Patsos v. First Albany Corp.
433 Mass. 323, 741 N.E.2d 841, 2001 Mass. LEXIS 19 (2001)
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Rule of Law:
A stockbroker-customer relationship becomes a fiduciary relationship when the customer cedes de facto control over investment decisions to the broker. A broker's failure to disclose facts giving rise to a cause of action, such as embezzlement, constitutes fraudulent concealment that tolls the statute of limitations until the customer has actual knowledge of the wrongdoing.
Facts:
- In 1987, Charles Patsos, an inexperienced investor, was introduced to Edward Accomando, a stockbroker.
- Accomando persuaded Patsos to trust his investment advice, promising to make him 'a great deal of money'.
- In 1988, Patsos moved his accounts to First Albany Corporation after Accomando began working there, granting Accomando 'complete control' over five brokerage accounts.
- Patsos informed Accomando of his lack of investment expertise, and Accomando encouraged Patsos to trust and rely on him.
- Between June 1988 and August 1989, Accomando improperly withdrew over $1.6 million from Patsos's accounts without his knowledge.
- First Albany sent Patsos monthly statements that cryptically listed these withdrawals as checks 'issued by Boston' in the debit column.
- When Patsos asked Accomando about the confusing statements, Accomando told him 'not to worry'.
- In late 1994 or early 1995, FBI agents investigating Accomando informed Patsos that his funds had been converted, which was the first time Patsos learned of the theft.
Procedural Posture:
- Charles Patsos filed a complaint against First Albany Corporation in the Massachusetts Superior Court.
- First Albany moved for summary judgment, arguing Patsos's claims were barred by the applicable statutes of limitations.
- The Superior Court judge granted summary judgment in favor of First Albany.
- Patsos, as the appellant, appealed the judgment to the Massachusetts Appeals Court.
- The Appeals Court vacated the Superior Court's summary judgment.
- First Albany, as the petitioner, applied for further appellate review to the Supreme Judicial Court of Massachusetts, which the court granted.
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Issue:
Does a fiduciary relationship arise when an unsophisticated investor grants a stockbroker complete control over his accounts, thereby tolling the statute of limitations for the broker's conversion of funds until the investor gains actual knowledge of the fraud?
Opinions:
Majority - Marshall, C.J.
Yes. A fiduciary relationship can arise between a stockbroker and customer, and where one exists, the statute of limitations for fraudulent acts is tolled until the customer has actual knowledge of the wrongdoing. The court determined that a broker-customer relationship is not automatically a simple business relationship; it can become a fiduciary one depending on the circumstances. The key factor is the degree of discretion and control the customer entrusts to the broker. Here, Patsos presented sufficient evidence for a jury to find that a 'full relation of principal and broker' existed, creating a fiduciary duty. This evidence included Patsos’s lack of sophistication, Accomando’s encouragement of Patsos's total reliance, and Accomando’s exercise of complete control over the accounts, including executing transactions without prior approval. Where such a fiduciary relationship exists, the failure to adequately disclose facts that would reveal a cause of action—like embezzlement—constitutes fraudulent concealment. The cryptic entries on the monthly statements, combined with Accomando's reassurances, were not adequate disclosure. Therefore, the statute of limitations was tolled until Patsos gained actual knowledge from the FBI, making his lawsuit timely.
Analysis:
This decision significantly clarifies Massachusetts law by establishing a fact-intensive framework for determining when a stockbroker-customer relationship becomes fiduciary. It moves beyond a rigid distinction based on whether an account is formally labeled 'discretionary,' focusing instead on the de facto control exercised by the broker. The ruling provides greater protection for unsophisticated investors who rely heavily on their brokers, making it more difficult for brokerage firms to use the statute of limitations as a shield when their agents have engaged in fraudulent concealment. Future cases will now apply this multi-factor analysis to assess the true nature of the broker-customer relationship and the scope of the broker's duties.
