Commercial Division Blog

Posted: March 15, 2014 / Categories Commercial, Statute of Limitations/Laches

Lack of Sophistication No Excuse for Not Bringing Action Before Statute of Limitations Runs

On March 11, 2014, the First Department issued a decision in Apt v. Morgan Stanley DW, Inc., 2014 NY Slip Op. 01541, examining the application of the statute of limitations and discovery rules relating to fraud.

In Apt, an employee of the defendants "allegedly churned trades on" a brokerage account. The First Department affirmed the trial court's decision dismissing the complaint on statute of limitations ground, explaining:

The court correctly dismissed the action as time-barred. Actions based upon fraud must be commenced within the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.

Here, the wrongful conduct occurred at the latest on August 29, 2005 when [the defendants] terminated [the broker]. Thus, the action, commenced in January 2012, more than six years later, is untimely. Contrary to plaintiffs' contention, the complaint alleges no facts showing that [the defendants] fraudulently concealed [the broker's] commissions or his termination . . . so as to toll the statute of limitations. To the extent plaintiffs contend that [the defendants'] failure to disclose such facts warranted tolling the statute of limitations, there is no fiduciary relationship arising from an ordinary broker-client relationship. Thus, plaintiffs' argument that [the defendants are] equitably estopped from asserting the statute of limitations defense is unavailing.

Nor is the action timely under the two-year discovery rule. [The account holder] could have discovered facts constituting the fraud, or could have done so with reasonable diligence, in 2004 or at the latest on August 29, 2005 based on her receipt of the confirmation slips and monthly statements. Even accepting as true the affidavit of plaintiffs' expert that the 611 pages of confirmation slips he reviewed did not fully reflect [the broker's] commissions, the confirmations and statements should have reflected the excessive trading activity on the accounts during the relevant period. Plaintiffs' contention that [the account holder] was inexperienced and unsophisticated is insufficient to toll the statute of limitations. The test as to when fraud should with reasonable diligence have been discovered is an objective one, and the duty of inquiry arises where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he or she has been defrauded.

(Internal quotations and citations omitted).

The statute of limitations can impose harsh consequences, but as this decision shows, courts enforce it even against sympathetic plaintiffs.