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Posted: December 13, 2017

Fraud Claim Should Not Have Been Dismissed as Time-Barred; Question of Fact Existed Regarding When Fraud Should Have Been Discovered

On December 5, 2017, the First Department issued a decision in Berman v. Holland & Knight, LLP, 2017 NY Slip Op. 08489, holding that a fraud claim against a law firm should not have been dismissed because there was a question of fact regarding when the fraud should have been discovered, explaining:

The two-year discovery provision does apply to actual fraud (first cause of action). The issue of when a plaintiff, acting with reasonable diligence, could have discovered an alleged fraud involves a mixed question of law and fact, and, where it does not conclusively appear that a plaintiff had knowledge of facts from which the alleged fraud might be reasonably inferred, the cause of action should not be disposed of summarily on statute of limitations grounds. Instead, the question is one for the trier-of-fact. One cannot say, as a matter of law, that the Internal Revenue Service’s July 2007 deficiency notice, which mentioned only nonparty Derivium, placed plaintiffs on inquiry notice of defendant’s alleged fraud. Plaintiffs plausibly allege that, until defendant produced its file on January 8, 2015 in response to a motion to compel in Tax Court, they had no inkling of its purported fraud. Unlike the subprime crisis in Aozora Bank, Ltd. v Deutsche Bank Sec. Inc., Derivium’s fraud was not common knowledge.

It is true that plaintiffs sued Derivium’s clearing broker-dealers in March 2010. However, plaintiffs would have had far more reason to suspect Derivium’s brokers than their own attorneys. Plaintiffs were entitled to place ultimate trust and confidence in defendant, who represented them.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether claims are barred by the statute of limitations.

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