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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: March 29, 2021

Statute of Limitations for Breach of Fiduciary Duty Claim Based on Fraud is Six Years, Not Three

On March 25, 2021, the First Department issued a decision in Wimbledon Fin. Master Fund, Ltd. v. Hallac, 2021 NY Slip Op. 01881, holding that the statute of limitations for a breach of fiduciary duty claim based on fraud was six years, explaining:

The first and second causes of action — for aiding and abetting fraud and breach of fiduciary duty, respectively — are not time-barred malpractice claims in disguise. The essence of these claims is not negligence or a failure to utilize reasonable care; rather, plaintiff alleges intentional acts. However, to the extent the first and second causes of action are based on Katten’s concealment of its malpractice and failure to disclose its conflicts of interest, they were correctly dismissed.

Katten contends that even if the claim for aiding and abetting breach of fiduciary duty is taken at face value, the statute of limitations is three years because plaintiff seeks damages, not equitable relief. However, a cause of action for breach of fiduciary duty based on allegations of actual fraud is subject to a six-year limitations period. Plaintiff’s claim against defendant Albert Hallac for breach of fiduciary duty is based on allegations of actual fraud; hence, the statute of limitations for the claim against Katten for aiding and abetting Hallac’s breach of fiduciary duty is six years.

Katten concedes that the last act relevant to aiding and abetting breach of fiduciary duty occurred in July 2012. Since this lawsuit was commenced in June 2018, the second cause of action is timely.

(Internal quotations and citations omitted).

However, in VA Mgt., LP v. Estate of Valvani, 2021 NY Slip Op. 01878, also decided by the First Department on March 25, 2021, the court held that:

Supreme Court properly dismissed the breach of fiduciary duty claim as barred by the three-year statute of limitations. In seeking recovery of compensation that plaintiff paid its employee, decedent Sanjay Valvani, during the time he allegedly engaged in an insider trading scheme, plaintiff seeks purely monetary relief, not equitable relief for which an award of monetary damages would not be adequate. Plaintiff’s characterization of that relief as disgorgement of Valvani’s compensation does not convert it into a claim for equitable relief to which the six-year statute of limitations would apply.

The court correctly concluded that the breach of fiduciary claim accrued in 2011 at the latest, when Valvani completed the insider trading scheme, which resulted in large profits to the portfolio and thus, to plaintiff, and which in turn increased Valvani’s performance-based compensation. The three-year statute of limitations had run by June 2019, when the parties executed a tolling agreement, and the court thus properly dismissed plaintiff’s breach of fiduciary duty claim, raised in its suit commenced on August 7, 2019. The court also correctly deemed the fiduciary tolling doctrine, which it referred to as equitable tolling, inapplicable because it does not apply to claims that are solely at law like this one.

Plaintiff’s breach of fiduciary duty claim does not sound in fraud to warrant application of the six-year statute of limitations. In particular, the complaint fails to allege that it justifiably relied on any misrepresentation from Valvani, including his certifications of compliance with plaintiff’s policies prohibiting insider trading.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a claim is barred by the statute of limitations.

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