578 F. App'x 556
6th Cir.2014Background
- Decedent Ula Doughty’s will created three testamentary trusts; Jeane L. Smith was co-trustee and beneficiary of one trust; David S. Shelton was named co-trustee and investment counselor and worked for J.J.B. Hilliard, W.L. Lyons, LLC (Hilliard Lyons).
- In 2000 the estate account contained municipal bonds and two annuities; in May and August 2000 Smith (as co-trustee) authorized purchase of two $1,000,000 equity-allocated variable annuities on Shelton’s recommendation; purchases were funded at least partly with margin debt.
- The annuities lost over 50% of their value by late 2001–2002; account statements from April–December 2000 and through 2005 reflected margin balances, the annuity allocations, and declining values; Smith received those statements but testified she did not review them closely.
- Shelton resigned as trustee in February 2001 and left Hilliard Lyons in August 2005; the estate account was transferred out of Hilliard Lyons thereafter.
- Smith filed suit in state court in March 2011 against Hilliard Lyons for breach of fiduciary duty, negligence, recklessness, and Tennessee Securities Act violations, alleging discovery only shortly before filing and claiming fraudulent concealment; Hilliard Lyons removed, and the district court granted summary judgment on statute-of-limitations grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When did the claims accrue under Tennessee’s discovery rule? | Smith: she lacked knowledge of the injury’s source until ~60 days before filing; discovery rule delayed accrual. | Hilliard Lyons: statements and authorizations gave Smith facts sufficient to know the injury and its source earlier (by Dec 2000 or by Nov 2005). | Court: accrual occurred when Smith knew or should have known the injury and source; undisputed records put her on inquiry notice well before filing, so claims are time-barred. |
| Whether fraudulent concealment tolled the limitations period | Smith: Shelton and Hilliard Lyons concealed material facts and made misrepresentations (market downturn, death benefits would replenish), preventing discovery. | Hilliard Lyons: no evidence of affirmative concealment or of statements that would prevent discovery; Smith failed to exercise reasonable diligence despite available records. | Court: plaintiff failed to prove affirmative concealment or that she exercised reasonable diligence; tolling not established. |
| Subject-matter jurisdiction after removal (diversity) | Implied: plaintiff did not move to remand; complete diversity exists at time of judgment because defendant LLC has no member in Georgia (plaintiff’s state). | Defendant: provided membership details showing no Georgia members; removal question addressed but plaintiff did not object earlier. | Court: although removal may have been defective initially, final judgment stands because complete diversity existed when the district court entered judgment. |
Key Cases Cited
- Redwing v. Catholic Bishop for Diocese of Memphis, 363 S.W.3d 436 (Tenn. 2012) (articulates Tennessee discovery rule and fraudulent concealment standards)
- Foster v. Harris, 633 S.W.2d 304 (Tenn. 1982) (accrual may be delayed where plaintiff reasonably could not learn essential facts)
- Grubbs v. Gen. Elec. Credit Corp., 405 U.S. 699 (1972) (final federal judgment may stand despite defective removal if jurisdiction exists when judgment entered)
- Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996) (federal court final judgments may be upheld when jurisdiction exists at time of entry)
- Delay v. Rosenthal Collins Group, LLC, 585 F.3d 1003 (6th Cir. 2009) (LLC citizenship depends on each member; diversity analysis for removal)