Shafnacker v. Raymond James & Associates, Inc.

• Citation: 425 Mass. 724,683 N.E.2d 662
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Decision Date: 14 August 1997
• Parties: Ann H. SHAFNACKER v. RAYMOND JAMES & ASSOCIATES, INC., & others. 1

Page 662

683 N.E.2d 662

425 Mass. 724

Ann H. SHAFNACKER v. RAYMOND JAMES & ASSOCIATES, INC., & others. ¹

Supreme Judicial Court of Massachusetts,

Barnstable.

Argued April 9, 1997.

Decided Aug. 14, 1997.

Katherine L. Parks (T. Christopher Donnelly, with her), Boston, for plaintiff.

Kenneth W. Salinger, Boston, for Raymond James & Associates, Inc., & another.

Before ABRAMS, LYNCH, GREANEY and FRIED, JJ.

LYNCH, Justice.

Pursuant to arbitration clauses contained in her contracts with the defendants, the plaintiff, Ann H. Shafnacker, filed for arbitration with the National Association of Securities Dealers (NASD) against her securities brokers, Raymond James & Associates, Inc. (RJA); and Investment Management and Research, Inc. (IM & R); their representatives, Claude Lochet and Peter Bucchieri (advisors), and an investment firm with which the representatives were associated, Bucchieri & Lochet, Inc. She recovered in part, but NASD concluded that, pursuant to NASD arbitration rules, it lacked jurisdiction over the investments made more than six years before the plaintiff made her claim. The plaintiff then filed a complaint in the Superior Court seeking damages in relation to the claims for which NASD declined jurisdiction. She obtained a default judgment against Lochet; Bucchieri Asset Management, Inc. (BAM); and Bucchieri Financial Services, Inc. (BFS). ² The jury returned a verdict for the plaintiff against RJA and IM & R for negligence and breach of fiduciary duty, but the judge thereafter dismissed the claims as barred by the statute of limitations. The plaintiff appealed. Only RJA and IM & R contest the appeal. We granted her application for direct appellate review and affirm.

1. Facts. In 1984, the plaintiff, a retired school teacher and social worker, sought investment advice from RJA and IM & R through the advisors. The plaintiff had no prior investing experience and no expertise in the area. In 1985 and 1987, the advisors and the plaintiff entered into an agreement by which "all controversies which may arise between us concerning any transaction or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration." From 1984 through 1990, the advisors controlled the plaintiff's retirement assets. The plaintiff alleges that the advisors invested in assets which subjected her to an inappropriately high level of risk, that they chose investments which resulted in high fees and commissions for themselves even though there were less expensive alternatives, and that the advisors constantly moved her money between "high load" mutual funds to generate more fees for themselves.

By 1991, the plaintiff discovered the advisors' misdeeds, and, pursuant to the agreement she had signed, submitted a claim to NASD for arbitration. NASD awarded the plaintiff $210,000 for the investments made by the advisors after October, 1985, ³ but declined jurisdiction under § 10304 of the NASD Code of Arbitration Procedure (NASD code) on any claims which arose before that date (six years prior to the filing for arbitration). That section states: "No dispute, claim or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim, or controversy. This section shall not extend applicable statutes of limitations." NASD Manual 7573 (CCH 1996). Section 10304 is not "subject to tolling until the discovery of a claim." Prudential Securities Inc. v. LaPlant, 829 F.Supp. 1239, 1243 (D.Kan.1993). Thus, NASD declined jurisdiction on all those claims arising from transactions made more than six years prior to the filing of the arbitration claim in October, 1991.

Within six months of the NASD decision, the plaintiff filed a complaint in the Superior Court seeking to recover on those claims barred by § 10304 of the NASD code, alleging breach of fiduciary duty, fraud and deceit, violation of G.L. c. 110A, § 410 (Uniform Securities Act), violation of G.L. c. 93A, breach of contract, and negligence. ⁴ According to the plaintiff the claim against Bucchieri was dismissed (pursuant to Standing Order 1-88 of the Superior Court, Massachusetts Rules of Court 947 [West 1997] ), as she was unable to serve him with process in Massachusetts. BAM and BFS did not file answers, and a default judgment was entered against them. Lochet answered the plaintiff's complaint, but before trial, elected to have a default judgment entered against him as well. The remaining defendants, RJA and IM & R, moved for a directed verdict as to the plaintiff's claim, on the ground that, by entering into the arbitration agreement, the plaintiff had waived any right to a judicial forum. That motion was denied. ⁵ The jury determined that the defendants were liable for breach of fiduciary duty and negligence, but found for the defendants on all other claims. In response to a special question, the jury determined that the plaintiff knew or reasonably should have known of the defendants' misdeeds by August, 1989. The jury awarded the plaintiff $53,000 in damages. The judge dismissed the claims against RJA and IM & R as barred by the applicable three-year statute of limitations. See G.L. c. 260, § 2A. The contract claim, on which the jury found for the defendants, would not have been time barred. See G.L. c. 260, § 2 (six-year statute of limitations for contract claims).

2. (a) Equitable tolling of the statute of limitations. The plaintiff first argues that the judge should not have dismissed the claims against RJA and IM & R because the statute of limitations should be equitably tolled for the period during which her claim was in arbitration.

The statute of limitations is not tolled by the plaintiff's filing of her arbitration claim. Equitable tolling is used "only sparingly," see Irwin v. Department of Veterans Affairs, 498 U.S. 89, 96, 111 S.Ct. 453, 457, 112 L.Ed.2d 435 (1990), and is generally limited to specified exceptions. See Andrews v. Arkwright Mut. Ins. Co., 423 Mass. 1021, 1022, 673 N.E.2d 40 (1996) (available for "excusable ignoran[ce]" or where defendant "affirmatively misled" plaintiff); Irwin v. Department of Veterans Affairs, supra (available where plaintiff "has actively pursued his judicial remedies by filing a defective pleading during the statutory period"). The filing of an arbitration claim does not fit within any of the standard exceptions which allow tolling. Indeed, the plaintiff's claim more closely resembles those where tolling is not allowed. Such statutes are not tolled, for example, "by the possibility of an administrative settlement of the dispute." See Campanella & Cardi Constr. Co. v. Commonwealth, 351 Mass. 184, 187 n. 4, 217 N.E.2d 925 (1966). See also Arriaga-Zayas v. International Ladies' Garment Workers Union--P.R. Council, 835 F.2d 11, 14 (1st Cir.1987), cert. denied, 486 U.S. 1033, 108 S.Ct. 2016, 100 L.Ed.2d 604 (1988). In those circumstances, as here, the fact that the plaintiff is, in a timely fashion, seeking to gain relief in a more efficient manner than litigation and by doing so puts the defendants on notice of her claim is not sufficient to toll the statute of limitations.

The plaintiff cites several Federal court decisions in support of her contention that arbitration may toll the statute of limitations. See, e.g., Lancaster v. Air Line Pilots Ass'n Int'l, 76 F.3d 1509, 1528 (10th Cir.1996) ("If the objecting employee ... pursues his nonjudicial remedies in good faith, the limitations period is tolled until the nonjudicial proceedings are completed.... This is so even if the employee's arbitration claim was futile because the arbitrator lacked authority to provide complete relief." [Citations omitted.] ); National R.R. Passenger Corp. v. Notter, 677 F.Supp. 1, 5 (D.D.C.1987) ("Courts have the equitable authority to toll the statute of limitations while a matter is referred to arbitration ..."). Factually, however, these cases are distinguishable. The first case involved a fair representation case against a labor union, and the statute of limitations was tolled while the plaintiff pursued remedies within the union. Thus, the union's final position, and therefore the viability of the plaintiff's claim, was not clear until the proceedings were concluded. The second case cited involved a situation where a plaintiff had separate claims against the defendant in both arbitration and in court. The parties agreed to terminate the arbitration and consolidate all the claims in court. In those circumstances, the court concluded that "fairness dictate[d]" tolling the statute of limitations on the claims in arbitration. Id. at 5. To the extent that these cases suggest that there is a broader right to equitable tolling while claims are in arbitration, however, we reject them and agree with the view of the United States Court of Appeals for the First Circuit, which stated in response to an argument nearly identical to the one made to us:

"This argument overlooks the means traditionally relied upon to avoid [the problem]--the bringing of suit within the limitations period, followed by a stay of such proceedings pending the results of arbitration. It is in the sense of requiring a stay, not of eliminating the requirement that suit be brought within [the statutory period], that procedural priority is given to arbitration."

United States ex rel. Wrecking Corp. of Am. v. Edward R. Marden Corp., 406 F.2d 525, 526 (1st Cir.1969). See United States ex. rel. Portland Constr. Co. v. Weiss Pollution Control Corp., 532 F.2d 1009, 1013 (5th Cir.1976) ("A demand for arbitration does not toll the statute of limitations"). Thus the proper procedure for a litigant in the plaintiff's situation is to file a complaint in the Superior Court within the time allowed by the statute of limitations and have that action stayed...