In a previous post, we discussed the difficulty in bringing claims for fiduciary duty against lenders. Despite popular opinion, the normal lender – borrower relationship does not create a fiduciary duty on the bank’s part in most states. There are many exceptions to the rule meaning banks can still be held liable. In this post, we look at the time period to bring these claims.
A law that regulate how long one has to file a claim or lawsuit is called a statute of limitations. The time to bring a claim for breach of fiduciary duty is generally found in state law. There are some federal laws, however, such as the Employee Retirement Security Act (ERISA) that impose time periods for specific types of breaches.
The time period for these claims varies widely from state to state. In some states such as Tennessee, the time period is just 1 year. California and Ohio each give plaintiffs 4 years to file. New Jersey gives 6 years.
If that is already complicated enough, some states have multiple statute of limitations for breach of fiduciary claims. Take New York, for example. There are two different time periods in the Empire State, 3 and 6 years. When the plaintiff in a case filed under New York law is seeking equitable relief, the period is 6 years. Ditto if the claim is based on fraud. If you are seeking legal relief, however, the time period is 3 years.
New York is an important state to discuss since many loan agreements say that disputes most be litigated in New York and under New York law. The latter provision is called a choice of law provision and those provisions are generally enforceable in commercial loan agreements. There is an exception, however, if the bank was overreaching or engaged in serious misconduct such as extortion.
Many times, more than one state will have jurisdiction to hear a lawsuit for breach of fiduciary duty. Plaintiffs need to strategize carefully with their counsel and look at the laws of the various states where claims should be brought.
A big exception to the harshness of the statutes of limitations is called the discovery rule, although some states such as Ohio disfavor using the discovery rule for breach of fiduciary contract claims. The discovery rule generally provides that a cause of action accrues for purposes of the governing statute of limitations at the time when the plaintiff discovers or, in the exercise of reasonable care, should have discovered the complained of injury.
In simple English, in many states the clock doesn’t start running until the plaintiff discovers the breach or should have discovered it.
Before summarizing, there is yet another complicating factor. Called a “statute of repose,” these laws set an absolute time limit for bring claims.
Let’s use an example to better explain the interplay between a statute of repose and statute of limitation. Joe’s Excavating company borrows money from Big Bank in 2006. In 2008 the bank changes a loan term with no notice to the company and begins improperly double collecting escrow payments even though they shouldn’t be. No one in the company discovers the error until 2016. All the parties are in California and there is nothing in the loan documents that requires a different state’s law be followed. Finally, let’s assume that there is a fiduciary duty owed to Joe’s Excavating.
How long does Joe’s Excavating have to file suit for breach of fiduciary duty? Under a 4 year statute of limitation, the company should file by 2012.
Is the company out of luck? Maybe not. Remember the discovery rule. Using the discovery rule the court must determine the earlier of when the company discovered the problem (2016) or when they should have. The latter is a tough one and requires good legal representation. If the court accepts the 2016 date, the company is still within time.
But wait, the issue still isn’t resolved. If California has a statute of repose of let’s say 8 years, the company is probably out of luck. Many states have these laws to prevent claims from being brought long after there are no records, witnesses can’t be found and recollections fade.
Remember too that the time period to bring a claim can also be extended if the lender was engaged in some type of fraud or misconduct or had control of the borrower’s business.
The purpose of this post isn’t to confuse you or make things more complicated. We hope that you walk away from this post with two concepts.
First, if you believe you have a claim, don’t wait. Even if you live in a state with a long 6 years limitations period, the court could find that another state’s law applies… a state that gives you just 12 months.
The second take away is to always hire a competent lender liability lawyer. Breach of fiduciary and fraud cases are not easy. Banks have very deep pockets and will fight vigorously. Having the right lawyer can make all the difference between winning or losing your case.
MahanyLaw and Judge, Lang & Katers – Lender Liability Lawyers
Finding the right lawyer to sue your bank is half the battle. Most law firms that practice banking law or lender liability defend banks. They also tend to charge exorbitant rates. Because we are based in the Midwest and have experience across the U.S. with suing lenders, we can offer our services for lower rates. More importantly, we usually need fewer hours too.
We are two national, boutique law firms that join together to sue bank, lenders, loan servicers and other fiduciaries. If you are asking yourself, “Can I sue my bank” or “How do I sue a bank”, we have answers.
For more information, contact attorney Chris Katers at (414) 777-0778 or by email at [hidden email]. The author of this post, attorney Brian Mahany, can be reached at [hidden email].
Have an existing case and need a second opinion or want to just bring in muscle to assist your current lawyer? We are also happy to help.
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