California Statute of Limitations in FINRA Arbitration

Hourglass-236x300When evaluating a potential securities arbitration case, the very first task we do is perform a statute of limitations analysis.  In a nutshell, a “statute of limitations” is a law that specifies the maximum amount of time that someone can wait before bringing a lawsuit.  Once the statute runs out, the legal claim is no longer valid.  The deadline for filing a lawsuit varies depending upon the claims or causes of action involved.

The table below lists the California statute of limitations that typically arise in FINRA arbitrations.

  • Breach of Written Contract – 4 years
  • Breach of Oral Contract – 2 years
  • Breach of Fiduciary Duty – 4 years
  • Fraud & Misrepresentation – 3 years

Because most securities arbitration cases involve multiple claims or causes of action, even if the deadline for filing a particular cause of action has passed, there may be other claims that are not yet time barred.  In some instances, the running of the statute of limitations can be “tolled” or paused. For example, when a customer has a strong fiduciary relationship with an investment advisor who conceals their misconduct, the limitations period may not begin to run until the investor actually discovers the advisor’s wrongdoing.  Determining whether or not a statute of limitations has been tolled usually raises complex legal and factual issues that the opposing party is sure to challenge.

Statute of limitations challenges in FINRA arbitrations are typically made in the form of a motion to dismiss filed by the brokerage firm (Respondent) after the customer (Claimant) has presented their case-in-chief.  Because both sides will have spent much time and effort getting the case to this point, a dismissal of the case by the arbitrators can be devastating.  The surest way to avoid such an outcome is to consult an experienced securities lawyer as soon as possible.

FINRA’s 6-Year Eligibility Rule

Non-lawyers (and even many attorneys) are often confused about FINRA’s 6-year “eligibility rule,” which is technically not a statute of limitations.  Under this rule, a claim is not eligible for FINRA arbitration and may be dismissed if six years have elapsed from the occurrence or event giving rise to the claim.  In many cases, this means that a claim is not eligible for FINRA arbitration and will be subject to a motion to dismiss if the securities transactions that are part of the claim occurred over six years before the arbitration claim is filed.  However, if the misconduct at issue was ongoing and continuing, then a later date may apply rather than the date of the investment.

It is important to note that the eligibility rule only deals with FINRA’s jurisdiction to hear the matter.  It does not alter or change California’s separate statute of limitations rules.  FINRA’s 6-year eligibility rule will not extend California’s 2-year, 3-year and 4-year statute of limitations applicable to each underlying cause of action.  Thus, it is possible for a party to file an arbitration claim within the time parameters of FINRA’s 6-year eligibility rule only to have their underlying causes of action subject to dismissal on statute of limitations grounds.

Time is of the Essence

The time limits and deadlines involved in securities arbitration before FINRA are complex and can be a trap for the unwary.  Do not delay in seeking legal help.  Contact us today for a preliminary evaluation at no cost or obligation.