Prescription Issues Limit Louisiana Investor’s Claims Against Broker-Dealer: Patin v. Aegis Capital Corp.
Posted on Categories Court Decisions, Securities CustomersTags , ,

By Jack D. Ballard

*When a brokerage account loses half of its value, the account holder is put on notice of the need to investigate the reason for the loss. **The doctrine of continuing tort does not toll the prescription period under Louisiana law against a broker-dealer sued by a customer under the doctrine of respondeat superior once the customer transfers her account to another broker-dealer.

Patin vs. Aegis Capital Corp., No. 18-5952 (E.D. La., 8/24/18).

A Felonious Nephew

Plaintiff Patin invested $1.5 million in an account at broker-dealer Aegis Capital Corporation (“Aegis”), which was managed by her financial advisor and nephew, Trenchard. The account was opened in 2005, and managed by Trenchard until he left Aegis in May of 2009 to work for Capitol Securities Management, Inc. (“Capitol”). At that time, Patin moved her account to Capitol, where Trenchard continued to manage it until he was terminated for fraud in March of 2017. Trenchard then sent a confession letter to Patin, admitting that he had stolen money from her account for his personal use, and to cover losses in other clients’ accounts. He also used the funds in her account for high-volume trading on margin in an unsuccessful attempt to make back other losses. He created fraudulent account statements and tax documents and mailed them in Capitol’s official envelopes in order to conceal his fraud from her.

Patin filed suit against Aegis in Louisiana state court in May of 2018, alleging claims for fraud, conversion, breach of fiduciary duty, negligence, gross negligence and negligent supervision. Patin pled that Aegis was liable for Trenchard’s conduct under the doctrine of respondeat superior. Aegis removed the matter to federal court, and then moved for dismissal under Rule 12(b)(6), arguing that all the claims were time barred, and that Patin failed to plead fraud with the specificity required by Rule 9(b).

Some Prescription Periods Expire

Under Louisiana law, Patin’s tort claims for fraud, conversion and negligence are delictual actions, which prescribe (i.e., must be brought by) one year from the date the injury or damage is sustained. Although the claims are time barred on the face of the pleadings, Patin relied on the doctrine of contra non valentem which will suspend the prescription period when a person cannot file suit. Patin argued that Trenchard continued to lull her into believing that her accounts were performing well by sending her the fake tax and account forms, and that it was reasonable for her to trust him, as he was her nephew. The Court disagrees. When Patin moved her investment account from Aegis to Capitol, it had already lost half of its value. That fact put her on notice that something was amiss, and she should have investigated further. Patin also claimed that the doctrine of continuing tort prevented the running of prescription, because Trenchard’s fraud was ongoing. However, this did not apply to Aegis, because any negligent supervision ended in May of 2009, when he left its employ. The tort claims are therefore time barred.

One Does Not

However, under Louisiana law, a claim for breach of fiduciary duty is a personal action subject to a ten-year prescriptive period. To the extent that Patin’s claim for breach of fiduciary duty is based on fraud rather than negligence, it is not prescribed. Finally, her fraud pleadings specified the time, place and contents of the false representations, as well as the speaker, and the benefits he obtained, and are therefore sufficient under Rule 9(b). The motion to dismiss is granted as to all claims, with the exception of the breach of fiduciary duty claims based on Trenchard’s fraud.

(J. Ballard)

(SOLA Ref. No. 2018-35-09)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis. 

Like what you see here?

Twice a week we present blog posts consisting of one write-up from each of our two flagship weekly online Alert services. Consider a subscription to these publications to receive the full array of coverage right on your desktop every week. Give it a try and sign up for a free trial to the Securities Arbitration Alert and the Securities Litigation Alert.

Read Our Recent Blog