Actual Fraud Extends Statute of Limitations for Breach of Fiduciary Duty Claims
In a previous post, I explained that where actual fraud is adequately alleged in a lawsuit, there are many legal accommodations extended to the victim, including affording extra time to bring a lawsuit, or the “statute of limitations.” See Fraud Breathes New Life Into Otherwise Time-Barred Causes of Action. This enhanced period of time is applied to other causes of action besides fraud, such as breach of fiduciary duty, where the fiduciary commits actual fraud in breaching the duty. This concept was recently applied in the Appellate Division, Second Department, decision in Statharos v Statharos, 2023 NY Slip Op 04226 (2d Dep’t Decided Aug. 9, 2023).
As I previously explained:
Fraud’s Special Statute of Limitations
For the cause of action for “actual fraud” itself, New York gives an extended period of time to assert the claim: 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.”
I have written about some of the more dicey issues concerning the statute of limitations for fraud, such as the courts’ confusion over the limitations period for asserting actual fraud and constructive fraud or negligent misrepresentation – which have different periods. I have also commented upon when the fraud claim actually “accrues” or is deemed to have started to run – when the clock starts clicking to bring the claim. I have also addressed another issue that is not always treated clearly or consistently by the courts—whether a claim for fraud accrues simply when the alleged fraud is “committed” or when an injury that the fraud has caused occurs (if that could arguably have happened some time after the fraudulent misrepresentation was conveyed).
Another juicy legal flavor enhancer is fraud’s ability to extend the statute of limitations period for other causes of action—when they are based upon fraudulent conduct. ***
Of course, the extended two-year period is only applied to allegations of “actual” fraud, not to constructive fraud or negligent misrepresentation claims. See Different Statutes of Limitations for Actual and Constructive Fraud.
Statharos
In Statharos, the plaintiffs were parents of the defendant son. Plaintiffs alleged that the defendant-son manipulated and defrauded them in connection with running a family-owned taxi medallion business, ultimately depriving them of the benefits of the business. Among the arguable conduct that could constitute a breach of defendant’s fiduciary duties to his parents were certain acts that occurred in 2004, long before the action was brought in 2020.
Plaintiffs brought claims for breach of contract, breach of fiduciary duty, constructive trust, declaratory judgment, fraud and promissory estoppel. The Commercial Division in Suffolk County granted defendant’s motion to dismiss, ruling that all claims were time-barred. The Second Department reversed. In connection with the statute of limitations issues relating to the allegations of actual fraud, the Second Department first identified the standards and then applied them to the cause of action alleging breach of fiduciary duty, ruling that plaintiffs were afforded the extended two-year discovery period for actual fraud:
“In moving to dismiss a complaint pursuant to CPLR 3211(a)(5) as barred by the [*2]applicable statute of limitations, a moving defendant must establish, prima facie, that the time within which to commence the action has expired” (Franklin v Hafftka, 140 AD3d 922, 924). “The burden then shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or was otherwise inapplicable, or whether the action was actually commenced within the applicable limitations period” (id. at 924; see Star Auto Sales of Queens, LLC v Filardo, 203 AD3d 865, 866-867).
“‘New York law does not provide a single statute of limitations for breach of fiduciary duty claims. Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks'” (DiRaimondo v Calhoun, 131 AD3d 1194, 1196, quoting IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139). “‘[W]here an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213(8)'” (DiRaimondo v Calhoun, 131 AD3d at 1196, quoting IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d at 139).
Here, allegations of actual fraud are essential to, not merely incidental to, the breach of fiduciary duty cause of action. Consequently, the limitations period set forth in CPLR 213(8) is applicable. CPLR 213(8) provides, in part, that “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 . . . discovered the fraud, or could with reasonable diligence have discovered it.” “‘The discovery accrual rule also applies to fraud-based breach of fiduciary duty claims. An inquiry as to the time that a plaintiff could, with reasonable diligence, have discovered the fraud turns upon whether a person of ordinary intelligence possessed knowledge of facts from which the fraud could be reasonably inferred'” (DiRaimondo v Calhoun, 131 AD3d at 1197, quoting Kaufman v Cohen, 307 AD2d 113, 122-123). Here, the plaintiffs discovered the alleged fraud in 2019 and the cause of action was timely commenced within two years. Accordingly, the Supreme Court erred in finding that the breach of fiduciary duty cause of action was time-barred.
Commentary
Where actual fraud is adequately alleged, the victim is afforded many legally-enhancing benefits in order to obtain appropriate remedies. One such benefit is a more liberal and extended period of time to bring a lawsuit against the alleged wrongdoer. That benefit is applied to other causes of action in addition to the actual fraud claim itself, such as breach of fiduciary duty.