3 Short Years to sue LLC Business Partner for Money Damages

Many people like to let things fester, especially if it involves relationships.  It takes a lot to let the barrel overflow and finally take action.  If this rings true with respect to your gripes with your business partner’s acts of disloyalty, waste, or other misconduct, be aware that, in most cases, YOU ONLY HAVE 3 YEARS to bring that breach of fiduciary duty claim for money damages against that LLC business partner.  Time flies and that time is up very soon.

Statute of Limitations for Breach of Fiduciary Duty Money Claims: 3 YEARS

Yes, that is right, the statute of limitations for a claim of breach of fiduciary duty is three years if money damages are what you are after.  Statutes of limitations are laws that say how long a case may be started after the occurrences of the events that give rise to the case.   There are many different statutes of limitations, as you can see in this helpful chart. Courts have said that a claim for breach of fiduciary duty that asks for money damages is an action to recover damages for an injury to property,  so the 3 years set forth in CPLR 214(4) apply.

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If you miss bringing a lawsuit in those three years, your case will likely be dismissed.

Ignorance Does not Stop the Clock from Running!

You may ask, “wait, I didn’t even know that he engaged in all that wrongdoing until recently…is there any way the clock stopped running?”

In that case, we would investigate whether you have any grounds for something called  “Equitable Tolling.”  Equitable tolling is when the intentional actions of the LLC business partner prevented you from bringing the lawsuit in those three years.  He must have done something that stopped you from bringing the lawsuit.  It is a hard argument to make and the fact that he simply didn’t tell you about the misconduct or otherwise failed to disclose it is not enough.  Maybe if he lied or misrepresented the situation when you asked for certain information, so you were lulled into doing nothing.

A court recently said (Shoreham Hills, LLC v Sagaponack Dream House, LLC, 125 N.Y.S.3d 536):

The doctrine of equitable tolling applies when a defendant’s fraudulent conduct results in a plaintiff’s lack of knowledge of a cause of action. To benefit from the equitable tolling doctrine under New York law, a plaintiff must establish that subsequent and specific actions were taken by the defendant, separate from those that provide the factual basis for the underlying cause of action, and that those subsequent actions by the defendant somehow kept the plaintiff from timely bringing suit. Generalized or conclusory allegations of fraudulent  concealment are not sufficient to toll the statute of limitations . Moreover, when the alleged concealment consists of nothing but the defendant’s failure to disclose the wrong committed, New York courts have held that the defendant is not estopped from pleading the statute of limitations as a defenseEquitable tolling is triggered by some conduct on the part of the defendant after the initial wrongdoing. Mere silence or failure to disclose the wrongdoing is insufficient.

Another avenue we may explore is whether there was continuing misbehavior of the LLC business partner.  Misconduct that started more than 3 years ago but continued to time periods less than 3 years ago.  If this is the case, the courts may stop the clock from running to the date of the last misconduct under a theory called “continuing wrong”.  This may possibly apply to a situation where the business partner’s misconduct was an omission, for example, failure to obtain necessary permits.  If this failure continues until a time that is less than 3 years ago, you still have a claim.  However, recovery of money damages may be limited to the damages incurred during the 3 years prior to the lawsuit.

Just FYI, if the claim is Fraud based….

If your breach of fiduciary duty claim has elements of fraud, the statute of limitations is actually 6 years or 2 years after the fraud could have been discovered.

or if Money is Not what you are after…

If your claim is not for money damages but for some demand to stop certain activities or return property, the statute of limitations is 6 years.

Conclusion

A claim for breach of fiduciary duty against an LLC business partner falls under a 3-year statute of limitations.  Ignorance about the facts of the claim until after the 3 years expired does not extend that period.  Lesson learned: Don’t wait too long to bring a claim for breach of fiduciary duty and stay reasonably informed about what is going on in that LLC.  Even as a passive member or minority member you have a right to inspect the books and records of your LLC.

 

About Imke Ratschko


Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.