Firefighters' Retirement System et al v. Citco Group Limited et al

Filing 879

RULING: The 723 Motion for Summary Judgment by the CSG Defendants (CSG and Joe Meals) is GRANTED. Signed by Chief Judge Shelly D. Dick on 12/14/2018. (KAH)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

FIREFIGHTERS’ RETIREMENT
SYSTEM, ET AL.
CIVIL ACTION
VERSUS
13-373-SDD-EWD
CITCO GROUP LIMITED, ET AL.
RULING
This matter is before the Court on the Motion for Summary Judgment1 filed by
Defendants, Consulting Services Group, LLC (“CSG”) and Joe Meals (“Meals”)
(collectively, the “CSG Defendants”). Plaintiffs have filed an Opposition,2 to which the
CSG Defendants filed a Reply.3 For the following reasons, the Court finds that the Motion
by the CSG Defendants should be GRANTED.
I.

FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs are the administrators of public pension plans that provide benefits for

firefighters and other municipal employees in Louisiana. The instant suit arises out of
Plaintiffs’ collective $100 million dollar investment in FIA Leveraged Fund (“Leveraged”)
in 2008.4 Plaintiffs allege that when they tried to redeem their investment in Leveraged,
they discovered that the fund “was not liquid and that the valuations contained in the
account statements issued to it were not accurate.”5 To date, they claim, “no cash

1

Rec. Doc. No. 723.
Rec. Doc. No. 792.
3
Rec. Doc. No. 820.
4
Rec. Doc. No. 1-3, p. 13 at ¶ 34.
5
Rec. Doc. No. 1-3, p. 17 at ¶ 42.
2

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payment has been paid,”6 and Leveraged has “been liquidated in the Cayman Islands
pursuant to the order of Cayman Islands courts.”7
Prior to and during their investment in Leveraged, Plaintiffs retained CSG as their
investment advisor.8 Each of the three Louisiana Funds who are Plaintiffs herein executed
a separate contract with CSG.9 Defendant Joe Meals “was a CSG representative and
served as one of the firm’s liaisons with the Plaintiffs”10 at the time of their investment in
Leveraged. In their Petition for Damages,11 Plaintiffs asserted a claim entitled “Breach of
Contract” against the CSG Defendants,12 claiming that if CSG “had performed [its] due
diligence with the due care and in the manner required by ordinary prudent professionals
serving as investment advisors, [the CSG Defendants] would have discovered all or some
of the material misrepresentations and omissions alleged herein and Plaintiffs would not
have”13 invested in Leveraged.
Now, in their Motion for Summary Judgment, the CSG Defendants argue that the
claim against them is prescribed because it is actually “a professional negligence claim –
not a “Breach of Contract” claim as [Plaintiffs] labeled it in their Petition for Damages.”14
Thus, they say, it is subject to the one-year prescriptive period applicable to negligence
claims under Louisiana law.15 Because “all the facts that support Plaintiffs’ claim against

6

Id. at ¶ 43.
Id. at ¶ 44.
8
Rec. Doc. No. 1-3, p. 7 at ¶ 15; Rec. Doc. No. 792, pp. 4-5.
9
Rec. Doc. Nos. 723-8, 723-9, 723-10.
10
Rec. Doc. No. 723-1, p. 4.
11
Rec. Doc. No. 1-3.
12
Plaintiffs’ original Petition included three other claims against the CSG Defendants, but those claims were
withdrawn in Plaintiffs’ First Amendment to Petition for Damages (Rec. Doc. No. 1-3, p. 69).
13
Rec. Doc. No. 1-3, p. 46.
14
Rec. Doc. No. 723-1, p. 1.
15
La. C. C. art. 3492.
7

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the CSG Defendants were known (or should have been known) by Plaintiffs more than
one year before the filing of the lawsuit,”16 Defendants argue that the claim against them
“was not timely filed and is prescribed.”17 Plaintiffs dispute the CSG Defendants’
characterization of their claim as sounding in negligence, arguing that “it is plain to see
that the claims . . . are based on the breach of the promises made by [the CSG
Defendants] in the various contracts entered into with [Plaintiffs].”18 Plaintiffs argue that,
because their claim “is a breach of contract claim based upon a written agreement with
specific terms,”19 the ten-year prescriptive period for breach of contract should apply.
As noted by the CSG Defendants, under Louisiana law, “the prescriptive period is
not determined by the label of the cause of action but by ‘the nature of the transaction
and the underlying basis of the claim.’”20 Applying the relevant law and jurisprudence to
the facts of this claim, the Court concludes that it is a professional negligence claim,
rather than a breach of any particular contractual obligation imposed by the Agreements
between the parties. Further, because Plaintiffs’ own pleadings demonstrate that there is
no genuine dispute of material fact regarding when they had knowledge of the facts
underlying the professional negligence claim, the Court finds that the claim against the
CSG Defendants is prescribed and the instant Motion for Summary Judgment should be
granted.

16

Rec. Doc. No. 723-1, p. 3.
Rec. Doc. No. 723-1, p. 3.
18
Rec. Doc. No. 792, p. 11.
19
Rec. Doc. No. 792, p. 10.
20
Rec. Doc. No. 723-1, p. 2 (citing Copeland v. Wasserstein, Perella & Co., 278 F.3d 472, 479 (5th Cir.
2002).
17

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II.

LAW AND ANALYSIS
A. Summary Judgment Standard
“The court shall grant summary judgment if the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law.”21 In assessing whether a dispute to any material fact exists, the Court considers
all of the evidence in the record but must refrain from making credibility determinations or
weighing the evidence.22 A party moving for summary judgment “must ‘demonstrate the
absence of a genuine issue of material fact,’ but need not negate the elements of the
nonmovant’s case.”23 If the moving party satisfies its burden, “the non-moving party must
show that summary judgment is inappropriate by setting ‘forth specific facts showing the
existence of a genuine issue concerning every essential component of its case.’”24
However, the non-moving party’s burden “is not satisfied with some metaphysical doubt
as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by
only a scintilla of evidence.”25
Notably, “[a] genuine issue of material fact exists, ‘if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.’”26 All reasonable factual

21

Fed. R. Civ. P. 56(a).
Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398-99 (5th Cir. 2008).
23
Guerin v. Pointe Coupee Parish Nursing Home, 246 F.Supp.2d 488, 494 (5th Cir. 2003)(quoting Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)(en banc)(quoting Celotex Corp. v. Catrett, 477 U.S.
317, 323-25, 106 S.Ct. at 2552)).
24
Rivera v. Houston Independent School Dist., 349 F.3d 244, 247 (5th Cir. 2003)(quoting Morris v. Covan
World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998)).
25
Willis v. Roche Biomedical Laboratories, Inc., 61 F.3d 313, 315 (5th Cir. 1995)(quoting Little v. Liquid Air
Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
26
Pylant v. Hartford Life and Accident Insurance Company, 497 F.3d 536, 538 (5th Cir. 2007)(quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).
22

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inferences are drawn in favor of the nonmoving party.27 However, “[t]he Court has no
duty to search the record for material fact issues. Rather, the party opposing the summary
judgment is required to identify specific evidence in the record and to articulate precisely
how this evidence supports his claim.”28 “Conclusory allegations unsupported by specific
facts … will not prevent the award of summary judgment; ‘the plaintiff [can]not rest on his
allegations … to get to a jury without any “significant probative evidence tending to
support the complaint.”’”29
B. Characterization of the claim as “breach of contract” or professional
negligence
At issue is whether the claim styled as a “Breach of Contract”30 in Plaintiffs’ Petition
truly sounds in contract or, as the CSG Defendants argue, is in fact a professional
negligence claim to which a one-year prescriptive period applies. Louisiana federal courts
have repeatedly held that the applicable prescriptive period is not governed by the word
choice on the face of the complaint. Instead, as the United States Court of Appeals for
the Fifth Circuit held in Copeland v. Wasserstein, Perella & Co.,31 it is determined “by ‘the
nature of the transaction and the underlying basis of the claim.’”32 Furthermore, the mere
existence of a contract is not sufficient to guarantee that a claim sounds in contract. In
Babin v. Quality Energy Servs., Inc.,33 the Fifth Circuit recognized that, “[e]ven where
there is a contract between the parties . . .Louisiana courts will still scrutinize the claims

27

Galindo v. Precision American Corp., 754 F.2d 1212, 1216 (5th Cir. 1985).
RSR Corp. v. International Ins. Co., 612 F.3d 851, 857 (5th Cir. 2010).
29
Nat’l Ass’n of Gov’t Employees v. City Pub. Serv. Bd. of San Antonio, Tex., 40 F.3d 698, 713 (5th Cir.
1994)(quoting Anderson, 477 U.S. at 249).
30
Rec. Doc. No. 1-3, p. 45.
31
278 F.3d 472 (5th Cir. 2002).
32
Id. at 479 (citing Davis v. Parker, 58 F.3d 183, 189 (5th Cir. 1995).
33
877 F.3d 621 (5th Cir. 2017).
28

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to determine if they are contractual or delictual.”34 Thus, it is the obligation of this Court
to scrutinize Plaintiffs’ claims and, as the Copeland court described, “correctly
characterize[] the gravamen”35 of this case as either breach of contract or negligence.
The Babin court also recognized that “Louisiana courts will treat an action as
delictual unless a plaintiff alleges the violation of a specific contractual provision.”36
Moreover, it is the “plaintiff [who] has the burden to prove that the defendant breached
some contractual duty above and beyond a general duty”37 of the type that sounds in
negligence. If the Plaintiff Louisiana Funds have not carried their burden by alleging the
violation of a specific contractual provision, their claim will be treated as sounding in tort.
Count Six of Plaintiffs’ Petition for Damages is entitled “Investment Advisor
Defendants Breach of Contract.”38 Despite that breach of contract label, the Court finds
that Plaintiffs have failed to, as required by Babin, alleged “the violation of a specific
contractual provision.”39 It is not disputed that a contractual relationship existed between
Plaintiffs and CSG; indeed, the CSG Defendants agree that “each Plaintiff hired CSG as
its investment consultant.”40 However, CSG signed a separate Agreement with each of
the three Plaintiff funds – a 2006 Agreement with FRS,41 a 2007 Agreement with MERS,42
and a 2010 Agreement with NOFF.43 In their Petition, Plaintiffs do not allege the violation

34

877 F.3d 621, 625 (5th Cir. 2017) (citing Terrebonne Par. Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 886
(5th Cir. 2002).
35
Copeland at 478.
36
Babin at 625.
37
Terrebonne Par. Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 887 (5th Cir. 2002).
38
Rec. Doc. No. 1-3, p. 45.
39
Babin at 625.
40
Rec. Doc. No. 723-1, p. 4.
41
Rec. Doc. No. 723-9.
42
Rec. Doc. No. 723-10.
43
Rec. Doc. No. 723-8.

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of any specific provisions of any of these Agreements. In fact, they do not cite any
contractual provisions directly, offering instead that, “as a part of their scope of work, the
Investment Advisor Defendants were to perform the following tasks,”44 followed by a
general nine-point list of Defendants’ obligations, possibly distilled from the three separate
Agreements. Plaintiffs’ list does not account for the fact that each of the Louisiana Funds
executed separate Agreements with CSG, years apart and with non-identical terms. Even
if the general list of “tasks” offered by Plaintiffs in lieu of citing specific contractual
provisions was sufficient, Plaintiffs fail to specify which “tasks” were allegedly not
performed or which provisions were allegedly violated; they merely append the
unspecified blanket allegation that “[a]s a result of this breach of the agreement, Plaintiffs
have been damaged.”45
Where Plaintiffs accuse the CSG Defendants of not “perform[ing] their due
diligence”46 to the standard of care, they do not claim that the obligation to perform due
diligence arises out of the Agreements between the parties. Instead, they claim that the
CSG Defendants were bound to perform due diligence in keeping with “the due care and
. . .the manner required by ordinary prudent professionals serving as investment
advisors.”47 A duty that arises out of a standard of care is a quintessential feature of
negligence analysis under Louisiana law. Insofar as the “breach” asserted by Plaintiffs is
a breach of professional duty and not a breach of a specific contractual provision, the
“underlying basis of the claim”48 clearly sounds in tort, not contract. The Fifth Circuit held

44

Rec. Doc. No. 1-3, p. 45 at ¶ 216.
Rec. Doc. No. 1-3, p. 46 at ¶ 219.
46
Rec. Doc. No. 1-3, p. 46 at ¶ 218.
47
Id.
48
Copeland at 479.
45

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as much in Babin, where the plaintiff “[did] not allege that [the defendant] violated any
specific contractual provision,” but instead alleged that the defendant “violated a statutory
duty.”49 The court concluded that the Babin plaintiff’s claim sounded in tort because “the
‘breach’ arises from a general statutory duty, rather than a specific provision in the parties’
contract.”50 Likewise, the Louisiana Funds here appeal to the standard of care generally
owed by “ordinary prudent professionals,” not to any duty specifically created by the
contract.
The Babin standard requires the Court to treat Plaintiffs’ claim as delictual in the
absence of allegations of breach of specific contractual provisions. The Court concludes
that the delictual default cannot be not overcome by a paraphrased list of Defendants’
obligations that does not cite any of the actual provisions of the Agreements between the
parties,51 nor by the unelaborated assertion that “[a]s a result of this breach of the
agreement, Plaintiffs have been damaged.”52 Plaintiffs’ allegations are conclusory, and
they have failed to come forward with competent summary judgment evidence indicative
of a breach of contract.
Additionally, the Court finds that in their Petition and Opposition, Plaintiffs
repeatedly allege misfeasance, rather than nonfeasance, of the Agreements between the
parties. The Fifth Circuit in Copeland recognized that, “although nonfeasance in the
performance of an obligation creates a cause of action that prescribes in ten years,

49

877 F.3d 621, 626 (5th Cir. 2017).
Id.
51
Plaintiffs do cite specific contractual provisions in their Opposition to this Motion, but, as discussed
below, they fail to allege breach of those provisions (nonfeasance), instead alleging misfeasance, which
sounds in tort.
52
Rec. Doc. No. 1-3, p. 46 at ¶ 219.
50

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misfeasance in the performance of a contract for professional services . . .gives rise to a
claim in tort.”53 Applying that principle in Ames v. Ohle,54 the Louisiana Fourth Circuit
Court of Appeal held that a client’s claim against her investment advisor for its alleged
“false statements and omissions”55 was “delictual in nature and subject to the prescription
of one year” because the client did “not allege nonperformance of any specific promises
made by defendants which could be considered nonfeasance.”56 Because she asserted
“that she relied on false statements and omissions, not specific promises that were never
performed,”57 the court concluded that her claim sounded in tort.
Plaintiffs do not allege that the CSG Defendants failed to perform the contract at
all; instead, they allege that due diligence was not performed “with the due care and in
the manner required by ordinary prudent professionals.”58 That Plaintiffs are alleging
misfeasance is clearly illustrated by their reliance on the testimony of James Hille, the
due diligence expert retained by the Citco Defendants. Plaintiffs claim that “Hille’s various
conclusions show that [the CSG Defendants] breached the promises made in the
contracts with the Louisiana Funds.”59 However, Hille’s testimony focuses on how
“Planitiffs’ pre-investment due diligence. . .failed to meet industry standard practice.”60
Hille opines that the Plaintiffs “failed to evaluate”61 their investment “in accordance with
industry standard practice, as evidenced by” the failure to conduct a site visit, to request

53

Copeland at 479 (emphasis in original).
2011-1540 (La.App. 4 Cir. 5/3/12), 97 So.3d 386.
55
Id. at. 393.
56
Id.
57
Id.
58
Rec. Doc. No. 1-3, p. 46.
59
Rec. Doc. No. 792, p. 12.
60
Rec. Doc. No. 791-4, p. 138.
61
Id. at p. 146.
54

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a due diligence questionnaire, and to conduct background or reference checks.62 Again,
Hille’s testimony focuses on how the performance of the Agreements fell short of “industry
standard practice”63 – he does not claim that the CSG Defendants did not perform any
particular contractual obligation. Again, Louisiana courts have held that, while a claim for
non-performance of a contract sounds in contract law, misfeasance gives rise to a tort
claim.
Further, the Court notes that the “industry standard” or custom evidence discussed
by Hille is a hallmark of negligence analysis, as it focuses on the standard of care and the
reasonableness of Defendants’ conduct.64 Of course, it is not dispositive that Plaintiffs
rely on negligence-related terminology in discussing their claim – as Copeland instructs,
the language used to describe a claim is not the last word as to its nature. The issue is
that Plaintiffs purport to be claiming breach of contract while relying on arguments that go
to the substantive elements of a negligence claim. To the extent that Plaintiffs attempt to
prove “breach of contract” by pleading the elements of negligence, the Court concludes
that the claim is, in its essence, a claim for negligence. Plaintiffs’ conclusory statement
that “the claim is a breach of contract claim based upon a written agreement with specific
terms”65 rings hollow in the absence of a more specific showing that their harm resulted
from breach of specific contractual provisions.

62

Id.
Rec. Doc. No. 791-4, p. 138.
64
See, e.g., Canal Barge v. Torco Oil Co., 220 F.3d 370, 377 (5th Cir. 2000) (“Although custom itself does
not create a duty, “custom may help define the standard of care a party must exercise after it has undertaken
a duty....”).
65
Rec. Doc. No. 792, p. 10.
63

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Louisiana courts have not hesitated to find that a claim sounded in tort even where
there was a contract between the parties. In AGEM Management Services, LLC v. First
Tennessee Bank National Association,66 the United States District Court for the Eastern
District of Louisiana considered whether a claim brought between parties to a financial
contract was properly characterized as breach of contract or tort. The plaintiff in AGEM
argued that its claim sounded in contract because it alleged that, during the course of the
contract, it was damaged by certain misrepresentations and failures to disclose by the
defendant. The Eastern District held that, “while guised as a breach of contract action,
[the suit] is merely a repeat of other allegations . . . namely misrepresentation, breach of
fiduciary duty, and fraudulent suppression, [which] are actually based in tort and not in
contract.”67 The court reasoned that a breach of contract claim did not exist because the
duties allegedly breached by the defendant were delictual in nature, “not duties that [the
defendant] contractually assumed.”68 The same can be said here. To the extent that the
CSG Defendants had a duty to “perform[] their due diligence with the due care and in the
manner required by ordinary prudent professionals,”69 that duty derives from the general
standard of professional negligence. The Louisiana Supreme Court held as much in
Roger v. Dufrene,70 where it reviewed a host of state law precedent regarding
professional services contracts and found that
The nature of certain professions is such that the fact of employment does
not imply a promise of success, but an agreement to employ ordinary skill
and care in the exercise of the particular profession. The duty imposed upon
[professionals] upon whose advice the client or patient depends is that of
66

942 F.Supp. 2d 611 (E.D. La. 2013).
Id. at 622.
68
Id.
69
Rec. Doc. No. 1-3, p. 46.
70
613 So.2d 947 (La. 1993).
67

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“reasonable diligence,” a breach of which duty results in an action in
negligence.71
By contrast, cases where courts have found that a professional services contract
did give rise to a breach of contract claim are distinguishable from the instant case. For
example, this Court in Murray v. Cannon Cochran Management Services, Inc.,72 held that
a breach of contract claim necessarily included allegations that were directly linked to
contractual provisions. This Court recognized the plaintiff’s claim as being for “failure to
timely report a claim to an excess carrier.”73 In the contract between the plaintiff and the
insurer and administrator defendants, the defendants agreed to secure coverage for the
plaintiff and “report to excess insurance carriers”74 regarding that coverage. Thus, the
defendants’ failure to report in accordance with the contract was “an instance of
nonfeasance”75 that was cognizable in contract law because the plaintiff “allege[d] the
breach of specific provisions”76 of the contract. The plaintiff’s claim did “not arise from the
breach of general duties but from specific contractual promises”77 that were not
performed.
Similarly, the Eastern District in Brees v. Houser78 held that a claim arising out of
an investment contract constituted breach of contract because the defendant “failed to
do”79 what he agreed to do in the contract. In Brees, the plaintiffs claimed that they gave

71

Id. at 949 (internal citation omitted).
No. CIV.A. 14-310-JWD, 2014 WL 5794997 (M.D. La. Nov. 6, 2014).
73
Id. at *4.
74
Id. at *12.
75
Id. at *11.
76
Id at *12.
77
Id. at *12.
78
No. CIV.A. 13-4760, 2014 WL 3587333 (E.D. La. July 21, 2014).
79
Id at *4.
72

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personal checks to the defendant “to purchase Louisiana Film Tax Credits . . .for which
[they] expected a $200,000 return.”80 The defendant “led [plaintiffs] to believe that the
money would be kept in an escrow account until the tax credits had been certified,”81 but
instead, it “was dissipated before the tax credits could be purchased.”82 When the
plaintiffs brought suit, the defendants argued the claim was delictual and prescribed. The
court disagreed, finding that “the plaintiffs allege[d] that [defendant] induced them to rely
to their detriment by promising to protect their money and deliver state tax credits, which
[defendant] failed to do.”83 That failure to perform according to the agreement was
nonfeasance and thus governed by the ten-year prescriptive period.84 The contract in
Brees is distinguishable from the Agreements between the Louisiana Funds and the CSG
Defendants because it imposed a specific, result-oriented obligation – the delivery of tax
credits – that was not performed, resulting in nonfeasance. Plaintiffs in the instant case
have not identified any such failure to perform on the part of Defendants; rather, they
assert that the performance was not rendered in the manner of an “ordinary prudent
professional.” This is a tort claim, both on its face and with respect to what the Fifth Circuit
in Copeland said is the ultimate consideration, namely, “the underlying basis of the
claim.”85
Plaintiffs claim Copeland is distinguishable and inapplicable because they “are
alleging . . .a breach of contract,”86 while the plaintiff in Copeland was not. This is a
80

Id. at *1
Id.
82
Id.
83
Id. at *4.
84
See City of Alexandria v. Cleco Corp., et al.,, No. 1:05-cv-01121, 2010 WL 290506 (W.D. La. Jan. 22,
2010) for similar analysis of nonfeasance of a contract for professional services.
85
Copeland at 479.
86
Rec. Doc. No. 792, p. 11.
81

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perplexing argument to make in the context of Copeland, which rejects the tautological
argument that a claim sounds in contract simply because the plaintiff calls it “breach of
contract.” The fact that the words “breach of contract” appear here and not in the
Copeland petition is irrelevant. Moreover, setting aside the absence of an explicit “breach
of contract” claim in Copeland, the facts are otherwise highly analogous to the instant
case. In Copeland, the defendant was a financial advisor being sued for, among other
things, making certain assurances regarding a prospective investment that plaintiffs
claimed they relied upon to their detriment. When considering whether this claim sounded
in tort, the Copeland court cited Roger v. Dufrene87 for the proposition that a breach of
the duty of due diligence in the context of a professional services contract gives rise to a
cause of action in negligence, and concluded:
We discern no valid reason to treat a financial adviser such as [the
defendant] differently. [The defendant] can reasonably be thought to have
promised only to advise [plaintiff] diligently, in accordance with the standard
of care among financial advisers. [The plaintiff] claims that [the defendant’s]
advice fell short of that standard; but this states a quintessentially delictual
claim that prescribed years ago . . .88
Overall, for the reasons stated above, the Court concludes that Plaintiffs’ claim
against the CSG Defendants, while styled as a claim for “breach of contract,” actually
sounds in tort.89

87

613 So. 2d 947 (La. 1993).
278 F.3d 472, 479–80 (5th Cir. 2002).
89
The Court finds Plaintiffs’ “breach of promise” and “breach of fiduciary” arguments unpersuasive.
Successfully pleading breach of promise requires the identification of a specific “promise” or obligation that
was breached by the defendant. And, where courts have recognized a “breach of promise” claim, it has
typically pertained to an oral or otherwise less-formal contract, which is not the case here. See, e.g., Stokes
v. Georgia-Pac. Corp., 894 F.2d 764, 766 (5th Cir. 1990) (finding breach of promise claims existed where
the plaintiff alleged that he relied on the defendant’s oral promise to give him a long-term contract). See
also Ctr. for Restorative Breast Surgery, L.L.C. v. Blue Cross Blue Shield of Louisiana, No. CV 11-806,
2016 WL 7468165, at *17 (E.D. La. May 6, 2016) (finding that “breach of promise” claim existed where
“[p]laintiffs have clearly alleged that an oral contract was created when Plaintiffs contacted Defendants to
88

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C. Whether Plaintiffs’ Negligence Claim is Prescribed
Because the Court determined above that Plaintiffs’ claim against the CSG
Defendants sounds in tort, the one-year prescriptive period for delictual actions set out in
Louisiana Civil Code Article 3492 applies to their claim.90 The instant suit was filed on
March 1, 2013.91 Per Defendants, the claim is prescribed because:
Plaintiffs’ allegations in the Petition, other judicial filings, and documents
and deposition testimony demonstrate that there is no question that
Plaintiffs clearly knew (or should have known) of the facts that they allege
support their professional negligence claim more than a year before they
filed their Petition on March 1, 2013.92
Plaintiffs disagree, calling for the application of the doctrine of contra non
valentem, which prevents the running of liberative prescription when the cause of action
is not known or reasonably knowable by the plaintiff.93 There are four instances
recognized by the Louisiana Supreme Court where contra non valentem is applied to
prevent the running of prescription:
(1) where there is some legal cause which prevented the courts or their
officials from taking cognizance of or acting on the plaintiff's action; (2)
where there was some condition coupled with the contract or connected
with the proceedings which prevented the creditor from suing or acting;
(3) where the debtor himself has done some act effectually to prevent
the creditor from availing himself of his cause of action; or (4) where the
cause of action is neither known nor reasonably knowable by the plaintiff
even though this ignorance is not induced by the defendant.94

obtain preauthorization to perform the procedures”). As for the breach of fiduciary duty argument, Plaintiffs
did not assert such a claim in their Petition. It would contravene civil procedure to read in such a claim at
this stage.
90
“Delictual actions are subject to a liberative prescription of one year.”
91
Rec. Doc. No. 1-3.
92
Rec. Doc. No. 723-1, p. 2.
93
Cole v. Celotex Corp., 620 So.2d 1154, 1156-57. (La.1993).
94
Dominion Exploration & Prod., Inc. v. Waters, 07–0386, (La.App. 4 Cir. 11/14/07), 972 So.2d 350, 358.

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Plaintiffs assert that the fourth category of contra non valentem applies to this case
because they were not aware of the facts giving rise to their claim against the CSG
Defendants at the time of filing, and because they “did not discover the facts [regarding
CSG’s] lack of due diligence until after the lawsuit commenced.”95 The Court finds it
improbable that Plaintiffs were unaware of any lack of due diligence on the part of the
CSG Defendants until after their lawsuit commenced, considering that their Petition,
which initiated this lawsuit, states that if CSG “had performed their due diligence with the
due care and in the manner required by ordinary prudent professionals serving as
investment advisors,”96 Plaintiffs would not have invested in Leveraged. Obviously,
Plaintiffs were aware of the possibility of a claim against the CSG Defendants before their
Petition asserting a claim against the CSG Defendants was filed. If Plaintiffs were aware
of their claim against the CSG Defendants more than a year before the Petition, their
claim is prescribed.
Louisiana courts have held that the prescriptive period for a tort claim “commences
when a plaintiff obtains actual or constructive knowledge of facts indicating to a
reasonable person that he or she is the victim of a tort.”97 Constructive knowledge, as
defined by the Louisiana Supreme Court, is “whatever notice is enough to excite attention
and put the injured party on guard or call for inquiry.”98 In light of that definition, Plaintiffs’
statement that, before this lawsuit, they “were never informed of any failures of [the CSG

95

Rec. Doc. No. 792, p. 14.
Rec. Doc. No. 1-3, p. 46.
97
Ferguson v. Sugar, 05-921 (La.App. 4 Cir. 6/25/08), 988 So.2d 816, 824.
98
Hogg v. Chevron USA, Inc., 09-2632 (La. 07/06/10), 45 So.3d 991, 997.
96

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Defendants] to provide due diligence”99 misses the point.100 Prescription does not begin
to run only when a party is provided with direct and explicit information regarding a tort.
Indeed, the Louisiana Supreme Court instructs that a “court’s ultimate consideration is
the reasonableness of the injured party’s action or inaction in light of the surrounding
circumstances.”101
Defendants claim that several portions of the record establish the timing of
Plaintiffs’ knowledge of their cause of action against the CSG Defendants. First, Plaintiffs
allege that, on January 20, 2011, they received revised financial statements for Arbitrage
and Leveraged and thus became aware of “an error in the financial statement”102 issued
previously. Because this error “is one of the things Plaintiffs allege the CSG Defendants
failed to discover,”103 Defendants argue that January 20, 2011 triggered the running of
prescription on this claim. The Court is not persuaded by this argument. Although the
knowledge of errors in prior financial statements may have sufficiently provided Plaintiffs
notice of a cause of action against the accounting firm or the funds themselves, there is
no evidence before the Court to establish that Plaintiffs’ notice of those errors by a third

99

Rec. Doc. No. 792, p. 16.
Likewise, Plaintiffs’ reliance on Sudo Properties, Inc. v. Terrebonne Par. Consol. Gov’t, 503 F.3d 371,
378 (5th Cir. 2007), is misplaced. Although the Fifth Circuit did conclude that the plaintiff’s knowledge of
“dramatic discrepancies between the projected and actual expenses” connected to an investment was “not
sufficient to create notice inquiry as a matter of law,” the claim at issue in Sudo was a fraud claim brought
under the Securities Act. Thus, although the discrepancies in expenses were not enough to give rise to
notice of a potential cause of action for fraud, the Sudo court does not address whether it would suffice
where, as here, the claim is professional negligence. Moreover, the Plaintiffs do not allege a discrepancy
between actual and projected earnings; they allege a total inability to redeem their investment. The latter is
more likely to constitute notice.
101
Hogg v. Chevron USA, Inc., 09-2632 (La. 07/06/10), 45 So.3d 991, 997-98.
102
Rec. Doc. No. 723-1, p. 21 (citing Rec. Doc. No. 1-3, p. 23).
103
Rec. Doc. No. 723-1, p. 21.
100

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party necessarily demonstrates that the Plaintiffs were aware of any lack of due diligence
on the part of CSG as of those dates.
Second, Defendants cite Plaintiffs’ statement that March 3, 2011 is the “date
prescription commences.”104 Again, the Court is not persuaded that this statement
constitutes knowledge of Plaintiffs’ cause of action against the CSG Defendants,
however; as Defendants concede, the statement was made in reference to a different
claim.105 Third, Defendants cite the fact that, as of August 29, 2011, Plaintiffs had retained
“an expert from the Ernst & Young Fraud Investigative Unit to prepare his opinion or
impressions in anticipation of litigation with the hedge fund(s)”106 as evidence of Plaintiffs’
knowledge. Although Plaintiffs were clearly preparing for litigation at that point, and it is
conceivable that they anticipated litigation with CSG, their statement describes “litigation
with the hedge fund(s),”107 which does not mandate the conclusion that they were aware
of a cause of action specifically against CSG.
Nevertheless, the Court finds that Plaintiffs’ claim is prescribed. Even if none of the
above “triggers” offered by Defendants conclusively demonstrate constructive knowledge
by Plaintiffs of their potential cause of action against the CSG Defendants, the Court finds
that Plaintiffs’ Winding Up-Petition,108 filed on January 31, 2012, demonstrated sufficient
“knowledge of facts indicating to a reasonable person that [they were] the victim of a

104

Rec. Doc. No. 81, p. 10-11.
Rec. Doc. No. 723-1, p. 22, n. 64.
106
Rec. Doc. No. 723-4, p. 2.
107
Id.
108
Rec. Doc. No. 723-17.
105

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tort”109 as to trigger the running of prescription on Plaintiffs’ claim against the CSG
Defendants.
The Winding-Up Petition is effectively a snapshot of what Plaintiffs knew about
their failed investment as of January 31, 2012, the day the Petition was filed. It is difficult
to see how the investment advisors who recommended the Leveraged investment are not
implicated by Plaintiffs’ knowledge that, as the Winding-Up Petition alleges, Leveraged
was refusing to redeem Plaintiffs’ investment despite multiple requests,110 that Leveraged
“ha[d] failed to provide or file audited accounts since 2008”111 or that the manager of
Leveraged “[was] under investigation by the US Securities Exchange Commission.”112
Plaintiffs themselves describe the inevitable connection between these facts and the CSG
Defendants in their Petition, where they claim that, “if [CSG] had performed their due
diligence [they] would have discovered all or some of the material misrepresentations and
omissions alleged herein and Plaintiffs would not have purchased the Series N
Shares.”113 The knowledge that Plaintiffs were unable to redeem their investment and the
indications of mismanagement of the fund was sufficient to put Plaintiffs on notice that
they may have a claim against the investment advisor who recommended the fund. The
Winding-Up Petition evidences what the Fifth Circuit in Jensen v. Snellings114 called
“‘storm warnings’ that trigger the duty to inquire further.”115

109

Ferguson v. Sugar, 05-921 (La.App. 4 Cir. 6/25/08), 988 So.2d 816, 824.
Rec. Doc. No. 723-17, p. 8.
111
Rec. Doc. No. 723-17, p. 8.
112
Rec. Doc. No. 723-17, p. 9.
113
Rec. Doc. No. 1-3, p. 46.
114
841 F.2d 600 (5th Cir. 1988).
115
Id. at 608.
110

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Plaintiffs argue that the Winding-Up Petition and the other “triggers” cited by
Defendants cannot be evidence of constructive knowledge because they only
demonstrate that Plaintiffs knew their investment was failing, and because, they claim,
courts have held that “failure to reach earnings levels was not sufficient, by itself, to put
the plaintiff on notice inquiry [of a cause of action], as a myriad of business reasons could
have caused this problem.”116 Thus, Plaintiffs argue, Defendants “are in error to even
claim that the Louisiana Funds were aware of any errors or omissions at that time.”117
This argument is difficult to reconcile with Plaintiffs’ statements elsewhere in the record.
For example, in their Petition, Plaintiffs state that “June 15, 2011 . . . was the first point in
time that Plaintiffs had any notice of knowledge that its investment in Leverage [sic] was
not liquid and that the valuations contained in the account statements issued to it were
not accurate.”118 It cannot be true that Plaintiffs were unaware of any errors or omissions
when they filed their Winding-Up Petition in 2012, because Plaintiffs’ own allegations
demonstrate their awareness of one such error or omission on June 15, 2011.
The Winding-Up Petition was filed in the Grand Court of the Cayman Islands on
January 31, 2012,119 more than one year before the filing of the instant suit on March 1,
2013. The Court finds that the Winding-Up Petition extinguishes any genuine issue of
material fact regarding when Plaintiffs were aware of their cause of action against CSG.
Presented with the facts contained therein, a reasonable jury could not conclude that
Plaintiffs were not on notice as of that date. Plaintiffs have not pointed to specific summary

116

Rec. Doc. No. 792, pp. 16-17.
Rec. Doc. No. 792, p. 16.
118
Rec. Doc. No. 1-3, p. 17 at ¶ 42.
119
Rec. Doc. No. 723-17.
117

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judgment evidence that demonstrates a genuine issue of fact regarding their awareness
of the claim against the CSG Defendants on January 31, 2012, which is their burden to
defeat this motion. Conversely, the CSG Defendants have carried their summary
judgment burden of demonstrating the absence of a genuine issue of material fact as to
the date prescription begins to run.
Plaintiffs argue that whether contra non valentem applies at the summary judgment
stage is a question of fact that cannot be resolved by the court. Plaintiffs cite several Fifth
Circuit cases for the proposition that “contra non valentem exceptions are questions of
fact and should be referred to the jury.”120 In particular, Plaintiffs rely on Keenan v.
Donaldson, Lufkin, & Jenrette, Inc.,121 where the Fifth Circuit stated that “when a plaintiff
should know of his cause of action is usually a question of fact.”122 This citation is
inapposite to Plaintiffs’ case; although the Fifth Circuit did recognize the general principle
that knowledge is a question of fact, it went on to affirm the district court’s granting of
summary judgment on the question of contra non valentem. To the extent that it reversed
the district court, it was because the defendant had “failed to prove as a matter of law”123
that the plaintiff knew of his cause of action before it prescribed. In other words, Keenan
only prevents this Court from ruling on the applicability of contra non valentem if there is
a genuine dispute of material fact surrounding Plaintiffs’ knowledge. If the facts are not in

120

Rec. Doc. No. 792, p. 17.
575 F.3d 483 (5th Cir. 2009).
122
Id. at 486.
123
Id. at 490.
121

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dispute, this Court is fully empowered to grant summary judgment, as it has done before
in similar circumstances.124
The record demonstrates that Plaintiffs had constructive knowledge of their cause
of action against the CSG Defendants as of January 31, 2012, if not before; thus, their
claim was prescribed when filed. Therefore, because the record demonstrates no genuine
issue of material fact regarding the timing of Plaintiffs’ knowledge of their cause of action,
the Court finds that summary judgment should be granted in favor of the CSG Defendants.
III.

CONCLUSION
For the reasons set forth above, the Motion for Summary Judgment125 by the CSG

Defendants (CSG and Joe Meals) is GRANTED.
IT IS SO ORDERED.
Signed in Baton Rouge, Louisiana on December 14, 2018.

S

CHIEF JUDGE SHELLY D. DICK
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

124

See Crochet v. Bristol-Myers Squibb Co., No. CV 16-36-SDD-EWD, 2018 WL 1935855, at *4 (M.D. La.
Apr. 24, 2018); Union Pac. R.R. Co. v. Morel G. Lemoine Distributors, No. CV 04-00474-BAJ-EWD, 2017
WL 4185476, at *3 (M.D. La. Sept. 21, 2017).
125
Rec. Doc. No. 723.

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