Commercial Division Blog

Posted: March 29, 2016 / Categories Commercial, Fiduciary Duties, Statute of Limitations/Laches

Six-Year Statute of Limitations Applies to Breach of Fiduciary Duty Claims Sounding in Fraud

On March 15, 2016, the First Department issued a decision in Cusimano v. Schnurr, 2016 NY Slip Op. 01758, holding that a claim for breach of fiduciary duty based on fraud has a six-year statute of limitations, explaining:

Contrary to the motion court's conclusion, we find that a six-year statute of limitations applies to the breach of fiduciary duty claims against Bernard, Bernadette, and the Norman defendants (and to the aiding and abetting breach of fiduciary duty against the Norman defendants). In Kaufman v Cohen, this Court explained that the applicable statute of limitations for breach of fiduciary duty depends upon the substantive remedy sought. Where the relief sought is equitable in nature, the six-year limitations period of CPLR 213(1) applies, but if the claim is for monetary relief, a three-year limitations applies.

Nevertheless, a cause of action for breach of fiduciary duty based on allegations of actual fraud is subject to a six-year limitations period. An exception to this rule exists if the fraud allegation is only incidental to the claim asserted. Thus, where an allegation of fraud is not essential to the cause of action pleaded except as an answer to an anticipated defense of Statute of Limitations, courts look for the reality, and the essence of the action and not its mere name.

Here, although the fiduciary duty claims seek monetary relief, the six-year limitations period applies because the claims sound in fraud. Plaintiffs alleged that the accountants and Bernard and Bernadette induced Rita to sell her stake in Seaview below the fair market value of the interest. Plaintiffs also alleged that with regard to Berita, the accountants and Bernard and Bernadette conspired to falsify tax filings so that plaintiffs incurred phantom taxes and the inability to claim losses in some years. In addition, plaintiffs alleged the accountants and Bernard and Bernadette created fraudulent promissory notes that appear to have gutted Berita of its equity. Further, plaintiffs alleged with regard to FLIP, the accountants and Bernard and Bernadette engaged in similar acts of tax fraud resulting in similar consequences for plaintiffs. Plaintiffs also alleged that the accountants and Bernard and Bernadette forged Rita Cusimano's signature of checks and bank documents to move funds out of the companies.

These allegations, which sound in fraud, are not merely incidental to the breach of fiduciary duty claims, and thus, the applicable limitations period for plaintiffs' breach of fiduciary claims is six years.

(Internal quotations and citations omitted).