Second Department Finds No Issues of Fact as to Whether Defendant Should be Estopped from Asserting a Statute of Limitations Defense

• Posted on: Jan 7 2019

Statutes of limitations are an important part of litigation. A plaintiff who sits on his/her rights can be denied access to the courthouse for failing to timely assert his/her claim(s). While such a result seems unfair, the courts do not always agree. But, when the plaintiff fails to timely assert a claim because of the words or actions of the would-be defendant, the courts are more forgiving, exercising their legal and equitable powers to estop the defendant from dismissing a complaint on statute of limitations grounds.

Today’s post looks at Newman v Greystone & Co., Inc., 2018 NY Slip Op. 08669 (2d Dept. Dec. 19, 2018) (here), where the Second Department reversed the denial of a pre-discovery motion for summary judgment on the grounds that the action was time-barred under the applicable statute of limitations. The Court rejected the plaintiff’s argument that the defendant was equitably estopped from asserting the statute of limitations defense because the plaintiff could not have justifiably relied on the alleged misrepresentations that allegedly prevented him from timely filing the action. As discussed below, the misrepresentations were based on facts that were publicly available and could have been discovered with reasonable diligence. Since the plaintiff failed to use the means available to him to discover those facts, the Court held that “there [could] be no reasonable reliance” on the alleged misrepresentations.

New York Law

Statutes of Limitation are arbitrary time limitations that bar the commencement of an action. McCarthy v. Volkswagen of Am., 55 N.Y.2d 543, 548 (1982) (citation omitted). They reflect a legislative judgment that defendants should be protected from stale claims. After all, as time passes, the defense of an action becomes more difficult. Id. Indeed, memories fade, witnesses become unavailable, and documents may be misplaced or lost. Thus, while application of a statute of limitations may impose a hardship on a plaintiff with a meritorious claim, courts will not deem them to be arbitrary or unreasonable solely because of the “harsh effect” felt by the plaintiff. Zumpano v. Quinn, 6 N.Y.3d 666, 673 (2006).

However, the courts of New York have equitably estopped the assertion of a statute of limitations defense “where it is the defendant’s affirmative wrongdoing . . . which produced the long delay between the accrual of the cause of action and the institution of the legal proceeding.” General Stencils v. Chiappa, 18 N.Y.2d 125, 128 (1966); see also Zumpano, 6 N.Y.3d at 674; Matter of Steyer, 70 N.Y.2d 990, 993 (1988). Claims of fraudulent inducement, misrepresentation or deception are sufficient to invoke the equitable estoppel doctrine.  Zumpano, 6 N.Y.3d at 674 (quoting Simcuski v. Saeli, 44 N.Y.2d 442, 449 (1978)); Putter v. North Shore Univ. Hosp., 7 N.Y.3d 548, 552-553 (2006).

Importantly, the plaintiff must demonstrate reasonable reliance on the defendant’s misrepresentations to invoke the doctrine. Simcuski, 44 N.Y.2d at 449. In this regard, the plaintiff must use “the means available to him,” by the “exercise of ordinary intelligence,” to ascertain “the truth or the real quality of the subject of the representation.” Centro Empresarial Cempresa S.A. v. American Movil, S.A.B de C.V., 17 N.Y.2d 269, 268 (2011). The failure to make such a showing will result in the application of the statute of limitations. Gleason v. Spota, 194 A.D.2d 764, 765 (2d Dept. 1993) (“Equitable estoppel will not toll a limitations statute, however, where a plaintiff possesses “‘timely knowledge’ sufficient to place him or her under a duty to make inquiry and ascertain all the relevant facts prior to the expiration of the applicable Statute of Limitations.”) (quoting McIvor v. Di Benedetto, 121 A.D.2d 519, 520 (2d Dept. 1986).

[Ed. Note: In Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018) (here), the Court of Appeals reiterated the importance of satisfying the justifiable reliance element of a fraud claim. Accord ACA Fin. Guar. Corp. v. Goldman, Sachs & Co., 25 N.Y.3d 1043, 1044 (2015); see also id. at 1051 (Read, J., dissenting on other grounds) (describing the justifiable reliance element as “our venerable rule”) (here).]

Finally, when the plaintiff bases his/her claim of equitable estoppel on concealment, instead of fraud, misrepresentation or deception, “the plaintiff must demonstrate a fiduciary relationship … which gave the defendant an obligation to inform him or her of facts underlying the claim.” Gleason, 194 A.D.2d at 765.

Newman v. Greystone & Co., Inc.

Background

[Ed. Note: The defendant brought two motions for summary judgment to dismiss the complaint on statute of limitations grounds. On May 4, 2016, the motion court denied the first motion, finding issues of fact over whether the equitable estoppel doctrine applied. As discussed below, on December 19, 2018, the Second Department reversed that order. On September 11, 2018, approximately two months before the Second Department ruling, the motion court granted the defendant’s second motion to dismiss the complaint on statute of limitations grounds. (Here.) Since the motion court’s second decision provides a discussion of the facts on which the decision was based, the background section below follows that recitation.]

The plaintiff, David Newman (“Newman”), commenced the action against the defendant, Greystone & Co., Inc. (“Greystone”), asserting causes of action to recover damages for breach of contract, unjust enrichment, and fraud, and to impose a constructive trust. The action arose out of two joint venture agreements pertaining to certain real estate investments entered into by the parties in 1998 and 1999. Under those agreements, the parties agreed that all net profits of the real estate investments would be split evenly upon the sale, refinancing or operations, of the properties that were the subject of the investments (the “Properties”).  

Newman claimed that throughout the years, he and/or his brother, pressed Greystone for information about whether the Properties were generating a profit. According to Newman, they were told that they were not.

In early 2015, Newman decided to inquire about the status of the Properties and whether they made a profit. Newman asked his attorney to investigate the matter on his behalf. That investigation revealed that the Properties had been sold approximately sixteen years before the investigation was conducted.

In October 2015, Newman filed his complaint.

In November 2015, Greystone filed its answer, which contained several defenses, including that Newman’s claims were barred by the statute of limitations. Shortly thereafter, and prior to any discovery taking place between the parties, Greystone moved for summary judgment and dismissal of the complaint on the grounds that Newman’s claims were barred by the statute of limitations and that the fraud claim had not be plead with the required specificity.

Newman opposed the motion, arguing that Greystone was estopped from asserting a statute of limitations defense because it had made a number of misrepresentations that lulled Newman into believing that the Properties had not made any profit.  

On May 4, 2016, the motion court issued a brief decision on the summary judgment motion, finding that Newman had raised triable issues of fact as to whether Greystone’s actions estopped it from asserting the statute of limitations defense. Greystone appeal.

The Second Department’s Decision

In a brief decision, the Second Department reversed the motion court’s order denying Greystone’s motion for summary judgment. The Court found that Newman did not reasonably rely on Greystone’s representations. According to the Court, the facts upon which the representations were based were “available” from “public records,” which Newman “had the means to ascertain.” Indeed, noted the Court, the evidence showed that Newman “failed to” avail himself of those means.

Since Greystone “demonstrated, prima facie,” that the causes of action alleged in the complaint were “time-barred,” and that Newman “failed to raise a triable issue of fact in opposition” – namely, he was induced by fraud to delay filing the action – the Court concluded that “the Supreme Court should have granted [Greystone’s] motion for summary judgment dismissing the complaint.”

Takeaway

Newman demonstrates the importance of satisfying the justifiable reliance element of the equitable estoppel doctrine. Indeed, both the Second Department and the motion court in its September 11, 2018 decision focused on this requirement. In the second summary judgment decision, the motion court explained that the information alluded to by the Second Department – property deeds – were a matter of public record. Thus, ownership of the Properties could have been ascertained at any time. The motion court explained that “there was no objective reason why Plaintiff could not have conducted the very same search or investigation that he undertook in 2015, at an earlier time when an action would not have been barred by the statute of limitations.” The Second Department underscored this point by reversing the motion court’s first order on the issue.

Tagged with: Commercial Litigation, Equitable Estoppel, Justifiable Reliance, Statute of Limitations, Tolling