Kevin Schlosser Authors, "First Department Rejects Claim That Fraud Equitably Estopped Defendant From Asserting Statute of Limitations Defense"

The tort of fraud gives rise to a number of powerful and advantageous rights and remedies. See my post. One such advantage pertains to the statute of limitations. It is well-known that there is a more favorable statute of limitations for asserting a claim of actual fraud – the period runs six years from the date the fraud occurred, but that period can be extended if the fraud was unknown or could not have been discovered using reasonable diligence, in which case, the period runs two years from such date. Thus, CPLR 213(8) provides that for “an action based upon fraud;  the time within which the action must be commenced shall be 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.” (Note, there are different statutes of limitations for actual fraud and constructive fraud – see my prior post.) A lesser known advantage of a fraud claim is that it can also prevent a defendant from asserting the statute of limitations as a defense to any cause of action. This is known as equitable estoppel. One such ground for equitable estoppel is fraud or misrepresentation. In that situation, the fraud or misrepresentation is not a separate cause of action but a basis to “estop” or bar the defendant from asserting that an underlying cause of action was brought too late, in violation of the period contained in the applicable statute of limitation. Equitable Estoppel Concerning Statute of Limitations The New York Court of Appeals has explained the doctrine of equitable estoppel in relation to the statute of limitations clearly and concisely. In the leading case of Zumpano v Quinn, 6 N.Y.3d 666 (2006), the Court explained: “The doctrine of equitable estoppel applies where it would be unjust to allow a defendant to assert a statute of limitations defense.” One of the grounds for equitable estoppel is fraudulent conduct: “Equitable estoppel is appropriate where the plaintiff is prevented from filing an action within the applicable statute of limitations due to his or her reasonable reliance on deception, fraud, or misrepresentations by the defendant.” Putter v North Shore Univ. Hosp., 7 NY3d 548, 552-553 (2006). The Court further explained in Zumpano:

“Our courts have long had the power, both at law and equity, to bar the assertion of the affirmative defense of the Statute of Limitations where it is the defendant’s affirmative wrongdoing . . . which produced the long delay between the accrual of the cause of action and the institution of the legal proceeding” (General Stencils v Chiappa, 18 NY2d 125, 128 [1966]).

Thus, this Court has held that equitable estoppel will apply “where plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action” (Simcuski v Saeli, 44 NY2d 442, 449 [1978]). Moreover, the plaintiff must demonstrate reasonable reliance on the defendant’s misrepresentations (see Simcuski, 44 NY2d at 449). New First Department Case In Matter of New York City Asbestos Litig., 2019 NY Slip Op 08482 (1^st Dep’t Decided Nov. 21, 2019), the New York Appellate Division, First Department, rejected plaintiff’s attempt to equitably estop the defendant from asserting the statute of limitations as a defense. In this case, plaintiff was attempting to assert claims for personal injuries relating to asbestos. Plaintiff’s former attorneys entered into a “tolling” agreement with defense counsel, by which the statute of limitations period would be tolled, or extended, during the time that a settlement was being negotiated. Once that tolling period ended, the time to bring the case would start to run. The lower court dismissed the case on the basis that plaintiff had failed to bring the action timely. On appeal, the First Department affirmed. In addressing the tolling agreement, the Court first found:

The stand-still provision in paragraph 19(A) of the [tolling] agreement terminated on December 31, 2009. It is clear that sections (A) and (B) of paragraph 19 should be read together, and the tolling of the statute of limitations, which was set forth in paragraph 19(B), ended on that date as well. Thus, plaintiff had three years from that date to commence a personal injury action based on exposure to asbestos under CPLR 214-c(1) and two years for a wrongful death action under EPTL 5-4.1(1), and it is undisputed that plaintiff’s claim against defendant was not filed until July 30, 2013.

Since plaintiff could not rely on the tolling agreement to avoid dismissal, he tried to equitably estop the defendant from relying on the statute of limitations. More specifically, plaintiff contended “that defendant should be barred from asserting a statute of limitations defense based on equitable estoppel, in that after the subject [tolling] agreement terminated, defendant continued to negotiate with his former attorneys regarding claims raised by persons with asbestos-related injuries.” Both the lower court and the First Department rejected that attempt as well. The First Department observed:

Although courts have the power to bar the assertion of the affirmative defense of statute of limitations where a defendant’s affirmative wrongdoing produced the delay between the accrual of the cause of action and the institution of the legal proceeding, plaintiff failed to sustain his burden of showing that there was an issue of fact as to whether he was induced by defendant’s fraud, misrepresentation, or deception to delay in adding defendant to the action he had filed against others (see Zumpano v Quinn, 6 NY3d 666, 673-674 [2006]). The affidavit of his former attorney cited only defendant’s continued participation in settlement negotiations in actions involving persons claiming asbestos-related injuries. Counsel did not indicate that plaintiff delayed in filing a claim against defendant based on those negotiations, that plaintiff’s case was among those being negotiated after the agreement terminated, that he actually participated in those negotiations, or that defendant made any false or deceptive statements to him or others on which plaintiff relied in failing to timely bring an action against defendant.

Commentary Fraudulent conduct can form the basis for preventing a defendant from relying on the statute of limitations as a defense to any cause of action. But the same elements of a claim for fraud play a role in barring that defense. Not only must it be proven that defendant acted fraudulently, but it must also be shown that such fraudulent or wrongful conduct actually caused plaintiff to delay bringing the action within the statutory period, i.e., that plaintiff reasonably relied on some misrepresentation or other wrongful conduct of the defendant in failing to institute the action. Click here for Kevin Schlosser's Blog.