Smith v. Franklin Custodian Funds, Inc.

• Decision Date: 22 October 1998
• Docket Number: No. 97-CA-01092-SCT.,97-CA-01092-SCT.
• Citation: 726 So.2d 144
• Parties: Lucille SMITH v. FRANKLIN CUSTODIAN FUNDS, INC.
• Court: Mississippi Supreme Court

726 So.2d 144

Lucille SMITH v. FRANKLIN CUSTODIAN FUNDS, INC.

No. 97-CA-01092-SCT.

Supreme Court of Mississippi.

October 22, 1998.

Rehearing Denied January 14, 1999.

Grady Franklin Tollison, III, Oxford, Attorney for Appellant.

Shawn N. Sullivan, Jackson, Attorney for Appellee.

BEFORE PRATHER, C.J., JAMES L. ROBERTS, Jr. AND MILLS, JJ.

MILLS, Justice, for the Court:

¶ 1. On January 31, 1994, Bernie Smith, Junior and his wife Lucille filed a civil action in the Lafayette County Circuit Court against Franklin Custodian Funds, Inc. The trial judge granted summary judgment in August of 1997. Aggrieved, Lucille Smith¹ brings this appeal assigning the following issues as error:

I. WHETHER SMITH'S CLAIMS ARE BARRED BY THE STATUTE OF LIMITATIONS.

II. WHETHER THERE IS SUFFICIENT PROOF OF A CONVERSION CLAIM.

III. WHETHER THERE IS SUFFICIENT PROOF OF THE UCC ARTICLE 8 CLAIMS.

IV. WHETHER THERE IS SUFFICIENT PROOF OF THE NEGLIGENCE CLAIMS.

STATEMENT OF THE FACTS

¶ 2. Bernie L. Smith III, Lucille and Bernie Smith's son, owned and operated a business known as Institutional Financial Services, Inc. which was a subsidiary of Raymond James and Associates, Inc. Bernie III was employed by Institutional Financial Services and served as an investment advisor for his parents Bernie and Lucille Smith Junior (hereinafter the Smiths) from 1986 until 1993. While he was a representative for Raymond James Inc., Bernie III purchased shares of Franklin U.S. Government Securities Fund for the Smiths. On March 13, 1987, the Smiths owned securities valued at $113, 733.30 in the Franklin U.S. Government Securities Fund.

¶ 3. On or about March 13, 1987 Franklin Funds received an Irrevocable Stock or Bond Power bearing signatures in the names of the Smiths. The form also bore a statement and seal in the name of Raymond James which guaranteed that the Smiths' signatures were genuine. The form instructed Franklin Funds to liquidate the securities in the Smiths' account. Lucille Smith claims that neither she nor her husband signed the Irrevocable Stock or Bond Power and that Bernie III signed their names to the document.

¶ 4. Upon receipt of the Irrevocable Stock or Bond Power form, Franklin Funds liquidated the securities in the Smiths' account and issued a check on March 30, 1987 payable to "Raymond James and Assoc. Inc. a/c Bernie and Lucille Smith J/T" in the amount of $113,733.30. Franklin Funds mailed the check to Raymond James, Inc. which was listed as the Smith's brokerage company. Bernie III received the Franklin Funds check and deposited it into the Raymond James, Inc. account. Subsequently, Raymond James, Inc. issued a check to the Smiths. The Smiths never received this check because Bernie III forged the Smiths' endorsement on the back of the check and deposited the check into his personal account. Bernie III never repaid his parents.

¶ 5. Bernie III concealed his fraud from his parents by assuring the Smiths that their investments were doing well and by sending them a $1200 per month income check which they believed to be income produced from their investments.² The Smiths contend that they discovered Bernie III's deceit in March 1993. Subsequently, the Smiths gave notice to Franklin Funds that their securities were liquidated without their authorization and asked Franklin Funds to restore their securities or pay the proceeds. When Franklin Funds refused the Smiths brought this suit.

STANDARD OF REVIEW

¶ 6. When reviewing a lower court's decision to grant summary judgment this Court will employ a de novo standard of review. Moore ex rel. Benton County v. Renick, 626 So.2d 148, 151 (Miss.1993). In other words, we will use the same standard applied by the trial court. Renick, 626 So.2d at 151. A de novo review of a case requires that we examine all evidence in the record in a light most favorable to the non-moving party. Id. (citing Smith v. Sanders, 485 So.2d 1051, 1054 (Miss.1986)

). Mississippi Rule of Civil Procedure 56(c) dictates that summary judgment is only granted when the moving party illustrates that there is no genuine issue of material fact and he is entitled to judgment as a matter of law. Mink v. Andrew Jackson Cas. Ins. Co., 537 So.2d 431, 433 (Miss.1988). Thus, when we review a Rule 56(c) motion that has been granted, we do not rule on the issues, but rather we determine whether there are issues to be tried. Mink, 537 So.2d at 433.

I. WHETHER SMITH'S CLAIMS ARE BARRED BY THE STATUTE OF LIMITATIONS.

A. Whether the statute of limitations was tolled by the Fraudulent Concealment Statute.

¶ 7. The trial judge found that Smith's claims were barred by the statute of limitations because more than six years had passed from the date the funds were liquidated until the date this action was commenced. Smith claims that the statute of limitations was tolled by Mississippi's Fraudulent Concealment statute. The Mississippi Fraudulent Concealment statute reads as follows:

If a person liable to any personal action shall fraudulently conceal the cause of action from the knowledge of the person entitled thereto, the cause of action shall be deemed to have first accrued at, and not before, the time at which such fraud shall be, or with reasonable diligence might have been, first known or discovered.

Miss.Code Ann. § 15-1-67(1995).

¶ 8. This Court has interpreted an identical statute, § 2312 of the 1930 Mississippi Code, which allows tolling of the applicable statute of limitations in a case in which a defendant or any person in privity with a defendant fraudulently concealed a cause of action. Burton v. John Hancock Mut. Life Ins. Co., 171 Miss. 596, 604, 157 So. 525, 526 (1934). Since Franklin Funds did not commit the fraud, the question is whether Franklin Funds was in privity with Bernie III.

¶ 9. Smith claims that Bernie III was in privity with Franklin Funds pursuant to a dealer agreement between Franklin Funds and Raymond James, Inc. The agreement between Franklin Funds and Raymond James, Inc. provided that Raymond James and its representatives would market and sell Franklin Funds' securities and would in return receive commission on the sale of securities. Bernie III was a registered representative of Raymond James and benefitted from the dealer agreement when he bought shares of Franklin Funds for the Smiths. Smith claims that this mutual financial interest between Bernie III and Franklin Funds creates privity between them.

¶ 10. Franklin Funds contends that the fraudulent concealment statute does not toll the statute of limitations because Franklin Funds was not in privity with Bernie III. Franklin asserts that outside the realm of disputes involving property estates, the fraudulent actor must be acting in the scope of an agency relationship with the third party in order for the limitations period to be tolled against the third party. Franklin Funds maintains that Bernie III was acting as Smith's agent and not as an agent for Franklin Funds.

¶ 11. We hold that in order to toll the statute Smith must prove that Bernie III was in privity with Franklin Funds or acting as an agent of Franklin Funds. The record does not reflect sufficient facts to make this determination. For this reason, we reverse the summary judgment and remand this case for trial.

¶ 12. In addition, Franklin Funds asserts that Smith's claim of fraudulent concealment should be denied because Smith failed to plead fraudulent concealment with particularity. Franklin Funds notes that Mississippi Rule of Civil Procedure 12(b) requires that fraud be pled with particularity. Franklin Funds maintains that as a species of fraud, fraudulent concealment must also be pled with particularity. J. Geils Band Employee Benefit Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1255 (1st Cir.), cert. denied, 519 U.S. 823, 117 S.Ct. 81, 136 L.Ed.2d 39 (1996). This argument is brought for the first time on appeal. It is well settled that this Court will not address issues raised for the first time on appeal. Crowe v. Smith, 603 So.2d 301, 305 (Miss. 1992). Moreover, the statute of limitations is an affirmative defense. Our rule does not provide for a responsive pleading after the assertion of an affirmative defense. M.R.C.P. 7(a). The comment to Rule 7 states: "Affirmative defenses in the answer are deemed denied or avoided, and a reply is required if the answer contains a counterclaim denominated as such. Otherwise, a reply is unauthorized and may be stricken or disregarded." Comment, M.R.C.P. 7. Fraudulent concealment raised in response to the statute of limitations defense is not to be plead at all.

B. Whether the statute of limitations was tolled by the Discovery Rule.

¶ 13. Next, Smith contends that the statute of limitations was tolled by the discovery rule presented in Mississippi Code Annotated § 15-1-49(2) which states: In actions for which no other period of limitation is prescribed and which involve latent injury or disease, the cause of action does not accrue until the plaintiff has discovered, or by reasonable diligence should have discovered, the injury.

Miss.Code Ann. § 15-1-49(2) (1975).

¶ 14. Smith asserts that a tort is not completed and the cause of action does not arise until the plaintiff employing reasonable diligence discovers the injury. Franklin maintains that if the Court adopts Smith's interpretation of § 15-1-49(2) then the statute would be broadened to allow any plaintiff who, for whatever reason, failed to discover his claim, to use the discovery rule to toll the statute of limitations. Franklin argues that this would effectively eliminate the words "latent injury" from the statute.

¶ 15. In Owens-Illinois, Inc. v. Edwards, 573 So.2d 704, 708-09 (Miss.1990) we held that the discovery rule will be applied to products liability cases. We opined that the cause of action accrues and the statute of limitations begins at the time the plaintiff can reasonably be held to have knowledge of the injury or disease. In Owens-Illi...