Hoover v. Gregory
| Decision Date | 03 June 1992 |
| Docket Number | No. 05-91-00643-CV,05-91-00643-CV |
| Parties | Harry C. HOOVER, Jr., C.D. Townsend, and Central Petroleum Corp., Appellants, v. William H. GREGORY, Gregory Government Securities, Inc., Gregory Investment and Management, and Dean C. Richardson, Appellees. |
| Court | Texas Court of Appeals |
Claude R. Wilson, Jr., Susan P. Mueller, Dallas, for appellants.
Delbert D. Miller, Seattle, R. Matthew Molash, Dallas, for appellees.
Before LAGARDE, OVARD, and BURNETT, JJ.
Appellants Harry C. Hoover, Jr., C.D. Townsend, and Central Petroleum Corporation appeal the trial court's award of summary judgment based on limitations in favor of appellees, William H. Gregory, Gregory Government Securities, Inc., Gregory Investment and Management, and Dean C. Richardson. Appellants sued appellees in connection with a tax-shelter package they purchased from appellees. In two points of error, appellants argue that (1) the statute of limitations had not run on their claims against appellees and (2) the trial court should have assessed sanctions against appellees because appellees' motion for summary judgment was groundless and was either brought in bad faith or for the purpose of harassment. We overrule appellants' points and affirm the trial court's judgment.
Between 1979 and 1981, appellants entered into "forward contracts" with appellees 1 for the deferred delivery of government-guaranteed mortgage certificates. Appellees sold appellants the forward contracts through a program referred to as the "Gregory Program." Forward contracts are similar to futures contracts but they are not traded on a public exchange. Appellants participated in the Gregory Program to defer tax payments.
In 1981, the Internal Revenue Service (IRS) began investigating the Gregory Program. It disallowed the tax deductions taken under the Program and issued Notices of Deficiency to each of the appellants. The Notices informed appellants that their Gregory Program deductions had been disallowed. The Notices stated that the IRS considered the Gregory Program transactions "shams entered into for tax avoidance purposes," that they were "not bona fide," and that they "lack[ed] economic substance."
Each appellant filed a petition in United States Tax Court challenging the IRS's disallowance of their Gregory Program tax deductions. The tax court held that the Gregory Program was a fraudulent tax shelter. Brown v. Commissioner, 85 T.C. 968 (1985) (). The Ninth Circuit subsequently affirmed Brown, and the Supreme Court denied certiorari. Brown sub nom. Sochin v. Commissioner, 843 F.2d 351 (9th Cir.), cert. denied, 488 U.S. 824, 109 S.Ct. 72, 102 L.Ed.2d 49 (1988) (hereinafter Brown affirmed ).
On July 11, 1989, appellants filed suit in state court against appellees alleging negligence, breach of fiduciary duties, professional malpractice, deceptive trade practices, fraud, and breach of contract. Appellees filed a motion for summary judgment contending that all of the appellants' claims were barred by the applicable statutes of limitations. The trial court granted the summary judgment motion in favor of appellees.
The pertinent undisputed dates are as follows:
1979 Appellee Gregory incorporates Gregory Investment and Management, Inc. and Gregory Government Securities, Inc.
June 30, 1980 Appellant Central Petroleum enters into its last forward contract with appellees
May 4, 1981 Appellant Townsend enters into his last forward contract with appellees
July 2, 1981 Appellant Hoover enters into his last forward contract with appellees
October 12, 1981 Appellee Gregory informs appellants by letter that IRS is examining Gregory Program tax deductions
August 26, 1982 IRS sends its Examination Report to appellant Hoover stating that his Gregory Program deductions have been disallowed
January 11, 1983 IRS sends Notice of Deficiency to appellant Hoover
March 24, 1983 Appellant Hoover files petition in U.S. Tax Court challenging the disallowance
November 2, 1983 IRS sends its Examination Report to appellant Townsend stating that his Gregory Program deductions on his 1980 tax return have been disallowed May 23, 1984 Appellant Townsend files petition in U.S. Tax Court challenging the disallowance
June 27, 1984 IRS sends its Examination Report to appellant Townsend stating that his Gregory Program deductions on his 1981 and 1982 tax returns have been disallowed
IRS sends its Examination Report to appellant Central Petroleum stating that its Gregory Program deductions have been disallowed
October 24, 1984 IRS sends Notice of Deficiency to appellant Central Petroleum
November 14, 1984 Appellant Central Petroleum files petition in U.S. Tax Court challenging the disallowance
April 9, 1985 IRS sends Notice of Deficiency to appellant Townsend
December 18, 1985 The Tax Court holds that the Gregory Program was a fraudulent tax shelter in Brown
March 29, 1988 The Ninth Circuit affirms Brown on appeal in Brown affirmed
October 3, 1988 The Supreme Court denies application for certiorari on Brown
July 11, 1989 Appellants file suit against appellees
August 1, 1990 The trial court enters summary judgment in favor of appellees Gregory Government Securities, Inc., Gregory Investment and Management, Inc., and Dean C. Richardson
February 28, 1991 The trial court enters summary judgment in favor of appellee William H. Gregory
Summary judgment may be rendered only if the pleadings, depositions, admissions, and affidavits show (1) that there is no genuine issue as to any material fact, and (2) that the moving party is entitled to judgment as a matter of law. TEX.R.CIV.P. 166a(c); Rodriguez v. Naylor Indus., Inc., 763 S.W.2d 411, 413 (Tex.1989). Therefore, appellees, as defendants in the trial court and movants in the summary judgment proceeding, must either (1) disprove at least one element of each of the appellants' theories of recovery, or (2) plead and conclusively establish each essential element of an affirmative defense, thereby rebutting appellants' causes of action. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 679 (Tex.1979). Statute of limitations is an affirmative defense. TEX.R.CIV.P. 94. Thus, appellees bear the burden of pleading and conclusively establishing each essential element of their plea of limitations. See Id.; Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex.1988).
A party seeking to avail itself of the discovery rule must plead it. Woods, 769 S.W.2d at 518. Although appellants did not openly plead the discovery rule, in their petition and briefs, they argue that they did not know they had causes of action until the Tax Court decided Brown in 1985. In effect, appellants argue that their causes of action arose when they discovered the nature and the amount of their injuries. Appellees argued consistently throughout their briefs and oral argument that the discovery rule determined accrual of appellants' causes of action. Since the legal effect of a pleading is determined by its substance, allegations, and evident purpose, we will apply the discovery rule as though appellants pleaded it. See St. Louis S.W. Ry. v. Duke, 424 S.W.2d 896, 899 (Tex.1967); Hawkins v. Anderson, 672 S.W.2d 293, 295 (Tex.App.--Dallas 1984, no writ).
The discovery rule provides that limitations run from the date the plaintiff discovers or should have discovered, in the exercise of reasonable care and diligence, the nature of the injury. Willis v. Maverick, 760 S.W.2d 642, 644 (Tex.1988). "Discovery" also occurs when a plaintiff had knowledge of such facts as would cause a reasonably prudent person to make an inquiry that would lead to discovery of the cause of action.
It is not necessary that a party should know the details of the evidence by which to establish his cause of action; it is enough that he knows that a cause of action exists in his favor, and when he has this knowledge it is his own fault if he does not avail himself of those means which the law provides for prosecuting or preserving his claim.
Citizens State Bank v. Shapiro, 575 S.W.2d 375, 385 (Tex.App.--Tyler 1978, writ ref'd n.r.e.). The discovery rule expressly mandates the plaintiff to exercise reasonable diligence to discover facts of negligence or omission. Willis, 760 S.W.2d at 645-46; Black v. Wills, 758 S.W.2d 809, 815 (Tex.App.--Dallas 1988, no writ).
Appellants complain on appeal that the trial court erred in granting appellees' motion for summary judgment based upon limitations. Appellants argue that their causes of action could not have accrued until the IRS Commissioner made a final "assessment" of their tax deficiency. Appellants contend that the "assessment" in this case did not take place with regard to appellant Hoover until November 7, 1988, and never took place at all with regard to appellants Townsend and Central Petroleum. They conclude that their petition, filed on July 11, 1989, was timely with respect to all their causes of action.
In addition, appellants argue that their causes of action are not time barred because they did not arise until the tax court decided Brown on December 18, 1985. Appellants insist they did not and could not have discovered their injuries until after the Brown court conclusively decided appellees' fraud and negligence.
Furthermore, they claim that the statutes of limitations on all of their claims were tolled until the Ninth Circuit affirmed Brown in Brown affirmed on March 29, 1988. Appellants conclude that their petition against appellees, filed on July 11, 1989, was timely with respect to the statutes of limitation applicable to each of their causes of action. Appellants rely primarily on the decisions in Atkins v. Crosland, 417 S.W.2d 150 (Tex.1967), and Hughes v....
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