O'Malley v. Brown Bros. Harriman & Co.
| Decision Date | 03 March 2020 |
| Docket Number | Case No. SA-19-CV-0010-JKP |
| Parties | CLAIRE O. O'MALLEY, Plaintiff, v. BROWN BROTHERS HARRIMAN & CO., Defendant. |
| Court | U.S. District Court — Western District of Texas |
The Court has under consideration Defendant's Motion to Dismiss Plaintiff's Complaint for Failure to State a Claim (ECF No. 14). Plaintiff has filed a response in opposition, see ECF No. 16, and Defendant has filed a reply brief, see ECF No. 18. In her response, Plaintiff includes a Motion to Convert Under Fed. R. Civ. P. 12(d) and a Motion to Strike evidence presented with the motion to dismiss. All motions are ripe for ruling. For the reasons that follow, the Court partially grants the motion to dismiss, otherwise denies that motion, and entirely denies the motion to convert and the motion to strike.
On January 4, 2019, Plaintiff commenced this civil action under diversity jurisdiction, 28 U.S.C. § 1332(a), and asserted the following three state law claims against her investment advisor, Brown Brothers Harriman & Co. ("BBH"): (1) breach of fiduciary duty, (2) negligence, and (3) gross negligence. See Compl. (ECF No. 1) ¶¶ 4, 20-25. These claims arise from alleged acts and omissions of BBH following the transfer of a Vanguard Municipal Bond Fund ("Vanguard Fund" or "the fund") purchased in 1992 for $529,478.50 and transferred to BBH in 1996. See id. ¶¶ 7-19. She sought actual and exemplary damages. Id. at 7.
Pursuant to Fed. R. Civ. P. 12(b)(6), BBH moves to dismiss the complaint on grounds that the applicable statutes of limitations and a contractual exculpatory clause bar all claims, and the gross negligence claim fails because Plaintiff has not pled essential elements. See generally Mot. Dismiss. To support its exculpatory clause defense, BBH attaches a "true and correct copy of the investment advisory agreement" between the parties. See Ex. A (attached to motion). It contends that the Court may review the attachment without converting the motion to one for summary judgment because Plaintiff references the parties' agreement in her complaint, and it is central to her claims. Mot. Dismiss at 4.
Two weeks later, Plaintiff filed a First Amended Complaint (ECF No. 15) and her response to the motion, which relies on the amended pleading, and includes a motion to convert and a motion to strike. She submits that her claims are timely because BBH remains her agent and fiduciary with respect to the Vanguard Fund and through well-established exceptions to the Texas statute of limitations - the discovery rule and the continuing tort doctrine. Resp. at 3-13. She also maintains that she has pled enough facts in her amended complaint to support her gross negligence claim. Id. at 13-15. With respect to the exculpatory clause defense, she invokes Fed. R. Civ. P. 12(d) to move to convert the motion to dismiss to one for summary judgment; objects to and moves to strike Exhibit A; argues that, even if not struck, the exhibit does not entitle BBH to summary judgment; and also urges the Court to disregard the exhibit as extrinsic evidence not properly considered on a motion to dismiss. Id. at 15-19.
In reply, BBH requests that the Court consider its motion as a challenge to the First Amended Complaint. See Reply at 1 n.2. It argues that the asserted exceptions to the statutes of limitations are inapplicable, the amended complaint does not correct the pleading deficiencies regarding the gross negligence claim, and the exculpatory clause bars the claims. See generallyid. It further argues that the Court may disregard Plaintiff's allegations that BBH remains her agent and fiduciary after the investor-advisor relationship ended. Id. at 4. Further, with respect to Plaintiff's concerns about Exhibit A, BBH expressly argues that the Court may consider the exhibit within the context of Fed. R. Civ. P. 12(b)(6) for the reasons stated in its motion. See id. at 10-11. But to the extent the Court disagrees, BBH requests that the Court decline to consider the agreement and defer ruling on that part of its motion rather than converting the motion to one for summary judgment. Id. at 11 n.15.
At the prompting of the Court, see ECF No. 27, Plaintiff moved for leave to file a Second Amended Complaint (ECF No. 30) to address a jurisdictional defect related to the citizenship of Defendant. See Pl.'s Unopposed Mot. Leave File Second Am. Compl. (ECF No. 29). When granting that motion, the Court recognized that the proposed amended complaint would not moot the pending motion to dismiss because the amendment only addressed the Court's jurisdictional concerns. See Text Order Granting Mot. for Leave. No one has suggested that this amendment renders the motion to dismiss moot. Adding the requested jurisdictional facts does not alter the asserted bases for dismissal. The Court will treat the motion to dismiss as being asserted against the most recent complaint.
"Under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law." Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996); accord Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Because jurisdiction in this case is based on diversity of citizenship, the Court must "apply Texas law," including its law regarding statutes of limitations. Ocwen Loan Servicing, L.L.C. v. Berry, 852 F.3d 469, 473 (5th Cir. 2017); accord West v. Conrail, 481 U.S. 35, 39 n.4 (1987); Walker v. Armco Steel Corp., 446 U.S. 740, 752-53 (1980); Hensgens v. Deere & Co., 869 F.2d 879, 880 (5th Cir. 1989). Accrualof a claim or cause of action is also governed by state law. See Milton v. Stryker Corp., 551 F. App'x 125, 127 (5th Cir. 2014) (per curiam) ().
Although "federal law, rather than state law, invariably governs procedural matters in federal courts," Camacho v. Tex, Workforce Comm'n, 445 F.3d 407, 409 (5th Cir. 2006), classifying "law as 'substantive' or 'procedural' for Erie purposes is sometimes a challenging endeavor," Gasperini, 518 U.S. at 427. But when a matter is "covered by the Federal Rules of Civil Procedure, the characterization question is usually unproblematic," because "if the Rule in point is consonant with the Rules Enabling Act, 28 U.S.C. § 2072, and the Constitution, the Federal Rule applies regardless of contrary state law." Id. at 427 n.7 (citing Hanna v. Plumer, 380 U.S. 460, 469-74 (1965); Burlington N. R.R. Co. v. Woods, 480 U.S. 1, 4-5 (1987)).
"When reviewing issues of state law, federal courts look to the law of that state's highest court." City of Alexandria v. Brown, 740 F.3d 339, 351 (5th Cir. 2014); accord Price v. City of San Antonio, Tex., 431 F.3d 890, 892 (5th Cir. 2005). Absent a final decision by the Texas Supreme Court that "'precisely' resolves the legal issue, federal courts "must make an Erie guess and determine as best [they] can what the Supreme Court of Texas would decide." Martinez v. Walgreen Co., 935 F.3d 396, 398 (5th Cir. 2019) (citation omitted). When compelled to make an Erie guess, federal courts "defer to intermediate state appellate court decisions, unless convinced by other persuasive data that the highest court of the state would decide otherwise." Mem'l Hermann Healthcare Sys. Inc. v. Eurocopter Deutschland, GMBH, 524 F.3d 676, 678 (5th Cir. 2008) (citations and internal quotation marks omitted); accord Price, 431 F.3d at 893 n.5. The federal courts not only look to the intermediate state appellate decisions, but also to "the general rule on the issue, decisions from other jurisdictions, and general policy concerns." Martinez, 935 F.3d at 398 (citation omitted).
Under Fed. R. Civ. P. 12(b)(6), litigants may move to dismiss asserted claims for "failure to state a claim for which relief can be granted." As required by Fed. R. Civ. P. 8(a)(2), every pleading that states a claim for relief must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Such requirement provides opposing parties "fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
In general, a court addressing a motion under Rule 12(b)(6) "must limit itself to the contents of the pleadings, including attachments thereto." Brand Coupon Network, L.L.C. v. Catalina Mktg. Corp., 748 F.3d 631, 635 (5th Cir. 2014) (citation omitted). But when a pleading references documents that are central to a claim, the Court may consider such documents if attached to the motion to dismiss. Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010); Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). "A document is central to a claim when it is 'necessary to establish an element' of the claim." Pylant v. Cuba, No. 3:14-CV-0745-P, 2015 WL 12753669, at *2 (N.D. Tex. Mar. 6, 2015) (quoting Kaye v. Lone Star Fund V (U.S.), L.P., 453 B.R. 645, 662 (N.D. Tex. 2011)). However, "if the operative pleading references a document that 'is merely evidence of an element' of a claim, the courts do not incorporate it into the pleading." Id. (same).
BBH has attached an agreement between the parties to its motion to dismiss. Such attachment prompts "an obvious threshold question that often arises" in the context of a motion to dismiss, i.e., whether the attachment constitutes a matter "outside the pleadings" for purposes of Fed. R. Civ. P. 12(d). Gen. Retail Servs., Inc. v. Wireless Toyz Franchise, LLC, 255 F. App'x 775, 785 (5th Cir. 2007). Rule 12(d) provides:
If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is...
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