Hallman v. Northwestern Nat. Ins. Co.
| Decision Date | 06 June 1991 |
| Docket Number | Civ. A. No. H-89-1997. |
| Citation | 766 F. Supp. 575 |
| Parties | Grady L. HALLMAN, Plaintiff, v. NORTHWESTERN NATIONAL INSURANCE COMPANY, et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
Frank V. Ghiselli, Jr., Houston, Tex., for plaintiff.
David G. Matthiesen, Funderburk & Funderburk, Arthur E. Zuehlke, Tillman & Pribilski, Kathy Dawn Patrick, Gibbs & Ratliff, Jenkens & Gilchrist, P.C., Houston, Tex., for defendants.
FINAL SUMMARY JUDGMENT
Pending before the Court is the Scott Defendants' Motion for Summary Judgment or To Dismiss for Failure to State a Claim (Instr. # 41), filed on January 16, 1990. For the reasons set forth herein, this Court hereby GRANTS the Defendants' Motion for Summary Judgment as to the Federal securities fraud issues and DISMISSES the remaining pendent state law claims WITHOUT PREJUDICE.
This suit is the result of the Plaintiff's series of investments in certain "research & development" R & D limited partnerships during 1981-82. These investments were supposedly based on the advice received from his financial investment advisor, Mr. Schultz, who imparted his alleged personal knowledge of these particular investments to the Plaintiff, who is a doctor. This personal knowledge was allegedly imparted to Mr. Schultz by Mr. David R. Scott, a Defendant who was/is evidently the director or administrator of these "R & D" limited partnerships.
The investments consisted of some cash payments, some short term notes, and some non-negotiable long term notes. Mr. Schultz allegedly assured the Plaintiff that he would never have to pay back the long term notes because the return on the investments would take care of them.
The prospecti of these investment deals however, contained cautioning or warning information for potential investors designed to alert them to the possible risks facing them in these investments. These warnings were alleged to have been verbally contradicted by Mr. Schultz, who spoke glowingly of Mr. Scott's assurances to him of the soundness and lucrative nature of these investments. But, rather than heeding this inconsistent information alerting him to potential problems with these particular investments, the Plaintiff evidently assumed the discouraging language was merely a formality, necessarily included to protect the offeror from possible liability. The Plaintiff obviously failed to consider why these companies might try to insulate themselves from liability. He stated that he believed that investors would never invest if they did not receive encouraging information which would necessarily contradict the cautionary language placed in offering memoranda to limit exposure to liability. Although probably true, this should have placed the Plaintiff on notice to investigate these investments very carefully, especially considering the inconsistent information he had received from Mr. Schultz.
If the inconsistent information the Plaintiff received at the outset of the investments did put him on notice to investigate, the statute of limitations would clearly have run by 1986 at the latest, and thus this action would be clearly time-barred. But, giving the Plaintiff the benefit of the doubt, that a reasonable person would not have been so alerted by those inconsistencies that he or she would have made additional investigations before investing, the statute of limitations clearly began to run during 1984, when several events occurred which should have put the doctor on notice that everything was not "fine" with his investments.
In May of 1984, the Plaintiff executed a long term negotiable note to replace the non-negotiable notes originally given in payment for the investments. He was allegedly persuaded to do this in exchange for $50,000 cash and the promise that these notes would not be sold, but would be pledged in order to receive additional funding for the research projects. When he never received the money, but only written assurances to the effect that the companies were trying to raise the money, he believed it was being used for R & D business purposes. The Plaintiff's attitude appears to have been that since he did not really need it and it was such a small percentage of his overall investment, that it just was not a significant problem at the time. Also, counsel concedes that Plaintiff was very busy with his medical practice, and the Court can only assume he was too busy to monitor his investments. In any event, this Court feels that the failure to receive the $50,000 promised in exchange for the execution of certain long term negotiable notes should have raised the Plaintiff's suspicions so that he was or clearly should have been put on notice of possible problems with his investments.
Even if the failure to receive the promised sum of money within a reasonable period was not enough to give the Plaintiff notice of possible problems, the discovery, in the Summer of 1984, that his investment advisor, Mr. Schultz, had defrauded him on other investments should have put him on notice as to questions of validity of these investments as well. Despite suing Schultz for fraud, the Doctor made no further investigations into the investments in the instant case. The Plaintiff based his failure to check into the instant investments on the fact that Mr. Schultz was given money to invest on the other investments, which he failed to do; whereas in the instant investments, the Doctor had made the checks out directly to the companies invested in, and he therefore knew they had received his money and that he had actually invested in them. Knowing that the statements Mr. Schultz made at the outset of these particular investments were inconsistent with the offering brochures, and in view of the fact that Mr. Schultz had lied to him and defrauded him as to other investments, and in further view of his actual failure to receive the promised funds, the Plaintiff should reasonably have suspected foul play and have undertaken further investigation. Instead, the Plaintiff chose to believe the Defendants' "glowing" letters that all was well, despite the fact that the Defendants were unable to pay him the money as promised and eventually stopped mentioning it in their letters altogether.
By the Summer of 1984, the Court asserts the limitations period had definitely begun to run. The combination of these occurrences would clearly have put a reasonable person on notice that there might be problems with these investments that should be further investigated. The Court feels the law is clear that the limitations period begins to run when a person either knew or should have known of possible problems with his or her investments which would cause a reasonable person to further investigate the situation.
The Plaintiff claims that it was only after he received notice in late 1988 that his note had been sold before maturity (to a holder in due course), and after the receipt of notice from other limited partners who were trying to hire a law firm to investigate possible fraudulent conduct on the part of the Defendants, that the Plaintiff sensed possible problems with these particular investments, and contacted an attorney to investigate. It was at this point, in early 1989, that the Plaintiff finally realized the extent of the problems with these investments and filed suit. Unfortunately for the Plaintiff, in the Court's view, he had waited too long from the time he should have realized that there were problems to the time he actually filed suit, and the statute of limitations had already run.
The Court realizes that the Plaintiff probably did not have actual knowledge of this foul situation until 1988 or 1989, and truly sympathizes with the plight of this Plaintiff. However, considering all of the events which should have raised suspicions in the Doctor's mind as to the integrity of his investments, this Court firmly believes that, at least by the end of 1984, the Plaintiff had or clearly should have had knowledge of enough inconsistencies in connection with these investments that he was put on notice to look more closely into his investments. The limitations period had begun, and the Plaintiff's failure to investigate when he received this constructive notice did not toll the statute for any reason.
The Court expressly notes that it realizes doctors are very valuable members of society, that they work long hard hours and that they might not possess either the energy or the inclination to closely monitor every aspect of every investment they make. However, and while the Court does not in any way intend to ratify the conduct of Defendants herein, this Court is not a guardian, and despite its considerations for the Doctor's lofty profession, it nevertheless holds doctors to the same standards as everyone else — that of reasonable people.
The purpose of a limitations period is to impose a duty to closely monitor one's affairs and to act with reasonable speed and diligence to investigate problems with investments, etc. The law does not require the Plaintiff to have actual knowledge of any fraudulent conduct, but only mandates that he should have known, using reasonable diligence to care for his business affairs.
Summary judgment is proper where no genuine issue as to any material fact exists. Fed.R.Civ.P. 56(c) provides that 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 judgment as a matter of law." The Supreme Court has clearly stated that there is no genuine issue of fact where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1...
To continue reading
Request your trial
-
Reed v. Prudential Securities Inc.
...Jensen, 841 F.2d at 607; Armstrong v. McAlpin, 699 F.2d 79, 88 (2d Cir.1983); Vigman, 635 F.2d at 459; Hallman v. Northwestern Nat'l Ins. Co., 766 F.Supp. 575, 579 (S.D.Tex.1991); see also Koke v. Stifel, Nicolaus & Co., 620 F.2d 1340, 1343 (8th Cir.1980). Under this standard, a plaintiff m......