As explained in my December 11, 2017 post, although CPLR 213(8) provides for an alternative extended period of limitations of two years from the date the alleged fraud was discovered or could have reasonably been discovered, that more liberal standard does not apply to fraud claims that do not require actual intent to defraud. See Berman v Holland & Knight, LLP, 2017 NY Slip Op 08489 (1st Dep’t Decided on December 5, 2017)(only six-year statute of limitations applies to constructive fraud claims).
Counsel need to be careful to avoid a shorter statute of limitations period being imposed on certain claims alleging fraud. Court decisions are all over the lot on these issues, so care should be taken to avoid falling into traps set by inconsistent and conflicting decisions. A recent Third Department decision is a case in point.
Statute of Limitations Confusion
Courts have treated claims alleging “negligent misrepresentation” in various ways in determining what statute of limitations applies and when it accrues.
Some courts have held that a “cause of action for negligent misrepresentation has a three-year statute of limitations.” Remis v Fried, 31 Misc 3d 1203(A) (NY Co. Sup Ct 2011); Enzinna v. D’Youville College, 34 Misc.3d 1223(A) (NY Co. Sup Ct 2010)(“plaintiff’s claim for damages for negligent misrepresentation…is governed by a three-year limitations period”); U.S. Fire Ins. Co. v. North Shore Risk Management, 114 A.D.3d 408 (1st Dep’t 2014)(“negligent misrepresentation claims, to which a three-year statute of limitations applied”).
Other courts have recognized that if the claim involves allegations of fraud of some sort, the six-year statute applies. See Fandy Corp. v. Lung-Fong Chen, 262 A.D.2d 352 (2d Dep’t 1999)(“The plaintiff’s causes of action based on constructive fraud and negligent misrepresentation are covered by the six-year Statute of Limitations governing equitable actions in general.”); Colon v. Banco Popular North America, 59 A.D.3d 300 (1st Dep’t 2009)(“Contrary to plaintiffs’ contention, the action is not governed by a six-year limitations period (CPLR 213), since they neither alleged fraud nor constructive fraud against defendant.”).
The court in Reilly Green Mtn. Platform Tennis v Cortese, 28 Misc 3d 1234(A) (Westchester Co. NY Sup 2007), judgment entered sub nom. Green v Cortese [Sup Ct Dec. 3, 2007], and affd, 59 AD3d 695 (2d Dep’t 2009) summarized the confusion as follows:
While the parties agree that the First Cause of Action sounds in negligent misrepresentation, the parties disagree as to the particular statute of limitations that applies to this claim and as to the time when this claim accrues.
Defendants argue that a three year statute of limitations applies, contending that this action essentially is a product liability claim seeking damages for allegedly defective goods. Plaintiffs respond that the period of limitations for negligent misrepresentation is six years.
Which statute of limitations applies to a claim of negligent misrepresentation is a matter of some discussion in the cases. This is because CPLR 214 (subds.4, 5, 6) provides for a three year period of limitations for negligence and malpractice cases, while CPLR 213(subd. 6) provides for a six year period for actions based on fraud. Claims for negligent misrepresentation are, in essence, a hybrid, being based partly on negligence and being based partly on misrepresentation.
The elements of a cause of action sounding in negligent misrepresentation include: carelessness in imparting words and (1) an awareness by the maker that the statement is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance. Ford v. Sivilli, 2 AD3d 773, 774 (2d Dept.2003); Fromer v. Vogel, 50 F.Supp.2d 227, 242 (S.D.NY 1999); see generally PJI 2:230. Fraud, on the other hand, requires a particularized factual assertion which supports the inference of scienter. Ford v. Sivilli, supra. Negligent misrepresentation is viewed as a species of fraud that replaces the required showing of scienter with a showing of negligence. Fromer v. Vogel, supra, 50 F.Supp.2d at 243.
For purposes of statute of limitations analysis, the claims asserted must be examined in order to ascertain whether the claim “stands in the shadow of fraud”, Fromer v. Vogel, supra, 50 F.Supp.2d at 242, in which event the six year period of limitations applies, or whether the claims are best viewed as standing in the shadow of negligence, in which case the three year statute of limitations applies. Stated somewhat differently, the six year statute applies where the negligent misrepresentation claim is closely aligned with an intentional misrepresentation claim. See Asbeka Industries v. Travelers Indemnity Co., 831 F.Supp. 74, 80 (E.D.NY 1993).
The necessity for this analysis is apparent from review of the precedents. In Santiago v. 1370 Broadway Associates, L.P., 96 N.Y.2d 765 (2001), the Court of Appeals dealt with a third party action by an insured against an insurance broker which charged “negligence and/or errors or omissions” and “negligence, material misrepresentation or fraud”. The Court ruled that, because there were issues of fact as to whether the third-party defendant’s actions were negligent or fraudulent, the statute of limitations issue could not be decided as a matter of law. 96 N.Y.2d at 766.
In Fandy v. Lung–Fong Chen, 262 A.D.2d 352, 353 (2d Dept.1999), cited by Plaintiffs, the Court stated that plaintiff’s “causes of action based on constructive fraud and negligent misrepresentation are covered by the six-year Statute of Limitations …” Earlier, the Second Department stated, in Milin Pharmacy, Inc. v. Cash Register Systems, Inc., 173 A.D.2d 686, 687 (2d Dept.1992) that it was proper to determine that “the plaintiff’s cause of action sounding in negligent misrepresentation is governed by a six-year Statute of Limitations …” However, in Milin, the plaintiff asserted a claim for actual fraud, though that claim was found to be legally insufficient. In contrast, in Country World, Inc. v. Imperial Frozen Foods Co., 186 A.D.2d 781 (2d Dept.1992), involving the sale of apple juice concentrate, the Court affirmed both the dismissal of a fraud claim as well as the denial of a motion to amend so as to add a claim based on negligent misrepresentation. As to the denial of the motion to amend, the Second Department held that the denial was proper because the statute of limitations for negligent misrepresentation had run, citing, CPLR 203(subd. a) and CPLR 214 (subds.4, 5). The citation to CPLR 214(subds. 4 and 5) would indicate the applicability of the three year statute set forth in CPLR 214.
Cases from other courts likewise treat negligent misrepresentation claims which do not sound in fraud as being subject to the three year statute of CPLR 214. HSBC Bank USA v. Bond, Schoeneck and King, PLLC, 16 Misc.3d 813, 435–436 (Sup.Ct. Erie County 2007); see also A.H.A. General Construction, Inc. v. Edelman Partnership, 291 A.D.2d 239 (1st Dept.2002).
Here, Plaintiffs do not allege actual fraud. Nor do Plaintiffs allege constructive fraud, which would require an allegation and proof of the existence of a fiduciary or confidential relationship between the parties. See Del Vecchio v. Nassau County, 118 A.D.2d 615 (2d Dept.1986).
In the absence of allegations of fraud or constructive fraud, Plaintiffs may not rely on the fraud statute of limitations in order to circumvent the statute of limitations applicable to a negligence cause of action. See Ruffing v. Union Carbide Corp., 308 A.D.2d 526, 527 (2d Dept.2003), citing Cabrini Medical Center v. Desina, 64 N.Y.2d 1059 (1985). As Plaintiffs have neither alleged, nor offered any evidence of, a fraud or constructive fraud case, no issue of fact is presented as to which statute of limitations applies, differentiating this case from Santiago v. 1370 Broadway Associates, L.P., 96 N.Y.2d 765 (2001), supra.
A tort cause of action accrues for statute of limitations purposes when an injury is sustained, i.e., when all of the elements of the tort can be truthfully alleged in a complaint. Kronos, Inc v. AVX Corp., 81 N.Y.2d 90, 94 (1993); Roldan v. Allstate Ins. Co., 149 A.D.2d 20 (2d Dept.1989). It is the date of injury, not the date of the wrongful act of the defendant nor the date of discovery of the injury by plaintiff, that is relevant. Kronos, Inc v. AVX Corp., supra.
The date the cause of action for negligent misrepresentation accrues is also subject to confusion. As indicated in Reilly Green Mtn., above, some courts hold that it starts only when injury occurs. See also U.S. Fire Ins. Co. v. North Shore Risk Management, above, 114 A.D.3d 408 (“North Shore’s third-party negligent misrepresentation claims, to which a three-year statute of limitations applied …, were timely, as there was no injury to North Shore until U.S. Fire commenced its action against North Shore on March 27, 2009”).
Other courts have held that the claim accrues at the time the misrepresentations are made and relied upon by plaintiff. See Gerschel v. Christensen, 143 A.D.3d 555 (1st Dep’t 2016)(“When a plaintiff alleges fraud or constructive fraud …, ‘[a] cause of action for negligent misrepresentation accrues on the date of the alleged misrepresentation which is relied upon by the plaintiff’ (Fandy Corp. v. Lung–Fong Chen, 262 A.D.2d 352, 353, 691 N.Y.S.2d 572 [2d Dept.1999]”[“a cause of action to recover damages for constructive fraud accrues on the date of the commission of the purported fraud]”).
A fair reading of what the law should be is that if the claim of negligent misrepresentation involves allegations of fraud, the six-year statute of limitations should apply. That claim should accrue when the representations are made, as in any other fraud claim (that does not allege actual fraud). The extended two-year limitations period of CPLR 213(8) does not apply to such claims that do not allege actual fraud.
Recent Third Department Case
Throwing the law into further confusion is the Third Department’s recent decision in Krog Corp. v Vanner Group, Inc., 2018 NY Slip Op 00876 (3d Dep’t Decided on February 8, 2018).
In Krog, the Third Department, addressing claims for aiding and abetting fraud and negligent misrepresentation assumed not only that the six-year statute of limitations applied but also the extended two-year period under CPLR 213(8) for actual fraud:
Plaintiff’s causes of action for aiding and abetting fraud and negligent misrepresentation, both of which sound in fraud (see State of N.Y. Workers’ Compensation Bd. v Wang, 147 AD3d at 115-116; NYAHSA Servs., Inc., Self-Ins. Trust v People Care Inc., 141 AD3d 785, 791 [2016]), are subject to a statute of limitations “the greater of six years from the date the cause of action accrued or two years from the time . . . plaintiff . . . discovered the fraud, or could with reasonable diligence have discovered it” (CPLR 213 [8]; see NYAHSA Servs., Inc., Self-Ins. Trust v Recco Home Care Servs., Inc., 141 AD3d 792, 795 [2016]; NYAHSA Servs., Inc., Self-Ins. Trust v People Care Inc., 141 AD3d at 791).
The authorities cited in the above quote do not address negligent misrepresentation claims. In any event, the Third Department held that plaintiff was sufficiently on notice of the fraud so it could not take advantage of the two-year extended period.
Explicitly Alleging Fraud Can Extend the Statute for Other Claims
Finally, the Third Department saved the causes of action alleging breach of fiduciary duty because, although “fraud” was not explicitly alleged by the plaintiff, the Court gleaned fraud from what was alleged. Thus, the Third Department reversed the lower court, which was not so forgiving:
Finally, we disagree with Supreme Court’s conclusion that the entirety of plaintiff’s aiding and abetting breach of fiduciary duty claim is governed by a three-year statute of limitations. Because plaintiff does not seek equitable relief, a six-year statute of limitations period applies to a breach of fiduciary duty cause of action if “an allegation of fraud is essential to” such claim (IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139 [2009]; accord New York State Workers’ Compensation Bd. v Consolidated Risk Servs., Inc., 125 AD3d at 1253). While a claim of fraud generally requires an affirmative misrepresentation, “fraud may also result from a fiduciary’s failure to disclose material facts when the fiduciary had a duty to disclose and acted with the intent to deceive” (New York State Workers’ Compensation Bd. v Consolidated Risk Servs., Inc., 125 AD3d at 1254 [internal quotation marks, brackets and citations omitted]; see Kaufman v Cohen, 307 AD2d 113, 119-120 [2003]).
Here, a portion of plaintiff’s fiduciary duty claim is grounded upon allegations that Compensation Risk Managers, aided and abetted by defendant, breached its fiduciary duties to trust members, including plaintiff, by concealing the financial condition of the trust and falsely endorsing trust membership as a safe and conservative alternative to traditional insurance, and that the pair did so as part of a scheme to increase membership and thereby increase commissions. While the amended complaint does not employ the word “fraud” in describing these acts, we must “‘look for the reality, and the essence of the [claim] and not its mere name'” (Paolucci v Mauro, 74 AD3d 1517, 1520 [2010], quoting Brick v Cohn-Hall-Marx Co., 276 NY 259, 264 [1937]). So viewed, we find that these allegations are based in fraud and are essential to this portion of the claim (see New York State Workers’ Compensation Bd. v Consolidated Risk Servs., Inc., 125 AD3d at 1253; New York State Workers’ Compensation Bd. v SGRisk, LLC, 116 AD3d 1148, 1154 [2014]; Paolucci v Mauro, 74 AD3d at 1520). Therefore, this portion of the aiding and abetting breach of fiduciary duty claim is subject to a six-year statute of limitations (see id.) and, to the extent that it alleges conduct occurring after March 24, 2008, it too is timely.
Commentary
The conflicting cases need to be reviewed carefully. Care should be taken in framing claims based upon some form of fraud, to obtain the most favorable statute of limitations. Even when other causes of action are involved, such as breach of fiduciary duty, fraud, where applicable, should be alleged explicitly so as to take advantage of the more favorable statute of limitations.