Texas Supreme Court Clarifies Discovery Rule in Fiduciary Relationships
Marcus & Millichap v. Triex Texas Holdings
On January 13, 2023, the Texas Supreme Court issued a decision clarifying the discovery rule in the context of fiduciary relationships. The Court held that the discovery rule does not delay the start of a legal claim, known as accrual, until the plaintiff knows the identity of the wrongdoer, even if the wrongdoer is a fiduciary — and even if a defendant may be attempting to conceal evidence
In other words, the Texas Supreme Court held that even when an individual or organization has been wronged by a fiduciary — who has a legal and ethical obligation to act in the beneficiary's best interest — they have a responsibility to investigate and take action in a timely manner.
This article breaks down this recent decision and describes how the Court reached its conclusion.
What is the Discovery Rule?
The discovery rule is a legal principle that applies to certain types of civil lawsuits. It essentially provides that the statute of limitations (the time within which a lawsuit must be filed) does not begin to run until the plaintiff knows or reasonably should know of the injury, harm, or damage that forms the basis of the lawsuit.
In the context of a fiduciary relationship, the discovery rule refers to the legal principle that the statute of limitations for a breach of fiduciary duty claim does not begin to run until the plaintiff knows (or reasonably should know) that the fiduciary has breached their duty.
The Case: Marcus & Millichap v. Triex Tex. Holdings
In 2008, Triex Texas Holdings purchased a gas station from Hamilton Holdings, with Marcus & Millichap serving as the broker for both parties. As part of the deal, Triex entered into a 20-year lease with Taylor Petroleum, a company affiliated with Hamilton Holdings. In December 2012, Taylor Petroleum defaulted on the lease.
Three years later, Triex sued Hamilton Holdings and Taylor Petroleum. During depositions taken the following year, Triex discovered additional information that caused it to suspect that Marcus & Millichap had breached its fiduciary duties to Triex. As a result, Triex asserted breach of fiduciary duty claims against Marcus & Millichap in March 2017—more than four years after Taylor Petroleum’s default.
Argument for Summary Judgment
Marcus & Millichap moved for summary judgment, arguing that the discovery rule did not save Triex’s time-barred claims.
In Texas, the typical statute of limitations for a case involving a breach of fiduciary duty is four years. One of the critical questions at play is whether the statute of limitations began in December 2012 or more than four years later, when Triex discovered that Marcus & Millichap potentially breached their fiduciary duty. Marcus & Millichap argued that the statute of limitations should have begun in December 2012, meaning that the lawsuit filed by Triex in March 2017 was outside the statute of limitations and, thus, time-barred.
It was undisputed that Triex knew it was injured in December 2012. Accordingly, the only issue the Texas Supreme Court addressed was whether the discovery rule deferred accrual of Triex’s cause of action until it knew that Marcus & Millichap caused the injury.
The discovery rule does not defer accrual until the plaintiff knows ‘the specific nature of each wrongful act that may have caused the injury,’ or ‘the exact identity of the wrongdoer.’ In applying these rules to the facts, the Court found that Triex’s duty to exercise reasonable diligence to discover the identity of the wrongdoer was triggered on December 1, 2012, the time at which it acquired actual knowledge of its injuries (i.e., the day that Taylor Petroleum defaulted).
Accordingly, the Court held that the discovery rule did not apply to save Triex’s late-filed claims.
The Court rejected the Court of Appeals’ reasoning that Triex was relieved of the responsibility of diligent inquiry because of its fiduciary relationship with Marcus & Millichap. In doing so, the Court explained that when a person is injured, that person has a duty to exercise reasonable diligence to discover the wrongful acts giving rise to the injury, regardless of the existence of a fiduciary relationship.
The Court therefore held that the discovery rule does not delay accrual until the plaintiff knows the identity of the wrongdoer, even if the wrongdoer is a fiduciary.
Until this point, the Court merely reiterated and clarified existing law. However, in coming to its conclusion, the Court of Appeals relied on evidence that Marcus & Millichap had actively misled Triex to believe that it was not responsible for Triex’s injury.
The Supreme Court found that the Court of Appeals’ reliance on this evidence was misguided because evidence of fraudulent concealment is only relevant if the defense of fraudulent concealment is raised in the trial court. The Supreme Court concluded that, because Triex failed to raise the defense of fraudulent concealment in the trial court, the Court of Appeals shouldn’t have considered the evidence of fraudulent concealment.
This treatment of the evidence is odd because, based on common sense, evidence of fraudulent concealment is directly relevant to the question of whether the plaintiff “should have known of the facts giving rise to the cause of action.”
Indeed, if evidence arose that a defendant concealed the facts that would support a plaintiff’s claim, that would appear to be good evidence that the plaintiff should not have known of the facts giving rise to a claim. Apparently, the Texas Supreme Court thinks otherwise.
What Does This Decision Mean?
This decision may have significant implications for future cases involving breaches of trust and the application of the discovery rule.
It serves as a reminder for individuals who have suffered harm to take prompt and diligent steps in pursuing their claims to ensure they are not time-barred. This includes conducting a thorough investigation and presenting a strong case, even if a defendant may be attempting to conceal evidence. Ultimately, it will be the responsibility of the harmed party to act promptly and effectively in pursuing their claim.