Fraud Notes: Statute of Limitations and the Failure to Plead The Elements of a Fraud Claim

• Posted on: Jun 2 2025

By: Jeffrey M. Haber

In today’s Fraud Notes, we examine Yudkin v. Evergreen Terrace 888 Corp., 2025 NY Slip Op 03223 (2d Dept. May 28, 2025) (here), and Lapin v. Verner, 2025 NY Slip Op 03184 (2d Dept. May 28, 2025) (here).

Yudkin involved the statute of limitations for fraud and the continuing wrong doctrine. Lapin involved the failure to plead the elements of a fraud claim.[1]

Yudkin v. Evergree Terrace 888 Corp.

“A defendant who moves to dismiss a complaint pursuant to CPLR 3211(a)(5) on the ground that it is barred by the statute of limitations bears the initial burden of proving, prima facie, that the time in which to sue has expired.”[2] “The burden then shifts to the nonmoving party to raise a question of fact as to the applicability of an exception to the statute of limitations, as to whether the statute of limitations was tolled, or as to whether the action was actually commenced within the applicable limitations period.”[3]

A cause of action sounding in breach of contract is governed by a six-year statute of limitations,[4] which “begins at the time of the breach, even when no damage occurs until later, and even though the injured party may be ignorant of the existence of the wrong or injury.”[5]

A cause of action based upon fraud must be commenced within six years from the time of the fraud or within two years from the time the fraud was discovered, or with reasonable diligence could have been discovered, whichever is longer.[6] The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged,”[7] “even though the injured party may be ignorant of the existence of the wrong or injury.”[8]

Determining when accrual occurs is not easy and often contested. So too is the determination of when the plaintiff discovered or could have discovered the fraud.

In New York, “plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which it could be reasonably inferred, that is, inferred from facts which indicate the alleged fraud.”[9] “[M]ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud.[10] “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.”[11]

Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that s/he has been defrauded, a duty of inquiry arises, and if s/he fails to undertake that inquiry when it would have developed the truth and shuts his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her.[12] The test as to when fraud should with reasonable diligence have been discovered is an objective one.[13] Thus, while it is true that New York courts will not grant a motion to dismiss a fraud claim where the plaintiff’s knowledge is disputed, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued.[14] “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.”[15]

The foregoing principles were at issue in Yudkin.

Yudkin was an action to recover damages for breach of contract and fraud.

As alleged in the amended complaint, in January 2012, plaintiff entered into a contract with defendant Evergreen Terrace 888 Corp., the sponsor of an offering plan to convert a rental building in Brooklyn, N.Y. to a condominium building, to purchase a unit in the building. Plaintiff tendered a down payment of $11,000 in connection with the contract.

On April 15, 2013, the sponsor’s broker informed plaintiff that the building was going to remain a rental building and agreed to return plaintiff’s down payment. In an email dated April 22, 2013, the sponsor informed plaintiff that the sponsor decided to keep the building as a rental building due to “sign off issues and appraisal issues.” In June 2014, the sponsor sold the building to defendant 888 Oscar & August, LLC, and another entity. On August 11, 2014, the sponsor officially abandoned its offering plan for the condominium conversion.

In November 2020, plaintiff commenced the action to recover damages for breach of contract and fraud against, among others, defendants. Defendants moved pursuant to CPLR 3211(a) to dismiss the amended complaint insofar as asserted against each of them on the ground, among others, that it was barred by the statute of limitations. Plaintiff opposed the motions and cross-moved pursuant to CPLR 306-b to extend the time to serve one of the defendants with the summons with notice.

In an order dated October 7, 2022, the motion court granted the defendants’ motions and denied, as moot, plaintiff’s cross-motion. Plaintiff appealed.

The Appellate Division, Second Department affirmed.

The Court found that defendants established that plaintiff’s breach of contract cause of action was time-barred, since plaintiff commenced the action more than six years after the alleged breach occurred in April 2013.[16] The Court held that plaintiff failed to raise a question of fact as to when the claim accrued.[17]

Regarding the fraud claim, the Court found that defendants established that plaintiff’s fraud cause of action was time-barred.[18] The Court explained that “plaintiff did not commence [the] action until November 2020, more than six years after the alleged fraud and more than two years after the plaintiff possessed knowledge of facts from which the alleged fraud could have been discovered with reasonable diligence.”[19] The Court held that plaintiff failed to raise a question of fact as to when the fraud claim accrued.

The Court also rejected plaintiff’s contention that the continuing wrong doctrine tolled the statute of limitations.[20] Under New York law, the doctrine “may only be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct. The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.”[21] The Court found that the sponsor’s official abandonment on August 11, 2014, of its offering plan for the condominium conversion was predicated entirely on the alleged wrong of the earlier misrepresentations made to the plaintiff, and therefore, the continuing wrong doctrine did not apply.[22]

Lapin v. Verner

It is well settled that “[a] cause of action alleging fraud requires the plaintiff to plead: (1) a material misrepresentation of a fact, (2) knowledge of its falsity, (3) an intent to induce reliance, (4) justifiable reliance, and (5) damages.”[23] Under CPLR 3016(b), each of the foregoing elements must be pleaded “in detail.”[24] Conclusory allegations will not suffice.[25] Neither will allegations based on information and belief.[26] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[27]

Claims of “[f]raud and fraudulent inducement are not pleaded with the requisite particularity under CPLR 3016(b)” unless “the words used by defendants” are set forth.[28] This means that general descriptions of what was said will not suffice. The plaintiff must identify the “who, what, where, when and how” of the alleged fraud.[29]

The plaintiff also must allege a misrepresentation of present or existing fact. “[A]llegations of fraudulent misrepresentations which amount to no more than ‘[v]ague expressions of hope and future expectation’,[30] or ‘mere opinion and puffery’[31] . . . provide an insufficient basis upon which to predicate a claim of fraud.”[32] Thus, for example, representations related to the expected return on an investment are not actionable because “a prediction of something which is expected to occur in the future will not sustain an action for fraud.”[33]

As this Blog has noted in several articles, many cases involving an alleged fraud often rise and fall on the scienter element of the cause of action. To allege scienter, a plaintiff must allege with particularity that the defendant had an “actual intent to deceive, manipulate, or defraud.”[34] Scienter must be pleaded with “sufficient detail[]”; “conclusory statement[s] of intent” are insufficient.[35] To succeed, therefore, the plaintiff must allege facts from which there is some “rational basis for inferring that the alleged misrepresentations were knowingly made.”[36]

Scienter is a very difficult element to plead. In fact, the scienter element is the hardest to plead because the evidence of intent most often rests solely with the defendant. Because of this difficulty, intent is often inferred from circumstantial evidence.[37]

Another element of a fraud claim that is difficult to plead is “justifiable reliance.” The New York Court of Appeals has emphasized the importance of the justifiable reliance element, noting that it is a “fundamental precept” of a fraud claim and is critical to the success of such a claim.[38]

Determining whether a plaintiff justifiably relied on a misrepresentation or omission, however, is “always nettlesome” because it is so fact intensive.[39] Recognizing this difficulty, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.”[40] Where the falsity of a representation could have been ascertained by reviewing “publicly available information,” courts have not hesitated to dismiss a fraud claim because of the failure to satisfy the justifiable reliance element.[41]

The same is true with regard to documents that a party signs, such as contracts, offering plans, and private placement memoranda. “A party who signs a document without any valid excuse for not having read it is ‘conclusively bound’ by its terms.”[42] When that happens, the plaintiff’s failure to read the document prevents him/her from establishing justifiable reliance.[43]

It is important to remember that fraud does not always involve an affirmative statement. Sometimes a person can perpetrate a fraud through the omission of a material fact.

Where fraud by omission is claimed, the plaintiff must allege that the defendant had a duty to disclose the omitted fact. A duty to disclose arises when (1) the defendant speaks on the subject, in which case he/she must speak truthfully and completely about the matter[44]; (2) there is a fiduciary relationship between the plaintiff and defendant[45]; or (3) the defendant possesses “special facts” about the matter not known by the plaintiff.[46]

A fraud by omission claim is not sustainable where information allegedly withheld is ascertainable through publicly available sources.[47] Nor is an omission case sustainable where the omitted information could have been discovered by the plaintiff through the exercise of ordinary intelligence.[48] Both of the foregoing circumstances will negate application of the special facts doctrine.

Finally, as in a fraud by misrepresentation case, the plaintiff must satisfy the other elements of the claim – namely, intent to defraud, justifiable reliance, and injury. And the plaintiff must do so with particularity.[49]

All of the foregoing principles were at issue in Lapin.

In Lapin, plaintiff commenced the action against defendants to recover damages for breach of fiduciary duty and fraud in relation to a failed real estate investment. Plaintiff alleged, inter alia, that an agent of defendants deceived plaintiff into investing in a real estate project being overseen by the individual defendant. Plaintiff alleged that the agent misrepresented that the individual defendant, who is the chief executive officer of defendant Springhouse Partners, Inc., was a “real estate mogul,” and that the investment was “conservative” and would generate an annual 5% return with distributions within 18 to 24 months. Plaintiff further alleged that defendants made material omissions of fact by failing to disclose their involvement in certain other concomitant investments, and by failing to disclose that “the project was overleveraged” and “susceptible to interest rate changes.”

Prior to interposing an answer, defendants moved, inter alia, pursuant to CPLR 3211(a) to dismiss the cause of action alleging fraud on the ground, among others, that plaintiff failed to state a cause of action. In an order dated August 3, 2023, the motion court, inter alia, granted that branch of defendants’ motion. Plaintiff appealed. The Appellate Division, Second Department affirmed.

The Court held that “plaintiff failed to state a cause of action for fraud.”[50] The Court found that the “allegations of fraudulent misrepresentations amount[ed] to ‘no more than vague expressions of hope and future expectation’ or ‘mere opinion and puffery,’ and [were, therefore,] nonactionable.”[51]

Moreover, said the Court, plaintiff failed to allege facts to support an inference of scienter or that plaintiff reasonably relied on the representations alleged to have been made by defendants.[52]

Further, the Court found that “the allegations of material omissions of fact … fail[ed] to support a cause of action for fraud.”[53]The Court explained that plaintiff failed to plead “facts … which might give rise to a reasonable inference that the alleged omissions were material or that the defendants otherwise had a duty to disclose the alleged omissions to the plaintiff, or that the plaintiff justifiably relied on the alleged omissions.”[54]

Accordingly, the Court concluded that the motion court “properly granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a) to dismiss the cause of action alleging fraud.”[55]

Takeaway

Yudkin highlights the need for litigants to act on the facts and circumstances from which it can be reasonably inferred that they were the victims of fraud. The failure to bring suit when the facts suggest fraud will result in dismissal. Thus, even though the discovery rule allows the victim of fraud to bring suit when the very nature of the fraud prevents him/her from knowing that he or she was defrauded, the courthouse doors will, nevertheless, close on the litigant who sits on his/her rights when the facts indicate that a wrong has been done.

Lapin highlights the need to satisfy each element of a fraud claim. As made clear by the Court, the failure to allege each element of the claim with particularity will result in the dismissal of cause of action.

_________________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] To find articles related to the elements of a fraud claim and the statute of limitations related to a fraud claim, visit the “Blog” tile on our website and enter the search terms desired (e.g., misrepresentation or omission, scienter, justifiable reliance, statute of limitations) or any other related search term in the “search” box

[2] Lautman v. 2800 Coyle St. Owners Corp., 223 A.D.3d 658, 659-660 (2d Dept. 2024) (internal quotation marks omitted); Kaul v. Brooklyn Friends Sch., 220 A.D.3d 939, 940-941 (2d Dept. 2023).

[3] Lautman, 223 A.D.3d at 660; Plaza Invs. v. Capital One Fin. Corp., 165 A.D.3d 853, 854 (2d Dept. 2018).

[4] CPLR 213(2).

[5] Houtenbos v. Fordune Assn., Inc., 200 A.D.3d 662, 666 (2d Dept. 2021); Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993).

[6] CPLR 213(8); Seidenfeld v. Zaltz, 162 A.D.3d 929, 934 (2d Dept. 2018).

[7] Carbon Capital Mgmt., LLC v. Am. Express Co., 88 A.D.3d 933, 939 (2d Dept. 2011) (citation and alterations omitted).

[8] Schmidt v. Merchants Despatch Transp. Co., 270 N.Y. 287, 300 (1936).

[9] Erbe v. Lincoln Rochester Trust Co., 3 N.Y.2d 321, 326 (1957).

[10] Id.

[11] Trepuk v. Frank, 44 N.Y.2d 723, 725 (1978).

[12] Gutkin v. Siegal, 85 A.D.3d 687, 688 (1st Dept. 2011). 

[13] Id. (citation and internal quotation marks omitted).

[14] See Shalik v. Hewlett Assocs., L.P., 93 A.D.3d 777, 778 (2d Dept. 2012).

[15] Celestin v. Simpson, 153 A.D. 3d 656, 657 (2d Dept. 2017).

[16] Yudkin, Slip Op. at *2 (citing CPLR 213(2) and Kaul, 220 A.D.3d at 941.

[17] Id.

[18] Id.

[19] Id. (citing Kotlyarsky v. Abrazi, 188 A.D.3d 853, 855 (2d Dept. 2020); Coleman v. Wells Fargo & Co., 125 A.D.3d 716, 716-717 (2d Dept. 2015)).

[20] Id.

[21] Blaize v. New York City Dept. of Educ., 205 A.D.3d 871, 874 (2d Dept.2022) (citations and internal quotation marks omitted).

[22] Yudkin, Slip Op. at *2 (citing Fricke v. Beauchamp Gardens Owners Corp., 222 A.D.3d 718, 720 (2d Dept. 2022)).

[23] Benjamin v. Yeroushalmi, 178 A.D.3d 650, 654 (2d Dept. 2019) (citing Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)).

[24] Stortini v. Pollis, 138 A.D.3d 977, 978–79 (2d Dept. 2016).

[25] Id.

[26] See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”).

[27] RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014).

[28] Gregor, 120 A.D.3d at 447; Orchid Constr. Corp. v. Gottbetter, 89 A.D.3d 708, 710–11 (2d Dept. 2011) (dismissing complaint where plaintiff failed to allege, among other things, “the time or place” of alleged misrepresentations); Saul v. Cahan, 153 A.D.3d 947, 950 (2d Dept. 2017) (citations omitted) (dismissing fraud claim because plaintiff failed to alleged “specific dates and items” relative to the “circumstances underlying” the cause of action for fraud).

[29] INTL FCStone Mkts., LLC v. Corrib Oil Co. Ltd., 172 A.D.3d 492, 493 (1st Dept. 2019).

[30] International Oil Field Supply Servs. Corp. v. Fadeyi, 35 A.D.3d 372, 375 (2d Dept. 2006).

[31] DH Cattle Holdings Co. v. Smith, 195 A.D.2d 202, 208 (1st Dept. 1994).

[32] High Tides, LLC v. DeMichele, 88 A.D.3d 954, 958 (2d Dept. 2011).

[33] Dragon Inv. Co. II LLC v. Shanahan, 49 A.D.3d 403, 403 (1st Dept. 2008) (internal quotation marks and citation omitted); Lipman v. Shapiro, 150 A.D.3d 517 (1st Dept. 2017) (citations omitted) (dismissing plaintiff’s fraud claim because the alleged representations were based on a future event, not an existing fact).

[34] Zutty v. Rye (NOR), 33 Misc. 3d1226(A), 2011 WL 5962804 at *11 (Sup. Ct., N.Y. Co. Apr. 15, 2011).

[35] Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495 (1st Dept. 2006) (citation omitted); Fried v. Lehman Bros. Real Estate Assoc. III, L.P., 156 A.D.3d 464, 464–65 (1st Dept. 2017) (citation omitted) (dismissing complaint because “conclusory” allegations of scienter were “not pleaded with the requisite particularity”); Giant Group v. Arthur Andersen LLP, 2 A.D.3d 189, 190 (1st Dept. 2003).

[36] Houbigant, Inc. v. Deloitte & Touche LLP, 303 A.D.2d 92, 93 (1st Dept. 2003).

[37] Pludeman v. N. Leasing Sys., Inc., 10 N.Y.3d 486, 488 (2008).

[38] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018).

[39] DDJ Mgt., LLC v. Rhone Group L.L.C., 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted).

[40] Curran, Cooney, Penney v. Young & Koomans, 183 A.D.2d 742, 743) (2d Dept. 1992). See also Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 322 (1959).

[41] E.g., HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 195 (1st Dept. 2012); see also Churchill Fin. Cayman, Ltd. v. BNP Paribas, 95 A.D.3d 614 (1st Dept. 2012).

[42] Ferrarella v. Godt, 131 A.D.3d 563, 567-568 (2d Dept. 2015) (quoting Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 11 (1988)); see also Sorenson v. Bridge Capital Corp., 52 A.D.3d 265, 266 (1st Dept. 2008).

[43] Stortini, 138 A.D.3d at 978; Sorenson, 52 A.D.3d at 266.

[44] Bank of Am., N.A. v. Bear Stearns Asset Mgmt., 969 F. Supp. 2d 339, 351 (S.D.N.Y. 2013).

[45] Balanced Return Fund Ltd. v. Royal Bank of Canada, 138 A.D.3d 542, 542 (1st Dept. 2016).

[46] Pramer S.C.A. v. Abaplus Int’l Corp., 76 A.D.3d 89, 99 (1st Dept. 2010). “The ‘special facts’ doctrine holds that ‘absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair.’” Greenman-Pedersen, Inc. v. Berryman & Henigar, Inc., 130 A.D.3d 514, 516 (1st Dept. 2015), lv. denied, 29 N.Y.3d 913 (2017) (quoting, Pramer, 76 A.D.3d at 99).

[47] Northern Group Inc. v. Merrill Lynch, Pierce, Fenner & Smith Inc., 135 A.D.3d 414 (1st Dept. 2016).

[48] Black v. Chittenden, 69 N.Y.2d 665, 669 (1986); Schumaker v. Mather, 133 N.Y. 590, 596 (1892).

[49] CPLR 3016(b).

[50] Lapin, Slip Op. at *2.

[51] Id. (citations omitted).

[52] Id. (citations omitted).

[53] Id.

[54] Id. (citations omitted).

[55] Id.

Tagged with: Business Litigation And Commercial Litigation, Elements of Fraud, Fraud, Misrepresentation Of Existing Fact, Omission, Particularity, Scienter