I have explained the many benefits of alleging fraud claims, including how the period of time in which to bring a claim can be extended on other causes of action besides fraud when fraudulent conduct is alleged as part of those other causes of action. See Actual Fraud Extends Statute of Limitations for Breach of Fiduciary Duty Claims; Fraud Breathes New Life Into Otherwise Time-Barred Causes of Action. That is, when actual fraudulent conduct is at the heart of the facts that form an independent cause of action (rather than merely incidental to it), the special treatment that fraud gets will apply to the other causes of action, including the extended two-year discovery period or the lengthier period of limitations.
A new decision of the New York Appellate Division, First Department, sustains claims for breach of fiduciary duty by applying a six-year statute of limitations period even though there was not a separate cause of action for fraud alleged against those defendants: Board of Mgrs. of the 443 Greenwich St. Condominium v SGN 443 Greenwich St. Owner LLC, 2024 NY Slip Op 00450 (1st Dep’t Decided Feb. 1, 2024).
Breach of Fiduciary Duty Limitations
The claim for breach of fiduciary duty has some twists and turns when applying the statute of limitations. A great, often-cited decision laying it all out is the First Department’s opinion in Kaufman v. Cohen, 307 A.D.2d 113 (1st Dep’t 2003). Another leading decision is the Court of Appeals opinion in IDT Corp. v Morgan Stanley Dean Witter & Co.,12 NY3d 132 (2009). As explained in these decisions, the claim of breach of fiduciary duty does not have its own dedicated statute of limitation period in the New York CPLR. So the courts have to do the work themselves. As succinctly summarized in IDT, courts therefore have come up with the following analysis:
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 (Loengard v Santa Fe Indus., 70 NY2d 262, 266 ). Where the remedy sought is purely monetary in nature, courts construe the suit as alleging “injury to property” within the meaning of CPLR 214 (4), which has a three-year limitations period (see e.g. Yatter v Morris Agency, 256 AD2d 260, 261 [1st Dept 1998]). Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213 (1) applies (Loengard, 70 NY2d at 266-267). Moreover, where 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) (Kaufman v Cohen, 307 AD2d 113, 119 [1st Dept 2003]).
As confirmed by the First Department’s recent decision SGN, the allegation of “fraud” need not be contained in a full-fledged separate cause of action for fraud in order to get the benefit of the six-year fraud extender.
The SGN Decision
In SGN, units owners of a marketed “ultra-luxurious residential condominium” in New York City sued the condominium sponsor, its principals and board members (collectively “Sponsors”) as well as others, including the architect on the construction, alleging that the building as built experienced a host of defects and that the Sponsors “fraudulently passed on to the unit owners the costs of construction and maintenance disguised as condominium common charges, and that they deliberately cut corners when renovating the building by making the renovations in a manner departing from the operating plan and calculated to save the sponsor money.”
The Sponsor defendants moved to dismiss all claims alleged against them. The Commercial Division in New York County (Cohen, J.) granted the motion in part and otherwise denied it. The claim of breach of fiduciary duty was the focus of the appeal before the First Department.
The First Department rejected defendants’ argument that the fiduciary duty claim was barred by the business judgment rule because plaintiff “alleged that the sponsor’s principals acted in bad faith and that their actions were tainted by conflict of interest and fraud.” It also ruled that the fiduciary claim was not “duplicative” of the breach of contract claim because “the defendants [on each claim were] different, [and] the allegations concern the breach of a duty independent of the contract itself.”
The First Department then addressed the statute of limitations arguments. It did not have to address plaintiff’s argument that if the three-year period applied, the accrual occurred within the three-period because it determined that the longer six-year period applied. The First Department relied upon the fraud extender, holding in relevant part:
Contrary to defendants’ position, the cause of action is not time-barred under the circumstances of this case. A cause of action for breach of fiduciary duty based on allegations of actual fraud is subject to a six-year limitations period, except where the fraud allegation is “only incidental to the claim asserted” (Cusimano v Schurr, 137 AD3d 527, 529 [1st Dept 2016] [internal quotation marks omitted]). According to the allegations in the complaint, the sponsor’s principals’ actions in concealing renovation charges in common charge assessments is not incidental to the cause of action pleaded, but rather underpins it, because [*2]plaintiff alleges that the sponsor’s principals fraudulently used common charges to pay for the building renovation and concealed their actions by disguising the payments as relating to maintenance and repairs. Thus, the cause of action is subject to a six-year limitations period.
Interestingly, the plaintiff unit owners did not allege any separate cause of action for fraud against the Sponsor defendants. (See Complaint.) They merely sprinkled into the allegations concerning breach of fiduciary duty that the individual defendants generally acted fraudulently in passing on the renovation charges by mischaracterizing them as common charges. Yet, as quoted above, the First Department found such allegations to be specific and sufficient enough to sustain the fiduciary breach claim in the face of the statute of limitations.
Alleging actual fraudulent conduct can be effective in enhancing causes of action beyond a claim for fraud. As shown by the SGN decision, an independent cause of action for fraud need not necessarily be alleged to get the benefits. Once the fraud-related concepts are applied, the limitations period can be extended, including by applying the two-year discovery rule as well.