United States District Court, S.D. New York
June 21, 2004.
DEREK HUGHES, Plaintiff,
JP MORGAN CHASE & CO., d/b/a/ CHASE MANHATTAN PRIVATE BANK, JOHN T. CORRY, FREDERICK BUDDENHAGEN, Defendants.
The opinion of the court was delivered by: BARBARA JONES, District Judge
Before the Court is Defendants' motion for summary judgment,
which seeks dismissal of Plaintiff's case on the grounds that the
claims are barred by the statute of limitations and that
Plaintiff suffered no damages. Defendants' motion is granted in
part and denied in part.
The following are the undisputed facts of the case, except
where otherwise noted.
Plaintiff Derek Hughes opened a discretionary investment
management account at JP Morgan Chase & Co. ("Chase") on January
15, 1986 with a deposit of $615,131. At that time, he signed an
Investment Management Discretionary Agreement ("Agreement")
authorizing Chase to open the account for him, and to manage,
hold, invest and reinvest securities in that account. On February 11, 1986, Chase
sent Plaintiff a letter stating that, "[a]pproximately 85% of the
account will be committed to . . . high quality, fixed income
securities . . . [such as] U.S. Treasury and government agency
securities, high quality corporate bonds and various money market
instruments. . . . The balance of the portfolio will consist of
up to 15% common stocks." (Hughes Decl. Ex. A). Plaintiff alleges
that he informed Chase that his primary goal was "preserving the
capital in the account." (Pl's Br. at 2).
From the inception of the account until August 1990, Plaintiff
did not withdraw any funds. In 1990, Plaintiff retired and
advised defendant Fredrick Buddenhagen, who was employed in the
Chase Investment Office, that he wanted to withdraw $7,500 per
month from his account. Buddenhagen explained that he would
accommodate these withdrawals by investing a larger percentage in
real estate investment trusts ("REITs"), which are considered
equities. (Hughes Dep. at 49-50; Defs' Br. at 3; Decl. of Mario
Aieta, Ex. E). According to Plaintiff, however, Buddenhagen "did
not disclose to Hughes the risks associated in investing in REITs
and  did not disclose to Hughes that change in the investment
strategy would be inconsistent with Hughes's stated investment
objectives." (Compl. ¶ 21; see also Pl's Br. at 3; Hughes Decl. ¶¶ 4-5). Plaintiff claims he was not
familiar with REITs, although formerly he was president and chief
financial officer of the Brazilian subsidiary of Arco Chemicals,
which had annual sales of $200 million. Plaintiff did not ask for
an explanation of what REITs were. There is no writing that
memorialized any change in Chase's investment strategy or
Plaintiff's investment objectives.
Beginning in 1991, the portion of Plaintiff's account invested
in REITs increased substantially, from 7% to 28% in 1991, to 59%
at the end of 1996, to 70% at the end of 1997. Plaintiff was
aware of the investments in his account through monthly and
annual statements. As of December 31, 1997, the market value of
Plaintiff's account was $967,847.00. Shortly thereafter, REITs
fell out of favor with the market, and REIT equities and fixed
income issues began to lose value. By July 31, 1999, the value of
the account declined to $661,969.00.
During the period between January 1998 and November 1999, Chase
changed the designated "Investment Officer," who has primary
responsibility for the account, several times. Plaintiff produced
deposition testimony of two of the Investment Officers that
showed that they either were unaware that they were the primary
decision-maker on the account, (see Angelica Dep. at 15-16) or else were unfamiliar
with Plaintiff's investment objectives.*fn1 (See Porta
Dep. at 15, 17). These two Investment Officers also indicated
during internal reviews of Plaintiff's account in 1998 and 1999
that the heavy concentration in REITs might be in violation
Chase's guidelines for the type of account. (See Aieta Decl.
Exs. E, F; Angelica Dep. at 19-22; Porto Dep. at 60, 70-71).
Plaintiff also consulted with various Investment Officers at
Chase in 1998 and the beginning of 1999, and was told not to be
concerned about the asset allocation. (See Porto Dep. at 25;
Hughes Decl. ¶ 12). Plaintiff alleges that, in or around July
1999, he contacted Buddenhagen, who was again in charge of
Plaintiff's account, and who stated that he would send some
information concerning other investment options. The information
never arrived. Plaintiff closed the account on November 30, 1999,
withdrawing the final balance of $610,076.
It is undisputed that, over the entire life of the account,
Plaintiff profited from Chase's investment strategy. Specifically, although Plaintiff initially deposited
$615,131 and withdrew a closing balance of $610,076, he also
withdrew approximately $900,000 during the life of the
2. Procedural History
Plaintiff filed a Complaint in this Court on July 5, 2001
("Complaint"), against Chase, Buddenhagen, and John T. Corry, who
managed his account from 1986 until 1990. The Complaint asserts
claims for: 1) breach of fiduciary duty, 2) negligence, 3)
negligent supervision, and 4) breach of contract. Plaintiff
alleges that he suffered $366,000 in damages, which represents
"out-of-pocket losses and the loss of income and appreciation
that the Rollover Account would have earned had it [been] managed
appropriately by defendants." (Compl. ¶ 36; see also Compl. ¶¶
40, 44, 47).
Defendants filed a Motion for Summary Judgment on March 29,
2002, arguing that Plaintiff could not assert his causes of
action because 1) the statute of limitations had run on each of
the claims, and 2) over the life of the account, Plaintiff
profited, and therefore he suffered no damages. DISCUSSION
A. Summary Judgment Standard
Summary judgment is appropriate where "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law." Fed.R.Civ.P.
56(c). A party may not, however, rely on speculation or
conjecture to overcome the motion. Rather, the non-movant must
produce sufficient evidence to establish that there is a genuine
issue of material fact for trial. Lipton v. Nature Co.,
71 F.3d 464, 469 (2d Cir. 1995). In reaching its determination, the Court
must view the facts in the light most favorable to the
B. Defendants' Motion for Summary Judgment
In their Motion for Summary Judgment, Defendants do not argue
that they did not breach the original contract with Plaintiff. In
fact, Defendants admit that when Plaintiff's account "exceeded
the agreed 15%" REITs, Defendants were "in breach of [the 1986]
agreement." (Def's Reply Br. at 3). Likewise, although Defendants
state in the fact section of their brief that their investment
strategy was necessary to attain Plaintiff's objective of
withdrawing $7,500 a month, they do not claim that they did not breach their fiduciary duty by purchasing REITs, by investing
over 70% of Plaintiff's account in REITs, or by retaining the
REITs through the time that Plaintiff closed his account.
Defendants instead move for summary judgment on the bases that
the statute of limitations has run on Plaintiff's claims and that
Plaintiff suffered no damages as a result of Defendants' alleged
improper conduct.*fn3 The Court will address these arguments
1. Statute of Limitations
a. Fiduciary Duty, Negligence, and Negligent Supervision
Plaintiff's breach of fiduciary duty claim is governed by a
three-year statute of limitations, and accrues when the breach occurs.*fn4 Kaszirer v. Kaszirer, 286 A.D.2d 598,
598 (1st Dep't 2001). Plaintiff's two claims of
negligence also have a three-year statute of limitations. CPLR §
214(4) (5). These tort causes of action accrue when injury is
sustained, regardless of Plaintiff's discovery thereof. See
Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90, 94 (1993).
Plaintiff's Complaint does not specify a date on which the
alleged breach or breaches occurred. Plaintiff's Complaint could
be read to allege, inter alia, that Defendants breached their
duties, (1) in 1991, when Plaintiff's account first exceeded 15%
REITs; (2) from 1991 through November 1999, during which time
Defendants allegedly failed to monitor properly Plaintiff's
account; and (3) from January 1998 through November 1999, when
Defendants allegedly should have sold the REITs.*fn5 Any
claims that accrued prior to July 5, 1998, however, normally
would be barred because of the three-year statute of limitations.
Plaintiff argues that he should nonetheless be able to assert
the claims that accrued prior to July 5, 1998 pursuant to New
York's "continuous representation" doctrine. See Mason Tenders
Dist. Council Pension Fund v. Messera, 958 F. Supp. 869, 888
(S.D.N.Y. 1997). This doctrine originated in a medical malpractice decision, Borgia v.
City of New York, 12 N.Y.2d 151 (1962), in which the New York
Court of Appeals concluded that "when the course of treatment
which includes the wrongful acts or omissions has run
continuously and is related to the same original condition or
complaint, the `accrual' comes only at the end of the treatment."
See Cohen v. Goodfriend, 642 F. Supp. 95, 100 (E.D.N.Y. 1986)
(quoting Borgia, 237 N.Y.S.2d at 321-22). The doctrine "is
premised on the trust relationship" between the parties, "and the
inequity of barring the client from suing  based on the running
of the statute of limitation during the life of the
relationship." Mason Tenders, 958 F. Supp. at 889 (citing New
York state cases); see also Podgoretz v. Shearson Lehman
Bros., Inc., 1994 WL 1877200, *5 (E.D.N.Y. Mar. 23, 1994) ("From
a policy perspective, the rule safeguards patients who do not
want to jeopardize their physician-client relationship by
bringing a legal suit midway through a continuing course of
Subsequent to Borgia, the doctrine was extended to apply to
other professionals, including accountants,*fn6 investment advisors,*fn7 lawyers,*fn8 and
architects.*fn9 See generally Rosen v. Spanierman,
711 F. Supp. 749 (S.D.N.Y. 1989), vacated on other grounds,
894 F.2d 28 (2d Cir. 1990). These cases have expanded the scope of
the doctrine to apply in non-medical cases on the theory that
professionals "who have had an ongoing relationship with their
clients are in the best position to correct their alleged
malpractice." Cuccolo v. Lipsky, Goodkin & Co., 826 F. Supp. 763,
769 (S.D.N.Y. 1993); see also City of New York v.
Veatch, 1997 WL 624985, *16 (S.D.N.Y. Oct. 6, 1997) (applying
the doctrine to engineers because of a "desire to protect clients
who are forced to depend on the continued services of the
professionals who caused the problem so that they may have their
The Second Circuit has never ruled on the issue of whether
portfolio managers are subject to the continuing treatment
doctrine. While this Court does not believe that extending the
doctrine to this case fits squarely within the policy rationales
originally asserted in Borgia, the more relaxed standards that
courts have recently used counsel in favor of applying the doctrine here.*fn10
Defendants managed Plaintiff's account continuously through the
time period at issue and Plaintiff was entitled to rely on their
professional expertise to correct any potential malpractice they
might have committed. Cf. Cuccolo, 826 F. Supp. at 769-70
(applying the doctrine to accountants accused of giving improper
investment advice, even though plaintiff might have known that
the investments were failing, because plaintiff had the right to
rely on the accountants to cure any alleged acts of malpractice).
Accordingly, Plaintiff may bring his claims of breach of
fiduciary duty, negligence and negligent supervision as they
apply to actions taken both before and after July 5, 1998.
b. Breach of Contract
Plaintiff's breach of contract claim is governed by CPLR §
213(2), which specifies a six-year statute of limitations.
Generally, the statute of limitations begins to run when the
contract is breached, even if no damage occurs until later. See C.P.L.R. § 213(2); see also Raine v.
RKO Gen., Inc., 138 F.3d 90, 93 (2d Cir. 1998); Ely-Cruikshank
& Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993).
In this case, Plaintiff alleges that Defendants breached the
Agreement by, inter alia, "failing to exercise their discretion
in good faith with respect to an account under their control and
in failing to abide by industry standards of conduct." (see
Compl. at ¶ 46). Plaintiff does not specify a date or dates on
which these alleged breaches took place, although the Court reads
liberally his Complaint to allege claims that arose both within
and beyond the 6-year statute of limitations.
Plaintiff also argues in his brief that Defendants breached the
Agreement by purchasing REITs over and above the agreed upon 15%.
(Pl's Opp'n, at 11). According to Plaintiff, these "purchases
occurred in every year from 1988 to 1999." (Id.). Therefore,
Plaintiff again alleges claims that arose both within and beyond
the limitations period.
In response, Defendants argue that if the contract was
breached, it was breached in 1991, and that Plaintiff may not
bring claims that allege breaches occurring after 1991. This
argument fails, however. In this case, the Agreement entailed continuing performance, so that "each breach may begin
the running of the statute anew such that accrual occurs
continuously and plaintiffs may assert claims for damages
occurring up to six years prior to the filing of the suit." See
Tsegaye v. Impol Aluminum Corp., 2003 WL 221743, *7 (S.D.N.Y.
Jan. 30, 2003) (quoting Stahlex-Interhandel Trustee, Reg. v. W.
Union Fin. Servs. E. Europe Ltd., 2002 WL 31359011, *5 (S.D.N.Y.
Oct. 21, 2002)); see also Asian Vegetable Research and Dev.
Ctr. v. Institute of Intern. Educ., 944 F. Supp. 1169, 1177
The Court holds that Plaintiff may bring his breach of contract
claims regarding alleged breaches that arose on or after July 5,
1995 because they are within the limitations period, but not
those that arose prior to this date.
Defendants argue that all of Plaintiff's causes of action
should be dismissed because he has not suffered any damages.
Specifically, they argue that the Court should evaluate
Plaintiff's damages claim by looking at his account from 1990,
when Chase began buying REITs, through November 1999, when
Plaintiff closed the account. In response, Plaintiff argues that
Defendants' calculation of damages is an attempt at "exoneration
by historical performance," and that it is unfair to cover up
damages suffered in later years by mismanagement with the account's gains
in the previous years. Plaintiff asserts that the Court should
calculate damages from January 1998, the time that Plaintiff
contends REITs became "unsuitable," till the close of the
Both parties cite the case Matter of Janes, 223 A.D.2d 20
(4th Dep't 1996), aff'd, 90 N.Y.2d 41 (1997), in which the
Appellate Division found that executors for an estate imprudently
failed to diversify soon after receiving certain stock. Id. at
29 (holding fiduciary liable "for its initial imprudent failure
to diversify as well as for its subsequent indifference,
inaction, nondisclosure and outright deception in response to the
prolonged and steep decline in the worth of the estate"). The
Court stated that the measure of damages "for a fiduciary's
negligent retention of assets" is the value of the securities at
the time that they should have been sold, minus their value when
ultimately sold, minus dividends or other income earned on the
assets. Id. at 34-35; see also Matter of Donner, 82 N.Y.2d 574,
579, 586 (1993) (stating that damages should be measured
from the date that the securities at issue should have been
sold). In addition, the Appellate Division explicitly rejected
any measure of damages "based on lost profits or appreciation . . .
[or] upon the hypothetical performance of an investment of the proceeds of sale
in the market." Id. at 35. The Court of Appeals affirmed this
rejection of any "lost profits" or "market index" measure of
damages." 90 N.Y.2d at 55.
As the Court stated supra, the date on which the breach or
breaches occurred is a question of fact that the jury must
decide. A jury might find that the relevant breach occurred in
1991, when the account first exceeded 15% REITs. Using 1991 as
the time that the REITs "should have been sold," under the
Janes calculation,*fn11 Plaintiff suffered no damages.
However, a jury could find that the relevant breaches occurred
during 1998 and 1999, when Defendants allegedly improperly
monitored Plaintiff's account, resulting in a loss of several
thousand dollars. Calculating damages from this point under
Janes would result in a significant damages award.*fn12 The Court finds that there are questions of fact regarding the
amount of damages that Plaintiff suffered, and therefore denies
Defendants' motion for summary judgment.
3. Defendant John T. Corry
In the Complaint, Plaintiff states that Defendant Corry managed
his account until 1990. All of Plaintiff's claims regarding the
Defendants' alleged breaches, however, concern actions taken
during and after 1991.
After a review of the Complaint and the motion papers, the
Court concludes that Plaintiff has no viable claim against
Defendant Corry because his involvement in the account pre-dates
any and all alleged breaches. Therefore, Defendant Corry is
dismissed from this case.
Defendants' motion for summary judgment is granted to the
extent that Plaintiff may not bring his breach of contract claim
insofar as it alleges breaches prior to July 5, 1995, but is
otherwise denied. Defendant Corry is dismissed from the case. The parties are directed to appear before the Court for a
scheduling conference on Tuesday, July 13, 2004 at 4:00p.m.