Gallier v. Woodbury Fin. Servs., Inc.
| Decision Date | 13 September 2016 |
| Docket Number | CIVIL ACTION NO. H-14-888 |
| Parties | VERNON GALLIER, et al., Plaintiffs, v. WOODBURY FINANCIAL SERVICES, INC., Defendant. |
| Court | U.S. District Court — Southern District of Texas |
The parties tried this case to a jury in June 2016. The jury returned a verdict in the plaintiffs' favor, awarding them damages for their financial adviser's misrepresentations about the annuities they purchased through his employer, Woodbury Financial Services, Inc. The jury found that the adviser, David Mierendorf, was acting within the scope of his authority from Woodbury when he made the misrepresentations; that limitations did not bar the claims; and that Woodbury was liable for violations of the Texas Insurance Code and for fraudulent and negligent misrepresentations. The jury awarded damages for fraud and negligence based on alternative benefit-of-the-bargain and out-of-pocket damage measures, as well as damages for Woodbury's knowing violations of the Texas Insurance Code, TEX. INS. CODE § 541.152(b). (Docket Entry No. 108).
"[U]nder Texas law, a plaintiff who pleads alternative theories of recovery may elect [] remedies after the verdict." Fisher v. Miocene Oil & Gas Ltd., 335 F. App'x 483, 486 n.4 (5th Cir. 2009) (citing State v. Fiesta Mart, Inc., 233 S.W.3d 50, 56 n.4 (Tex. App.—Houston [14th Dist.] 2007, pet. denied)). The plaintiffs moved to enter judgment and elected benefit-of-the-bargain damages. (Docket Entry No. 110). They also sought pre- and postjudgment interest, attorney's fees, costs, and conditional appellate fees.
Woodbury responded by moving for judgment notwithstanding the verdict under Federal Rule of Civil Procedure 50(b), arguing that limitations barred the plaintiffs' claims and that the plaintiffs had failed to prove recoverable damages. Woodbury also argued that the plaintiffs are not entitled to attorney's fees, interest, or costs. The plaintiffs replied, and the court heard oral argument. (Docket Entry Nos. 115, 117, 119).
At oral argument, the court ordered the parties to submit supplemental briefs addressing the limitations issue. While the original briefs focused on the Fifth Circuit's recent unpublished decision in Rowten v. Wall St. Brokerage, L.L.C., 646 F. App'x 379 (5th Cir. 2016) (per curiam), the supplemental briefs canvassed state- and federal-court cases applying similar limitations standards to similar allegations against the kind of "rogue" broker the jury found Mierendorf to be—a finding Woodbury does not dispute.
The limitations issue has been in this case from the outset. Because the outcome is close and fact-intensive, the court rejected—or, more precisely, deferred deciding—Woodbury's limitations arguments at the motion-to-dismiss, summary-judgment, and judgment-as-a-matter-of-law stages. Instead, the court found factual allegations and evidence that required a fully developed and well-presented record to resolve. (Docket Entry Nos. 32, 55, 112). The good lawyers on both sides have presented the factual record and legal analysis the court hoped for. The four plaintiffs testified extensively about their annuity purchases and their pre- and post-purchase communications with Mierendorf and Woodbury.
The case law, while heavily dependent on the facts of each case, presents a consistent theme. A party arguing that limitations did not accrue until long after the purchase, or invoking fraudulent concealment or the discovery rule as a basis to toll limitations, must act reasonably. A plaintiff actsunreasonably as a matter of law by relying on a broker's oral representations that clearly conflict with the brokerage house's written risk disclosures or financial-performance information. Applying this rule, case after case holds that a plaintiff cannot reasonably rely on a broker's oral promise that her investment is "risk-free" or "guaranteed" in the face of documents, including subscription agreements and account statements, describing risks of loss or showing financial performance inconsistent with that promise. If the reliance is unreasonable, courts hold that, as a matter of law, the plaintiff was on notice of her claims before limitations ran, and her claims are barred.
The case law presents a continuum of factual variations. At one end, the contradictions between the statements and information in the brokerage house's documents and the "rogue" broker's oral promises are so stark as to make the limitations bar clear. At the other end, the documents are sufficiently unclear or ambiguous as to make the dispute over when a plaintiff was on notice of her claims, and therefore subject to the limitations bar, an issue the finder of fact needs to decide.
Based on the record; the motions, responses, and supplemental briefs; the applicable law; and counsels' arguments, the court must deny the plaintiffs' motion for judgment, (Docket Entry No. 110), and grant Woodbury's motion for judgment as a matter of law, (Docket Entry No. 115). No later than September 29, 2016, the parties must submit a proposed final judgment consistent with this Memorandum and Order.
The reasons for this ruling are set out below.
"A motion for judgment as a matter of law . . . in an action tried by jury is a challenge to the legal sufficiency of the evidence supporting the jury's verdict." Orozco v. Plackis, 757 F.3d 445, 448 (5th Cir. 2014) (quoting SMI Owen Steel Co. v. Marsh USA, Inc., 520 F.3d 432, 437 (5th Cir.2008) (per curiam)) (internal quotation marks omitted). Under Rule 50(b) of the Federal Rules of Civil Procedure, "[a] motion for judgment as a matter of law should be granted if there is no legally sufficient evidentiary basis for a reasonable jury to find for a party." Id. (internal quotation marks omitted). In conducting this review, the district court "accord[s] great deference to the jury's verdict." Baltazor v. Holmes, 162 F.3d 368, 373 (5th Cir. 1998). The court "view[s] the entire record in the light most favorable to the non-movant, drawing all factual inferences in favor of the non-moving party, and 'leaving credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts to the jury.'" Aetna Cas. & Sur. Co. v. Pendleton Detectives of Miss., Inc., 182 F.3d 376, 378 (5th Cir. 1999) (quoting Conkling v. Turner, 18 F.3d 1285, 1300 (5th Cir. 1994)). A court may grant a motion for judgment as a matter of law "[o]nly when the facts and reasonable inferences are such that a reasonable juror could not reach a contrary verdict . . . ." Baltazor, 162 F.3d at 373.
A district court may review a party's postverdict motion for judgment as a matter of law under Rule 50(b) only if the party first moved for a directed verdict under Rule 50(a) at the conclusion of the evidence. See Allied Bank-West v. Stein, 996 F.2d 111, 114-15 (5th Cir. 1993); see also United States ex rel. Wallace v. Flintco Inc., 143 F.3d 955, 960 (5th Cir. 1998). A Rule 50(a) motion is a prerequisite to the district court's review of a postverdict motion under Rule 50(b) and is "virtually jurisdictional." Stein, 996 F.2d at 114-15 (quoting Perricone v. Kan. City S. Ry. Co., 704 F.2d 1376, 1380 (5th Cir. 1983)). The parties do not dispute that Woodbury moved for judgment as a matter of law under Rule 50(a) based on limitations and damages. (Docket Entry No. 112).
Texas law governs the limitations issues. See TEX. CIV. PRAC. & REM. CODE § 16.004(a)(4) (fraud—four years); id. § 16.003(a) (); TEX. INS. CODE § 541.162 (Texas Insurance Code—two years). The parties agree that: (1) the claims with a two-year statute of limitations are time-barred if they accrued before June 8, 2011; and (2) the claims with a four-year statute of limitations are time-barred if they accrued before June 8, 2009.
Woodbury's motion for summary judgment argued that limitations began to run when the plaintiffs purchased the annuities and received documents describing the risks, because that was when the alleged losses occurred. (Docket Entry No. 41 at p. 25). In the alternative, Woodbury argued that limitations began to run in 2008, when the plaintiffs received Woodbury account statements showing significant actual investment losses that were inconsistent with Mierendorf's oral promises that they could withdraw a guaranteed 7% annually without diminishing the principal value. (Id. at p. 30).
The plaintiffs responded that the losses did not occur on the annuity-purchase dates and that they reasonably relied on Mierendorf's promises before and after they bought the annuities. (Docket Entry No. 46 at p. 17). The plaintiffs argue that limitations did not accrue until 2012, when they first learned that Mierendorf had left Woodbury under bizarre circumstances and that the investments, while still containing sufficient value to provide the promised 7% return for some period, would not provide the promised lifetime guarantee of a 7% return and fully preserved principal.
Woodbury argues that the written risk disclosures the plaintiffs received before they made the investments in 2003 and the account statements showing significant principal-value losses in 2008 put them on notice that Mierendorf's statements were false or unreliable. The plaintiffsemphasize that they had no meaningful investment experience and trusted Mierendorf to give them accurate information and answer all their questions about the annuities. The plaintiffs argue that the risk disclosures in the purchase documents were neither so clear nor inconsistent with Mierendorf's promises as to put them on inquiry notice of their claims. Acknowledging that the account statements they received in 2007 and 2008 showed significant losses that Mierendorf had told them could not and would not occur, the plaintiffs emphasize that they acted reasonably in seeking and relying on his explanations. Those...
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