Claim Timely Under Borrowing Statute

On July 22, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Kal Tire v. Vitale, 2020 NY Slip Op. 32405(U), holding that a claim was timely under New York's borrowing statute, explaining:

Mr. Vitale argues that the Complaint should be dismissed pursuant to New York's borrowing statute because the applicable two-year limitation period under the laws of British Columbia and Ontario has expired. In its opposition papers, Kal Tire argues that this action was timely filed in 2019 as it did not have a basis to suspect Mr. Vitale of fraud until April 26, 2018. CPLR § 3211(a)(5) provides for dismissal of an action if the relevant statute of limitations has expired. Pursuant to CPLR § 202, a non-resident that brings a lawsuit in New York based on events that give rise to a cause of action accruing outside of New York must commence the action within the shorter of either the New York limitation period and the limitation period of the place where the cause of action accrued. As the Court of Appeals explained in Norex Petroleum, the purpose of the CPLR § 202, otherwise known as the borrowing statute, is to prevent forum shopping.

The time and place of injury generally determines where a tort action accrues. When the alleged injury is purely economic, the place of injury is where the plaintiff resides and sustains the economic impact of the loss. Here, Kal Tire is a foreign partnership and its alleged injury is purely economic such that Kal Tire's legal residence determines where the action accrues. A partnership's legal residence is determined by its principal place of business. As Kal Tire's principal place of business is in Vernon, British Columbia, the borrowing statute requires that Kal Tire's claims must be timely filed under the laws of British Columbia.

In British Columbia, a proceeding must be commenced within two years from the date that the claim is discovered. Mr. Vitale argues that Kal Tire should have known about its potential claim as early as November 3, 2015 when Kal Tire placed a litigation hold on Mr. Vitale's emails, and no later than April 9, 2017 when Kal Tire was served with the ComLab Action. Both arguments are unavailing.

Iain Butler, Vice President of Finance for Kal Tire attests that the litigation hold feature was activated on over 400 employee email accounts in 2015 for non-litigation purposes, including retaining communications with suppliers and customers. In other words, Kal Tire's activation of the litigation hold in 2015 was wholly unrelated to any contemplated litigation against Mr. Vitale. Mr. Butler also clarifies that Kal Tire first suspected that Mr. Vitale was involved in a fraudulent kickback scheme only after April 26, 2018, the date on which Mr. Vitale testified that he had received wire payments from Mr. Deninno in the ComLabAction.

To the extent that Mr. Vitale argues that Kal Tire knew of the alleged fraud at an earlier date because its answer in the ComLab Action contained two affirmative defenses of fraud, there is simply no evidence that these defenses were anything more than two of at least eight boilerplate defenses contained in a standard response pleading. Further, Mr. Vitale does not offer any explanation of how Kal Tire would have acquired any evidence of wire payments or wrongdoing between Mr. Deninno and Mr. Vitale absent discovery in the Com Lab Action.

As a result, the record indicates that Kal Tire first discovered a potential fraud claim against Mr. Vitale only after April 26, 2018 and this action was timely commenced within two years of that date, i.e., on December 23, 2019, under the British Columbia Limitations Act.

For the avoidance of doubt, Mr. Vitale did not argue that this action was untimely under New York law. However, this action would also be timely commenced in New York because the relevant New York limitation periods for the claims asserted in this action are all longer than the two-year period in British Columbia. By way of example, a fraud claim is subject to a six-year limitation period. Accordingly, the branch of Mr. Vitale's motion to dismiss for expiry of the statute of limitations pursuant to CPLR § 3211 (a)(5) is denied.

(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.