Continuing Wrong Doctrine Does Not Extend Statute of Limitations for a Single Fraudulent Act Even if Alleged Damages Continue

Claims of fraud raise many issues and permutations relating to the statute of limitations—the time by which a claim can be brought. These rules require careful analysis, as they are often confused or misapplied by counsel. For example, while many assume that any type of fraud has a special extended period by which to bring suit, that is not really true. Only a claim of actual fraud as opposed to constructive fraud or negligent misrepresentation triggers the extended two-year period to bring suit from the date the actual fraud was discovered or with reasonable diligence could have been discovered. See, e.g., my post Different Statutes of Limitations for Actual and Constructive Fraud.

Another area that is often misunderstood is the circumstances under which the so-called discovery period begins to run. That is, when is a party claiming fraud deemed to have become aware of the alleged fraud or should have discovered the fraud with the exercise of reasonable diligence? Simply having knowledge about the underlying fraudulent conduct does not necessarily constitute the “inquiry notice” that triggers start of the discovery period. As I have explained, to start the two-year period, courts require that the circumstances underlying the fraud suggested to the plaintiff the “probability” not merely the “possibility” of having been defrauded. See my post Second Circuit Addresses Statute of Limitations Issues Including the Standard on Duty of Inquiry.

Read the full blog post here.