Key Points

  • Once a claim is found timely under the discovery rule and tolling, the statute of limitations cannot be projected backward to bar recovery for older conduct underlying that claim.
  • The continuous accrual doctrine presupposes an otherwise untimely claim and cannot be used to confine the conduct for which a plaintiff may recover; when the plaintiffs should have discovered their claims is a jury question on this record.
  • Financial elder abuse under Welfare and Institutions Code section 15610.30 turns on what the defendant knew or should have known at the time, so an elder's net account gains do not defeat the claim.
  • A broker's fiduciary duty can extend to tax and estate-planning advice based on the course of dealing, even without formal retention or payment for that advice.
  • Nonsuit on the churning theory was affirmed because the plaintiffs offered no expert testimony that the trading or commissions were excessive.

A California appeals court has revived elder abuse claims against Morgan Stanley and a longtime broker over options trading in the accounts of an investor who died at 93, holding that a broker can be liable under the state's elder abuse law even when the client's account made money.

The Second Appellate District, Division Three, reversed most of a Los Angeles County Superior Court judgment that had ended the case for Morgan Stanley & Co. and broker John R. Privitelli on a nonsuit, a ruling that ends a case after the plaintiff's evidence because it could not support a verdict. Justice Hanasono wrote for the unanimous panel, joined by Presiding Justice Adams and Judge Ashworth, a retired El Dorado Superior Court judge sitting by assignment. The opinion, filed Oct. 8, was certified for publication Oct. 29.

The decision sends the elder abuse claim and part of a breach of fiduciary duty claim back for trial. It also strikes down the trial judge's ruling that confined the family's damages to conduct after September 2010, leaving a jury to decide whether any older conduct is time-barred. The panel upheld the dismissal of one theory, that Privitelli churned the account, because the family offered no expert testimony to support it.

Maurice Voce was a barber and a self-taught investor who traded stock options with Morgan Stanley from the 1980s until his death in 2012, building a $19 million fortune. Privitelli took over his accounts in 1993, when Voce was 74. Beginning around 2010, his family grew concerned about his declining cognitive health "even as some of the options trading, and the commissions it generated, continued," the court wrote.

Voce's nephew, Adam DeVone, and his children Mario and Julia Voce sued as co-trustees of his trusts, and DeVone also sued as personal representative of his estate. An arbitration panel of the Financial Industry Regulatory Authority dismissed their claims without prejudice in January 2019, and the lawsuit followed that April.

The trial judge found the suit timely under the discovery rule, which delays the limitations clock until a plaintiff knows or should know of the claim, with the clock paused during the arbitration. But the judge calculated that about 21 months of the four-year period remained and projected that figure backward from the June 2012 discovery date. The ruling held that "[a]ny alleged wrongful acts or omissions occurring before September 11, [2010], are not compensable and cannot be the basis for any liability or damages in this action."

"A cause of action either accrues, is timely filed, and may proceed—with the plaintiff entitled to seek recovery for the full course of the wrongful conduct underlying that cause of action—or it does not," Justice Hanasono wrote in rejecting that approach.

On appeal, the defendants did not defend that reasoning, arguing instead that the cutoff reflected the continuous accrual doctrine, under which each recurring wrong starts its own limitations period. The panel said that doctrine assumes the claim would otherwise be time-barred and exists to help plaintiffs. "Defendants' attempt to invoke the doctrine to confine, rather than expand, the conduct for which plaintiffs may recover inverts its purpose," the court wrote. It added that when the family should have discovered its claims was itself a disputed fact the jury must decide.

On the elder abuse claim, the trial judge had found no taking because "the account only grew in value." The defendants pointed to gains of about $4.2 million, net of commissions, from 2010 to 2012. The appeals court said the statute asks whether a defendant "knew or should have known" its conduct was likely to harm the elder, a standard the Legislature adopted in 2008 in place of a bad-faith test. Under that standard, the court held, "a defendant who exposes an elder to a foreseeable risk of harm does not escape liability merely because the risk did not materialize."

The panel cited evidence that Morgan Stanley restricted Voce to a conservative covered-call strategy in 1998, when he was 79. A 1999 internal communication said the firm "thought it would be prudent to reign in exotic stuff" because of his age, but carved out an exception for Privitelli's branch, the court wrote. Privitelli testified that he was "on notice" of Voce's cognitive impairment in early 2011 but still executed trades. Asked whether the reports had to be escalated to a supervisor, he answered, "Sure. It should have been."

The court also rejected Morgan Stanley's argument that the trustees ratified the trading by leaving in place a 2007 trading authorization that let Voce direct trades. The document allowed either side to revoke it. A jury, Justice Hanasono wrote, "could reasonably find plaintiffs' failure to revoke the Trading Authorization is no more probative of ratification than Morgan Stanley's own failure to exercise the identical right."

The fiduciary duty claim fared differently. Churning, or excessive trading to generate commissions, requires expert proof, and the family's securities expert, Charles Hartman, disclaimed any opinion on it. Unlike elder abuse, the court said, a fiduciary duty claim requires a net loss. "Absent such testimony, the jury would have had no basis beyond speculation to conclude the trading was excessive," the panel wrote.

But the court revived the family's claims that Privitelli gave faulty tax and estate-planning advice, which they said led to $640,000 in gift-tax interest and penalties and more than $700,000 in costs tied to a split-dollar life insurance policy. The trial judge had ruled that the defendants were not hired or paid for such advice. The panel held that the scope of a broker's duty turns on the whole course of dealing, and that "a professional's formal retention for a narrower purpose does not foreclose a finding that the professional's own conduct expanded the relationship beyond it." It noted evidence that Privitelli communicated with Voce "pretty much daily," held a Certified Financial Planner credential and admitted giving Voce tax advice about gifts to his children.

"To be clear, none of this evidence compels a finding of liability," the court wrote, noting the defendants' evidence that the family encouraged the trading and that Voce directed his own trades.

Lawyers for the family included Brandon S. Reif of Reif Law Group. Morgan Stanley and Privitelli were represented by John S. Worden of Venable.

The panel remanded the case to the trial court for further proceedings consistent with the opinion and awarded the plaintiffs their costs on appeal.