By Chris Bankler

Riverside Strategic Capital Fund I, L.P. v. CLG Investments, LLC, No. 25-BC01B-0006 (Tex. Bus. Ct. Sept. 17, 2025, Whitehill, J.)

A Cautionary Opinion from the Texas Business Court for Investors Sitting on Claims

The Texas Business Court is quickly establishing itself as a venue where commercial sophistication is both expected and enforced. In Riverside Strategic Capital Fund I v. CLG Investments, Judge Bill Whitehill granted summary judgment for the defendants and held that Riverside’s fraud claims were time-barred.

The opinion opens with a line that could serve as a warning label for every deal lawyer and private-equity sponsor in the state:

“The summary-judgment evidence conclusively establishes that plaintiffs were aware of facts, conditions, or circumstances more than four years before filing suit that would cause a reasonably prudent person to make an inquiry that if pursued would have led them to discover their causes of action.”

That “inquiry notice,” the court emphasized, is legally equivalent to knowledge of the cause of action. Once you’re on inquiry notice, the clock starts—and no later assurance or indictment will stop it.

Sophisticated Investors Missed Red Flags

Riverside invested roughly $80 million in True Health Group, a laboratory-management company. Judge Whitehill’s timeline—meticulously detailed over ten pages—reads like an anatomy of ignored warning signs.

• 2015–2016 – Public Smoke: Online articles accused True Health’s predecessor of continuing the same billing abuses that had destroyed Health Diagnostics Laboratory. Riverside admitted it knew of the articles.
• 2016 – Regulator Pushback: Cigna and UnitedHealthcare halted reimbursements; Medicare investigators visited headquarters and began audits.
• 2017 – The Investment and the CID: Riverside invested $50 million through a Securities Purchase Agreement promising compliance. Within weeks, DOJ issued a Civil Investigative Demand citing potential Anti-Kickback and Stark violations.
• 2017–2019 – Escalating Government Action: CMS twice suspended all Medicare payments for “credible allegations of fraud.” Special Agent Geren’s declaration—filed publicly—described rural-hospital routing and MSO kickback schemes in granular detail.
• 2019 – Insolvency and Bankruptcy: True Health’s Chief Restructuring Officer swore that the company’s collapse stemmed directly from the same misconduct.
• April 6, 2020 – The Letter That Started the Clock: The bankruptcy trustee sent claim notices to former directors—including Riverside’s own board designees—alleging oversight failures. Judge Whitehill held that date as the latest possible accrual point.

By the time Riverside sued on January 23, 2025, more than four years had passed. Time was up.

Texas Law Treats Suspicion as Knowledge

The discovery rule buys time only for the diligent. Texas courts have long said the clock starts when a claimant should have known of facts warranting investigation. The Business Court carried that principle to its logical edge.

“Inquiry notice is legally equivalent to knowledge of the cause of action.”

Under that doctrine, a sophisticated investor cannot wait for a guilty plea or an unsealed qui tam. Public filings, regulatory actions, and board-level information together create constructive knowledge. As the opinion noted, “No reasonable person could have determined after April 6, 2020, that Riverside lacked sufficient evidence to begin an investigation into defendants’ misrepresentations.”

In other words, once the smoke is public, Texas law treats it as fire.

Judge Whitehill was explicit that sophisticated parties with knowledge bring responsibility, not refuge. Riverside controlled True Health’s board and had inspection rights under Delaware LLC law. Yet it argued that company counsel had reassured it that compliance was sound. The Court rejected that outright, quoting the Texas Disciplinary Rules:

“A lawyer employed or retained by an organization represents the entity,” not its investors or shareholders.

That single sentence captures the Texas Business Court’s tone: pragmatic, unsentimental, and rooted in governance discipline. Sophisticated parties cannot outsource diligence to management’s lawyers and later claim ignorance.

Fraudulent Concealment Fails Without Action

Riverside also invoked fraudulent concealment, arguing that defendants’ silence or denials tolled the limitations period. The court was unpersuaded:

“Riverside adduced no evidence that defendants said anything about the wrongdoing, nor did Riverside argue defendants concealed anything from them after April 6, 2020.”

Without post-2020 concealment, there was nothing to toll. The doctrine, Judge Whitehill explained, stops protecting a party once it learns—or should have learned—facts that would lead a prudent person to investigate. By 2020, Riverside’s board members were receiving the same notices as government investigators. At that point, the equitable shield evaporated.

Turning Lessons into Litigation Discipline

The Riverside opinion doubles as a field manual for boards and investors managing legal risk in Texas. For anyone holding fiduciary, inspection, or control rights, the guidance is operational:

1. Treat Inquiry Notice as the Fire Alarm. Once an agency issues a CID, audit, or “credible-allegations-of-fraud” suspension, assume limitations have begun. Texas law presumes constructive notice when information is publicly available and readily accessible.
2. Mind the Calendar. When trustees, regulators, or whistleblowers send formal notices, log them immediately. Those dates can later define your window to sue—or bar it.
3. Investigate Independently. Engage separate litigation counsel early, preserve privilege, and build a record of diligence. Reliance on management’s counsel is not protection.
4. Use the Rights You Bargained For. The opinion noted that Riverside had a statutory right to look at the books and records or could have instigated an independent investigation. Rights unused are rights waived.
5. File or Toll Promptly. In Texas Business Court, waiting for a plea deal or unsealed indictment is waiting too long. Once credible third-party facts exist, act within four years or negotiate a tolling agreement.

Conclusion

The discovery rule was designed to protect the unaware, not the unhurried. Riverside reaffirms that principle in unmistakable terms. Once red flags reach the boardroom or the public record, the law presumes knowledge—and expects action.

“No reasonable person could have determined after April 6, 2020, that Riverside lacked sufficient evidence to begin an investigation.”

For Texas investors and counsel alike, that sentence should be engraved on every diligence checklist. The Business Court has spoken: in fraud and compliance cases, inquiry notice is knowledge, and diligence delayed is diligence denied.

The Texas Business Court’s decision in Riverside v. CLG Investments confirms that once credible public or board-level facts point to misconduct, sophisticated investors are on notice—and the four-year clock to sue has already begun.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information, please contact Chris Bankler or a member of the Trial & Appellate Litigation practice.

Meet Chris

Chris Bankler focuses on the resolution of disputes for businesses and financial institutions. He counsels clients through the process of complex business litigation, including general business disputes, fraud claims, breach of fiduciary duty cases, and complex business bankruptcy litigation. He has served as litigation counsel in more than 100 cases in state and federal courts, as well as FINRA and AAA arbitrations.