Jadidian v. Goldstein:  Pleading Fraud to Take Advantage of a Longer Fiduciary-Duty Limitations Period


This blog often addresses the statute of limitations for breach of fiduciary duty claims (see here and here, for example).  Which limitations period applies to a breach of fiduciary duty claim is a frequently recurring issue.  This is because there is no single statute of limitations for fiduciary-duty claims, but three distinct possibilities:

  1. A six-year period for claims seeking equitable relief (e.g., a permanent injunction or declaratory judgment);
  2. A three-year period for claims seeking purely monetary relief; and
  3. A six-year period where allegations of fraud are essential to the breach of fiduciary duty claim. 

Jadidian v. Goldstein, 210 A.D.3d 969 (2d Dep’t 2022), a recent decision of the Appellate Division, Second Department, provides useful guidance on how to maximize the chance that a fiduciary-duty claim based on fraud (the third category above) survives a motion to dismiss. 

This case involved plaintiffs who sued their former attorneys (the “Attorney Defendants”) for legal malpractice and breach of fiduciary duty.  The Attorney Defendants had represented the plaintiffs in three separate lawsuits, all of which settled on October 16, 2015.  The plaintiffs’ allegations arose from the Attorney Defendants’ representation of the plaintiffs in these three lawsuits.  On January 11, 2016, the Attorney Defendants instituted a separate legal malpractice action against the plaintiffs’ prior counsel in one of the three lawsuits.  The plaintiffs alleged that this separate action was only commenced by the Attorney Defendants “[i]n an attempt to cover up their . . . negligence.”  The plaintiffs sued the Attorney Defendants on March 24, 2021, seeking monetary damages.

The Attorney Defendants moved to dismiss the plaintiff’s breach of fiduciary duty claim as untimely.  The court agreed that the claim was barred by the applicable statute of limitations, but first determined which limitations period applied in these circumstances:  the three-year statute of limitations for claims alleging purely monetary relief, or the six-year statute of limitations for claims based on fraud.  (The plaintiffs did not seek equitable relief, so that six-year limitations period was unavailable.)

First, the court confirmed the longstanding rule that breach of fiduciary duty claims begin to run from the date of the breach itself:  “A cause of action alleging breach of fiduciary duty accrues at the time of the [alleged] breach, even though the injured party may not know of the existence of the wrong or injury.” 

Second, the court held that the three-year statute of limitations applied to the plaintiffs’ claims, for two reasons:  “[T]he cause of action alleging breach of fiduciary duty was subject to a three-year statute of limitations since [1] the relief sought was monetary in nature and [2] the complaint failed to allege all the requisite elements of fraud, including justifiable reliance.” 

In other words, if the plaintiffs alleged the elements of a fraud cause of action, then they could have taken advantage of the lengthier six-year statute of limitations that governs fraud claims.  “The elements of a cause of action sounding in fraud are a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages.”  Mitchell v. Diji, 134 A.D.3d 779, 780 (2d Dep’t 2015).

Here, however, the court held that the plaintiffs failed to plead fraud.  As a result, the plaintiffs were stuck with the three-year limitations period governing fiduciary-duty claims seeking monetary damages.  At the latest, the plaintiffs’ claim accrued on January 11, 2016, the date when the Attorney Defendants commenced the separate malpractice action against the plaintiffs’ prior counsel.  Because January 11, 2016, was more than three years before March 24, 2021 (the date the plaintiffs sued the Attorney Defendants here), the court dismissed the plaintiffs’ fiduciary-duty claim as untimely.

This decision is important because it confirms an essential but easily overlooked aspect of pleading fiduciary-duty claims:  plaintiffs seeking to take advantage of the six-year fraud-based statute of limitations for breach of fiduciary duty claims must plead “all the requisite elements of fraud,” even if they have not actually pled a fraud claim.  As this case so clearly indicates, failure to do so could result in the premature dismissal of a potentially meritorious cause of action.