Filed 10/8/26 Devone v. Morgan Stanley & Co. CA2/3
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
ADAM DEVONE et al., B339219
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. 19STCV14477)
v.
MORGAN STANLEY & CO.,
LLC et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Kevin C. Brazile, Judge. Reversed in part,
affirmed in part, and remanded with directions.
Reif Law Group, Brandon S. Reif and Marc S. Ehrlich, for
Plaintiffs and Appellants.
Venable and John S. Worden, for Defendants and
Respondents.
_________________________
Maurice Voce was a barber by trade and a self-taught
investor. From the 1980s until his death in 2012 at the age of 93,
he traded stock options with Morgan Stanley & Co., LLC,
primarily through John R. Privitelli, and built a $19 million
fortune. Maurice left that fortune to his three children—Mario
Voce, Julia Voce, and Stella Voce—through a series of trust
instruments.1 Stella served as sole trustee of the Trusts from
approximately October 2007 until Mario, Julia, and Adam
DeVone—Maurice’s nephew—were added as co-trustees in March
2012. Beginning around 2010, Maurice’s children and other
family members grew concerned about his declining cognitive
health, even as some of the options trading, and the commissions
it generated, continued.
DeVone, Mario, and Julia, as co-trustees of the Trusts, and
DeVone, as personal representative of Maurice’s estate, sued
Morgan Stanley and Privitelli for breach of fiduciary duty and
financial elder abuse arising from Maurice’s decades-long
relationship trading options with Privitelli. After the close of
plaintiffs’ evidence, the trial court granted defendants’ motion for
nonsuit and entered judgment on both causes of action. Plaintiffs
appeal from the judgment.
Plaintiffs challenge three rulings underlying the judgment.
First, they argue the trial court misapplied the statute of
limitations. Although the court found plaintiffs’ claims timely
under the discovery rule, with months of the limitations period
still unexpired, plaintiffs contend the court erroneously treated
1 To avoid confusion we refer to Maurice and the Voce
children by their first names. The trusts are the Voce Family
Trust, the Voce Residuary Trust, and the Restated Voce Marital
Trust. We refer to them collectively as the “Trusts.”
2
the limitations period as an eroding damages window, projecting
the unexpired balance backward from the date of accrual and
excluding, as a matter of law, any conduct predating that
window. Second, they contend the trial court erred in granting
nonsuit on their financial elder abuse claim. They argue the
evidence was sufficient to support a finding that defendants knew
or should have known that continuing to facilitate Maurice’s
options trading was likely to harm him given his age and
declining cognitive health, regardless of whether his accounts
ultimately increased in value. Third, plaintiffs contend the trial
court erred in granting nonsuit on their breach of fiduciary duty
claim. They principally argue the order rested on the court’s
erroneous determination that defendants’ fiduciary duty did not
extend to tax and estate-planning advice that Privitelli allegedly
gave Maurice, because defendants were neither hired nor paid to
give such advice.
We agree the trial court misapplied the statute of
limitations, and that plaintiffs’ evidence was sufficient to survive
nonsuit on the elder abuse claim and breach of fiduciary duty
claim to the extent the latter was based on the court’s
determination of the scope of defendants’ fiduciary duty.
However, we conclude the court properly granted nonsuit as to
the distinct theory that defendants breached their fiduciary duty
through excessive trading of Maurice’s accounts, as plaintiffs
failed to offer expert evidence sufficient to support that theory.
Accordingly, we affirm the judgment in part, reverse it in part,
and remand for further proceedings consistent with this opinion.
3
BACKGROUND
A. Maurice’s History Trading Options with Morgan
Stanley and Privitelli
Maurice began investing in the 1960s and trading options
in the 1970s.2 In the 1980s he worked with Joseph Privitelli, a
financial advisor then with Dean Witter Reynolds, which later
merged with Morgan Stanley. When Joseph died in 1993, his
son, John Privitelli, took over Maurice’s investment accounts.
Maurice was 74 years old at the time. Privitelli worked with
Maurice continuously until June 2012, when Morgan Stanley
began the process of terminating its business with the Trusts due
to a dispute among the co-trustees. Maurice died in August 2012,
2 An option is a contract giving its holder the right, but not
the obligation, to buy (a “call”) or sell (a “put”) a security at a
specified price (the “strike price”) within a specified period.
Options contracts can either be “covered” or “uncovered.” For
example, in a “covered call,” the option seller already owns the
underlying stock and sells a call against it—if the stock rises
above the strike price, the seller is obligated to sell the shares at
that price, but because the seller holds the shares, the loss (if
any) associated with the transaction is limited to the difference
between the original purchase price of the shares and the strike
price for the covered call. An “uncovered” or “naked” option, by
contrast, is sold without any offsetting position in the underlying
security. A seller of a naked put, for example, profits so long as
the underlying security does not decline sharply, but if it does,
the seller may be obligated to purchase the stock at the strike
price notwithstanding a substantial decline in the stock’s actual
value—a loss bounded only by the fact that the underlying
security’s price cannot fall below zero. Because a naked option
seller holds no offsetting position, this risk is not limited in the
way the risk on a covered position is.
4
at the age of 93, leaving an estate that included Morgan Stanley
accounts then worth approximately $18 million.
Maurice and the Trusts had two primary accounts with
Morgan Stanley: an account containing municipal bonds and
other income-focused investments (the “649 Account”), and a
trading account in which Privitelli deployed a strategy of buying
and selling stock options, including covered calls and uncovered
puts (the “850 Account”). (See fn. 2, ante.)
B. The FINRA Arbitration
On June 15, 2014, plaintiffs filed a statement of claim
against Morgan Stanley with the Financial Industry Regulatory
Authority (“FINRA”), invoking a binding arbitration agreement
and alleging breach of fiduciary duty and financial elder abuse.
They amended the claim in January 2017, adding four additional
counts of fraud. Plaintiffs alleged Morgan Stanley constructed
“highly unsuitable portfolios for Maurice” during “the final phase
of his life,” including an options trading strategy that, “in
addition to being too risky and clearly unsuitable for the 90+ year
old Maurice and his trust,” at times involved “repurchasing
options contracts previously sold as covered calls for 20 times, 30
times, even 40 times the premium received at the time of the
opening transaction.” (Italics omitted.) Maurice allegedly
“suffered from dementia” during this period, which “intensified
his reliance on” Morgan Stanley, and although Maurice’s children
had reminded Privitelli of their father’s condition, Privitelli
dismissed their concerns about the appropriateness of the trading
strategy. Apart from options trading, plaintiffs alleged that
Morgan Stanley and Privitelli provided negligent tax advice in
2007 regarding Maurice’s resignation as a trustee, necessitating
a 2011 retitling of trust assets and, because of concerns the delay
5
would draw IRS scrutiny given Maurice’s declining health, a split
dollar life insurance contract at costs exceeding $700,000.
The parties litigated the arbitration for approximately four
years. On January 28, 2019, a three-member FINRA panel
unanimously granted Morgan Stanley’s motion to dismiss,
finding, among other things, that “[t]he records show that
Maurice Voce was actively managing his own accounts and was
aware of the values of the stocks and highly speculative options
he was engaged in trading between 1993 and 1998,” and that
Maurice “knew the values and amounts of each trade as well as
the commissions charged by Respondent.” The dismissal was not
on the merits and was without prejudice to plaintiffs pursuing
their claims in court.
C. The Complaint
On April 25, 2019, Mario, Julia, and DeVone, as co-trustees
of the Trusts, filed this lawsuit against Morgan Stanley and
Privitelli. They filed the operative first amended complaint in
July 2019, joined by DeVone in his capacity as personal
representative of Maurice’s estate. The pleading asserts two
causes of action for breach of fiduciary duty (by the Trusts), and
financial elder abuse under Welfare and Institutions Code section
15610.30 (on Maurice’s behalf by DeVone as his personal
representative).3
With respect to both claims, the pleading’s allegations
largely tracked those plaintiffs asserted in the FINRA
3 Unless otherwise designated, statutory references are to
the Welfare and Institutions Code. Section 15610.30 is part of
the Elder Abuse and Dependent Adult Civil Protection Act (the
Elder Abuse Act, § 15600 et seq.).
6
arbitration. With respect to both claims, plaintiffs alleged
defendants breached their fiduciary duty and committed financial
elder abuse by, among other things, engaging in “high frequency
options trading” and failing to “reduce Maurice’s risk/cost
exposure,” “despite [his] age and mental-cognitive impairments.”
D. Trial and the Statute of Limitations Ruling
Trial began with motions in limine on February 29, 2024,
and testimony commenced on March 4, 2024.
On March 19, 2024, the trial court held a hearing on the
statute of limitations—an issue raised in one of defendants’ in
limine motions. In a written ruling, the court found plaintiffs’
claims for breach of fiduciary duty and financial elder abuse were
governed by a four-year limitations period, and that plaintiffs
had timely filed suit. However, based on its application of the
limitations statutes, the court also held plaintiffs were barred
from seeking damages for conduct that occurred on or before
September 11, 2010—representing the outer limit of the
“remaining 21 months of the unexpired statute of limitations
period.”
As explained in its written ruling, the trial court applied
the delayed discovery rule, finding plaintiffs “knew or should
have discovered” the facts supporting their claims at the “latest”
on June 11, 2012, when Morgan Stanley notified plaintiffs it was
terminating services on Maurice’s accounts, and at the “earliest”
on April 10, 2012, when a tax and estate planning attorney
advised plaintiffs “to consult litigation counsel concerning the
management of [Maurice’s] trust accounts by Morgan Stanley.”
The court also determined the limitations period was tolled
during the pendency of plaintiffs’ FINRA arbitration—from its
7
filing on June 15, 2014 to its conclusion on January 29, 2019—
and that the complaint, filed April 25, 2019, was therefore timely.
Having determined the action was timely filed, the trial
court then went on to calculate how much of the four-year
limitations period had “expired,” net of the tolled interval, as of
the filing date. It found that approximately 24 months of the
limitations period had “expired” between the June 11, 2012
accrual date and the commencement of the FINRA arbitration on
June 15, 2014, and that a further 86 days “expired” between the
conclusion of the arbitration on January 29, 2019 and the filing of
the complaint on April 25, 2019—together consuming
approximately 27 months of the four-year period and leaving
approximately 21 months unexpired. Instead of treating those 21
months as a measure of how much time remained for plaintiffs to
have filed suit, the court held this “unexpired” period set the
outer limit of what conduct could give rise to compensable
damages—that is, the court projected the 21-month figure
backward from the June 11, 2012 accrual date, arriving at a
cutoff of “approximately September 11, 2010.” Based on this
application of the limitations statute, the court ruled “[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.”
Applying this same reasoning to the breach of fiduciary
duty claim, the court separately ruled that plaintiffs could not
recover damages stemming from the split dollar life insurance
policy or other non-trading related conduct, holding those
categories of damages were barred on two independent grounds:
first, because any related claims “accrued on or before September
11, 2010”; and second, because “Morgan Stanley and John
8
Privitelli were not hired by Maurice Voce nor Trustee Stella Voce
for tax advice, estate planning or the payment of or amount of
gift taxes,” and Maurice “never paid” defendants for any such
advice. (Fn. omitted.)
E. Defendants’ Motion for Nonsuit
At the close of plaintiffs’ case-in-chief, defendants moved
for nonsuit. Their written motion first asked the trial court to
adopt and incorporate its earlier statute of limitations ruling—
narrowing the relevant evidence of liability and damages to the
2010–2012 period and excluding evidence related to the split
dollar policy and non-trading breach of fiduciary duty allegations
on the ground that defendants were “not hired for tax advice or
estate planning.”
With respect to the financial elder abuse claim, defendants
argued plaintiffs had failed to present evidence of a “taking,”
“wrongful use,” or “harm” as required under section 15610.30,
because the 850 account had made substantial capital gains
during the compensable 2010–2012 period such that no
cognizable harm had been proven. Defendants also argued a
Trading Authorization agreement that the Trusts had provided to
Morgan Stanley in 2007—granting Maurice authority to direct
trades in the accounts “just as if he were the trustee”—estopped
plaintiffs from challenging any trades made in reliance on it.
As for the breach of fiduciary duty claim, defendants
argued plaintiffs’ theory sounded in “churning” and plaintiffs had
failed to offer the sort of expert testimony required to submit an
excessive-trading theory to a jury. In support of this ground,
defendants pointed to the testimony of plaintiffs’ securities
expert, Charles Hartman, who “offered no opinion about the
9
turnover in the account” and, at his deposition, admitted he had
“no opinion on ‘churning.’ ”
F. The Nonsuit Ruling
The trial court granted nonsuit on the financial elder abuse
claim in an oral ruling from the bench, concluding plaintiffs had
failed to present evidence of a taking, wrongful use, intent to
defraud, undue influence, or harm. The court found there was
“no evidence that Morgan Stanley or Mr. Privitelli took, hid,
appropriated, obtained, or retained . . . any of the decedent’s
property,” emphasizing that “the account only grew in value.”
As for the breach of fiduciary duty claim, the court received
supplemental briefing on whether the commissions were
“excessive,” before issuing a written ruling granting nonsuit. The
court determined plaintiffs offered insufficient evidence of an
industry benchmark, standard, or methodology to establish the
excessiveness of defendants’ commissions, emphasizing plaintiffs’
expert had disclaimed any opinion on damages or “churning.” In
the absence of such testimony, the court concluded a jury would
be forced to speculate as to whether the commissions charged
were excessive. The court also reasoned that the relevant trading
costs were incurred in connection with a “substantial gain” to the
account and were “in the best interest of Maurice Voce’s
investment objectives.” Because “the trust accounts increased in
value from 2010 [through] 2012,” the court concluded there was
no breach of fiduciary duty, as a matter of law.
The court entered judgment, and this timely appeal
followed.
10
DISCUSSION
A. Standard of Review
A motion for nonsuit tests the sufficiency of the plaintiff’s
evidence before the defendant is put to its own case. Because
granting the motion removes the case from the jury, “courts grant
motions for nonsuit only under very limited circumstances.”
(Carson v. Facilities Development Co. (1984) 36 Cal.3d 830, 838
(Carson), citing Campbell v. General Motors Corp. (1982) 32
Cal.3d 112, 117.) A trial court must not grant the motion if the
evidence presented by the plaintiff would support a jury verdict
in the plaintiff’s favor. (Carson, at p. 838.)
In determining whether the plaintiff’s evidence is
sufficient, “ ‘the court may not weigh the evidence or consider the
credibility of witnesses. Instead, the evidence most favorable to
plaintiff must be accepted as true and conflicting evidence must
be disregarded. The court must give “to the [plaintiff’s] evidence
all the value to which it is legally entitled, . . . indulging every
legitimate inference which may be drawn from the evidence in
[plaintiff’s] favor.” ’ ” (Carson, supra, 36 Cal.3d at pp. 838–839.)
On appeal from a judgment of nonsuit, we are “guided by
the same rule requiring evaluation of the evidence in the light
most favorable to the plaintiff.” (Carson, supra, 36 Cal.3d at
p. 839.) The judgment “ ‘cannot be sustained unless interpreting
the evidence most favorably to plaintiff’s case and most strongly
against the defendant and resolving all presumptions, inferences
and doubts in favor of the plaintiff a judgment for the defendant
is required as a matter of law.’ ” (Ibid.) “Although a judgment of
nonsuit must not be reversed if plaintiff’s proof raises nothing
more than speculation, suspicion, or conjecture, reversal is
11
warranted if there is ‘some substance to plaintiff’s evidence upon
which reasonable minds could differ.’ ” (Ibid.)
In reviewing a judgment of nonsuit, we may consider
“[o]nly the grounds specified by the moving party in support of its
motion.” (Carson, supra, 36 Cal.3d at p. 839.) Thus, we confine
our review of the nonsuit rulings to the grounds defendants
asserted below, and do not consider grounds defendants might
have but did not raise.
B. The Statute of Limitations Ruling Was Erroneous
1. Governing Law
Statutes of limitations “exist[ ] to promote the diligent
assertion of claims, ensure defendants the opportunity to collect
evidence while still fresh, and provide repose and protection from
dilatory suits once excess time has passed.” (Aryeh v. Canon
Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191 (Aryeh).)
“The duration of the limitations period marks the legislatively
selected point at which, for a given claim, these considerations
surmount the otherwise compelling interest in adjudicating [valid
claims] on their merits.” (Ibid.)
“The limitations period, the period in which a plaintiff must
bring suit or be barred, runs from the moment a claim accrues.”
(Aryeh, supra, 55 Cal.4th at p. 1191; see Code Civ. Proc., § 312
[an action must “be commenced within the periods prescribed in
this title, after the cause of action shall have accrued”].)
“Traditionally at common law, a ‘cause of action accrues “when
[it] is complete with all of its elements”—those elements being
wrongdoing, harm, and causation.’ [Citations.] This is the ‘last
element’ accrual rule: ordinarily, the statute of limitations runs
12
from ‘the occurrence of the last element essential to the cause of
action.’ ” (Aryeh, at p. 1191.)
“To align the actual application of the limitations defense
more closely with the policy goals animating it, the courts and
the Legislature have over time developed a handful of equitable
exceptions to and modifications of the usual rules governing
limitations periods. These doctrines may alter the rules
governing either the initial accrual of a claim, the subsequent
running of the limitations period, or both.” (Aryeh, supra, 55
Cal.4th at p. 1192.) “The ‘ “most important” ’ of these doctrines,
the discovery rule, where applicable, ‘postpones accrual of a cause
of action until the plaintiff discovers, or has reason to discover,
the cause of action.’ ” (Ibid., quoting Norgart v. Upjohn Co.
(1999) 21 Cal.4th 383, 397; accord, Fox v. Ethicon Endo-Surgery,
Inc. (2005) 35 Cal.4th 797, 807 (Fox).) “A plaintiff has reason to
discover a cause of action when he or she ‘has reason at least to
suspect a factual basis for its elements.’ ” (Fox, at p. 807.) Once a
plaintiff has that suspicion, she is “required to conduct a
reasonable investigation,” and is charged with knowledge of
whatever information such an investigation would have revealed.
(Id. at p. 808.)
“Equitable tolling, in turn, may suspend or extend the
statute of limitations when a plaintiff has reasonably and in good
faith chosen to pursue one among several remedies and the
statute of limitations’ notice function has been served.” (Aryeh,
supra, 55 Cal.4th at p. 1192, citing McDonald v. Antelope Valley
Community College Dist. (2008) 45 Cal.4th 88, 99–100.) The
doctrine applies to arbitrations on the same terms as court
proceedings. (Rodriguez v. Southern Cal. Dist. Council of
13
Laborers (1984) 160 Cal.App.3d 956, 961; Marcario v. County of
Orange (2007) 155 Cal.App.4th 397, 408.)
2. The Trial Court Misapplied the Statute of
Limitations as an Eroding Damages Window
Plaintiffs contend the court erred by treating the statute of
limitations not as a threshold test of whether their suit was
timely filed, but as a mechanism for shrinking the universe of
conduct for which plaintiffs could recover damages. As plaintiffs
put it, despite finding their claims timely under the discovery
rule, the trial court applied the statute of limitations as an
“eroding” damages window that placed an “outside limit” on the
period for which plaintiffs could offer evidence to prove their
claims. We agree the court misapplied the governing law.
In its written ruling, the trial court expressly found that
plaintiffs “either knew or should have known (discovered) the
basis for their claims,” at the latest, on June 11, 2012, when
Morgan Stanley notified them it was terminating services on
Maurice’s accounts. The court further found the limitations
period was tolled during the pendency of the FINRA arbitration,
from June 15, 2014 to January 29, 2019, and that the complaint,
filed April 25, 2019, was therefore timely. Under the principles
set out above, these findings should have resolved the statute of
limitations question in its entirety. 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. The
statute of limitations defines only the period within which an
action must be commenced after accrual; it does not, once the
condition for timeliness is satisfied, operate to constrain the scope
of actionable conduct. (See Code Civ. Proc., § 312 [an action “can
14
only be commenced within the periods prescribed in this title,
after the cause of action shall have accrued” (italics added)]; Fox,
supra, 35 Cal.4th at pp. 807–815 [discussing the delayed
discovery rule and the timeliness of an action when accrual is
postponed].)
Asaro v. Maniscalco (2024) 103 Cal.App.5th 717 (Asaro) is
instructive. Maniscalco—a former trustee and beneficiary—was
found liable for breach of fiduciary duty based on his
misappropriation of trust assets, including $430,000 in
certificates of deposit that he cashed out in January and
February 2010, and real property that he conveyed to his own
company in September 2010. (Id. at pp. 722–724.) Antoinette—
the beneficiary whose community property interest was
principally at stake—died in late November 2010, and her
nephew—another trust beneficiary—did not file his probate
petition against Maniscalco until 2018. (Id. at pp. 724–725.)
Maniscalco argued the claims were untimely because his co-
trustee knew of the misappropriations when they occurred. (Id.
at p. 728.) The Asaro court disagreed, affirming the judgment for
the beneficiary in full, including reimbursement of $547,370 to
the trust and a statutory penalty of $1,094,740. (Id. at pp. 724–
725, 739, 744.)
With respect to the breach of fiduciary duty claim— subject
to a three-year limitations period running from when “the
beneficiary discovered, or reasonably should have discovered, the
subject of the claim” (Prob. Code, § 16460, subd. (a)(2))—the
Asaro court concluded the claim was timely because the
beneficiary “did not have reason to know of his claim more than
three years before filing suit.” (Asaro, supra, 103 Cal.App.5th at
p. 729.) As for the elder abuse claim—subject to a four-year
15
limitations period running from when the plaintiff “discover[ed]
or, through the exercise of reasonable diligence, should have
discovered, the facts constituting the financial abuse”
(§ 15657.7)—the reviewing court held the claim timely on two
independent grounds: the limitations period was tolled during
the beneficiary-victim’s lifetime because she lacked the legal
capacity to make decisions (Code Civ. Proc., § 352, subd. (a)), and,
separately, the nephew who ultimately sued had “no reason to
know of a potential cause of action for elder abuse” given
Maniscalco’s concealment. (Asaro, at pp. 731–732.)
Critically, having determined accrual was postponed and
the claims were timely, the Asaro court did not limit recovery to
conduct within three or four years of the date suit was filed. (See
Asaro, supra, 103 Cal.App.5th at pp. 729–732.) Rather, it
affirmed recovery for misconduct occurring seven or eight years
before the claims were filed, because the claims themselves were
timely. Had the statute of limitations instead operated as the
trial court applied it here—as a backward-measured boundary on
compensable conduct—the misappropriation in Asaro would have
fallen outside any such boundary and gone uncompensated. That
was not the result in Asaro, and nothing in the discovery rule, the
law of tolling, or the law governing accrual generally supports
treating a single, timely-accrued claim as subject to a second,
independent temporal limit on what portions of the underlying
conduct may be considered for establishing liability and damages.
The trial court, however, imposed such a limit here.
Having calculated that approximately 21 months of the four-year
limitations period remained unexpired as of the date of filing, the
court did not treat that figure as confirmation of timeliness and
stop there. Instead, it projected the 21-month figure backward
16
from the June 11, 2012 accrual date, and ruled 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.” This was error.
3. The Continuous Accrual Doctrine Does Not Save
the Trial Court’s Ruling
Defendants do not defend the trial court’s stated reasoning.
Instead, they offer a different justification for the September
2010 cutoff—namely, that it reflects a proper application of the
“continuous accrual doctrine,” under which each options trade in
Maurice’s account gave rise to a discrete, separately accruing
claim, such that injuries for conduct occurring more than four
years before the April 2019 filing date, net of the tolled period for
the FINRA arbitration, were time-barred. The record does not
support the contention.
Separate and distinct from the discovery rule, the
continuous accrual doctrine “posits that a cause of action
challenging a recurring wrong may accrue not once but each time
a new wrong is committed.” (Aryeh, supra, 55 Cal.4th at p. 1189.)
“Generally speaking, continuous accrual applies whenever there
is a continuing or recurring obligation: ‘When an obligation or
liability arises on a recurring basis, a cause of action accrues each
time a wrongful act occurs, triggering a new limitations period.’ ”
(Id. at p. 1199.) Unlike the continuing violation doctrine, which
renders an entire course of conduct actionable once any part of it
falls within the limitations period, continuous accrual “supports
recovery only for damages arising from those breaches falling
within the limitations period.” (Ibid.)
Defendants’ attempt to recast the trial court’s ruling as a
proper application of the continuous accrual doctrine fails
17
because its necessary premise is that plaintiffs knew or should
have known of their claims more than four years before they filed
this action. As our high court explained in Aryeh, the continuous
accrual doctrine exists to prevent “the inequities that would arise
if the expiration of the limitations period following a first breach
of duty or instance of misconduct were treated as sufficient to bar
suit for any subsequent breach or misconduct.” (Aryeh, supra, 55
Cal.4th at p. 1198, italics added.) In other words, the doctrine
presupposes a threshold finding that the limitations period would
have expired as to the claim considered as a whole, and its
purpose is to rescue a plaintiff from that consequence where the
underlying “ ‘obligation or liability arises on a recurring basis.’ ”
(Id. at p. 1199.)
Contrary to defendants’ premise, the trial court expressly
found that “the earliest date that plaintiffs either knew or should
have known (discovered) the basis for their claims . . . was at the
trustee’s meeting held on April 10, 2012,” when plaintiffs’ tax and
estate planning attorney “advised the trustees to consult
litigation counsel concerning the management of Maurice Voce’s
trust accounts by Morgan Stanley.” And, when credited with the
four-and-a-half-year tolling period during the FINRA arbitration,
the court found plaintiffs timely filed their claims. That finding
categorically undermines the necessary premise of defendants’
argument.
It is also worth recognizing that continuous accrual is—by
design—a doctrine that operates in a plaintiff’s favor. It operates
not only as a vehicle for preserving a plaintiff’s ability to recover
for recent wrongs notwithstanding the staleness of earlier ones,
but it also exists to ensure that a defendant engaged in “long-
standing misfeasance” does not “obtain immunity in perpetuity
18
from suit even for recent and ongoing misfeasance.” (Aryeh,
supra, 55 Cal.4th at p. 1198.) Defendants’ attempt to invoke the
doctrine to confine, rather than expand, the conduct for which
plaintiffs may recover inverts its purpose.
Having said this, we must also be clear about the limits of
what we decide at this stage. Before any determination can be
made about whether the continuous accrual doctrine applies, the
trier of fact must first determine whether plaintiffs are entitled
to the benefit of delayed accrual under the discovery rule and, if
so, when they knew or should have known of the facts giving rise
to their claims. As we explain below, the trial court improperly
took that question from the jury, despite conflicting evidence on
this disputed question of fact. If the jury finds plaintiffs filed
their lawsuit more than four years after they should have
discovered their claims, plaintiffs may nonetheless seek to prove
that defendants’ alleged liability arose on a recurring basis, such
that new causes of action accrued each time a wrongful act
occurred, triggering a new limitations period under the
continuous accrual doctrine. (See Aryeh, supra, 55 Cal.4th at
p. 1199.) Because application of the delayed discovery rule and
the continuous accrual doctrine depend on the resolution of
disputed factual issues, these are matters for a jury—not the
court—to decide. (Fox, supra, 35 Cal.4th at pp. 806–807; CACI
Nos. 454 & 455.)
4. The Trial Court Improperly Decided Accrual as
a Matter of Law Despite Conflicting Evidence
Independent of its misapplication of the statute of
limitations, the trial court’s accrual finding was itself erroneous
because it resolved disputed factual questions that should have
been submitted to the jury.
19
The statute of limitations is an affirmative defense, the
resolution of which is “normally a question of fact.” (Jolly v. Eli
Lilly & Co. (1988) 44 Cal.3d 1103, 1112 (Jolly); Aryeh, supra, 55
Cal.4th at p. 1191; see CACI No. 454.) It becomes a question of
law only “where the uncontradicted facts . . . are susceptible of
only one legitimate inference.” (Jolly, at p. 1112; Aryeh, at p.
1191.) The same rule governs application of the discovery rule:
whether a plaintiff knew or should have known the facts
supporting her claim is a question for the trier of fact where the
evidence is disputed or subject to conflicting inferences; it may be
decided by the court only when reasonable minds could reach but
one conclusion. (See Fox, supra, 35 Cal.4th at pp. 806–807; CACI
No. 455.)
Critically, what matters under the discovery rule is not
simply whether a plaintiff knew of the transactions later alleged
to be wrongful, but whether the plaintiff had “ ‘reason at least to
suspect a factual basis for [the] elements’ ” of the claim—that is,
reason to suspect wrongdoing, not merely reason to be aware of
the underlying facts. (Fox, supra, 35 Cal.4th at p. 807.)
Knowledge that a transaction occurred and knowledge that it was
wrongful are related but distinct inquiries, and evidence bearing
on the former does not necessarily resolve the latter as a matter
of law.
In making their case for application of the continuous
accrual doctrine—which, as discussed, requires a threshold
determination that plaintiffs’ claims were untimely—defendants
catalogue substantial evidence that would support an earlier
accrual-date finding than the one the trial court made. For
example, defendants point to evidence that Maurice was “fully in
control of his options trading, was aware of the costs and the
20
performance, and had no memory lapses or other cognitive
issues” before 2010; that he received trade confirmations
reflecting the commissions on each transaction; that he kept his
own detailed trading log; and that he wrote a letter in 1992
(when he was over 70 years old) confirming his understanding of
the risks and costs of options trading generally. Defendants also
point to evidence that Stella and, later, the trustees had access to
Maurice’s account statements and trade confirmations, as well as
the power to terminate his Trading Authorization or stop the
trading altogether, but never did so. And, defendants cite
evidence that a principal with a different brokerage firm (who
worked with DeVone) had advised Maurice in 2007 that Morgan
Stanley’s commissions were excessive and that Maurice’s options
trading was risky.
A jury could find this evidence sufficient to place Maurice
and the Trusts on inquiry notice of the wrongdoing plaintiffs
later alleged, well before the date the trial court identified for its
discovery and accrual finding. A jury could equally find that
Maurice’s acceptance of ordinary market risk, and his own
tracking of trade-by-trade costs, reflected an engaged investor’s
comfort with a strategy he had chosen, without any reason to
suspect his fiduciary was acting wrongfully in administering it.
Both are permissible inferences, and because the evidence would
support both later and earlier accrual findings under the delayed
discovery rule, the question should have gone to the jury rather
than being resolved by the court before the close of plaintiffs’
case. The trial court erred in deciding the accrual question as a
matter of law. (See Fox, supra, 35 Cal.4th at pp. 806–807; CACI
Nos. 454 & 455.)
21
C. The Trial Court Erred in Granting Nonsuit of the
Elder Abuse Claim
Defendants contend the statute of limitations ruling was at
most harmless error because plaintiffs’ evidence was insufficient
to establish a wrongful taking under the Elder Abuse Act,
regardless of the period considered. As they argued in their
motion for nonsuit, defendants maintain Maurice was not
harmed by the commissions charged on his options trades, or by
the trades themselves, because his accounts increased in value
over the relevant period and, in any event, plaintiffs ratified the
trading activity by keeping the Trading Authorization in place,
even after Maurice’s evident cognitive decline. In granting
nonsuit, the trial court reached the same conclusion on the
former point, finding Maurice “was not harmed, and, in fact, the
account only grew in value.” This was error, and it rendered the
statute of limitations ruling prejudicial. As we will explain, proof
of a wrongful taking under the Elder Abuse Act does not require
evidence of a net financial loss, and the evidence plaintiffs
presented—including evidence excluded under the statute of
limitations ruling—was sufficient to reject the ratification
defense and to support a jury finding of liability.
The Elder Abuse Act is a remedial statute, reflecting the
Legislature’s findings that elders are “a class of persons who are
particularly vulnerable to abuse” and that the state “ ‘has a
responsibility to protect’ ” them. (Mahan v. Charles W. Chan Ins.
Agency, Inc. (2017) 14 Cal.App.5th 841, 858 (Mahan), quoting
§ 15600, subd. (a).) Since 1991, the Act has been structured
around encouraging private civil enforcement of laws against
elder abuse—a purpose the Legislature pursued by attaching
heightened remedies, including mandatory attorney’s fees and
22
costs, “designed to provide incentives for ‘interested persons to
engage attorneys to take up the cause of abused elderly
persons.’ ” (Mahan, at p. 858, quoting § 15600, subd. (j).) Courts
accordingly construe the Act’s financial abuse provisions
liberally, resolving close questions “in favor of” the class of elders
the statute is designed to protect. (Mahan, at pp. 860–861.)
An elder is any person residing in this state, who is 65
years of age or older. (§ 15610.27.) Financial elder abuse occurs
when a person or entity “[t]akes, secretes, appropriates, obtains,
or retains real or personal property of an elder . . . for a wrongful
use or with intent to defraud, or both.” (§ 15610.30, subd. (a)(1).)
The statute defines “[t]akes, secretes, appropriates, obtains, or
retains” broadly: an elder is deprived of property, and thus the
property has been taken within the meaning of the statute,
whenever the elder “is deprived of any property right, including
by means of an agreement, donative transfer, or testamentary
bequest, regardless of whether the property is held directly or by
a representative of an elder.” (Id., subd. (c).) Commissions
generated by a wrongful transaction constitute a taking
regardless of whether they are paid directly by the elder or by a
trust or account administered on the elder’s behalf. (See Mahan,
supra, 14 Cal.App.5th at p. 865, citing Wood v. Jamison (2008)
167 Cal.App.4th 156, 164–165 [finder’s fee paid by lender
sufficient].)
A taking is deemed to be “for a wrongful use” if the person
or entity charged with the taking “knew or should have known
that [the] conduct [was] likely to be harmful to the elder.”
(§ 15610.30, subd. (b).) This was not always the governing
standard. Before 2008, subdivision (b) required a showing that
the defendant acted in “ ‘bad faith.’ ” (Mahan, supra, 14
23
Cal.App.5th at p. 860.) The Legislature amended the statute,
replacing that subjective standard with the objective,
foreseeability-based standard now in place—asking not whether
the defendant intended harm, but whether the defendant “ ‘knew
or should have known’ ” that the conduct in question was
“ ‘likely’ ” to cause it. (Id. at pp. 859–860, fn. 18, citing Stats.
2008, ch. 475, § 1.) This objective foreseeability standard is
inherently forward-looking—it asks what a defendant knew or
should have known at the time the challenged conduct occurred
and is not necessarily concerned with what result the conduct
ultimately produced.
Contrary to the Elder Abuse Act’s foreseeability standard,
defendants’ and the trial court’s focus on the capital gains earned
in Maurice’s trading account rests on a backward-looking
assessment of what result the challenged conduct produced.
Defendants argue plaintiffs “failed to prove a taking, a wrongful
use, or intent to defraud and harm” because the account was
“profitable,” emphasizing “Maurice’s total gains from 2010 to
2012 were approximately $4,204,744 (net of commissions).” But
this contention speaks to how the trading performed in
hindsight—not to what defendants “knew or should have known”
when they engaged Maurice in options trades and charged
commissions for them. (§ 15610.30, subd. (b).) Under the Elder
Abuse Act, a defendant who exposes an elder to a foreseeable risk
of harm does not escape liability merely because the risk did not
materialize. This follows from the Act’s remedial design. In
amending the “ ‘wrongful use’ ” standard, the Legislature not
only aimed to encourage private enforcement but also to deter
wrongful conduct by making a defendant answerable for what it
“ ‘knew or should have known’ ” about the likelihood of harm
24
before any taking occurred. (Mahan, supra, 14 Cal.App.5th at
p. 860 & fn. 18.) A rule that measured wrongfulness only by
outcome would render the statute’s foreseeability standard
hollow and undermine its deterrent function.
Mahan is not to the contrary. There, an elderly couple sued
an insurance agent for financial elder abuse, alleging the agent
induced them to surrender an existing life insurance policy in
favor of a costlier, more limited replacement policy, generating
commissions for the agent and forcing the couple to feed
additional cash into their trust to sustain it. (Mahan, supra, 14
Cal.App.5th at pp. 846–847, 849–853.) Defendants emphasize
that the scheme in Mahan resulted in the loss of the original
policy’s accumulated cash value and years of increased premium
costs to sustain the costlier replacement—the sort of net financial
harm that defendants argue is absent here. (See Mahan, at pp.
853–854.) But the Mahan court’s holding did not rest on an
allegation that the couple ended up in a worse financial position,
even though their pleading alleged that they did. Rather, the
reviewing court held the agent’s commissions could themselves
constitute a taking or deprivation under the Elder Abuse Act
because the agent allegedly knew or should have known the
scheme was likely to result in harm—specifically, the agent’s
statement that the couple “ ‘could just borrow against [their] real
estate’ ” showed the agent’s awareness that the couple would
need to tap other assets to cover the dramatically increased costs
the scheme would impose, and the agent had allegedly failed to
mention a pricing option that would have made the surrender
unnecessary altogether while pursuing his own $100,000
commission. (Id. at pp. 865–866.) Those allegations concerned
25
what the agent knew and represented at the time—not the
couple’s resulting financial position. (See id. at pp. 866–867.)
Arace v. Medico Investments, LLC (2020) 48 Cal.App.5th
977 (Arace) is also instructive. A jury found the defendant in
Arace liable for financial elder abuse but awarded no economic or
noneconomic damages for the claim. (Id. at pp. 982–983.) The
defendant challenged the award of attorney fees, arguing the
plaintiff could not be deemed the prevailing party on the elder
abuse claim because she had “recover[ed] no damages” for the
abuse. (Id. at p. 983.) The reviewing court rejected the
contention, concluding an award of attorney’s fees and costs
under section 15657.5 was nonetheless mandatory: “Under the
plain language of the statute, an award of attorney fees is a
mandatory form of relief regardless of whether the plaintiff is
awarded any other form of relief.” (Arace, at p. 983, italics added,
citing § 15657.5 [“Where it is proven by a preponderance of the
evidence that a defendant is liable for financial abuse, as defined
in Section 15610.30, in addition to compensatory damages and all
other remedies otherwise provided by law, the court shall award
to the plaintiff reasonable attorney’s fees and costs.”].)4 Arace
4 Although section 15610.30 does not specify that a financial
elder abuse claim requires a showing of harm, the Arace court
noted that the standard jury instruction for the claim (see CACI
No. 3100) includes a requirement that the plaintiff prove he was
“harmed” in order to establish liability. (Arace, supra, 48
Cal.App.5th at p. 983, fn. 4.) The reviewing court nonetheless
rejected the defendant’s argument that the jury could not have
found the plaintiff established her claim for financial elder abuse
without awarding damages for the claim. Because the jury had
also been instructed that “ ‘each item of damages may be
awarded only once, regardless of the number of legal theories
26
confirms that liability for financial elder abuse, including the
“wrongfulness” element of the claim, is not defeated by the
absence of a net monetary recovery when liability is otherwise
established.
Measured against the governing wrongfulness standard, we
conclude plaintiff’s evidence—including evidence the trial court
excluded under its erroneous statute of limitations ruling—was
sufficient to permit a jury to find that defendants knew or should
have known that taking commissions based on an uncovered
options trading strategy was likely to be harmful to Maurice.
The trading strategy placed Maurice at significant risk of
sustaining large losses and, according to plaintiffs’ evidence, it
was therefore inappropriate for someone of his advanced age, yet
he was responsible for paying commissions to defendants
regardless of how the account ultimately performed.
The record shows Morgan Stanley itself recognized—more
than a decade before the conduct primarily at issue—that
Maurice’s age warranted restricting the very trading strategy
later challenged in this action. In 1998, Morgan Stanley sent a
letter to Maurice memorializing restrictions that would limit his
trading account to a conservative, covered-call strategy and cap
his uncovered options positions. Privitelli agreed that Maurice’s
age—79 years old at the time—likely was a motivating factor for
that restriction. Indeed, the evidence showed that in September
1999, Morgan Stanley generated an internal communication
stating that “because of [Maurice’s] age,” the firm “ ‘thought it
would be prudent to reign in exotic stuff’ ”—a reference to
alleged,’ ” the Arace court found it was “equally arguable that the
jury did not believe it could award . . . damages under both the
financial abuse and the neglect causes of action.” (Ibid.)
27
uncovered options. But despite recognizing the risk, the same
internal communication shows the firm carved out a special
exception for Privitelli’s branch. A jury crediting this evidence
could reasonably infer that Morgan Stanley’s own compliance
division recognized a connection between Maurice’s advanced age
and the risk of the strategy Privitelli continued to pursue in
Maurice’s account for another decade.
The nature of that risk was not merely theoretical, and the
record shows it materialized over the course of Privitelli’s
relationship with Maurice in ways that, a reasonable jury could
find, should have put defendants on notice that the strategy was
not suitable for someone of Maurice’s advanced age. As Privitelli
himself explained, selling an uncovered put obligates the seller to
buy the underlying stock if its price falls below the strike price,
and Maurice’s typical trades of 10 to 20 options at a time
obligated him to purchase 1,000 to 2,000 shares when this
occurred. (See fn. 2, ante.) When Maurice could not fund that
obligation in cash, he carried the shortfall on margin. Privitelli
acknowledged that positions held on margin were “more at risk”
to market fluctuations. In fact, the record shows that in
February 2009—after Maurice’s account had fallen by nearly half
its value over the preceding year—Morgan Stanley issued a
margin call demanding Maurice put additional money into the
account to cover the shortfall on his borrowed positions. The
margin debt was ultimately paid off through a $900,000 loan that
the Trusts were forced to obtain. Privitelli agreed that the
roughly $900,000 in margin debt that Maurice’s account carried
in 2009—approximately eight percent of its total value—“could
have very well” been created by the options trading strategy.
28
The record also contains evidence that Privitelli continued
to collect commissions from Maurice in connection with the
options strategy after receiving notice of Maurice’s cognitive
decline. In December 2010, Privitelli received an email from
plaintiffs describing Maurice’s memory lapses, disorientation,
and declining health. And, Privitelli testified that, as of January
and February 2011, and again in March and April of that year, he
was “on notice” of Maurice’s cognitive impairment, yet still
executed specific trades on Maurice’s instructions “while
[Maurice] was cognitively impaired.”
The record also shows that notice of Maurice’s cognitive
impairment triggered a recognized institutional obligation on
defendants’ part. Plaintiffs’ securities expert testified that firms
like Morgan Stanley customarily have escalation protocols in
place that require their financial advisors to “ ‘elevate’ ” reports of
a client’s diminished capacity to management, and the advisors
have “no discretion” to withhold the information. Brian Krueger,
a Market Executive with Morgan Stanley, agreed that “as a
fiduciary in the security space,” a financial advisor like Privitelli
would have been “trained to identify and escalate concerns about
diminished capacity,” and that Morgan Stanley was subject to
securities-industry notices requiring it to “train [its] financial
advisors to spot and escalate” such concerns. Privitelli agreed the
obligation applied to him. Asked directly whether the reports of
Maurice’s cognitive impairment “had to be escalated to risk
management or some supervisor,” he answered, “Sure. It should
have been.”5 Viewing all this evidence in the light most favorable
5 Although he testified at trial that he believed he had
spoken to a manager about Maurice’s “situation,” Privitelli was
impeached with his earlier deposition testimony indicating he did
29
to plaintiffs, a reasonable jury could find defendants knew or
should have known the continued options trading and related
taking of commissions by defendants were likely to harm
Maurice, given his advanced age and cognitive impairments.
Finally, there was evidence from which a reasonable jury
could infer defendants had a financial incentive to continue the
options trading strategy notwithstanding the risks they knew or
should have known it posed to Maurice. Plaintiffs’ expert
testified that options positions—unlike an ordinary equity
purchase—are inherently short-lived and must be periodically
replaced. He explained that “unlike a common stock that you
usually buy, pay one commission, and then you hold onto it for a
while,” an options position “expires,” is “generally replaced,” and
“every time it’s replaced,” the customer gets “a new commission
charge.” In other words, plaintiffs’ expert testified, “it’s the
cumulative effect of the transactions that drives up a new
commission over and over and over again.” By contrast, a more
conservative buy-and-hold or covered-call strategy—the very
strategy Morgan Stanley itself had once imposed on Maurice’s
account because of his age—would not have required the same
volume of transactions, and accordingly would have generated
fewer commissions than the uncovered options strategy that
Privitelli continued to pursue.
Notwithstanding this evidence, defendants argue the
nonsuit ruling is supported by a different ground that they
presented in their motion. As an independent ground for nonsuit,
defendants argued the Trading Authorization that Stella
executed in 2007, and that plaintiffs never revoked when they
not forward plaintiffs’ email about Maurice’s cognitive
impairments to risk management.
30
became co-trustees, estopped plaintiffs from challenging any
trades defendants made in reliance on it.6 They contend charging
Maurice commissions on option trades he authorized and the
trustees ratified could not constitute a wrongful taking of any
property under the Elder Abuse Act.
Ratification does not support nonsuit on this record,
because the evidence raised disputed issues of fact regarding
defendants’ reliance on the Trading Authorization. By its terms,
the Trading Authorization would “remain in full force and effect
until revoked either by me/us [the trustees] or by Morgan
Stanley.” (Italics added.) On cross-examination, Krueger agreed
this reciprocal revocation provision gave Morgan Stanley “the
right to revoke the Trading Authorization if it deemed it in the
client’s best interest not to take trading decisions from” an
impaired customer. He later agreed, without qualification, that
“Morgan Stanley had the right to revoke the Trading Agent
Authorization [at] any time for any reason or no reason at all.” A
jury 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, and that the
latter was evidence of defendants’ wrongful conduct once they
were on notice of Maurice’s decline.
To be clear, none of this evidence compels a finding of
liability. Defendants presented substantial contrary evidence,
including evidence that the family authorized and even
encouraged continued trading, as well as Privitelli’s testimony
that Maurice continued to understand and direct his trades
6 Although the trial court did not rely on this ground in
granting nonsuit, it was properly raised in the motion, and we
accordingly consider it. (Carson, supra, 36 Cal.3d at p. 839.)
31
throughout the relevant period. But the nonsuit standard does
not ask whether defendants’ evidence was sufficient or even more
persuasive. It asks whether plaintiffs’ evidence, credited and
viewed in the light most favorable to plaintiffs, would have been
sufficient to support a jury verdict in their favor. (See Carson,
supra, 36 Cal.3d at pp. 838–839.) On this record, we conclude
plaintiffs’ evidence was sufficient to support their financial elder
abuse claim. The trial court erred in granting nonsuit.
D. The Court Erred in Part in Granting Nonsuit on the
Breach of Fiduciary Duty Claim
Plaintiffs’ breach of fiduciary duty claim rested on two
distinct theories. The first, addressed to the options trading, was
that defendants engaged Maurice in “excessive trading” or
“churning” to generate commissions beyond what a properly
managed account would have incurred. The second theory was
that defendants’ fiduciary obligations extended beyond the trades
themselves to encompass tax and estate-planning matters,
including gift-tax advice that Privitelli allegedly gave Maurice
regarding gifts to his children, resulting in $640,000 of interest
and penalties; and the procurement of a split dollar life insurance
policy, which, together with related professional fees, generated
alleged damages exceeding $700,000. The trial court’s written
nonsuit ruling addressed only the first theory, as the court had
already foreclosed the second in its earlier statute of limitations
ruling, which barred these categories of damages both because
any related claims purportedly “accrued on or before September
11, 2010” and because defendants “were not hired . . . for tax
advice, estate planning or the payment of or amount of gift
32
taxes.” (Fn. omitted.)7 We conclude the court correctly granted
nonsuit as to the excessive trading theory, but erred in excluding
evidence and granting nonsuit as to the other breach of fiduciary
duty theories.
1. The Trial Court Properly Granted Nonsuit as to
the Excessive Trading Claim
To establish a breach of fiduciary duty, “the plaintiff must
show the existence of a fiduciary relationship, its breach, and
damage proximately caused by that breach; the absence of any
one of these elements is fatal to the cause of action.” (LaMonte v.
Sanwa Bank California (1996) 45 Cal.App.4th 509, 517
(LaMonte).) Unlike financial elder abuse, which can be
established by proof of a wrongful taking regardless of net
financial loss (see Part C, ante), a breach of fiduciary duty claim
requires proof of actual damage proximately caused by the
breach. (Id., at p. 517.) We agree with the trial court that
plaintiffs failed to prove damages caused by defendants’
purported excessive trading of Maurice’s account.
Plaintiffs argue the court’s nonsuit ruling erroneously
“presumed the gravamen of Plaintiffs’ breach of fiduciary duty
claim is excessive trading, i.e., ‘churning.’ ” But plaintiffs’ own
submissions below confirm this “presumption” was accurate. In
their supplemental brief addressing damages for breach of
fiduciary duty “arising from a stockbroker’s excessive trading,”
plaintiffs relied principally on Nesbit v. McNeil (9th Cir. 1990)
7 As discussed, in their motion for nonsuit, defendants
requested the court adopt its statute of limitations ruling,
including its finding with respect to the scope of defendants’
fiduciary duty.
33
896 F.2d 380 (Nesbit) for the proposition that “excessive
commissions on the churned securities [are] independently
compensable, despite the increase in value of the account.”
(Italics and boldface omitted.) (See id. at pp. 385–386.) That is
obviously a churning theory, and it is the theory plaintiffs alleged
in their complaint and pursued at trial with respect to their
breach of fiduciary duty claim. As the trial court correctly
recognized, this theory required proof that the volume of trading
was excessive in light of Maurice’s investment objectives—proof
that ordinarily can be presented only through expert testimony.
(See Shad v. Dean Witter Reynolds, Inc. (9th Cir. 1986) 799 F.2d
525, 530 [churning can be identified only by analyzing the
entirety of a broker’s management of an account, and, without
expert testimony placing statistical measures of trading activity
in context, a jury cannot meaningfully evaluate the
transactions].) Plaintiffs’ securities expert, however, disclaimed
any opinion on churning, both at deposition and at trial, and
plaintiffs offered no other expert testimony establishing that the
commissions charged were excessive relative to any industry
benchmark, standard, or methodology. Absent such testimony,
the jury would have had no basis beyond speculation to conclude
the trading was excessive. (Ibid.; Carson, supra, 36 Cal.3d at
p. 839 [“if plaintiff’s proof raises nothing more than speculation,
suspicion, or conjecture,” nonsuit must be affirmed].)
Alternatively, plaintiffs argue proof of churning was
unnecessary to establish a breach of fiduciary duty for the period
after defendants were on notice of Maurice’s cognitive decline,
because, as they put it, “any and all trading allowed in that time
period was improper and a breach of fiduciary duty” without
regard to whether the commissions charged were excessive.
34
(Italics and boldface omitted.) The argument overlooks the
requirement that plaintiffs prove concrete damage to establish
their breach of fiduciary duty claim. Unlike the Elder Abuse Act,
under which the commissions themselves may constitute a
wrongful taking regardless of the account’s net performance,
breach of fiduciary duty requires proof of a net loss. (See
LaMonte, supra, 45 Cal.App.4th at p. 517.) Proof that trading
occurred after notice of Maurice’s decline may have established a
breach, but it does not, without more, establish that the
commissions generated by that trading caused harm, given the
undisputed evidence that the trades during this period resulted
in net capital gains for Maurice’s account. Rather, to establish
harm independent of the gains, plaintiffs needed to show the
commissions were excessive relative to an industry benchmark,
standard, or methodology—that is, they need to prove churning.
(See Nesbit, supra, 896 F.2d at pp. 385–386.) They failed to do so.
The trial court did not err in granting nonsuit as to this theory.
(See Code Civ. Proc., § 581c, subd. (b) [“If it appears that the
evidence presented, or to be presented, supports the granting of
the motion [for nonsuit] as to some but not all of the issues
involved in the action, the court shall grant the motion as to
those issues and the action shall proceed as to the issues
remaining.”].)
2. The Court Erred in Granting Nonsuit as to
Plaintiffs’ Other Theories Based on Its
Erroneous Scope of Fiduciary Duty and Statute
of Limitations Rulings
Although not expressly stated in the nonsuit ruling, the
parties agree the trial court dismissed plaintiffs’ other breach of
fiduciary duty theories based on the court’s earlier ruling that
35
defendants’ fiduciary duty did not extend to the tax and estate-
planning conduct and that the challenged conduct fell outside the
compensable 2010 to 2012 period identified in the statute of
limitations ruling. In explaining its rationale for limiting the
scope of defendants’ fiduciary duty, the court stated defendants
“were not hired . . . nor paid” for tax advice or estate planning
and, therefore, they could not be charged with a fiduciary duty.
We conclude the court erred in resolving this issue as a matter of
law. Whether a professional’s fiduciary obligations extend
beyond the terms of a formal retention depends on the facts of the
relationship as a whole—including the parties’ course of dealing,
the extent to which the client was induced to rely on the
professional beyond the formal scope of the engagement, and
instances in which the professional actually rendered the broader
advice at issue—not solely on whether the professional was
formally engaged and compensated for the specific conduct. (See
Rosenthal v. Great Western Fin. Securities Corp. (1996) 14
Cal.4th 394, 425 (Rosenthal); Duffy v. Cavalier (1989) 215
Cal.App.3d 1517, 1535 (Duffy); Brown v. Wells Fargo Bank, N.A.
(2008) 168 Cal.App.4th 938, 960–962 (Brown).)
“ ‘Fiduciary’ and ‘confidential’ relationships are
relationships existing between parties to a transaction wherein
one party is duty bound to act with the utmost good faith for the
benefit of the other. Such a relationship ordinarily arises when
one party reposes a confidence in the integrity of the other, and
the other voluntarily accepts that confidence.” (Brown, supra,
168 Cal.App.4th at pp. 959–960.) “ ‘[B]efore a person can be
charged with a fiduciary obligation, he must either knowingly
undertake to act on behalf and for the benefit of another, or must
enter into a relationship which imposes that undertaking as a
36
matter of law.’ ” (City of Hope National Medical Center v.
Genentech, Inc. (2008) 43 Cal.4th 375, 386.) “An agent is a
fiduciary as a matter of law. [Citation.] A stockbroker is a
fiduciary, as well.” (Brown, at p. 960; Duffy, supra, 215
Cal.App.3d at p. 1531; Twomey v. Mitchum, Jones & Templeton,
Inc. (1968) 262 Cal.App.2d 690, 709 (Twomey).) “ ‘ “The essence
of a fiduciary or confidential relationship is that the parties do
not deal on equal terms, because the person in whom trust and
confidence is reposed and who accepts that trust and confidence
is in a superior position to exert unique influence over the
dependent party.” ’ ” (Brown, at p. 960.) Fiduciary obligations
“generally come into play when one party’s vulnerability is so
substantial as to give rise to equitable concerns underlying the
protection afforded by the law governing fiduciaries.” (City of
Hope, at p. 389.) “While it is impossible to identify a single set of
factors giving rise to a fiduciary relationship [citation], some
reasons generally used to demonstrate that a party to such a
relationship is vulnerable include advanced age, youth, lack of
education, ill health, and mental weakness.” (Brown, at p. 960.)
Here, the “question is not whether there is a fiduciary duty,
which there is in every broker-customer relationship; rather, it is
the scope or extent of the fiduciary obligation, which depends on
the facts of the case.” (Duffy, supra, 215 Cal.App.3d at p. 1535;
accord Rosenthal, supra, 14 Cal.4th at p. 425 [“Granting the
existence of a fiduciary relationship between securities brokers
and their customers, the scope of the duty varies with the facts of
the relationship.”].) Courts assessing that question look to the
facts of the parties’ course of dealing as a whole—not to any
single formal document. Relevant considerations include the
duration and regularity of the professional’s contact with the
37
client; the degree of control the professional exercised, or was
permitted to exercise, over the client’s affairs; whether the
professional was aware of circumstances—such as advanced age,
declining health, or diminished capacity—that made the client
particularly likely to rely on the professional’s guidance; whether
the professional had access to the client’s broader financial
information, beyond what the formal engagement required; and
whether the professional actually rendered advice, or performed
services, extending beyond the formal scope of the engagement.
(See Brown, supra, 168 Cal.App.4th at pp. 960–962; Duffy, at pp.
1534–1535; Twomey, supra, 262 Cal.App.2d at pp. 713–714, 717.)
No single factor is dispositive, and 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. (See, e.g., Twomey, at p. 717.) Where the underlying facts
bearing on the scope of a fiduciary duty are disputed or subject to
conflicting inferences, the issue is one for the trier of fact to
resolve. (See In re Marriage of Kamgar (2017) 18 Cal.App.5th
136, 144 [existence and scope of a fiduciary duty is reviewed de
novo as a question of law, but “to the extent the [trial] court’s
decision . . . ‘turned on the resolution of conflicts in the evidence
or on factual inferences to be drawn from the evidence,’ ” the
underlying factual determinations are reviewed for substantial
evidence].)
Brown is instructive. The Browns argued a bank
representative’s fiduciary duty extended beyond her formal role
to require her to explain an arbitration clause before they signed
a new account agreement. (Brown, supra, 168 Cal.App.4th at pp.
941–943.) The bank maintained no such duty could exist because
a broker’s fiduciary obligations do not arise until after an
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agreement is executed, and do not require disclosures at the time
of execution. (Id. at p. 960.) The Brown court rejected that
argument because it “overlook[ed] the unique factual
circumstances of [the] case.” (Ibid.) As the reviewing court
recounted, the representative had been the Browns’ relationship
manager for six months before the transaction at issue; she knew
of the husband’s declining health and limited vision; she worked
biweekly at the Browns’ home; she had access to all of their
financial information and managed their financial paperwork;
she had introduced them to an estate attorney and an
accountant; she gave them investment advice; and she had urged
them to retain a particular broker to handle their portfolio. (Id.
at pp. 960–961.) None of this course of dealing was reflected in,
or required by, any formal engagement or fee arrangement.
Nevertheless, the Brown court found it sufficient to support a
finding that the representative “knowingly induced” a vulnerable,
elderly couple “to rely on [her] to handle their financial affairs,”
creating a fiduciary relationship. (Ibid.) Separately, the court
concluded the same evidence, together with proof the
representative had assisted with “even rudimentary financial
tasks” and sought to make the Browns comfortable at the
signing, was sufficient to support a finding that the scope of the
relationship embraced a duty to explain the contract’s material
terms. (Id. at pp. 961–962; see also Twomey, supra, 262
Cal.App.2d at p. 717 [rejecting argument that fiduciary
relationship could not encompass “duties owing to a discretionary
account because there was no written authorization for such an
account,” explaining the trier of fact “was entitled to look at the
substance and not the form of the transaction in determining the
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duty owed by defendants to plaintiff with respect to the frequency
of the transactions in her account”].)
Plaintiffs contend “the nature and duration of [d]efendants’
fiduciary relationship with Maurice presented a prima facie case
that the scope of that fiduciary duty extended beyond mere
options trading” and embraced matters including allegedly
erroneous tax advice that Privitelli gave Maurice about gifts
made to his children and the retitling of trust assets that
required plaintiffs hastily to procure a split dollar life insurance
policy to mitigate estate taxes at significant additional expense.
Viewing the evidence in the light most favorable to plaintiffs, we
agree the trial court erred in determining the scope of the
fiduciary duty based solely on the formal terms of defendants’
hiring and compensation.
The evidence showed Privitelli communicated with Maurice
“pretty much daily” over their decades-long relationship, Maurice
was a “big client” of Privitelli’s, and Privitelli was Maurice’s
primary financial advisor “as far as his account value.” Privitelli
held a Certified Financial Planner certification throughout his
relationship with Maurice, and his training covered some estate-
planning matters, including training specific to marital and
residual trusts. Privitelli acknowledged that, under the CFP
designation, he owed a fiduciary duty independent of his role as
Maurice’s stockbroker, and he regularly identified himself by the
designation in written communications with Maurice, never
disclaiming that the designation applied to their relationship.
Privitelli also testified that he was allowed to give at least some
tax and estate planning advice to his clients at Morgan Stanley,
and he was the only professional advising Maurice who had a
CFP certification. Critically, in a conversation with the Trusts’
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estate planning attorney, Privitelli admitted that he had in fact
given Maurice tax advice—counseling Maurice that there was no
need to file tax returns for gifts purchased for his children with
trust assets because the children were trust beneficiaries.
As with the evidence discussed in connection with the
financial elder abuse claim, we do not hold this evidence compels
a finding extending the scope of defendants’ fiduciary duty to tax
and estate planning matters. Rather, we hold only that it was
sufficient, when viewed in the light most favorable to plaintiffs,
to preclude resolving the question against them as a matter of
law. (See Carson, supra, 36 Cal.3d at p. 839.) The trial court
erred in resolving the scope question solely by reference to the
absence of a formal retention or payment for tax and estate-
planning services, without regard to evidence of the course of
dealing between Maurice and Privitelli. (See Brown, supra, 168
Cal.App.4th at pp. 960–962.)
The trial court also erred to the extent it excluded evidence
of these alleged breaches based on its erroneous statute of
limitations ruling. For the reasons already discussed, the
question of whether the statute of limitations bars plaintiffs’
breach of fiduciary duty claim based on this non-trading conduct
and, if so, whether plaintiffs are entitled to the benefit of delayed
accrual under the discovery rule, is a matter that must be
submitted to the jury. (See Fox, supra, 35 Cal.4th at pp. 806–
807; CACI Nos. 454 & 455.)
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DISPOSITION
The portion of the judgment dismissing the breach of
fiduciary duty claim based on alleged excessive trading is
affirmed. The judgment is reversed in all other respects, and the
matter is remanded to the trial court for further proceedings
consistent with this opinion. Plaintiffs Adam DeVone, Julia
Voce, Mario Frank Voce, and Voce Family Trust are awarded
costs.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
HANASONO, J.
We concur:
ADAMS, P. J.
ASHWORTH, J.*
* Retired Judge of the El Dorado Superior Court, assigned by
the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
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