Timboe v. Clark

Background

Todd Timboe alleged that defendants fraudulently induced him to purchase a note and provide a $500,000 loan for “Project Bella,” a proposed hotel project. According to the complaint, defendants made statements about the project, a possible 99-year lease, the use and security of the funds, the project’s leadership, and the likelihood of repayment. Timboe alleged that these statements were false or omitted important information. He purchased the note on January 20, 2017, and the loan was scheduled to mature after 120 days.

The complaint asserted seven claims: fraud, California securities fraud, federal securities fraud, breach of fiduciary duty, breach of the duty of reasonable care, and violations of California Corporations Code sections 25501.5 and 25503. The defendants moved to dismiss based on statutes of limitations and inadequate pleading.

Statutes of Limitations and Tolling

The court concluded that the claims were time-barred on the face of the complaint as currently pleaded. The defendants argued that Timboe had sufficient notice of possible fraud no later than May 20, 2017, when the loan was not repaid. Timboe argued that later assurances from defendants and other doctrines delayed the beginning of the limitations periods.

The court held that California’s COVID-19 tolling rule applies in federal court when the court is evaluating California claims. The rule tolled civil statutes of limitations longer than 180 days from April 6, 2020, through October 1, 2020. The court also explained that a plaintiff relying on California’s discovery rule must plead when and how the wrongdoing was discovered and why it could not reasonably have been discovered earlier. For the federal securities claim, the plaintiff likewise must plead facts showing when the violation was discovered or reasonably should have been discovered.

The court found that Timboe had not pleaded how he discovered the alleged fraud. It also found that his allegations supporting fraudulent concealment were not adequately pleaded. The court did not consider facts contained only in Timboe’s sworn declaration because that declaration was not part of the complaint and was not subject to judicial notice on a motion to dismiss.

Individual Claims

For the fraud, breach-of-fiduciary-duty, and breach-of-duty-of-care claims, the court said COVID-19 tolling could make the claims timely even under the defendants’ most restrictive accrual theory. The court allowed Timboe to amend to plead discovery, diligence, fraudulent concealment, and related facts.

The court similarly allowed amendment of the securities-fraud claims. It stated that additional allegations about Timboe’s reliance on defendants’ statements after the missed payment could affect when the claims accrued.

The court treated the California Corporations Code claims differently. It held that the section 25501.5 claim accrued in January 2017 and was late under either potentially applicable limitations period, even with COVID-19 tolling. That claim was dismissed without leave to amend. The court also held that the section 25503 claim was filed more than two years after the violation and that COVID-19 tolling would not save it. That claim was dismissed without leave to amend.

Disposition

The court granted the motion to dismiss with leave to amend most claims and dismissed the two California Corporations Code claims without leave to amend. The amended complaint was due within 20 days. The court did not decide the defendants’ separate argument that the claims were inadequately pleaded because it resolved the motion on the statute-of-limitations issue.