A state appeals court panel in California has ruled against former retirement planning clients in a case that hinges on how a fiduciary relationship affects the official time limit on when clients can sue their advisors.
A three-judge panel at California’s 6th Appellate District Court looked at the lawsuit filing periods for the relevant statutes of limitations. The panel found that the filing periods began when the planning clients learned about possible planning problems, while they were still the advisors’ clients, not after the clients broke away from the advisors.
The panel gave that interpretation earlier this week in a ruling on Nelson Choi et al. v. Sagemark Consulting at al. and American General Life Insurance Co. (Case Number H041569)
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The Chois own an electronic test equipment company. Advisors helped them set up a Section 412(i) defined benefit retirement plan, funded with a whole life insurance policy. The Chois allege that the Section 412(i) strategy recommended was too aggressive and brought on an Internal Revenue Service audit.
The Chois learned about news of IRS penalties and damages from their advisors in September 2007. The Chois originally tried to work with the advisors to address the IRS concerns, then separated from the advisors and filed a lawsuit against the advisors and life insurers involved with providing the 412(i) plan.
A trial court judge in Santa Clara County, California, granted summary judgment in favor of the financial services companies involved in August 2014. The trial court judge ruled that statute of limitations period, or period when the Chois could file their suit, had expired.
The appeals court panel upheld the trial court conclusions on the statute of limitations issue.