WSSLLP successfully obtained an important ruling from the Appellate Division of the Supreme Court of the State of New York, First Department, affirming the dismissal of fiduciary duty claims against WSSLLP’s client, a securities broker-dealer. The case originated in a FINRA arbitration successfully defended by Florida partner Benjamin Biard; after WSSLLP obtained dismissal of the arbitration under FINRA’s rule making claims more than six years old ineligible for the arbitration forum, the claimant re-filed a court action in New York state court, which was defended in the lower court and on appeal by New York partner Steven Mellen.
The First Department’s ruling is notable because it involves an issue which frequently recurs in securities litigation: an investor files suit many years after the investments at issue were purchased, and attempts to avoid the statute of limitations based on an allegation that they learned only recently that the investments were unsuitably risky. Here, the investments at issue were purchased through the defendant broker-dealer in 2007 and 2008, and the customer transferred the account in 2009 after the registered representative changed firms. The customer had no dealings of any type with the firm from 2009 until the litigation was commenced in 2017, at which point the investment recommendations in dispute were nearly a decade old.
In affirming the dismissal in favor of WSSLLP’s client, the First Department rejected the customer’s argument under the so-called continuous representation doctrine. The court held, first, that a securities broker-dealer is not deemed a “professional” for purposes of that doctrine, and second, that there was no continuous relationship in any event because the customer relationship with the broker-dealer ended in 2009 – even if the customer continued working with the registered representative at a new firm thereafter.
The First Department also rejected the customer’s attempt to avoid dismissal under the discovery rule, holding that “the substantial investment losses – about 39% in a short time – should reasonably have put plaintiff on notice that the investments made by the broker were not the ‘safe’ ones it had been promised.”
A copy of the unanimous ruling of the Appellate Division, First Department can be read here.