The core, basic principles of law governing the civil tort of fraud have not materially changed over time. The elements of the various fraud-based causes of action, the rules pertaining to statute of limitations and all of the related doctrines and permutations remain largely intact. Of course, applying those well-recognized legal principles to the facts of new case scenarios requires constantly-evolving analysis by both lawyers advocating their clients' positions, and judges who must decide these disputes.
Although the principles of law are largely undisputed, it is generally preferable to cite the latest case decisions reciting those governing principles when arguing cases on behalf of clients, and when rendering the decisions. While they do not proclaim any new legal doctrines, three new decisions in New York's Appellate Division offer up-to-date authority on the basic principles concerning statute of limitations issues relating to fraud and similar claims.
As is becoming more frequent, undoubtedly because of their heavy caseloads and limited resources, the First and Second Departments of New York's Appellate Division have been rendering decisions that tend to recite the boilerplate legal principles, but then arrive at determinations without an in-depth analysis of the case facts. As such, little insight or guidance can be gleaned from this format of new decisions. Nevertheless, the decisions do provide up-to-date case authority for the relevant legal doctrines, so being aware of and citing these cases is still useful.
Two-Year "Discovery" Rule for Actual Fraud
In Parizat v Meron, 2024 NY Slip Op 04776 (2d Dep't Decided Oct. 2, 2024), the Second Department concisely summarized the legal principles governing the two-year discovery rule incorporated into the statute of limitation for causes of action alleging actual fraud. (For a basic explanation of this doctrine, see, e.g., Extended Two-Year Discovery Statute of Limitations Afforded to Fraud Plaintiff Who Had Means of Discovering Fraud, But No Suspicion to Investigate ("In order to take advantage of the extended statute of limitations for actual fraud, the party instituting an action for fraud more than six years after the fraudulent conduct was committed still has the benefit of an additional two years to bring the action if it had not previously discovered the fraud nor could have discovered the fraud using 'reasonable diligence.' See CPLR 213(8).").
The Second Department summarized the relevant law as follows:
The Supreme Court properly granted dismissal of the amended counterclaims alleging fraud pursuant to CPLR 3211(a)(5) as time-barred. "A cause of action based upon fraud must be commenced within six years from the time of the fraud, or within two years from the time the fraud was discovered, or with reasonable diligence could have been discovered, whichever is longer" (Coleman v Wells Fargo & Co., 125 AD3d 716, 716; see CPLR 203[g]; 213[8]). On a motion to dismiss a counterclaim pursuant to CPLR 3211(a)(5) on statute of limitations grounds, the party asserting that the cause of action is time-barred has the initial burden of establishing, prima facie, that the time in which to commence the action has expired (see Pare v Pare, 222 AD3d 765; Cannariato v Cannariato, 136 AD3d 627, 627; Coleman v Wells Fargo & Co., 125 AD3d at 716; East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 90 AD3d 821, 822). The burden then shifts to the nonmoving party to raise a question of fact as to whether the statute of limitations is tolled or is otherwise inapplicable, or whether the defendants actually interposed the counterclaim within the applicable limitations period (see Cannariato v Cannariato, 136 AD3d at 627; Coleman v Wells Fargo & Co., 125 AD3d at 716; East Hampton Union Free School Dist. v [*4]Sandpebble Bldrs., Inc., 90 AD3d at 822). "Moreover, pursuant to CPLR 203(d), a 'counterclaim is not barred if it was not barred at the time the claims asserted in the complaint were interposed'" (East Hampton Union Free School Dist. v Sandpebble Bldrs., Inc., 90 AD3d at 822).
"Where a [nonmoving party] relies upon the two-year discovery exception to the six-year limitations period, the burden of establishing that the fraud could not have been discovered prior to the two-year period . . . rests on the [party] who seeks the benefit of the exception" (Cannariato v Cannariato, 136 AD3d at 627 [alterations and internal quotation marks omitted]; see Pare v Pare, 222 AD3d 765; Hillman v City of New York, 263 AD2d 529, 529; Lefkowitz v Appelbaum, 258 AD2d 563, 563). Although the question of when a nonmoving party could "'with reasonable diligence have discovered the alleged fraud' is ordinarily 'a mixed question of law and fact,' summary dismissal is appropriate 'where it conclusively appears that the [nonmoving party] has knowledge of facts which should have caused [him or] her to inquire and discover the alleged fraud'" (Cannariato v Cannariato, 136 AD3d at 627-628, quoting Rattner v York, 174 AD2d 718, 721; see Pare v Pare, 222 AD3d at 768-769).
The Second Department then rather concisely concluded that the two-year discovery rule did not preserve the fraud claims because the party attempting to assert the claim was in fact sufficiently aware of the circumstances more than two years before bringing the claims:
Here, the gravamen of the amended counterclaims alleging fraud was that in 2008, Parizat fraudulently represented that Ovadia would "maintain a beneficial interest in 50% of ION's assets," which induced Ovadia to have his membership interest in ION titled in Parizat's name. Although the defendants contended that they did not discover the alleged fraud until the complaint in this action was filed in September 2021, it conclusively appears that Ovadia had knowledge of facts that should have caused him to inquire and discover the alleged fraud in or about January 2019 (see Pare v Pare, 222 AD3d at 769; Aozora Bank, Ltd. v Deutsche Bank Sec. Inc., 137 AD3d 685, 689; Oggioni v Oggioni, 46 AD3d 646, 648). Accordingly, the defendants failed to meet their burden to establish that they could not have discovered the fraud more than two years before the plaintiffs commenced this action in September 2021.
Issues of Fact Preserve Fraud-Related Claims under Discovery Rule
While the Second Department had little trouble dispensing with the fraud claims in Parizat, in its decision in Weinberg Real Estate Affiliates, LLC v Weinberg, 2024 NY Slip Op 04799 (2d Dep't Decided Oct. 2, 2024), rendered the same day, a different panel of judges found there were issues of fact that precluded summary dismissal of the fraud-based claims under the statute of limitations.
In Weinberg, the Second Department also recited the governing legal principles:
An action to recover damages for fraud must be commenced within "the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it" (CPLR 213[8]). "Where a plaintiff relies upon the two-year discovery exception to the six-year limitations period, the burden of establishing that the fraud could not have been discovered prior to the two-year period before the commencement of the action rests on the plaintiff who seeks the benefit of the exception" (Pare v Pare, 222 AD3d 765, 768 [internal quotation marks omitted]; see Cannariato v Cannariato, 136 AD3d 627, 627). "The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered the fraud turns on whether the plaintiff was possessed of knowledge of facts from which the fraud could be reasonably inferred" (Sargiss v Magarelli, 12 NY3d 527, 532 [alterations and internal quotation marks omitted]; see Lipszyc v Lipszyc, 221 AD3d 992, 994).
The Second Department then disagreed with the Court below, finding issues of fact as to knowledge of the fraud:
Here, Theodore demonstrated that the allegedly fraudulent transactions occurred more than six years prior to the commencement of this action and, thus, met his initial burden of establishing, prima facie, that the time in which to interpose the cause of action alleging fraud expired prior to the commencement of this action. However, the plaintiffs alleged that they did not discover the alleged fraud until the books and records proceeding in 2020, which was less than two years before this action was commenced (see Sargiss v Magarelli, 12 NY3d at 532; Lipszyc v Lipszyc, 221 AD3d at 994). Contrary to the Supreme Court's determination, there is a question of fact as to whether the plaintiffs possessed knowledge of facts from which the fraud could have been discovered with reasonable diligence more than two years prior to the commencement of this action in December 2020 (see Cammarato v 16 Admiral Perry Plaza, LLC, 216 AD3d 903, 905; Oggioni v Oggioni, 46 AD3d 646, 649). Accordingly, that branch of Theodore's motion which was to dismiss the cause of action alleging fraud should have been denied.
Similarly, the Supreme Court also should have denied that branch of Theodore's motion which was to dismiss the cause of action alleging breach of fiduciary duty as time-barred. The limitations period set forth in CPLR 213(8) is applicable since the allegations of fraud are essential to, not merely incidental to, the breach of fiduciary duty cause of action (see Statharos v Statharos, 219 AD3d 651, 652; cf. IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139), and a question of fact exists regarding when the plaintiffs, with reasonable diligence, could [*2]have discovered the alleged fraud (see DiRaimondo v Calhoun, 131 AD3d 1194, 1197).
Equitable Estoppel Extending Statute of Limitations
In Weinberg, the Second Department did sustain dismissal of the claims for unjust enrichment, rejecting the argument that any sort of fraud or misrepresentation prevented plaintiff from bringing those claims in a timely manner within the six-year limitation period:
"A cause of action alleging unjust enrichment is governed by a six-year statute of limitations and begins to accrue upon the occurrence of the wrongful act giving rise to a duty of restitution and not from the time the facts constituting the fraud are discovered" (Mahabir v Snyder Realty Group, Inc., 217 AD3d 850, 852; see CPLR 213[1], [8]; Coombs v Jervier, 74 AD3d 724, 724). Here, the cause of action to recover damages for unjust enrichment accrued more than six years prior to the commencement of this action, when the allegedly fraudulent transactions occurred, and therefore, this cause of action was time-barred. Contrary to the plaintiffs' contention, they did not demonstrate that the doctrine of equitable estoppel should toll the statute of limitations. The plaintiffs failed to allege that they were "induced by fraud, misrepresentation, or deception to refrain from filing a timely action" (Cedarwood Assoc., LLC v County of Nassau, 211 AD3d 799, 800; see Kramer v Meridian Capital Group, LLC, 201 AD3d 909, 912; Financial Assistance, Inc. v Graham, 191 AD3d 952, 955), and the allegations of concealment are conclusory and unsubstantiated (see Gleason v Spota, 194 AD2d 764, 765). Accordingly, the Supreme Court properly granted that branch of Theodore's motion which was to dismiss the cause of action alleging unjust enrichment as time-barred.
As stated by the Second Department, in order to get the benefit of the doctrine of equitable estoppel to extend the statute of limitations, the alleged fraud must have duped the plaintiff into refraining from bringing the claims earlier.
In the recent decision of the First Department in Borek v Seidman, 2024 NY Slip Op 04898 (1st Dep't Decided Oct. 8, 2024), the Court also rejected the argument of equitable estoppel in sustaining the dismissal of untimely medical malpractice claims:
Defendant psychiatrist Dr Elizabeth Sublette established prima facie entitlement to summary judgment dismissing plaintiff's medical malpractice action as against her. She submitted evidence demonstrating she last treated plaintiff on May 15, 2016, and the applicable 2 1/2 -year statute of limitations (CPLR 214-a) had expired on November 15, 2018, several years before plaintiff commenced this action on November 4, 2021.
Plaintiff relies on the doctrine of equitable estoppel to bar Dr. Sublette's reliance on a statute of limitations defense. The doctrine requires proof that plaintiff was induced by defendant's "fraud, misrepresentations, or deception" to be untimely in commencing an action (Simcuski v Saeli, 44 NY2ds 442, 448-449 [1978]). The plaintiff must demonstrate that he or she "was actively misled or prevented in some extraordinary way from timely commencing a malpractice action" (Flintlock Constr. Servs., LLC v Rubin, Fiorella & Friedman, LLP, 188 AD3d 530, 531 [1st Dept 2020]; see also O'Hara v Bayliner, 89 NY2d 636, 646 [1997], cert denied 522 US 822 [1997]). A plaintiff must show specific acts by a defendant to prevent a plaintiff from timely commencing an action, and the plaintiff's reasonable reliance upon a defendant's alleged deception, fraud, or misrepresentations (see Putter v North Shore Univ. Hosp., 7 NY3d 548, 552-553 [2006]).
Application of the equitable estoppel doctrine "may not be based on the same misrepresentation or act of concealment which forms the basis of plaintiff's [*2]underlying substantive cause of action" (see Safer v Long Beach Med. Ctr., 39 AD3d 257, 257 [1st Dept 2007], lv denied 9 NY3d 803 [2007]). Here, plaintiff alleges that Dr. Sublette engaged in medical malpractice by knowingly misdiagnosing him and prescribing debilitating, unnecessary medication, which prevented him from bringing a timely lawsuit. Plaintiff also argues that Dr. Sublette delayed his commencement of an action by telling him his mother's understanding regarding the cause of his mental condition was wrong. These allegations are part of the lawsuit and fail to include that "subsequent and specific actions by [Dr. Sublette] somehow kept [plaintiff] from timely bringing suit" (Putter, 7 NY3d at 552).
The First Department rejected claims against another defendant for the same reasons.
Commentary
The above decisions provide up-to-date summaries of the legal principles governing the applicable statute of limitations relating to fraud-based claims. As such, they represent useful authority on the relevant issues for both counsel and the courts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.