Commercial Division Blog

Posted: April 29, 2015 / Categories Commercial, Fraud/Misrepresentation, Statute of Limitations/Laches

No Dismissal Where Questions of When Fraud Could have Been Discovered Exist

On April 20, 2015, Justice Bransten of the New York County Commercial Division issued a decision in Davoli v. Dourdas, 2015 NY Slip Op. 30635(U), discussing the statute of limitations for fraud.

In Davoli, the plaintiff brought claims for "fraud and other malfeasance by her financial advisors and others in connection with the management of approximately $7 million of her assets." Several of the defendants moved to dismiss, including on the grounds that the plaintiff's fraud claims were time-barred. The court declined to do so, explaining:

Plaintiff may recover for any fraud-related losses sustained after December 19, 2007 [six years prior to December 19, 2013, the date the Complaint was filed]. An action based upon fraud must be commenced within the greater of 6 years from the date the cause of action accrued or 2 years from the time plaintiff discovered or, with reasonable diligence, could have discovered the fraud. The action is timely as to those claims for any concealed and undisclosed withdrawals or transfers of funds during the six-year period.

As to transactions prior to December 2007, there remains a question of fact as to whether any of them are saved by the fraud discovery accrual rule. The test as to when fraud should with reasonable diligence have been discovered is an objective one where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him. Furthermore, this inquiry 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.

To the extent defendants may have engaged in hidden transactions prior to December 2007 that would not could have been discovered by plaintiff with the exercise of due diligence, plaintiff may recover for them so long as she was not aware of them more than two years prior to the filing of the complaint, i.e., before December 19, 2011. Plaintiff's mere receipt of the insurance and annuity statements and other documentation would not have necessarily placed her on notice of other, concealed misconduct.

(Internal quotations and citations omitted) (emphasis added). However, the court rejected the plaintiff's

attempt to invoke the doctrine of equitable estoppel to toll the statute of limitations . . . . That theory requires proof that the defendant made an actual misrepresentation or, if a fiduciary, concealed facts which he was required to disclose, that the plaintiff relied on the misrepresentation and that the reliance caused plaintiff to delay bringing timely action.

However, it is inapplicable where, as here, the misrepresentation or act of concealment underlying the estoppel claim is the same act which forms the basis of plaintiffs underlying substantive cause of action. Plaintiff's estoppel argument is founded solely on allegations relating to defendants' original concealment of the transactions, not any additional conduct which prevented plaintiff from bringing suit.

(Internal quotations and citations omitted) (emphasis added).