Category: delayed discovery

Stella v. Asset Management Consultants, 2/7/17, 2DCA/7

This appeal was dead on arrival.  Plaintiff invested in multiple limited partnerships with people he had done business with for about twenty years. He received and read the private placement memos.  Things didn’t go to his liking and six years later he sued everyone involved.  He claimed that the real estate commissions weren’t paid by the seller, as is customary; instead the price was negotiated and the commission was added to the price of the properties being acquired — just as the partnership documents said would happen!  The referee granted defendants’ demurrer based on the statute of limitations.  Held: Affirmed.

The partnership agreements contained a judicial reference provision per Code of Civ. Proc. 638, which required the trial judge to refer the matter to a referee to decide all issues of fact and law.  

Plaintiff argued against the statute of limitations defense based on a claim of “delayed discovery.”  The delayed discovery rule says that statute begins to run when the plaintiff suspects or should suspect that someone has done something wrong to him/her.  In other words, suspicion is enough to trigger the statute, even if the plaintiff doesn’t have the specific facts, which is what discovery is for.  

But the private placement memos contained this language:

“Market Value of Property. The purchase price of the Property has been negotiated to include a commission to be paid to Manager of the General Partner of the General Partner’s Manager by the Seller (see ‘General Partner’s Compensation and Fees’) in addition to other brokerage commissions owed by the Seller. Accordingly, the Seller would have sold the Property for a lower Purchase Price if it were not obligated to pay such commission.”

The limited partnership agreements had similar language. 

In granting the demurrer, the referee explained, “It is difficult to discern how Plaintiff could have been more clearly advised of the impact the Seller’s payment of the Commissions would have on the purchase price of the properties than by the statement in the [private placement memorandum] that, ‘Accordingly, the Seller would have sold the Property for a lower Purchase Price if it were not obligated to pay such commission.’” The referee found that disclosure language was clear and unambiguous and triggered the running of the limitations periods as of the date Stella purchased the limited partnership units—more than four years before he filed his original complaint.

Once again, the fact that parties can appeal doesn’t mean they should. RIP.