I have written often about the interplay between the fraudulent and deceptive conduct of fraudsters, on the one hand, and the obligation of those who claim to have been defrauded to act reasonably and prudently to protect themselves from being misled, on the other hand. Clearly, no matter how egregious the fraudulent conduct may be, the alleged victim must act reasonably and justifiably in relying upon the alleged misrepresentations and investigating the truth. This affects not only the substantive elements of the cause of action for fraud (justifiable reliance), but also the statute of limitations governing fraud claims.
In order to take advantage of the extended statute of limitations for actual fraud, the party instituting an action for fraud more than six years after the fraudulent conduct was committed still has the benefit of an additional two years to bring the action if it had not previously discovered the fraud nor could have discovered the fraud using “reasonable diligence.” See CPLR 213(8).
In determining whether the party bringing the fraud claim could have in fact discovered the fraud using “reasonable diligence,” courts have assessed the impact of publicly or otherwise available information that the plaintiff could have discovered to ferret out, verify or otherwise discover the falsity of the fraudulent information conveyed. See, e.g., my posts “Duty of Inquiry Looms Large in Dismissal of Actionable Fraud Claim Under Statute of Limitations”; “Publicly-Available Information from ACRIS Dooms Fraud Claim Under Statute of Limitations” and “Publicly Available Information and Due Diligence Play Prominent Role on Fraud Statute of Limitations and Reasonable Reliance Issues.”
There are many cases in which the courts conclude that the party seeking to rely upon the extended two-year statute of limitations period could have in fact discovered the fraud through reasonable diligence by reviewing information that was publicly available or otherwise discoverable. As a recent decision of the Appellate Division, First Department, shows, however, simply having the information available is not always fatal to applying the extended two-year period. In Murray v. Stone, 2023 N.Y. Slip. Op. 01749 (1st Dep’t Decided Mar. 30, 2023), the First Department instructed that it is not simply having the means of acquiring the information that is dispositive, but also having a reasonable suspicion that fraud may be occurring so as to require exploring that information and investigating the suspicious conduct.
Facts of Murray
The facts of the Murray case are a bit exotic, even for fraud cases, involving what some may literally consider exotic animals. More specifically, the individual plaintiff had an affinity to South African safari game hunting and in getting his name in the Safari Club International record books. To qualify for entry into such hunting record books, the animals killed would need to be of a certain size.
While in South Africa on business, plaintiff met the individual defendant who billed himself out as an African hunting guide, marketing his hunting services on his website and social media. Plaintiff hired the defendant hunting guide for multiple hunting trips spanning over ten years. As a result of the “kills” that plaintiff was able to hunt, his name was listed in the prized hunting publication. Now here is the rub: It turned out that the animals that plaintiff killed were smaller than the size that qualified for the record books and, after this was discovered, plaintiff’s name was removed from the “prestigious” records, allegedly causing plaintiff “embarrassment and detriment” to his character “having the false records removed from the record books.” Plaintiff then sued for fraud.
Plaintiff alleged that the defendants, the South African hunting business and its owner, fraudulently induced him to pay for excursions by misrepresenting that the sizes of the animals that plaintiff was hunting with the defendant qualified for entry in the official hunting record books. In particular, plaintiff alleged that defendants “significantly exaggerated” some animals’ sizes by a foot or more, alleging that the measurements given by defendants to induce plaintiff to hire them “differed dramatically” from those subsequently taken by plaintiffs’ independent measurer. The last measurement represented by defendants was given to plaintiff well over six years prior to the commencement of the fraud action. Plaintiff therefore contended that the two-year discovery rule should apply from when he discovered the alleged fraud, which was within two years of the filing of the complaint. Defendants moved to dismiss the complaint as time-barred under the statute of limitations. Defendants argued that the taxidermy mounts “contain[ed] information that should have alerted plaintiffs to the alleged wrongdoing and . . . were available to plaintiffs at all relevant times.”
The New York County Commercial Division granted defendants’ motion to dismiss, rejecting plaintiffs’ argument that the two-year discovery period should apply, ruling that “plaintiffs failed to allege that they could not have timely discovered the fraud with the exercise of due diligence.” The Commercial Division concluded that plaintiffs had the animals at their own disposal and that defendants did not do anything to prevent plaintiffs from “learning the actual measurements of the animals that were in their possession for years.”
The First Department disagreed, reversed, and denied the motion to dismiss. Even though it was undisputed that plaintiffs had the relevant information about the actual animal sizes available, this was not fatal to their reliance upon the two-year statute of limitations discovery rule. The First Department noted that although plaintiffs had the relevant information available, plaintiffs did not have sufficient information to suspect fraud so as to verify the measurements of the animals available to them. As the First Department explained:
The mere fact that plaintiffs were in possession of the taxidermy mounts is not tantamount to awareness that they had been defrauded (see Sargiss v Magarelli, 12 NY3d 527, 532 [2009] [“Where it does not conclusively appear that a plaintiff had knowledge of the facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion”] [internal quotation marks omitted]; De Sole v Knoedler Gallery, 974 F Supp 2d 274, 297-298 [SD NY 2013] [finding that the failure to forensically examine painting did not trigger two-year period when the plaintiffs had no reason to doubt the painting’s authenticity]. There was no reason for plaintiffs to have remeasured the animals when the SCI, the governing body for hunting, had already accepted them for placement in the record books, lending credibility to the false measurements (see CSAM Capital, Inc. v Lauder, 67 AD3d 149, 155-156 [1st Dept 2009]; De Sole, 974 F Supp 2d at 297-299 [the plaintiffs were not on inquiry notice when they were told that authoritative parties had authenticated the painting]). The differences between defendant Stone’s false measurements and the accurate measurements are slight to the untrained eye (see CSAM Capital, 67 AD3d at 155). Finally, it should be noted that the mounts were not readily accessible, but were located in Mittagong, Australia. Under these circumstances, it cannot be conclusively said that plaintiffs had knowledge of the facts from which fraud might be inferred so as to render their claims untimely.
Commentary
As shown by the diametrically different way the Commercial Division and the First Department in Murray assessed the facts and their legal impact there, it is not always easy to predict how available information may affect the discovery statute of limitations rule on actual fraud claims. As the First Department instructed, it is not dispositive that the information was available to the victim of fraud if there was no reasonable basis to suspect fraud so as to investigate the false information further within the two-year period.