FKB’s Andrew R. Jones, Rachel Aghassi, and Jason A. Kayne successfully obtained a decision from the United States Court of Appeals for the Second Circuit affirming a pre-answer dismissal under Fed. R. Civ. P. § 12(b)(6) in an action asserting breach of fiduciary duty, fraud, and other claims related to a life insurance policy held by a trust.

FKB’s client was retained to prepare, and act as trustee to, an irrevocable survivors’ trust for a married couple with one asset, a $5 million “last to die” life insurance policy. FKB’s client acted as the trustee and the beneficiaries included the couple’s children, one of whom was the plaintiff, their estranged son. Instead of paying the premium on the policy, the couple chose to sell the policy in August 2008. Despite the sale of the policy and termination of the trust, plaintiff asserted that he was still a beneficiary of the policy upon his parents’ deaths. Plaintiff commenced the instant action in 2015 in the United States District Court of the Southern District of New York against FKB’s client and the purchaser of the insurance policy alleging “a civil conspiracy between and among the defendants” to sell the life insurance policy without plaintiff’s consent. The complaint alleges causes of action for: (1) breach of fiduciary duty; (2) conversion; (3) conspiracy, constructive trust and resulting trust; (4) constructive fraud; (5) interference with economic advantage and conspiracy; and (6) accounting.

In his decision on September 21, 2017 granting FKB’s pre-answer motion to dismiss the complaint pursuant to Fed. R. Civ. P. § 12(b)(6), United States District Judge Vernon S. Broderick in agreed with FKB’s argument that each of the causes of action are time-barred and that the doctrine of equitable estoppel cannot be applied to toll the relative statutes of limitations because “(1) plaintiff fails to allege active misrepresentations on the part of defendants, aside from certain conclusory statements, (2) any fiduciary relationship with [FKB’s client] ended on or about the end of 2008, and (3) plaintiff was informed of the facts underlying his claims, but waited seven years before bringing his Complaint. Thus, even had there had been an ongoing fiduciary relationship and active misrepresentations on the part of [FKB’s client], plaintiff failed to demonstrate that he exercised the due diligence required when bringing his claims.”  Judge Broderick also rejected plaintiff’s claim that “open repudiation” doctrine tolls the statute of limitations for breach of fiduciary duty because FKB’s client allegedly never openly repudiated the fiduciary relationship.   In doing so, the Court that the doctrine did not apply because “the open repudiation doctrine applies only to claims for equitable relief, and not to claims for money damages.”

On September 14, 2018, FKB’s Rachel Aghassi argued against plaintiff’s appeal of the September 21, 2017 decision before Second Circuit Court Judges Dennis Jacobs, John M. Walker Jr., and Guido Calabresi, pointing out that regardless of whether plaintiff’s claims sound in equitable or monetary relief, all his claims are still time barred as they accrued from the date of the sale of the insurance policy in 2008.  Therefore, the action, filed in September 2015, is still time barred under a six (6) year calculation (for equitable relief) as opposed to a three (3) year calculation (for monetary relief).  Ms. Aghassi further pointed out to the panel that the claim for accounting could not be a claim for equitable relief for a statute of limitations calculation, where, as here, the accounting claim is merely a method to determine monetary damages.

On September 21, 2018, the Second Circuit panel unanimously affirmed the decision issued exactly a year before by Judge Broderick, finding that each of the causes of action were untimely.  In doing so, the panel agreed with FKB that the complaint clearly alleges that the date of the alleged wrongdoing was the sale of the insurance policy in August 2008 which means “the breach of fiduciary duty claim accrued no later than August 2008 and is therefore untimely regardless of which statute of limitations [equitable or monetary] applies.”  The Second Circuit also declined to consider plaintiff’s arguments raised for the first time on appeal and which further contradict the allegations in the complaint.

The Second Circuit also declined to adopt an extension of the statute of limitations for the fraud claim based on the delayed discovery rule, agreeing with FKB that the rule does not apply where, as here, the fraud claim is merely incidental to the breach of fiduciary duty claim. The Second Circuit also further agreed with FKB’s argument that “there is no reason to treat [plaintiff’s] accounting claim as a separate form of equitable relief that extends the applicable statute of limitations” because the claim merely seeks monetary damages sounding in law and not equity. The Court similarly found the conversion claims untimely. Finally, the Court affirmed that equitable tolling does not extend the statutes of limitation because plaintiff “admits that he was aware of the impending sale and equitable estoppel will not toll a limitations statute where a plaintiff possesses timely knowledge sufficient to place him or her under a duty to make inquiry and ascertain all the relevant facts prior to the expiration of the applicable Statute of Limitations” (internal citations omitted).

If you have any questions about this decision, or the defense of attorneys in general, please contact Andrew R. Jones or Rachel Aghassi.