Grant v. Preferred Research, Inc.

• Decision Date: 29 September 1989
• Docket Number: No. 88-7772,88-7772
• Citation: 885 F.2d 795
• Parties: William H. GRANT, Plaintiff-Appellee, v. PREFERRED RESEARCH, INC., a Georgia corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 795

885 F.2d 795

15 Fed.R.Serv.3d 503

William H. GRANT, Plaintiff-Appellee, v. PREFERRED RESEARCH, INC., a Georgia corporation, Defendant-Appellant.

No. 88-7772.

United States Court of Appeals Eleventh Circuit.

Sept. 29, 1989.

George L. Beck, Jr., Dennis Pierson, Montgomery, Ala., for defendant-appellant.

Marvin H. Campbell, Montgomery, Ala., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Alabama.

Before RONEY, Chief Judge, JOHNSON, Circuit Judge, and MELTON ^*, District Judge.

JOHNSON, Circuit Judge:

This appeal arises from the entry of judgment after a jury trial against the defendant in the amount of $25,000 in compensatory damages and $75,000 in punitive damages on claims brought under Alabama law for breach of contract and fraud. On this appeal, we consider whether the statute of limitations barred plaintiff's fraud claim as a matter of law, and whether the district court erred in denying defendant's motion for judgment notwithstanding the verdict on plaintiff's contract claim.

I. STATEMENT OF THE CASE

Preferred Research ("Preferred") is a Georgia corporation that licenses individuals to perform title examinations, real estate appraisals, and real estate closings. Preferred licensed plaintiff William H. Grant ("plaintiff"), a law school graduate, to perform title examinations and prepare real property reports in Montgomery, Alabama. Preferred engaged plaintiff through a contractual licensing agreement. Under this contract, plaintiff was to perform title searches, send reports to the customer, and send copies of the reports to Preferred. Preferred deducted a $5.00 administration fee for each report, and paid 80% of the remainder to plaintiff as a commission. This dispute centers around whether the licensing agreement between plaintiff and Preferred included errors and omissions insurance coverage for plaintiff.

Preferred maintained a professional liability insurance policy as protection in the event of errors and omissions committed by Preferred or its agents. The policy covered only employees of Preferred; plaintiff was retained as an independent contractor. In April of 1984, approximately seven years after plaintiff began working for Preferred, a client filed suit against plaintiff, claiming that one of plaintiff's employees omitted an existing mortgage from a real property report. When plaintiff informed Preferred of the claim, Preferred president Richard McCauley refused to submit the claim to Preferred's errors and omissions carrier. Plaintiff paid the $3,495.56 claim out of his own pocket, and subsequently purchased his own errors and omissions policy in March 1985.

On January 22, 1988, plaintiff wrote to Preferred demanding that it cure several alleged breaches of the licensing agreement, including breach of what he claimed was an agreement to provide errors and omissions coverage. Plaintiff demanded compensation for the errors and omissions policy he had obtained, and demanded a refund of each of the $5.00 per report fees that Preferred had charged, claiming that Preferred had represented to him that the $5.00 fees were for the errors and omissions insurance. ¹ Plaintiff threatened to terminate his business arrangement with Preferred within fourteen days if his demands were not met. On January 26, 1988, one of Preferred's representatives attempted to audit plaintiff's business, but plaintiff refused the auditor access to the records. On February 12, 1988, plaintiff wrote to Preferred to inform Preferred that he was terminating the employment agreement effective February 29, 1988. On February 17, 1988, Preferred's president wrote to plaintiff terminating the contract immediately.

On February 12, 1988, plaintiff also filed suit for conversion, fraud, and breach of contract based on Preferred's retention of the $5.00 fees and its failure to obtain insurance for plaintiff. On May 12, 1988, Preferred counterclaimed for breach of contract based on plaintiff's retention of invoices from the last half of the month of February 1988. On August 19, 1988, Preferred moved for summary judgment, contending among other things that the statute of limitations had expired on plaintiff's fraud claim. This motion was denied. The district court for the Middle District of Alabama held a jury trial on September 6-8, 1988. The district judge submitted the statute of limitations issue to the jury. The jury returned a general verdict in favor of plaintiff on the fraud and breach of contract claims, and in favor of Preferred on its cross claim for breach of contract. ² The jury awarded plaintiff $25,000 compensatory and $75,000 punitive damages, and awarded Preferred $2,000 on the cross claim. After the verdict was rendered, Preferred filed a motion for judgment notwithstanding the verdict, which the district court denied. Preferred appeals.

II. DISCUSSION

A. Statute of Limitations

Plaintiff argues that Preferred waived its statute of limitations defense by failing to plead it as an affirmative defense as required by Fed.Rule Civ.P. 8(c). ³ See American Nat. Bank of Jacksonville v. Federal Deposit Ins. Corp., 710 F.2d 1528, 1537 (11th Cir.1983) (affirmative defense of statute of limitations is waived if not pleaded). The Supreme Court has held that the purpose of Rule 8(c) is to give the opposing party notice of the affirmative defense and a chance to rebut it. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 350, 91 S.Ct. 1434, 1453, 28 L.Ed.2d 788 (1971). Thus, if a plaintiff receives notice of an affirmative defense by some means other than pleadings, "the defendant's failure to comply with Rule 8(c) does not cause the plaintiff any prejudice." Hassan v. U.S. Postal Service, 842 F.2d 260, 263 (11th Cir.1988). When there is no prejudice, the trial court does not err by hearing evidence on the issue. Id. Preferred raised the statute of limitations defense in a motion for summary judgment filed in August of 1988, approximately one month before trial. As a result, plaintiff was fully aware that Preferred intended to rely on a statute of limitations defense. Further, plaintiff does not assert any prejudice from the lateness of the pleading. Under these circumstances, the district court correctly addressed the statute of limitations issue on the merits. See Hassan, 842 F.2d at 263.

Preferred argues that the district court erred in denying its motion for judgment notwithstanding the verdict on plaintiff's fraud claim because the evidence clearly indicated that the statute of limitations barred that claim. In considering a motion for judgment notwithstanding the verdict, both the trial and appellate courts must consider all of the evidence in the light most favorable to the party opposing the motion. This Court asks whether reasonable people could have differed based upon the evidence submitted. Verbraeken v. Westinghouse Elec. Corp., 881 F.2d 1041, 1044-45 (11th Cir.1989) (quoting Boeing v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969) (en banc)).

The statute of limitations for fraud in Alabama is set out in Ala.Code Ann. Sec. 6-2-3. ⁴ Under that section, a plaintiff has two years from the date he discovers or should be aware of the fraud in which to file a fraud claim. Thus, Section 6-2-3 is actually a "tolling" statute: the limitations period is tolled until the plaintiff discovers or reasonably should have discovered the fraud. See Ryan v. Charles Townsend Ford, Inc., 409 So.2d 784 (Ala.1981). The limitations period begins to run "once the fraud is readily discoverable or the potential plaintiff is on notice that a fraud may have been perpetrated." Lampliter Dinner Theater, Inc. v. Liberty Mutual Ins. Co., 792 F.2d 1036, 1042-43 (11th Cir.1986). The time when the plaintiff should have discovered the fraud is a question of fact. See Sexton v. Liberty National Life Ins. Co., 405 So.2d 18, 21 (Ala.1981).

In this case, the aggrieved client filed the claim for $3,495.56 against plaintiff in April 1984, and Preferred required plaintiff to pay the claim instead of seeking payment from Preferred's insurance company. In response, plaintiff purchased his own errors and omissions policy in March 1985. The issue on appeal is whether these events, among others, indicate as a matter of law that plaintiff knew or should have known that Preferred's representations that plaintiff was covered under Preferred's errors and omissions insurance policy were or may have been fraudulent. If so, the limitations period of Section 6-2-3 would have begun running by March 1985 at the latest, and plaintiff's February 12, 1988 fraud claim would be time-barred.

The jury granted a general verdict in favor of plaintiff, implicitly finding that the statute of limitations was triggered sometime after February 1986. Ordinarily this Court reviews a jury's findings with great deference. See Deakle v. John E. Graham & Sons, 756 F.2d 821, 827 (11th Cir.1985) ("jury's verdict should not be disturbed if there is competent evidence in the record to support it"). Under some circumstances, however, this Court may determine the time of discovery of fraud as a matter of law. Sexton, 405 So.2d at 21. Under the circumstances of this case, we find as a matter of law that the statute of limitations on plaintiff's fraud claim began to run by March 1985 at the latest, when plaintiff purchased his own errors and omissions policy. To trigger the statute of limitations, plaintiff needed only to have the knowledge that would lead a reasonable person to make further inquiry. Sexton, 405 So.2d at 21. Preferred's April 1984 refusal to submit the $3,495.56 claim based on plaintiff's error to its insurance company seems sufficient to have put plaintiff on notice that he was not covered under Preferred's policy. ⁵ Additionally plaintiff's purchase of his own errors and omissions insurance policy in March 1985 constitutes an awareness--or at least a suspicion--that...