Statute of Limitations Not Stayed When Decedent Had Constructive Notice of Transfers

McFadden v. Pentagon Federal Credit Union, No. A-3538-20, 2023 WL 4777219 (N.J. Super. Ct. App. Div. July 27, 2023)

This case illustrates how parties must stay wary of the applicable statute of limitations.  McFadden at *1.  The appellant, Joseph – nephew of the decedent, Joan McFadden (the “decedent”) – appealed an order granting Morgan Stanley Smith Barney’s (“Morgan Stanley”) motion to dismiss with prejudice.  Id.

Joseph’s claims against Morgan Stanley centered upon transfers made from the decedent’s Morgan Stanley accounts and under an ineffective power of attorney (“POA”).  Id.  It was undisputed that the alleged misconduct or transfers occurred in 2001 and 2002 and that the action against Morgan Stanley was not filed until 2014.  Id.  The applicable six-year statute of limitations prohibited negligence and breach of fiduciary duty claims; however, Joseph argued that he did not learn of the misconduct until 2014 and thus the action did not accrue until 2014, the year the suit was filed.  Id.

In 1998, the decedent executed a banking POA which appointed her nephew, John, as agent, and her niece, Mary, as alternate agent.  Id.  While none of the contingencies under these documents occurred prior to the decedent’s death – such as the decedent being found as incapacitated – with Mary’s assistance as Morgan Stanley account manager and using an ineffective POA, John transferred over $300,000.00 from the decedent’s account.  Id. at *1-2.  In addition to the fact that this money was utilized by John for his personal benefit, John also applied for probate while falsely claiming he was the only heir of the decedent’s estate.  Id.

In 2011, the decedent’s beneficiaries discovered the transfers and a year later filed suit against John in probate court.  Id. at *2.  Following discovery, the beneficiaries attempted to add Morgan Stanley as a defendant but the probate judge denied this motion, reasoning that the applicable six-year statute of limitations likely barred the claims and to rule otherwise would cause undue delay.  Id.

In 2014, beneficiaries Joseph and Vincent filed their initial complaint against Morgan Stanley, alleging it permitted thousands of dollars to be transferred from the decedent’s accounts through an ineffective banking POA.  Id.  In 2015, a probate judge appointed Joseph and Vincent as Co-Administrators CTA for the decedent’s estate and for the purpose of prosecuting this matter, and Joseph later substituted in as sole plaintiff.  Id.

Morgan Stanley then moved to dismiss under Rule 4:6-2(e).  Id.

The trial judge granted Morgan Stanley’s motion, reasoning that Joseph, acting as administrator of decedent’s estate, stood in the decedent’s “shoes” asserting these claims and that therefore, the statute of limitations barred these claims because the action was not filed by 2008.  Id. at *2-3; see also N.J.S.A. 2A:14-1.  The trial court also reasoned that it could only consider facts pled in the complaint and that the complaint did not allege facts to save it from dismissal, such as that Joan was incapacitated or otherwise unable to comprehend the account statements.  McFadden at *2-3.  Further, the trial court rejected Joseph’s collateral estoppel argument – which Joseph based upon another court finding in Joseph’s favor and against John regarding the statute of limitations – reasoning the doctrine is not applicable where the complaint does not allege privity between John and Morgan Stanley, which was not a party to the other action.  Id.

The Appellate Division affirmed, primarily finding that the decedent had at least constructive knowledge of the transfers through the mailing of bank statements to her address of record and therefore knew or should have known of her claims prior to her death in 2002.  Id. at *3-4.  The Appellate Division referred to the principle that “[t]he executor stands in the shoes of his [or her] testator” to conclude that the relevant inquiry is when the decedent learned of the injury or alleged misconduct.  Id.  Reasoning that the threshold question is whether the six-year statute of limitations bars the claims against Morgan Stanley, the Appellate Division agreed that the action was filed more than twelve years following the transfers and plaintiff’s three arguments did not contradict the applicable statute of limitations.  Id.

Noting that Joseph argued the power of attorney was ineffective because the decedent was not found incapacitated, the Appellate Division reasoned Joseph could not legitimately also claim that the decedent could not be expected to track her accounts or update her mailing address and therefore, she at least had “constructive knowledge” which then was imputed to Joseph as administrator.  Id. at *3-5.  Further, the Appellate Division reasoned Joseph did not plead “intentional inducement” or trickery by Morgan Stanley to warrant the application of equitable tolling.  Id.

Lastly, given the extensive procedural history, the Appellate Division concluded that the trial court was supported in dismissing the complaint with prejudice.  Id.