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Litigation & Dispute ResolutionKevin Schlosser Authors, "Burdens of Proof on Statute of Limitations for Fraud Claims"

Aug 21, 2017Litigation & Dispute Resolution
Source: Fraud claims have their own unique statute of limitations under the CPLR. Even though the fraud complained of occurs on a certain date, the plaintiff may not have known about it until later. The law gives plaintiff extra time to sue under these circumstances. Thus, the statute of limitations for fraud is 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. CPLR 213(8); Sargiss v Magarelli, 12 NY3d 527, 532 (2009). An easy reference guide to the recent statute of limitations cases can be located using the topics feature of this blog. A recent decision of the New York Appellate Division, Second Department, reminds us of the split burdens of proof on statute of limitations issues involving fraud claims: Celestin v Simpson, 2017 NY Slip Op 06153 (2d Dep’t Decided on August 16, 2017). In Celestin, the plaintiff commenced his action on November 6, 2014 to recover damages for the allegedly fraudulent conveyance and sale of real property previously owned by him. The allegedly fraudulent conduct of the defendant Stewart Title Insurance Company occurred in 2000. Plaintiff alleged that he did not learn of the fraudulent transfer until his property was sold. He annexed to the complaint a referee’s deed related to that sale dated June 7, 2004 – clearly more than two years from the date he instituted the action. Defendant Stewart Title moved pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against it as time-barred. The Supreme Court denied the motion, but the Appellate Division reversed. The decision is not very descript or informative, but does have a handy summary of the law on burdens of proof: A cause of action based upon fraud must be commenced within six years after the commission of the fraud, or within two years after the date the fraud was discovered or could with reasonable diligence have been discovered (see CPLR 213[8]; 203[g]). On a motion to dismiss a complaint pursuant to CPLR 3211(a)(5) on statute of limitations grounds, the moving defendant has the initial burden of establishing, prima facie, that the time in which to commence the action has expired (see Cannariato v Cannariato, 136 AD3d 627, 627; Coleman v Wells Fargo & Co., 125 AD3d 716, 716; Beizer v Hirsch, 116 AD3d 725, 725). The burden then shifts to the plaintiff to raise a question of fact as to whether the statute of limitations is tolled or is otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period (see Cannariato v Cannariato, 136 AD3d at 627; Coleman v Wells Fargo & Co., 125 AD3d at 716; Beizer v Hirsch, 116 AD3d at 725). “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception” (Lefkowitz v Appelbaum, 258 AD2d 563, 563; see Cannariato v Cannariato, 136 AD3d at 627; Von Blomberg v Garis, 44 AD3d 1033, 1034; Sabbatini v Galati, 43 AD3d 1136, 1140; Hillman v City of New York, 263 AD2d 529, 529). The case of Cannariato v Cannariato, 2016 NY Slip Op 00650 [136 AD3d 627] (2d Dep’t February 3, 2016), relied upon by Celestin, gives a bit more explanation: Although the question of when a plaintiff could “with reasonable diligence have discovered the [*2]alleged fraud” is ordinarily “a mixed question of law and fact,” summary dismissal is appropriate “where it conclusively appears that the plaintiff has knowledge of facts which should have caused [him or] her to inquire and discover the alleged fraud” (Rattner v York, 174 AD2d 718, 721 [1991]; see House of Spices [India], Inc. v SMJ Servs., Inc., 103 AD3d at 849; Saphir Intl., SA v UBS PaineWebber Inc., 25 AD3d 315, 316 [2006]). Thus, although “mere suspicion” will not substitute for knowledge of the fraudulent act (Erbe v Lincoln Rochester Trust Co., 3 NY2d 321, 326 [1957]), a plaintiff may not “ ’shut his [or her] eyes to facts which call for investigation’ ” (Saphir Intl., SA v UBS PaineWebber Inc., 25 AD3d at 316, quoting Schmidt v McKay, 555 F2d 30, 37 [2d Cir 1977]; see Shannon v Gordon, 249 AD2d 291, 292 [1998]). In Cannariato, the plaintiff alleged “that she was induced to sign documents without being advised of their contents.” This allegation would have been fatal enough even if the statute of limitations had not expired because a plaintiff in such circumstances cannot prove reasonable reliance on misrepresentations where she did not even read the documents. See my prior post. The Second Department had little patience for this lack of diligence on statute of limitations grounds as well: [T]he plaintiff admitted that she neither read nor inquired about the contents of the documents upon which she relies to establish the fraud before she signed them, yet she failed to proffer any valid excuse for her failure to do so. Under these circumstances, the plaintiff is conclusively presumed to have agreed to the terms of those documents (see Gillman v Chase Manhattan Bank, 73 NY2d at 11; Pimpinello v Swift & Co., 253 NY at 162-163; Ferrarella v Godt, 131 AD3d at 567-568; U.S. Legal Support, Inc. v Eldad Prime, LLC, 125 AD3d at 487; Ackerman v Ackerman, 120 AD3d at 1280; Matter of Aoki v Aoki, 117 AD3d at 503) and, accordingly, cannot establish that she lacked knowledge from which she could have discovered the alleged fraud with reasonable diligence (see Coleman v Wells Fargo & Co., 125 AD3d at 716; Sargiss v Magarelli, 50 AD3d at 1118; Oggioni v Oggioni, 46 AD3d at 648; Von Blomberg v Garis, 44 AD3d at 1034; Sabbatini v Galati, 43 AD3d at 1140; Town of Poughkeepsie v Espie, 41 AD3d 701, 705 [2007]). Thus, in asserting fraud claims, it is critical for a plaintiff to act diligently in connection with representations being made both for statute of limitations purposes and to establish the elements of the cause of action – namely reasonable reliance.