SAN JOSE, Calif. (Legal Newsline) – A California appeals court has upheld a lower court's ruling in a case claiming negligent and fraudulent financial planning against Safemark and American General.
The 6th Appellate District of the Court of Appeal of California panel affirmed the ruling out of Santa Clara County Superior Court on Nov. 16, after that court had granted summary judgment to defendants Sagemark Consulting and American General Life Insurance Co. on the grounds that Nelson Choi's suit against them was time-barred.
Acting Presiding Justice Eugene Premo wrote the opinion. Justices Nathan Mihara and Adrienne Grover concurred.
Nelson and Jeannie Choi own Choice Instruments Inc. They filed a lawsuit in 2010 against their former financial advisers alleging that the strategy recommended was too aggressive and sparked an Internal Revenue Service audit.
According to the decision, the advisers told the Chois that the program was “bullet-proof” and didn’t increase the chances for IRS action.
An IRS audit began in 2006, and the Chois alleged that they paid $300,000 more than expected for insurance policies that formed the bulk of the 412(i) plan.
The Chois maintained that the advisers didn’t warn them of the potential risks with having insurance policies comprise more than half of a 412(i) plan.
In defense, Sagemark and American General maintained that the Chois didn’t have a case because their claims were barred by the applicable statute of limitations. They also alleged that they were not proper parties to the action. Ultimately, they sought summary judgment in the case.
The trial court granted summary judgment in favor of the financial services companies involved in August 2014.The judge ruled the statute of limitations period for the Chois to file a lawsuit had expired.
The appeals court panel upheld the trial court's conclusions on the statute of limitations issue.
The appeals court panel ruled that even if taking into account a fiduciary relationship between the Chois and Sagemark and American General, as of September 2007 they were aware of the facts necessary to support their causes of action.
“We conclude that the nature of the relationship between plaintiffs and defendants did not prevent or delay the Chois from discovering wrongdoing beyond September 2007,” Premo wrote in a Dec. 12 opinion.
Premo also explained that a fiduciary relationship ultimately could affect how much effort a client can be expected to put into identifying a problem when working with advisers believed to be experts in their fields.
Moreover, the court ruled that a fiduciary relationship itself doesn’t affect when the statute of limitations period starts, according to Premo.
“In sum, our conclusion that the statute of limitations began to run on plaintiffs’ causes of action as of September 2007 extends to all claims arising from the allegations that defendants improperly induced the Chois into establishing the 412(i) Plan and funding it in a manner that was bound to trigger IRS scrutiny,” Premo wrote in a Dec. 12 opinion. “The trial court consequently did not err in finding that plaintiffs’ action was time-barred.”