limitations, applies to all of the plaintiffs’ common-law claims: false
    representation, negligent representation, negligence, fraud, and breach of contract. See
    Peoples Bank of Biloxi v. McAdams, 
    171 So. 3d 505
    , 508 (¶11) (Miss. 2015) (negligence);
    CitiFinancial Mortgage Co. v. Washington, 
    967 So. 2d 16
    , 19 (¶7) (Miss. 2007) (fraudulent
    misrepresentation and breach of contract); Sanderson Farms Inc. (Prod. Div.) v. Ballard, 
    917 So. 2d 783
    , 789 (¶29) (Miss. 2005) (fraud); Andrus v. Ellis, 
    887 So. 2d 175
    , 176 (¶4); 179
    (¶22) (Miss. 2004) (fraudulent and negligent misrepresentation). The parties do not dispute
    this application.
    ¶15.   Section 15-1-49(1) provides that the limitations period begins within three years “after
    7
    the cause of action accrued . . . .” In Weathers, 
    14 So. 3d at 692
     (¶14), the supreme court
    observed that “a cause of action accrues when it comes into existence as an enforceable
    claim, that is, when the right to sue becomes vested.” 
    Id.
     (emphasis, citations, and internal
    quotation marks omitted).
    ¶16.   Section 15-1-49(2) sets forth a latent-injury discovery-rule exception to the three-year
    limitations period, as follows: “In actions for which no other period of limitation is
    prescribed and which involve latent injury or disease, the cause of action does not accrue
    until the plaintiff has discovered, or by reasonable diligence should have discovered, the
    injury.” 
    Miss. Code Ann. § 15-1-49
    (2). “Under Section 15-1-49(2), “[t]he statute of
    limitations begins to run once plaintiffs are on inquiry that a potential claim exists.”
    Commercial Bank, 
    270 So. 3d at 147
     (¶32). Stated another way, the operative time is when
    the plaintiffs “discover[], or should have discovered by the exercise of reasonable diligence,
    that [they] probably [have] an actionable injury.’” First Trust, 220 F.3d at 336 (emphases
    omitted) (quoting Smith v. Sanders, 
    485 So. 2d 1051
    , 1052 (Miss. 1986)).5 As the supreme
    court has recognized, “discovery is an issue of fact to be decided by a jury when there is a
    genuine dispute.” Weathers, 
    14 So. 3d at 692
     (¶14) (citing Donald v. Amoco Prod. Co., 
    735 So. 2d 161
    , 167 (¶16) (Miss. 1999)). The supreme court in Weathers succinctly summarized
    the test as follows: “Therefore, the critical question with which we are confronted is whether,
    in a summary judgment context, we can identify as a matter of law, the point at which [the
    5
    The supreme court held in Sanders that “[t]he operative time is when the patient can
    reasonably be held to have knowledge of the injury itself, the cause of the injury, and the
    causative relationship between the injury and the conduct of the medical practitioner.”
    Sanders, 485 So. 2d at 1052.
    8
    plaintiff] knew or should have known or should have made an inquiry, based on the
    information available to him.” Id. We now address the defendants’ assertions and the circuit
    court’s determinations on this issue.
    ¶17.   The defendants assert that the circuit court’s decision should be affirmed because the
    plaintiffs’ injuries were not “latent,” and therefore the discovery rule should not apply.
    According to the defendants, the account statements each plaintiff received demonstrated
    such significant losses that the plaintiffs possessed sufficient information to put them on
    “inquiry notice” to conduct “reasonable diligence” into discovering the potential causes of
    the losses they suffered. The defendants make this assertion despite the assurances Savell
    gave to the plaintiffs that their accounts “would fully recover” and that they should “stay the
    course.”
    ¶18.   We do not find merit in the defendants’ assertions. We recognize that the plaintiffs
    concede that their account statements showed substantial losses. We do not find, however,
    that the losses reflected in the plaintiffs’ account statements, standing alone, were sufficient
    as a matter of law to put the plaintiffs on notice that they may have had an “actionable
    injury”6 or a “potential claim”7 against Savell at that time.
    ¶19.   The plaintiffs’ affidavits reflect that when they saw that their accounts had sustained
    sizeable losses, they asked Savell about these losses. We find this is evidence that the
    6
    First Trust, 220 F.3d at 336.
    7
    Commercial Bank, 
    270 So. 3d at 147
     (¶32).
    9
    plaintiffs exercised reasonable diligence in seeking information about their losses.8 When
    the plaintiffs inquired about their losses, Savell would say “that everything was fine, and that
    [their accounts] would fully recover,” and give similar assurances. Like the supreme court
    in Weathers, we do not find, as a matter of law, that Savell’s assurances contradicted the
    plain language of the plaintiffs’ account statements so as to require the plaintiffs to conduct
    further investigation regarding any potential claims against Savell at that point. See
    Weathers, 
    14 So. 3d at 694
     (¶21). A discussion of the Weathers decision is warranted here.
    ¶20.   In Weathers, 
    14 So. 3d at 689
     (¶2), the insured (Weathers) sued MetLife for
    misrepresentation and other similar claims based on representations made by his agent that
    his premium obligation would “vanish” after ten years because the policy would then become
    self-sustaining through dividends after that time. Like the plaintiffs in this case, who sued
    the defendants after learning about their co-workers’ arbitration action against Savell based
    on his alleged mishandling of their funds, Weathers brought his lawsuit after he received
    notice about a class-action lawsuit against MetLife concerning the “vanishing” premium
    feature in his policy. 
    Id. at 690-91
     (¶¶7-8). MetLife moved for summary judgment, asserting
    that Weathers’ claims were time-barred because certain provisions in Weathers’s policy
    should have put Weathers on notice of his agent’s misrepresentations at the time Weathers
    purchased the policy. 
    Id. at 692
     (¶16).
    ¶21.   In response, Weathers asserted that his lawsuit was timely. 
    Id. at 692, 694
     (¶¶15, 20).
    8
    See Bennett v. Hill-Boren P.C., 
    52 So. 3d 364
    , 371-72 (¶23) (Miss. 2011)
    (recognizing that plaintiffs had “submitted evidence in their legal malpractice case showing
    that they had exercised reasonable diligence by continually inquiring into how [their] case
    was progressing through their telephone calls and written correspondence to [their lawyer]”).
    10
    Reading his policy would not have alerted him to any potential claim against MetLife,
    Weathers argued, because the policy provisions were consistent with the agent’s
    representations, and thus the limitations period was tolled until he received the class action
    notice. 
    Id.
     The supreme court agreed that summary judgment in MetLife’s favor was not
    appropriate, finding that “a genuine issue of material fact exists as to whether [the agent’s]
    representations conflicted with the plain language of the policy, so as to place Weathers on
    notice of any alleged misrepresentation or fraud at the time the policy was issued.” Id. at 694
    (¶21).
    ¶22.     We find that the supreme court’s analysis in Weathers is helpful in this case. The
    plaintiffs’ affidavits reflect that when they moved their retirement funds to allow Savell to
    invest for them, he assured them that “he would invest [their] money in a way that would
    provide [them] with income for the remainder of [their lives] and that [their] principal would
    grow over time.” As the record also reflects, the plaintiffs did not hold degrees beyond high
    school, they were not experienced investors, and they relied on Savell to give them
    information and answer their questions about their investments, including their questions
    about the losses they had incurred.
    ¶23.     When asked about the losses, Savell told the plaintiffs that they should “stay the
    course” and that their accounts would “fully recover.” In short, Savell’s subsequent
    assurances in response to the plaintiffs’ questions about their losses—like his initial
    assurances promising the plaintiffs growth “over time” and income for life—related to the
    long-term performance of the plaintiffs’ retirement investment accounts and did not, as a
    matter of law, conflict with the plaintiffs’ objectives or the immediate losses reflected on
    11
    their statements. Indeed, the plaintiffs were still receiving the “retirement checks” that Savell
    promised.
    ¶24.    Under these circumstances, and in the light of the complexities involved in Savell’s
    handling of the plaintiffs’ accounts, we find that there exists a genuine issue of material fact
    whether Savell’s subsequent assurances conflicted with the immediate losses shown on the
    account statements so as to put the plaintiffs on inquiry notice to further investigate any
    potential claims against Savell. Id.
    ¶25.    The defendants cite Commercial Bank, supra, and Speed v. AmSouth
    Bankcorporation, No. 3:04-cv-909-LN, 
    2006 WL 839546
     (S.D. Miss. Mar. 30, 2006), among
    other cases addressed below, in support of their assertion that the plaintiffs’ duty to
    investigate potential claims did not end after Savell’s assurances in response to their
    questions about their losses. These cases are distinguishable and do not change our analysis
    here.
    ¶26.    In Commercial Bank, 
    270 So. 3d at 140
     (¶¶1-2), the Bank in 2005 and 2007 purchased
    $1,850,000 in securities at the recommendation of its investment advisor and then discovered
    in 2014 that it was ineligible to purchase those securities. The Bank sued the investment
    advisor in 2016 for failing to disclose the purchasing-and-holding eligibility requirements
    for the securities. 
    Id.
     at (¶2). The record reflected, however, that the Bank had received
    copies of the securities’ offering circulars on at least six different occasions between 2007
    and 2011, some of which contained notice of the purchaser-eligibility requirements. 
    Id. at 146
     (¶28). In affirming the circuit court’s granting of summary judgment based on
    limitations grounds, this Court found that the offering circulars were sufficient “to put the
    12
    Bank on inquiry notice that ‘it should carefully investigate the materials that suggest that a
    cause probably or potentially exists.’” 
    Id. at 149
     (¶36) (quoting First Trust, 220 F.3d at
    336-37).
    ¶27.   We find that Commercial Bank is distinguishable from the circumstances in this case,
    which are more like the facts in Weathers. In Commercial Bank, 
    270 So. 3d at 150
     (¶40),
    “the premise of the Bank’s lawsuit [was] that it was not a [qualified institutional buyer
    (QIB)] or a qualified purchaser, which [was] in direct contrast to the sales restrictions in the
    federally-required notice in the offering circulars as to entities that were not QIBs or
    qualified purchasers.” (Emphasis added). As we have addressed above, in this case, like the
    Weathers case, we find that there exists at least a question of fact whether Savell’s assurances
    conflicted with the losses reflected on the plaintiffs’ account statements.
    ¶28.   In finding that the plaintiffs’ common-law claims were time-barred, the circuit court
    also relied on this Court’s observation in Commercial Bank that “an investor’s . . . blind
    reliance upon an investment advisor’s advice should not relieve the investor of his common
    sense obligation to review investment materials which are . . . provided to him.” Commercial
    Bank, 
    270 So. 3d at 150-51
     (¶42). We do not find that this point applies here.
    ¶29.   First, as discussed, we find that a question of fact exists in this case whether Savell’s
    assurances conflicted with the immediate losses reflected in the plaintiffs’ account
    statements. Second, in Commercial Bank, this Court distinguished the Bank from the lay
    plaintiff in Weathers, as follows: “unlike Mr. Weathers, with respect to the Bank’s ability to
    assess the need to investigate the notice in the offering circulars, the record shows no
    evidence that would entitle the Bank to ‘lay’ status.” 
    Id. at 150
     (¶41). In this case, the
    13
    plaintiffs, like Mr. Weathers, are entitled to “lay” status and to the accompanying application
    of the discovery rule in that context, as we discuss below. See, e.g., Smith v. Sneed, 
    638 So. 2d 1252
    , 1258 (Miss. 1994) (applying the discovery rule in a legal malpractice lawsuit in part
    because of “the inability of the layman to detect [legal] misapplication; the client may not
    recognize the negligence of the professional when he sees it”).
    ¶30.   Speed v. AmSouth Bankcorporation, No. 3:04-cv-909-LN, 
    2006 WL 839546
     (S.D.
    Miss. Mar. 30, 2006), is also distinguishable. In Speed, two plaintiffs, the Woods, sued their
    investment advisor for allegedly inducing them to purchase “unsuitable securities9 based on
    his misrepresentation that the investments were safe and suitable for their needs.” Id. at *1.
    Year-end account statements provided to the Woods indicated that the two variable annuities
    at issue had lost nearly ten percent of their principal value. Id. at *5.
    ¶31.   The federal district court granted summary judgment to the defendants, finding that
    the plaintiffs’ claims were time-barred in the light of the fact that they “did nothing” after
    receiving statements showing their significant losses. As the district court explained:
    It is clear . . . that [the Woods] knew, by no later than January 2001, that their
    investments could and did suffer significant losses or principal, and yet while
    they were “upset” and “shock[ed]” that this had occurred, they still did not
    complain to AmSouth that they had been misled, they did not contact (or
    attempt to contact) [their financial advisor] for an explanation or to complain
    of their losses; they did not ask questions of anyone as to why they were losing
    their principal. In short, they did nothing.
    Id. (emphasis added).10
    9
    The subject investments in Speed consisted of “two variable annuities.” Id. at *2.
    10
    The federal district court further observed:
    14
    ¶32.   Unlike the Woods, who “did nothing” in the face of significant losses shown on their
    account statements, the plaintiffs in the instant case did question Savell about their losses at
    various times, and each time he assured him that they were “fine” for the long-term and that
    their accounts would recover.11 Moreover, the investments at issue in Speed appeared to
    involve just two variable annuities and the statements the Woods received reflected losses
    Here, plaintiffs have admitted that when they learned, first in April 2000 and
    then in January 2001, that they had sustained losses to their principal value,
    they chose to do nothing. Mrs. Woods testified, for example, that when they
    received the April 2000 statement, they “felt like something had gone wrong
    maybe,” but they “were still willing to depend on [their advisor’s] integrity
    and of the bank, that we felt like it would be straightened out.” Yet they did
    not ask anyone to straighten it out. When they subsequently received the
    year-end statements in January 2001, they obviously knew that nothing had
    been “straightened out,” and that more of their principal had been lost. Yet
    still they did nothing.
    Id. at *7.
    11
    The defendants in the instant case also cite Peoples Bank of Biloxi, 
    171 So. 3d at 509-10
     (¶¶17-22), to support their contention that the plaintiffs were put on inquiry notice,
    as a matter of law, when they received their account statements showing significant losses.
    In Peoples Bank, the bank offered evidence that it sent bank statements to the chancery clerk
    at the close of each month showing significant disbursements from a guardianship account
    held by the Harrison County Chancery Clerk. 
    Id. at 510
     (¶19). The chancery clerk asserted
    he never received the statements, and he waited nearly two years before requesting the
    statements that showed abnormalities in the account. 
    Id. at 509-10
     (¶¶17-19). The supreme
    court recognized that a reasonable person would have requested the missing bank statements
    and held that the chancery clerk’s negligence claim against the bank for paying on a forged
    check from the account accrued on the date when the chancery clerk, had he exercised
    reasonable diligence, could have requested missing bank statements that would have
    revealed the bank’s negligence. 
    Id. at 510
     (¶¶20-21).
    In the instant case, the plaintiffs, unlike the chancery clerk in Peoples Bank, asked
    Savell about their losses at various times, and each time Savell assuaged their concerns by
    assuring them that their losses would be recouped. Peoples Bank is wholly distinguishable
    from the facts in this case and not applicable here.
    15
    attributable to just these annuities. Id. at *4-5. The instant case, in contrast, involves
    complex financial maneuverings Savell allegedly undertook with the plaintiffs’ funds. As
    we discuss in detail below, this factor, coupled with numerous other factors, creates a
    question of fact whether Savell’s wrongdoing was “inherently undiscoverable” so as to toll
    the limitations period until 2016 when the plaintiffs learned Savell may have violated the law
    and industry rules. We find that these circumstances distinguish Speed from this case.
    ¶33.   The defendants also assert that the plaintiffs’ contention that they did not learn of the
    alleged wrongdoing until 2016 is irrelevant because the latent-injury discovery rule does not
    consider when a plaintiff actually learned of a potential cause of action—but rather concerns
    when a plaintiff “should have discovered by the exercise of reasonable diligence, that [it]
    probably has an actionable injury.” First Trust, 220 F.3d at 336. According to the
    defendants, had the plaintiffs exercised “reasonable diligence” upon seeing their significant
    losses, they would have discovered that they had an “actionable injury” prior to 2016.
    Related to this point, the defendants assert that because Savell left Raymond James in 2013
    and he was no longer the plaintiffs’ advisor, Savell’s assurances could not, in any event,
    serve to toll the statute-of-limitations period after that time.
    ¶34.   We do not find merit in defendants’ assertions. Mississippi jurisprudence establishes
    that “the discovery exception [may be applied] where the plaintiff will be precluded from
    discovering harm or injury because of the secretive or inherently undiscoverable nature of
    the wrongdoing in question . . . [o]r . . . when it is unrealistic to expect a layman to perceive
    the injury at the time of the wrongful act.” Donald, 735 So. 2d at 168 (¶18) (citation omitted)
    (emphasis added). In this case, we find that the plaintiffs’ losses arose from the “inherently
    16
    undiscoverable nature of [Savell’s] wrongdoing,” id., and that it is unrealistic for the
    plaintiffs, as laymen, to have perceived their injury at the time of Savell’s financial-advisor
    malfeasance.
    ¶35.   In addressing the first test, the “inherently undiscoverable” test, we begin by observing
    that “[b]ecause there is no bright line rule [in defining a latent injury], the specific facts of
    the case will determine whether the plaintiff knew or reasonabl[y] should have known that
    an injury existed.” PPG Architectural Finishes Inc. v. Lowery, 
    909 So. 2d 47
    , 51 (¶14)
    (Miss. 2005). In reviewing the evidence in the light most favorable to the plaintiffs in the
    instant case, we find that the defendants did not prove as a matter of law that the plaintiffs’
    common-law claims were barred by section 15-1-49(1).
    ¶36.   The record reflects that Savell allegedly engaged in complex investment activities
    involving the plaintiffs’ accounts, including repeatedly purchasing and then liquidating
    annuities for the short-term, though these instruments were designed to be held for the long-
    term;12 purchasing penny stocks and then marking them as “unsolicited” allegedly so as to
    prevent detection by the brokerage firm’s policy against solicited purchases of such stock;
    and allegedly engaging in “reverse churning,” which, as noted above, involves denoting an
    12
    The defendants assert the record shows the plaintiffs acknowledged, at the time the
    annuities were purchased, that they agreed to charges associated with the annuities. We do
    not find, however, that because the plaintiffs acknowledged and agreed to these charges that
    this is evidence that the plaintiffs knew, or had reason to know at that time, the effect of
    Savell’s conduct in selling annuities in the short-term when they were meant to be held for
    the long-term.
    17
    account as being charged a fixed fee regardless of whether there is any trading.13
    ¶37.   The plaintiffs, on the other hand, had no more than high school educations and were
    financially inexperienced. In the light of (i) the complicated nature of Savell’s investment
    activities and the sophisticated financial instruments at issue here; (ii) the plaintiffs’ financial
    inexperience; (iii) the fact that the plaintiffs continued to receive their monthly “retirement
    checks;” and (iv) Savell’s repeated reassurances when the plaintiffs questioned him about
    the decline in their investments, we find that Savell’s wrongdoing was “inherently
    undiscoverable” and that there exists a genuine issue of material fact whether the plaintiffs
    knew, or should have known in the exercise of reasonable diligence, that they had an
    “actionable injury” before 2016 when the plaintiffs assert that they first learned “Savell and
    Morgan Keegan might have violated the law and industry rules.”
    ¶38.   With respect to the second test, i.e., the layman test, in the analogous legal-malpractice
    context, the supreme court has recognized that it is unrealistic to expect a layman client to
    detect injury resulting from a purported expert’s conduct, as follows: “[t]he corollary to an
    attorney’s expertise is the inability of the layman to detect its misapplication; the client may
    not recognize the negligence of the professional when he sees it.” Bennett, 
    52 So. 3d at 372
    (¶24) (internal quotation mark omitted). The discovery rule applied in this context is that
    “the statute of limitations begins to run on the date that the plaintiff learns, or through
    13
    The defendants argue the record shows that in 2007 and 2011 the plaintiffs that
    made this claim signed contracts agreeing to pay fixed fees, instead of commissions for
    transactions, and that the fee appeared on their account statements. We do not find, however,
    that this information is evidence that these plaintiffs knew, or had reason to know at that
    time, that this could possibly result in “reverse churning” on Savell’s part.
    18
    reasonable diligence, should have learned, of the negligence of the lawyer.” 
    Id. at 369
     (¶15);
    see also Sneed, 638 So. 2d at 1253.
    ¶39.   We find that the circumstances of this case warrant that this common-sense rule be
    applied here.14 For the same reasons listed above concerning the “inherently undiscoverable”
    test, we find that given plaintiffs’ lay status there exists a genuine issue of material fact when
    the plaintiffs learned, or through reasonable diligence should have learned, of the defendants’
    alleged malfeasance.
    ¶40.   Based upon the foregoing, we find that the circuit court erred in awarding summary
    judgment in the defendants’ favor based upon statute-of-limitations grounds with respect to
    the plaintiffs’ common-law claims.
    II.     Blue-Sky-Law Claims Waived
    ¶41.   The circuit court also held that the plaintiffs’ claims under the Mississippi Securities
    Act of 2010, supra, were time-barred. The plaintiffs did not challenge this ruling on appeal.
    It is, therefore, waived. Rosenfelt v. Miss. Dev. Auth., 
    262 So. 3d 511
    , 519 (¶27) (Miss.
    2018) (“The appellant must affirmatively demonstrate error in the court below, and failure
    to do so waives an issue on appeal.”). We therefore affirm the circuit court’s order granting
    14
    We recognize the defendants assert that the district court in Bolden v. Kentucky
    Financial Co., 
    316 F. Supp. 2d 406
    , 411 (S.D. Miss. 2004), rejected the plaintiffs’ argument
    in that case that their lack of sophistication precluded them from discovering their purported
    claims relating to the terms of their loan documents concerning credit insurance. In Bolden,
    however, the court found “that the loan documents are clear and plainly impart to the
    reader the information that plaintiffs claim was misrepresented and/or not disclosed to
    them. Plaintiffs, though perhaps unsophisticated, are nevertheless held by law to have
    knowledge of the content of their contracts.” 
    Id.
     (emphasis added). These circumstances
    are not present in the instant case, nor does Bolden involve an financial advisor’s alleged
    malfeasance in connection with investors’ accounts. Bolden is not analogous here.
    19
    summary judgment in the defendants’ favor on this issue.
    ¶42.   For the reasons addressed above, we affirm the circuit court’s order granting summary
    judgment in the defendants’ favor on the plaintiffs’ claims under the Mississippi Securities
    Act of 2010, supra. We reverse the circuit court’s order granting summary judgment in the
    defendants’ favor on the plaintiffs’ common-law claims of false representation, negligent
    representation, negligence, fraud, and breach of contract, and we remand this case for further
    proceedings on these claims.
    ¶43.   AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
    BARNES, C.J., GREENLEE, WESTBROOKS, McDONALD AND
    LAWRENCE, JJ., CONCUR. McCARTY, J., CONCURS IN PART AND DISSENTS
    IN PART WITH SEPARATE WRITTEN OPINION, JOINED BY J. WILSON, P.J.,
    AND TINDELL, J. C. WILSON, J., NOT PARTICIPATING.
    McCARTY, J., CONCURRING IN PART AND DISSENTING IN PART:
    ¶44.   It is my firm belief that any time there is a genuine dispute whether a statute-of-
    limitations period has run, that dispute should be resolved by a jury. See Miss. Valley Silica
    Co. Inc. v. Barnett, 
    227 So. 3d 1102
    , 1121 (¶47) (Miss. Ct. App. 2016), abrogated on other
    grounds by Portis v. State, 
    245 So. 3d 457
     (Miss. 2018).
    ¶45.   But in this appeal I do not believe there was any way the harm was not reasonably
    discovered by the time the limitations period had expired. Although I agree with the majority
    that the “blue sky” claims were waived, I would also affirm the circuit court’s grant of
    summary judgment as to the common-law claims.
    ¶46.   As the circuit court phrased it, “[t]o discover their injuries, Plaintiffs simply had to
    glance at their account statements, which would have alerted them to the substantial losses
    20
    about which they now complain.” In granting summary judgment, the circuit court found it
    “did not require advanced degrees or financial backgrounds to realize that those statements
    showed investment activity inconsistent with their objectives.”
    ¶47.   If someone plunges a knife into your belly and you start to bleed, you know you have
    been injured. Each month, the retirees were jabbed by the clearly shown losses in their
    accounts. Every time they received a statement showing their losses, they knew they were
    losing money, and it was not getting better—no matter what Savell told them. There was no
    latent injury to discover, as the wound was apparent. Regardless of the retirees’ investment
    experience, they knew they were losing money throughout the time they were relying on
    Raymond James.
    ¶48.   Likewise, if a broker continues to tell someone it will get better, and it does not
    (rather, it gets even worse), the harm cannot be concealed. The lack of latent injury or
    concealed harm is heightened by the retirees’ concession that some of their co-workers had
    already pursued Raymond James for Savell’s failures—and done so within the three years
    set out by the statute of limitations.
    ¶49.   I am unpersuaded this case is that distinguishable from Speed v. AmSouth
    Bankcorporation, No. 3:04-cv-909-LN, 
    2006 WL 839546
     (S.D. Miss. Mar. 30, 2006). As
    discussed by the majority, the plaintiffs in that case “knew that they had lost a significant
    amount of their principal balance, and that their principal was not ‘safe’ and ‘secure’ as [their
    broker] had represented.” Id. at *3. The majority states that it can be distinguished because
    the plaintiffs in that case “did nothing,” while noting that in the case at hand the retirees
    complained to Savell.
    21
    ¶50.   While the investors in Speed did not seek reassurance from their broker, their losses
    were apparent, and they allowed their investments to continue. Id. at *5. The facts that gave
    them knowledge of a claim, or that a reasonable person would have investigated, were the
    losses after they had been assured their principal would build. Id. This is the same reason
    the district court concluded the Speed investors “failed to exercise any due diligence to
    attempt to discover their cause of action,” so their claims would not be tolled. Id. at *7. As
    the district court concluded, “the law requires that persons act to pursue and protect their
    rights in a timely manner . . . .” Id. at *8. For the same reason, I would affirm that the claims
    were time-barred in this case.
    ¶51.   A caveat: although both the majority and the circuit court make some reference to a
    claim by the retirees that Raymond James was negligent in its supervision of Savell, under
    even the simple and plain standards of Mississippi Rule of Civil Procedure 8, I do not see
    such a claim in the complaint in this case. Were there such a claim, the discovery rule would
    undoubtedly apply to it. Although the retirees knew of their financial losses, it would be a
    question for a jury if those losses were due to failed oversight, and those failures would have
    been latent.
    ¶52.   For these reasons, I respectfully concur in part and dissent in part.
    J. WILSON, P.J., AND TINDELL, J., JOIN THIS OPINION.
    22
    

Document Info

Docket Number: NO. 2019-CA-00073-COA

Judges: Carlton, Barnes, Greenlee, Westbrooks, McDonald, Lawrence, McCarty, Wilson, Tindell

Filed Date: 4/7/2020

Precedential Status: Precedential

Modified Date: 10/5/2024