Published on:

Dealing with the Very Short Tennessee Statutes of Limitation for Breach of Fiduciary Duty

For shareholders of Tennessee corporations and members of Tennessee LLCs, the statutes of limitation which apply to breach of fiduciary duty claims are short — very short. The statute of limitation for breach of fiduciary duty lawsuits related to corporations and the statute of limitation for breach of fiduciary duty lawsuits related to LLCs are nearly identical.  Both require that a breach of fiduciary duty claim be filed within one year of the breach.

Both the corporate statute and the LLC statute are extended if the “breach is not discovered nor reasonably should have been discovered” within one year. If that is the case, both statutes of limitation provide that the lawsuit must be filed within one year of when the breach was discovered or reasonably should have been discovered. In any event, to extend either statute of limitation beyond three years, the shareholder or member must prove that the defendant fraudulently concealed the conduct giving rise to the breach of fiduciary duty claim.

Where an LLC member or shareholder of a corporation attempts to prove that he or she should not have been required to file within one year because he or she did not discover, and could not have reasonably discovered, the breach of fiduciary duty, that member or shareholder must prove that his or her lawsuit was filed within one year of the date he or she discovered “facts that would put a reasonable person on notice that injury has been suffered as a result of wrongful conduct.” Keep in mind that the one year period begins to run then, and not when the member or shareholder has been told by an attorney or other advisor that he or she has grounds for a breach of fiduciary duty lawsuit.

Also, it is very important to keep in mind that a member or shareholder will probably not be able to argue effectively that the one year period should not start on the date that the member or shareholder discovered a breach of fiduciary duty because he or she did not discover how badly he or she had been damaged by that breach until later. Furthermore, the statutes of limitation apply to each distinct breach, so, in some cases where there is a series of breaches of fiduciary duties extending over time, a shareholder or member may be barred as to some breaches, but not as to others, depending on when they occurred.

The statute of limitation applicable to corporations (and, thus, shareholder actions) has been expressly held by the Supreme Court of Tennessee not to apply to lawsuits brought by minority shareholders against majority shareholders for breach of fiduciary duty. In such cases (lawsuits by minority shareholders against majority shareholders for breach of fiduciary duty), it is likely that a significantly longer statute of limitation will apply.   It is possible that what might seem to be a breach of fiduciary duty of an officer or director is a breach of fiduciary duty owed to minority shareholders by a majority shareholder.

Lastly, Tennessee lawyers who handle breach of fiduciary duty lawsuits should remember that, where, from the face of the complaint the defendant could argue that the statute of limitation has run, the complaint should set forth facts as to why the statute has not run.