Snapp et al v. Lincoln Financial Securities Corporation et al

Filing 21

MEMORANDUM OPINION. Signed by District Judge Elizabeth K. Dillon on 3/2/2018. (jv)

3/2/2018

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
HARRISONBURG DIVISION
ALFRED L. SNAPP, JR.,
BETTY V. SNAPP, and
SHARON K. SNAPP,
Plaintiffs,
v.
LINCOLN FINANCIAL SECURITIES
CORPORATION,
RIVERSOURCE DISTRIBUTORS, INC.,
and
RIVERSOURCE LIFE INSURANCE
COMPANY,
Defendants.

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S/J.Vasquez

Civil Action No.: 5:17-cv-00059
By: Elizabeth K. Dillon
United States District Judge

MEMORANDUM OPINION
Plaintiffs Alfred and Betty Snapp, together with their daughter-in-law, Sharon Snapp,
bring this action against Lincoln Financial Securities Corporation (Lincoln), RiverSource
Distributors, Inc., and RiverSource Life Insurance Company (together, RiverSource). Plaintiffs
assert various claims arising from defendants’ alleged securities fraud.
Before the court is defendants’ motion to dismiss the complaint for failure to state a claim
under Rule 12(b)(6) of the Federal Rules of Civil Procedure. In it, defendants argue that many of
plaintiffs’ claims are barred by the applicable statute of limitations, and that others fail to state a
claim. The matter has been fully briefed and argued. For the reasons set forth below, the court
will grant defendants’ motion to dismiss.

I. BACKGROUND
In late 2007, Alfred and Betty Snapp met with Randy Watts, who was both a Financial
Industry Regulatory Authority (FINRA) registered representative of Lincoln Financial and a
professional authorized to sell RiverSource variable annuities. The Snapps told Watts that they
wanted out of their prior investments that fluctuated with the market, and they wanted to put
their life savings in an investment which was safe, like an annuity. Watts recommended that the
Snapps invest their life savings in a RiverSource variable annuity. He told them that the
investment “would never go below the initial amount they would be investing” and that “it
would be paid out in full as a death benefit.” (Compl. ¶¶ 11, 14.) Before agreeing, the Snapps
“read the paperwork and asked a lot of questions about the alleged guarantee.” (Id.)
In 2008, Sharon Snapp met with Watts, who had previously recommended that she invest
her late husband’s life insurance proceeds in a Hartford variable annuity. Watts recommended to
Ms. Snapp that she move her investment into a RiverSource variable annuity, and similarly
assured her that “the original amount invested would never decline in value.” (Id. ¶ 18.)
By November 2009, every quarterly and annual statement that the Snapps received from
RiverSource contradicted Watts’s representations that the value would never decline below the
initial investment and that the death benefit would equal the initial investment. Mr. and Mrs. Snapp
“would often question Mr. Watts about statements received showing a reduction in the annuity’s
value.” (Id. ¶ 13.) Likewise, Ms. Snapp “would receive statements indicating a decline in value,
[and] she would ask Mr. Watts about them.” (Id. ¶ 19.) Watts repeatedly assured them that their
investment would not decline. (Id.)
In 2015, Watts purportedly committed suicide after he was contacted by an investigator
regarding thefts from customers. (Id. ¶ 7.) After Watts’s death, Mr. and Mrs. Snapp called his office
“and found out for the first time” that their death benefit had declined by approximately $197,000.

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(Id. ¶ 15.) Similarly, Ms. Snapp “learned that her account value” had declined by approximately
$80,000. (Id. ¶ 21.)
The Snapps filed a FINRA arbitration claim against Lincoln and RiverSource on April 18,
2016. The arbitration panel granted Lincoln’s and RiverSource’s motion to dismiss based on
FINRA’s six-year “eligibility” rule for the submission of claims.

II. DISCUSSION
A. Standard of Review
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff’s allegations must “state a claim
to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This standard “requires the plaintiff to
articulate facts, when accepted as true, that ‘show’ that the plaintiff has stated a claim entitling
him to relief, i.e., the ‘plausibility of entitlement to relief.’” Francis v. Giacomelli, 588 F.3d
186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). The plausibility standard requires
more than “a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678.
In determining whether the plaintiff has met this plausibility standard, the court must
accept as true all well-pleaded facts in the complaint and any documents incorporated into or
attached to it. Sec’y of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir.
2007). Further, it must “draw[] all reasonable factual inferences from those facts in the
plaintiff’s favor,” Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999), but it “need
not accept legal conclusions couched as facts or ‘unwarranted inferences, unreasonable
conclusions, or arguments,’” Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012)
(quoting Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008)).
As already noted, defendants argue that many of plaintiffs’ claims are time-barred.
Statutes of limitation and statutes of repose are affirmative defenses that may be raised in a
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motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). United States v. Kivanc, 714
F.3d 782, 789 (4th Cir. 2013) (citing Dean v. Pilgrim’s Pride Corp, 395 F.3d 471, 474 (4th Cir.
2005)). While a Rule 12(b)(6) motion “invites an inquiry into the legal sufficiency of the
complaint, not an analysis of potential defenses to the claims set forth therein, dismissal
nevertheless is appropriate when the face of the complaint clearly reveals the existence of a
meritorious affirmative defense.” Brockington v. Boykins, 637 F.3d 503, 506 (4th Cir. 2011)
(internal citations and quotations omitted).
B. Consideration of Extrinsic Documents
To their motion to dismiss, Lincoln and RiverSource attach 14 exhibits. Exhibit A, the
only exhibit to which the Snapps object, is the FINRA dispute resolution order. Exhibits B
through N are the Snapps’ RiverSource annuity statements. To their memorandum in opposition
to defendants’ motion to dismiss, the Snapps attach one exhibit, to which defendants do not
object, which includes a 2007 RiverSource welcome letter, RiverSource’s “how to contact us”
page, and the Snapps’ 2007 contract verification record.
Typically, when a defendant moves to dismiss under Rule 12(b)(6), a court is “limited to
considering the sufficiency of allegations set forth in the complaint and the ‘documents attached
or incorporated into the complaint.’” Zak v. Chelsea Therapeutics Int’l, Ltd., 780 F.3d 597, 606
(4th Cir. 2015) (quoting E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448
(4th Cir. 2011)). If a court goes beyond these documents during the pleading stage of litigation,
then it “improperly converts the motion to dismiss into a motion for summary judgment.” Id.
“Such conversion is not appropriate where the parties have not had an opportunity for reasonable
discovery.” E.I. du Pont de Nemours & Co., 637 F.3d at 448.

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Accordingly, a court should generally focus its “inquiry on the sufficiency of the facts
relied upon by the plaintiff[] in the complaint.” Zak, 780 F.3d at 606. It may, however, consider
extrinsic documents attached to the pleadings that are “‘integral to and explicitly relied on in the
complaint,’” when the documents’ authenticity is unchallenged. Id. (quoting Am. Chiropractic
Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004)).
Here, the only document attached to the pleadings that falls outside these parameters is
defendants’ Exhibit A, the FINRA dispute resolution order. All of the other documents meet the
requirements for consideration at the motion-to-dismiss stage. The court thus considers the
annuity statements and the Snapps’ exhibit in deciding Lincoln’s and RiverSource’s Rule
12(b)(6) motion, and excludes Exhibit A.
C. The Snapps’ Virginia Securities Act Claims Are Time-Barred.
Lincoln and RiverSource argue that the Snapps’ Virginia Securities Act claims in Count I
are time-barred under the two-year limitations period. The court agrees.
The Virginia Securities Act imposes liability in connection with the purchase or sale of a
security.1 The Act provides: “No suit shall be maintained to enforce any liability under this
section unless brought within two years after the transaction upon which it is based . . . .” Va.
Code § 13.1-522. The Fourth Circuit has emphasized that this two-year limitation is “an
absolute cutoff.” Caviness v. Derand Res. Corp., 983 F.2d 1295, 1305–06 (4th Cir. 1993) (holding
that the limitations period is not subject to equitable tolling because “we conclude from the plain
meaning of the statute that the Virginia legislature intended to provide unqualifiedly that a claim
must be brought within two years”).

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As relevant here, the Virginia Securities Act makes it unlawful, in the offer or sale of any securities, “(1)
To employ any device, scheme or artifice to defraud, or (2) To obtain money or property by means of any untrue
statement of material fact or [o]mission[, or] (3) To engage in any transaction . . . which operates . . . as a fraud or
deceit upon the purchaser.” Va. Code § 13.1-502.

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The Snapps allege that Lincoln and RiverSource violated the Virginia Securities Act “by
engaging in a course of deceptive schemes, devices, [and] misrepresentations . . . related to the sale
of securities.” (Compl. ¶ 37.) But the relevant transactions—the Snapps’ purchase of the annuities at
issue—occurred in late 2007 and early 2008. (Id. ¶¶ 9, 18.) The parties agree that the operative date
of the Snapps’ assertion of their claims for statute-of-limitations purposes is April 18, 2016. Because
the Snapps failed to assert their claims under the Virginia Securities Act within the “absolute cutoff”
of the two-year limitation, see Caviness, 983 F.2d at 1305, Count I must fail.

D. The Snapps’ Federal Securities Fraud Claims Are Time-Barred.
Count II of the complaint asserts claims against Lincoln and RiverSource under section
10(b) of the Securities Exchange Act of 1934 (the Exchange Act), 15 U.S.C. § 78j(b). Like the
Virginia Securities Act, the Exchange Act imposes liability for material misrepresentations with
respect to the “purchase or sale” of a security. 15 U.S.C. § 78j(b). Section 10(b) claims are
subject to a five-year statute of repose and a two-year statute of limitations.2 28 U.S.C. §
1658(b). The statute of repose, which is “unqualified,” Merck & Co., Inc. v. Reynolds, 559 U.S.
633, 650 (2010), “starts to run on the date the parties have committed themselves to complete the
purchase or sale transaction,” Carlucci v. Han, 886 F. Supp. 2d 497, 514 (E.D. Va. 2012). The
statute of limitations begins to run “once the plaintiff discovers, or a reasonably diligent plaintiff
would have discovered, the facts constituting the violation.” Reynolds, 559 U.S. at 652.
In this case, the Snapps committed themselves to complete the purchase of the annuities
in late 2007 and early 2008. (Id. ¶¶ 9, 18.) Because the Snapps did not assert their securities fraud
2

A statute of limitations is “[a] law that bars claims after a specified period; specif[ically], a statute
establishing a time limit for suing in a civil case, based on the date when the claim accrued.” Carlucci, 886 F. Supp.
2d at 514 (citing Black’s Law Dictionary 1450–51 (8th ed. 2004)). It is often subject to a “discovery rule,” meaning
that it does not begin to run until the plaintiff is aware (or should be aware) of his claim. By contrast, a statute of
repose is “[a] statute barring any suit that is brought after a specified time since the defendant acted.” Id. at 1451.
The statute of repose serves as a fixed “cutoff,” and is not subject to equitable tolling. Lampf, Pleva, Lipkind, Prupis
& Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991).

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claims until 2016, the Snapps’ claims in Count II are barred by the statute of repose.3

E. The Snapps’ Fraud and Constructive Fraud Claims Are Time-Barred.
Counts III and IV of the complaint assert common law fraud and constructive fraud
claims under Virginia law. Lincoln and RiverSource argue that Counts III and IV must be
dismissed as time-barred under the statute of limitations. Again, the court agrees.
1. Plaintiffs’ fraud claims accrued well before April 2014.
Section 8.01–243(A) of the Virginia Code provides that “every action for damages
resulting from fraud, shall be brought within two years after the cause of action accrues.” Va.
Code § 8.01–243(A). A cause of action for fraud accrues “when such fraud, mistake,
misrepresentation, deception, or undue influence is discovered or by the exercise of due
diligence reasonably should have been discovered.” Va. Code § 8.01–249(1). The Supreme
Court of Virginia has interpreted the due diligence requirement in § 8.01–249 as “such a measure
of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised
by, a reasonable and prudent man under the particular circumstances; not measured by any
absolute standard, but depending on the relative facts of the special case.” STB Marketing Corp.
v. Zolfaghari, 393 S.E.2d 394, 397 (Va. 1990) (citations and internal quotation marks omitted).
In order to successfully maintain a claim for fraud, plaintiffs “bear the burden ‘to prove that
[they] acted with due diligence and yet did not discover the fraud or mistake until within the
statutory period of limitation immediately preceding the commencement of the action.’” Terry
Phillips Sales, Inc. v. SunTrust Bank, No. 3:13-cv-468, 2014 WL 670838, at *5 (E.D. Va. Feb.
20, 2014) (quoting Hughes v. Foley, 128 S.E.2d 261, 263 (Va. 1962)). In other words, the
Snapps must allege that, even through the exercise of due diligence, they would not have

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Because the court concludes that the statute of repose bars the claims, it does not reach the statute of
limitations analysis as to Count II.

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discovered Watts’s fraudulent conduct until during, or more recently than, April 2014.
The Snapps’ common law fraud and constructive fraud claims are based on Watts’s
alleged point-of-sale misrepresentations in 2007 and 2008. (Compl. ¶¶ 45, 49.) In particular, the
Snapps allege that Watts misrepresented to them that 1) the value of their annuities would never
decline below the initial investment, and 2) the annuities would pay out as a death benefit equal to
their initial investment. (Id. ¶¶ 11–12, 18.) The Snapps assert that they did not discover these
misrepresentations until Watts’s suicide in November 2015, when “the Snapps spoke to Gina at his
office, and found out for the first time that Mr. Watts’s statements” were not true. (Id. ¶ 15.)

Even drawing all reasonable inferences in the Snapps’ favor, the court concludes that
Watts’s misrepresentations reasonably should have been discovered, and the cause of action for
fraud thus accrued, well before April 2014. See Cozart, 680 F.3d at 365 (“[The court] need not
accept . . . unwarranted inferences, unreasonable conclusions, or arguments.”) (internal citations
omitted). On the one hand, the court rejects Lincoln’s and RiverSource’s argument that the fraud
claims accrued when the Snapps first received annuity statements in late 2008 that contradicted
Watts’s representations. Lincoln and RiverSource rely on Mountcastle v. Caliber Home Loans
& Flagstar Bank, No. 2:15-cv-169, 2015 WL 13035371, at *1 (E. D. Va. Oct. 30, 2015), a fraud
case in which the plaintiff claimed that bank representatives told her that they could lower her
interest rate to 2%, but in fact applied a 7% interest rate to her mortgage loan. The Mountcastle
court granted the defendants’ motion to dismiss, reasoning that the cause of action accrued “the
day Plaintiff saw the alleged interest rate error” in her loan documents. 2015 WL 13035371, at
*2. This case is less clear cut. Although the late 2008 annuity statements began to contradict
Watts’s assertion that the value would never decline below the initial investment, the court does
not conclude that his misrepresentations should have been discovered upon the very first
contradictory annuity statement because, alone, it could have represented a mere aberration.
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On the other hand, by November 2009, every quarterly and annual statement that the
Snapps received from RiverSource directly contradicted Watts’s representations that the value
would never decline below the initial investment and that the annuities would pay out as a death
benefit an amount equal to their initial investment. The complaint demonstrates the Snapps’ actual

notice of this contradiction. See, e.g., Compl. ¶ 13 (“The Snapps . . . would often question Mr.
Watts about statements received showing a reduction in the annuity’s value.”); id. ¶ 19 (“When
[Ms. Snapp] would receive statements indicating a decline in value, she would ask Mr. Watts about
them.”) To conclude instead, that a reasonable person would not have discovered that Watts’s
statements were misrepresentations before April 2014—despite a uniform barrage of annuity
statements to the contrary from November 2009 to April 2014—would stretch reason to its breaking
point. The Snapps’ common law fraud claims are thus time-barred.4

2. Equitable estoppel does not apply to toll the statute of limitations.
The Snapps contend that Lincoln and RiverSource should be prevented from asserting
statute of limitations defenses under a theory of equitable estoppel. The doctrine of equitable
estoppel “bars a statute of limitations defense by a defendant who, by his own conduct, lulls
another into a false sense of security.” Neal v. Stryker Corp., No. 1:11-cv-62, 2011 WL 841509,
at *3 (E.D. Va. Mar. 8, 2011) (internal citations omitted). In order for the doctrine to apply, a
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Citing STB Marketing Corp. v. Zolfaghari, 393 S.E.2d 394 (Va. 1990), the Snapps argue that their fraud
claims should survive the motion to dismiss because the issue of whether they exercised reasonable due diligence is
a fact question reserved for the jury. But Zolfaghari does not stand for this proposition. The court in Zolfaghari
held, without remanding the matter for a jury to determine, that “[plaintiff] exercised due diligence and that its cause
of action for fraud did not accrue until” a later date than that determined by the trial court. 393 S.E.2d at 397.
Indeed, federal district courts in Virginia generally grant motions to dismiss common law fraud claims as timebarred when they conclude that the fraud reasonably should have been discovered outside the statute of limitations
window. See, e.g., Mountcastle, 2015 WL 13035371, at *2 (granting motion to dismiss fraud claim as barred by
statute of limitations because the cause of action accrued the day plaintiff observed interest rate in loan
documentation that directly contradicted the defendant’s oral representation); Craddock v. Beneficial Financial I,
Inc., No. 7:14-cv-93, 2014 WL 4385836, at *3 (W.D. Va. Sept. 4, 2014) (granting motion to dismiss fraud claim as
barred by statute of limitations because the cause of action accrued when plaintiff signed loan documentation that
included interest rates that contradicted the defendant’s oral representation). See also Brockington, 637 F.3d at 506
(“[D]ismissal [pursuant to Rule 12(b)(6)] is appropriate when the face of the complaint clearly reveals the existence
of a meritorious affirmative defense.”).

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plaintiff must show that the defendant took “actions it should unmistakably have understood
would cause the [plaintiff] to delay filing his charge.” Price v. Litton Bus. Sys., 694 F.2d 963,
965–66 (4th Cir. 1982). The doctrine typically applies “where a defendant has misrepresented to
a plaintiff his legal rights . . . or has used settlement negotiations to induce delay.” Caviness, 983
F.2d at 1302 (citations omitted). A plaintiff seeking to invoke equitable estoppel must
demonstrate that he or she “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).
When faced with a Rule 12(b)(6) motion to dismiss “where it is apparent that the statute
of limitations expired before the filing of the plaintiff’s complaint, the plaintiff has the burden of
pleading facts that would support a finding that equitable estoppel applies.” Neal, 2011 WL
841509, at *3. If the plaintiff fails to do so, dismissal is appropriate. See, e.g., Stack v. Abbott
Labs., Inc., 979 F. Supp. 2d 658, 665 (M.D.N.C. 2013) (dismissing claim as time-barred and
rejecting equitable estoppel argument because “the complaint fails to plead facts to make an
equitable estoppel claim plausible”); Neal, 2011 WL 841509, at *3 (dismissing claim as timebarred and rejecting equitable estoppel argument because plaintiff’s “extended delay” before
filing suit “eliminates as a matter of law the possibility that he had timely filed this action based
on . . . equitable estoppel”); Cominelli v. Rector & Visitors of the Univ. of Va., 589 F. Supp. 2d
706, 718 (W.D. Va. 2008) (dismissing claim as time-barred and rejecting equitable estoppel
argument because plaintiff failed “to allege any facts in his Complaint that would support a
conclusion that Defendants [acted] with the aim of lulling him into a false sense of security
concerning the statute of limitations”), aff’d 362 F. App’x 359 (4th Cir. 2010).

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Here, the complaint fails to plead facts to make an equitable estoppel claim plausible.
While the court obviously does not condone Watts’s misrepresentations, nothing in the
complaint bears the conclusion that Watts acted “with the aim of lulling [the Snapps] into a false
sense of security concerning the statute of limitations.” 589 F. Supp. 2d at 718. Furthermore,
the complaint describes the consistent decline in value recorded in the annuity statements
(Compl. ¶¶ 13, 19), illustrating that the Snapps were “confronted with evidence that clearly and
overwhelmingly indicate[d] [Watts’s] assurances . . . would not be upheld,” Gitter v. Cardiac &
Thoracic Surgical Assoc., Ltd., 419 F. App’x. 365, 370 (4th Cir. 2011). Thus, the principles of

equitable estoppel do not apply to prevent the application of the statute of limitations in this case.
3. Virginia Code § 8.01-229(D) does not apply to toll the statute of limitations.
The Snapps also contend that Lincoln and RiverSource should be prevented from
asserting statute of limitations defenses under a theory of obstruction. Under Virginia Code
§ 8.01-229(D), a statute of limitations is tolled when a defendant uses any direct or indirect
means to obstruct the filing of an action.
In order to rely on this tolling provision, a plaintiff “must establish that the defendant
undertook an affirmative act designed or intended, directly or indirectly, to obstruct the
plaintiff’s right to file her action.” Newman v. Walker, 618 S.E.2d 336, 337 (Va. 2005) (internal
citations and quotations omitted). For the statute of limitations to be tolled, “[c]oncealment of a
cause of action . . . must consist of some trick or artifice preventing inquiry, or calculated to
hinder a discovery of the cause of action by the use of ordinary diligence.” 618 S.E.2d at 338
(internal citations and quotations omitted) (emphasis added). Furthermore, the fraudulent
concealment of the cause of action “must be of that character which involves moral turpitude,
and must have the effect of debarring or deterring the plaintiff from his action.” Id. (internal

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citations and quotations omitted).5
The Snapps argue that Watts’s false statements about the value of their investments
constituted “affirmative acts to conceal his previous fraud.” (Pl.’s Opp’n 10, Dkt. No. 10.) But
the Snapps have conceded that they regularly received annuity statements that contradicted
Watts’s representations, and the statements caused them to “often question” and “ask” about the
reduction in value. (Compl. ¶¶ 13, 19). The Snapps do not allege that Watts directly or
indirectly prevented them 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 his representations. This case is not at all like Evans v. Trinity
Industries, Inc., 137 F. Supp. 3d 877, 880–82 (E.D. Va. 2015). In Evans, a products liability
action, the court denied the defendant-manufacturer’s motion for judgment on the pleadings
because it held that the plaintiff-motorists sufficiently alleged fraudulent concealment tolled the
statute of limitations. 137 F. Supp. 3d at 884. The court reasoned that the plaintiffs’ allegations
were sufficient because they alleged that a jury in separate qui tam suit found that the defendant
made unapproved modifications, which it knew created dangerous conditions, but represented to
Federal Highway Administration that the product was not modified. Id. at 880, 884. In contrast,
the Snapps have failed to allege any facts that would support the conclusion that Watts’s
statements constituted affirmative acts to obstruct the filing of their action within the meaning of
Virginia Code § 8.01-229(D). The obstruction tolling provision does not save their claims.

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In Newman, the Supreme Court of Virginia reversed the circuit court’s dismissal of a case as time-barred
where the defendant used stolen identification to falsely identify himself at the scene of an automobile accident. 618
S.E.2d at 340. The court took no issue with the circuit court’s denying the plaintiff’s obstruction argument at the
motion-to-dismiss stage; rather, the court “conclude[d] that the circuit court erred in holding that [defendant’s]
conduct did not constitute a direct or indirect means to obstruct [plaintiff’s] filing of this action.” Id. The court
remanded the case for “the circuit court [to] make two factual determinations that were not previously necessary to
its judgment sustaining the plea of the statute of limitations: (1) whether [defendant’s] use of stolen identification
was “designed or intended, directly or indirectly, to obstruct” [plaintiff’s] filing of this action[,] and (2) if so, the
period of time such obstruction continued.” Id. (citations omitted).

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4. The “continuing representation” exception does not apply to toll the statute of
limitations.
The Snapps’ final argument as to why the statute of limitations should not apply centers
on the “continuing representation” exception. This exception applies “where there is an
undertaking or agency which requires a continuation of services,” such as the services of a doctor
or attorney, and mandates that “the statute of limitations does not begin to run . . . until the
termination of the undertaking or agency.” Keller v. Denny, 352 S.E.2d 327, 329 (Va. 1987)
(citations omitted). In particular, the continuing representation exception “pertains to claims for
breach of fiduciary duty” but “does not apply to fraud actions.” Terry Phillips Sales, Inc. v.
SunTrust Bank, No. 3:13-cv-468, 2014 WL 670838, at *5 n.4 (E.D. Va. Feb. 20, 2014) (citations
omitted).
The continuing representation exception does not apply to the Snapps’ common law fraud
claims. See id. Even if it did, the Snapps do not allege that Watts’s sale of the annuity
“require[d] a continuation of [his] services” as a financial advisor. Keller, 352 S.E.2d at 329.
Rather, their “purchase of the [annuities] was a particular and severable undertaking . . . that did
not require the continuing services of Defendants.” Smith ex rel. Clearview Baptist Church v.
CNA Fin. Corp., No. 7:01-cv-653, 2003 WL 24253672, at *9 (W.D. Va. Nov. 28, 2003)
(citations omitted) (holding that the continuing representation doctrine did not apply to save
breach of fiduciary claim as to purchase of promissory notes). The Snapps’ common law fraud
claims are time-barred.6

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After oral argument, the Snapps submitted a supplement to their response to Lincoln and RiverSource’s
motion to dismiss and to the Snapps’ associated motion to amend. The supplement states that in 2009, Betty Snapp
tried to call Watts to discuss apparent declines in values on RiverSource statements. (Pls.’ Supp. 2, Dkt. No. 20.)
Snapp called the “800 number” for RiverSource after she could not reach Watts, and the customer service
representative told her to call her investment professional (Watts) “to explain it to her.” (Id.) The court has
carefully considered the supplement and concludes that it does not alter the above analysis.

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F. The Snapps’ Unsuitability Claims Are Not Independent Causes of Action.
Lincoln and RiverSource argue that the Snapps’ “unsuitability” claims in Count V—
regarding defendants’ “unsuitable recommendations” as to securities and investments—do not
constitute an independent cause of action. See § 10(b); Va. Code §§ 13.1-502; 14 VAC 5-45-40.
The Snapps concede this point. The court will dismiss Count V.
G. The Snapps Fail to State a Claim for Negligence and Negligent Supervision.
Lincoln and RiverSource argue that the Snapps’ claims for negligence and negligent
supervision in Count VI are inadequate as a matter of law. The court agrees.
Negligence requires an independent duty, and the duty cannot arise solely by virtue of a
contract. See Augusta Mut. Ins. Co. v. Mason, 645 S.E.2d 290, 293–94 (Va. 2007). The Snapps
fail to establish that Lincoln and RiverSource owed them an independent legal duty of care with
respect to the suitability and attendant risks of the annuities.7 See Cook v. John Hancock Life
Ins. Co., No. 7:12-cv-455, 2015 WL 178108, at *22 (W.D. Va. Jan. 14, 2015) (granting motion
to dismiss claim against insurance company for negligently allowing investment adviser selling
annuity to fraudulently withdraw funds, on grounds that company’s duty arose only because of
contractual relationship between customer and insurance company).8 Furthermore, Virginia
does not recognize the tort of negligent misrepresentation. See Hirschler v. GMD Investments

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The court is not persuaded by the Snapps’ attempt to anchor this duty of care under the Virginia
Insurance Code, the FINRA rules, and/or Virginia Code § 8.01-22. The Snapps do not cite any authority, and the
court has not found any cases, concluding that the Virginia Insurance Code or the FINRA rules establish duties such
that their violation gives rise to a private right of action for negligence. For its part, Section 8.01-22 does not create
an independent cause of action. Vansant & Gusler, Inc. v. Washington, 429 S.E.2d 31, 33 (Va. 1993).
8

The court does not, however, accept defendants’ argument that Chesapeake & Potomac Tel. Co. of Va. v.
Dowdy, 365 S.E.2d 751 (Va. 1988), made clear that “Virginia does not recognize negligent supervision claims.”
(Defs.’ Reply 15, Dkt. No. 13.) “Dowdy’s ruling was . . . limited, and while the Virginia Supreme Court ‘has not yet
recognized a cause of action for negligent supervision,’ it has also not ‘completely ruled out such a cause of action
under Virginia law.’” Adams v. NaphCare, Inc., 244 F. Supp. 3d 546, 551 (E.D. Va. 2017) (quoting Hernandez v.
Lowe’s Home Ctrs., Inc., 83 Va. Cir. 210, 2011 WL 8964944, at *5 (Va. Cir. Ct. 2011) (allowing a claim for
negligent supervision to survive a demurrer based on facts distinguishable from Dowdy)).

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Ltd. P’ship, No. 90-1289-N, 1991 WL 115773, at *9 (E.D. Va. Mar. 28, 1991), aff’d, 972 F.2d
340 (4th Cir. 1992) (granting motion to dismiss claim that defendants “failed to use reasonable
care in ascertaining and representing completely and accurately the true facts regarding the
investments” because Virginia does not recognize tort of negligent misrepresentation.).
Even if the claims were cognizable, they would be time-barred under the two-year statute
of limitations for negligence claims, which is not subject to a discovery rule. Va. Code § 8.01230. The Snapps argue that the claims are not time-barred because of equitable estoppel,
obstruction, and/or the continuing representation rule. These arguments fail for the reasons
stated above in sections E.2–4. For these reasons, Count VI will be dismissed.
H. The Snapps Fail to State a Claim for Negligent Retention.
Lincoln and RiverSource next argue that the Snapps’ negligent retention claim fails
because financial damage alone is not sufficient to establish a prima facie claim of negligent
retention. The court agrees.
Although the “Virginia Supreme Court has not squarely addressed the question of
whether a plaintiff must plead physical harm” to state a negligent retention claim, Young v.
CitiMortgage, Inc., No. 5:12-cv-79, 2013 WL 3336750, at *10 n.12 (W.D. Va. July 2, 2013),
“based upon the weight of the authority from other courts, and the Virginia Supreme Court’s
language . . . a plaintiff alleging negligent retention must allege serious and significant physical
harm,” Ingleson v. Burlington Med. Supplies, Inc., 141 F. Supp. 3d 579, 586 (E.D. Va. 2015).
Because the Snapps fail to plead physical harm, their claim for negligent retention in Count VII
will be dismissed.
I. The Snapps’ Breach of Fiduciary Claim Is Time-Barred.
As the Snapps acknowledge, the two-year statute of limitations for breach of fiduciary

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claims, Va. Code § 8.01-248, runs from the date of the injury, “not the date of discovery.” Smith
ex rel. Clearview Baptist Church v. CNA Fin. Corp., No. 7:01-cv-653, 2003 WL 24253672, at *8
(W.D. Va. Nov. 28, 2003) (citing Goldstein v. Malcolm G. Fries & Assoc., Inc., 72 F. Supp. 2d
620, 626 (E.D. Va. 1999)). The Snapps argue, though, that their breach-of-fiduciary claims are
not time-barred because of equitable estoppel, obstruction, and/or the continuing representation
rule. These arguments fail for the reasons stated above in sections E.2–4. Count VIII is thus
time barred.
J. The Snapps Fail to State a Claim for Breach of Contract.
A breach of contract claim requires: (1) a legally enforceable obligation of a defendant to
a plaintiff; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to
the plaintiff caused by the breach of obligation. Cook, 2015 WL 178108, at *16. Lincoln and
RiverSource argue that they were under no legally enforceable obligation. The Snapps assert
that the obligation arises under defendants’ “contracts” vis-à-vis FINRA’s rules and Virginia
insurance regulations.
Although there is no case on point in Virginia, courts in other jurisdictions presented with
similar facts have reasoned that recognizing such third-party-beneficiary liability in the form of a
breach of contract claim would effectively give plaintiffs a private cause of action where they
otherwise do not have one.9 Plaintiffs cite no case law that would support the creation of a
breach of contract claim under FINRA rules or Virginia insurance regulations. In the absence of

9

See, e.g., Gallier v. Woodbury Fin. Servs., Inc., No. 14-cv-888, 2015 WL 1296351, at *8 (S.D. Tex. Mar.
23, 2015) (rejecting plaintiffs’ argument “that [c]ontracts between FINRA and its members give customers the right
as third-party beneficiaries of those contracts to sue the members or a member’s manager for violating a FINRA
rule”); Salzmann v. Prudential Sec. Inc., No. 91-cv-4253, 1994 WL 191855, at *8 (S.D.N.Y. May 16, 1994)
(dismissing breach of contract claim as an “attempt[] to circumvent the decisions that hold that plaintiffs do not have
a private right of action under [NASD (the former FINRA)] rules”); Bloch v. Prudential-Bache Sec., 707 F. Supp.
189, 196 (W.D. Pa. 1989) (“[T]hird party beneficiary liability seems incongruous with the large body of case law
holding that no private cause of action exists for violation of the rules of self-regulatory organizations.”).

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authority to the contrary, the court will dismiss Count IX.10
K. The Snapps’ Vicarious Liability Claim Does Not Constitute a Separate Cause of Action.
Last, Lincoln and RiverSource argue that the Snapps’ vicarious liability claim in Count X
should be dismissed because vicarious liability is a theory of liability, not a separate cause of
action. The court agrees. See Lim v. Tisack, No. 7:16-cv-00029, 2017 WL 1194516, at *7 (W.D.
Va. Mar. 30, 2017) (quoting Rohrbaugh v. Kreidler, 71 Va. Cir. 298, 304 (Va. Cir. 2006)). To
the extent it attempts to assert a stand-alone vicarious liability claim, Count X will be dismissed.
L. The Snapps’ Motion for Leave to Amend the Complaint is Denied Without Prejudice.
Included within the Snapps’ memorandum in opposition to defendants’ motion to dismiss
is a brief paragraph in which they move for leave to amend the complaint. (Dkt. No. 10, at 20.)
The Snapps have not specified how they desire to do so, and it is unclear to the court how an
amended complaint would sufficiently state a claim for relief in this case.11 Because the Snapps
have not sufficiently stated how they seek to amend and in order for defendants to have the
opportunity to address whether such amendments would be futile, the court will deny the motion
without prejudice.

10

Even if the claims were cognizable, they would be time-barred under the five-year statute of limitations
for claims based upon written contracts and three-year statute of limitations for unwritten contracts, which are not
subject to a discovery rule. Va. Code § 8.01-246(2), (4). The Snapps argue that the claims are not time-barred
because of equitable estoppel, obstruction, and/or the continuing representation rule. These arguments fail for the
reasons stated above in sections E.2–4.
11

The Snapps have proffered brief additional facts, which have already been addressed by the court above
in section E.4.

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III. CONCLUSION
For the foregoing reasons, the court will grant defendants’ motion to dismiss in its
entirety, and deny plaintiffs’ motion to amend without prejudice.
An appropriate order will follow.
Entered: March 2, 2018.

/s/ Elizabeth K. Dillon
Elizabeth K. Dillon
United States District Judge

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