Alfred Snapp, Jr. v. Lincoln Financial Securities ( 2019 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-1344
ALFRED L. SNAPP, JR.; BETTY V. SNAPP; SHARON K. SNAPP,
Plaintiffs - Appellants,
v.
LINCOLN FINANCIAL SECURITIES CORPORATION; RIVERSOURCE
DISTRIBUTORS, INC.; RIVERSOURCE LIFE INSURANCE COMPANY,
Defendants - Appellees.
Appeal from the United States District Court for the Western District of Virginia, at
Harrisonburg. Elizabeth Kay Dillon, District Judge. (5:17-cv-00059-EKD)
Argued: March 21, 2019 Decided: April 16, 2019
Before FLOYD, HARRIS, and RICHARDSON, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: W. Scott Greco, GRECO & GRECO, PC, McLean, Virginia, for Appellants.
William E. Mahoney, Jr., STRADLEY RONON STEVENS & YOUNG, LLP,
Philadelphia, Pennsylvania, for Appellees. ON BRIEF: Jeffrey E. McFadden,
STRADLEY RONON STEVENS & YOUNG, LLP, Washington, D.C., for Appellees.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
A retired couple and their daughter-in-law brought this action alleging that they
were fraudulently induced to purchase financial products by a representative of the
Lincoln Financial Securities Corporation. According to the plaintiffs, Lincoln’s
representative falsely assured them that the products, known as variable annuities, would
pay out a death benefit equal to the amount they invested, when in fact, their financial
statements showed that their death benefits were declining while the annuities paid a
monthly income. Because the plaintiffs did not file their action until many years after
they began to receive such statements, the district court dismissed the case as time-
barred. We agree and affirm the district court’s judgment.
In 2007, plaintiffs Alfred and Betty Snapp, a retired couple living in Virginia, met
with Randy Watts, a locally-based Lincoln representative who was authorized to sell
annuities from the RiverSource Life Insurance Company. According to the Snapps’
complaint, Watts advised the couple to place their retirement savings into a RiverSource
variable annuity. Watts allegedly promised the couple that they would receive a monthly
disbursement of $2,150 for the rest of their lives, with the couple’s full investment
amount to be paid out as a death benefit when one of them died. The couple followed
Watts’s advice and placed approximately $350,000 into a RiverSource variable annuity.
The next year, in 2008, the couple’s daughter-in-law, Sharon Snapp, also
purchased a RiverSource variable annuity from Watts based on similar assurances. She,
too, allegedly was advised by Watts that the annuity would provide a monthly stipend for
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the rest of her life – in her case, $1,400 – and that her estate would receive a death benefit
equaling the amount of money that she placed into the annuity, which was about
$265,000.
But Watts’s alleged assurances about the permanence of the Snapps’ death
benefits were false. Shortly after purchasing their annuities, the Snapps began to receive
quarterly financial statements from RiverSource showing that the value of their death
benefits was declining as they were paid monthly disbursements. The Snapps noticed
this discrepancy, and “would often question [] Watts about statements received showing a
reduction in the annuity’s value.” J.A. 19. In response, “Watts repeatedly assured [them]
that their death benefit was still secure and it would not drop below the original amount
invested.” Id.
The Snapps do not allege that they consulted with anyone other than Watts about
the discrepancies they identified between their financial statements and Watts’s original
promises and later assurances. At some point around 2009, Betty Snapp did call
RiverSource’s toll-free number regarding her concerns, but did not inquire further after
“[t]he customer service representative she spoke to told her to call [Watts] to explain it to
her.” J.A. 261. The Snapps “believed [Watts’s assurances] to be true,” according to the
complaint, and therefore did not take further action. J.A. 19.
The Snapps allege that they did not discover the true nature of their annuities until
late in 2015, after Watts, under investigation for defrauding other customers, allegedly
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committed suicide. The Snapps then spoke with Watts’s colleague and “found out for the
first time that [Watts’s] statements about the death benefit were not true.” J.A. 19–20.
On April 18, 2016, the Snapps commenced a FINRA arbitration proceeding
against Lincoln and RiverSource, which was dismissed as untimely under the arbitration
body’s six-year limitations period. 1 The Snapps subsequently commenced this court
action, asserting statutory securities fraud violations and multiple claims under Virginia
common law. The defendants again moved to dismiss the case as time-barred, pointing
to the lapse of time between Watts’s alleged point-of-sale misrepresentations in 2007 and
2008 and the Snapps’ 2016 commencement of legal action. 2 In response, the Snapps
argued that Watts’s misrepresentations prevented them from discovering the fraud before
Watts’s suicide in 2015, and that the relevant statutes of limitations should be tolled as a
result. In a carefully reasoned opinion, the district court agreed with the defendants and
granted their motion to dismiss.
1
FINRA – the Financial Industry Regulatory Authority – is a private self-
regulatory organization that regulates certain aspects of the securities industry. Under
FINRA’s arbitration rules, the dismissal of the Snapps’ arbitration action was without
prejudice to a later court action.
2
FINRA’s rules provide for the tolling of otherwise applicable statutes of
limitations while arbitration is pursued. The parties thus agree that April 18, 2016, the
day on which the Snapps commenced their arbitration action, should be treated as the
operative date on which their claims were asserted for statute-of-limitations purposes.
We may proceed on that assumption, as the result in this case does not depend on
whether the operative date is April 18, 2016, or instead May 17, 2017, when the Snapps
filed their court complaint.
4
The court began with the Snapps’ securities fraud claims under the Virginia
Securities Act and the federal Securities Exchange Act of 1934. Under those statutes, the
court explained, the time for filing a claim begins to run on the date of the transaction –
here, the Snapps’ 2007 and 2008 annuities purchases. It is then subject to an “absolute
cutoff,” J.A. 267 (internal quotation marks omitted) – five years for the federal statute,
and two years for the state statute – which would have passed before the Snapps
commenced legal action. Under well-established precedent, the court continued, those
two- and five-year periods are statutes of repose, not statutes of limitations, which means
that they are not subject to equitable tolling. See J.A. 267–68 (citing Merck & Co., Inc. v.
Reynolds, 559 U.S. 633, 650 (2010) (Securities Exchange Act of 1934); Caviness v.
Derand Res. Corp., 983 F.2d 1295, 1305–06 (4th Cir. 1993) (Virginia Securities Act)).
The court turned next to the Snapps’ common-law fraud claims. Those claims are
subject to a two-year statute of limitations, see Va. Code Ann. § 8.01-243(A), which
begins to run under Virginia’s discovery rule when the “fraud . . . is discovered or by the
exercise of due diligence reasonably should have been discovered,” id. § 8.01-249(1).
The court’s application of that rule turned on one critical finding: Given multiple
financial statements consistently contradicting Watts’s promises and showing a reduction
in the value of their death benefits, the Snapps reasonably should have discovered
Watts’s misrepresentations well before April of 2014. As the court explained, by
November of 2009, “every quarterly and annual statement that the Snapps received from
RiverSource directly contradicted Watts’s representations that the value would never
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decline below the initial investment and that the annuities would pay out as a death
benefit an amount equal to their initial investment.” J.A. 271. Moreover, the Snapps’
own complaint demonstrated that they understood the financial statements in exactly that
way, as it alleges that they repeatedly questioned Watts about the apparent contradiction.
Provided with this “actual notice” that Watts’s promises were going unfulfilled, the court
concluded, a “reasonable person” exercising due diligence would have discovered the
alleged fraud before April of 2014 – and as a result, the two-year limitations period
expired before April of 2016, when the Snapps finally asserted their legal claim. Id.
For the same fundamental reason, the court went on to reject the Snapps’ argument
for equitable tolling of the limitations period. Pointing to Watts’s continued assurances
in the face of their questions, the Snapps relied on two equitable doctrines in support of
tolling: the doctrine of fraudulent concealment, see Va. Code Ann. § 8.01-229(D), which
tolls a limitations period when a defendant uses a “trick or artifice preventing inquiry, or
calculated to hinder a discovery of the cause of action by the use of ordinary diligence,”
Newman v. Walker, 618 S.E.2d 336, 338 (Va. 2005) (internal quotation marks omitted);
and equitable estoppel, which operates to toll a limitations period when “the aggrieved
party reasonably relied on the words and conduct of the person to be estopped in allowing
the limitations period to expire,” Barry v. Donnelly, 781 F.2d 1040, 1042 (4th Cir. 1986)
(internal quotation marks omitted). But as the district court explained, those doctrines –
like the discovery rule itself – require a plaintiff to exercise ordinary diligence, and allow
for reliance on a defendant’s representations only when reasonable. And here, the court
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determined, given the regular financial statements contradicting Watts’s assurances –
“evidence that clearly and overwhelmingly indicate[d] [Watts’s] assurances . . . would
not be upheld,” J.A. 273 (alterations in original) (quoting Gitter v. Cardiac & Thoracic
Surgical Assocs., Ltd., 419 F. App’x 365, 370 (4th Cir. 2011)) – reasonable diligence
required the Snapps to do more than speak with Watts. Nothing that Watts is alleged to
have done, the court reasoned, “directly or indirectly prevented [the Snapps] from
receiving their annuity statements, from reviewing their annuity statements, or from
discussing the contradictions with anyone else in order to reconcile the annuity
statements with [Watts’s] representations.” J.A. 274. 3
Finally, the court determined that the Snapps’ other common-law claims – for
negligence, breach of fiduciary duty, and breach of contract – also were time-barred.
Those claims, the district court noted, are not subject to a discovery rule under Virginia
law, and so accrued at around the time of the 2007 and 2008 transactions in question –
which meant that the limitations periods, ranging from two to five years, expired well
3
Relying on a different theory, the Snapps also sought tolling under Virginia’s
“continuing undertaking” doctrine, which tolls a statute of limitations during “a
continuous or recurring course of professional services related to a particular
undertaking.” Harris v. K & K Ins. Agency, Inc., 453 S.E.2d 284, 286 (Va. 1995). As the
district court explained, that doctrine would apply only if the Snapps’ annuities purchases
in 2007 and 2008 were not discrete transactions but instead required Watts’s continued
services as a financial advisor. Because the Snapps had failed to allege that their
transactions required a “continuation of [Watts’s] services,” the district court concluded,
the continuing undertaking doctrine did not apply. J.A. 275 (internal quotation marks
omitted).
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before 2016. The Snapps conceded that the general rule would render their claims
untimely, but argued again for application of equitable tolling to save their claims. Citing
the reasons it already had given, the district court rejected those arguments, finding no
basis for tolling of the relevant limitations periods. 4
The Snapps timely appealed, contending that the district court erred in dismissing
their claims and raising substantially the same arguments they advanced in the district
court. We review de novo the district court’s dismissal of the complaint as time-barred,
including the court’s rejection of equitable tolling. See Ott v. Md. Dep’t of Pub. Safety &
Corr. Servs., 909 F.3d 655, 658 (4th Cir. 2018). Having carefully considered the
controlling law and the parties’ briefs and oral arguments, we affirm on the sound
reasoning of the district court.
AFFIRMED
4
In the alternative, the district court also found that the Snapps had failed to state
a claim for negligence or breach of contract. Because we agree with the district court that
these claims are time-barred, we need not address their merits.
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