Kevin Schlosser Writes, "Circling the Muddy Waters of Fraud Statute of Limitations Accrual and Continuing Wrongs"

Attorneys and non-lawyers often call me to get advice about fraud claims or to inquire about particular issues involving causes of action for fraud. Issues that I am asked about very frequently concern the statute of limitations for bringing fraud claims. One of the useful tools of this website is the robust search feature. You can do a full Boolean search as well as search under a list of predesignated topics. So, for example, if you want to find my commentary on cases addressing damages in fraud, but want to focus on “pecuniary” damages, you can search the word “pecuniary.” If you want to find commentary on the timing of asserting fraud claims, you can search the topic “Statute of Limitations.” I have written about some of the more dicey issues concerning the statute of limitations for fraud, such as the courts’ confusion over the limitations period for asserting actual fraud and constructive fraud or negligent misrepresentation – which have different periods. I have also commented upon when the fraud claim actually “accrues” or is deemed to have started to run – when the clock starts clicking to bring the claim. An issue that is not always treated clearly or consistently by the courts is whether a claim for fraud accrues simply when the alleged fraud is “committed” or when an injury that the fraud has caused occurs (if that could arguably have happened some time after the fraudulent misrepresentation was conveyed). A new case in the Supreme Court in New York County, Andresen v Guggenheim Partners, LLC, 2020 NY Slip Op 32869(U) (Sup. Ct. NY Co., Decided Sept. 1, 2020) addressed some fairly intricate issues as to when the fraud claim accrues, the effect of alleged continuing wrongs, and whether the defendant could be equitably estopped from asserting the statute of limitations as a defense. Andresen Factual Background In Andresen, the plaintiff worked as an administrative assistant and then a business manager for the Defendant investment banking, capital markets firms. In 2004, Defendants started taking out corporate-owned life insurance policies (COLI policies) on their executives as a tax-advantageous investment. Defendants established an internal insurance agency and obtained the policies from various insurers through that agency. In order to operate this insurance agency, one person needed to be fully licensed in each of the states in which business was conducted. Plaintiff was a licensed insurance agent in New York and, while employed by Defendants, became licensed in numerous other states. Plaintiff alleges that with her assistance Defendants purchased numerous COLI policies totaling “hundreds of millions of dollars” in face value. Because she was designated as an authorized agent for various insurers, she served as the sole licensed writing agent for Defendants’ COLI policies issued by those insurers. After she left Defendants’ employ, Defendants advised the various insurers that her address was still at the agency. Plaintiff alleged that during her employment, she asked Defendants whether she was entitled to any compensation, in addition to the salary she earned as an executive assistant/business manager, for writing (signing) the COLI policies, and she was told she was not. She alleged, however, that Defendants “‘required [her] to execute documents purporting to assign her commissions on certain of the [COLI] policies to [the agency] (or other [Defendant] entities or employees), without ever informing [her] that any such assignment was contrary to applicable law.’” She claimed she neither signed nor authorized Defendants to sign these assignments on her behalf. Plaintiff further asserted that in late 2018 she received some misdirected mail from a Hancock-associated entity at her home address and was informed that she was still the insurance agent of record for dozens of COLI policies issued by Hancock to Defendants. She then conducted an investigation of the commissions paid to Defendants on the COLI policies for which she remained the agent of record. In August 2019, she sent a demand for an accounting to Defendants, which they refused, and Plaintiff then commenced the lawsuit alleging, among other claims, fraud. Plaintiff sought commissions on the life insurance policies she wrote for Defendants while employed by them over 12 years prior to instituting the case. She claimed Defendants fraudulently concealed that she was entitled to millions of dollars of commissions, retaining them for themselves. Defendants moved to dismiss, arguing that her claims were all time-barred, since the commissions in dispute related to policies purchased in 2006 and 2007, and the fraud discovery rule did not apply based on plaintiff’s own pleadings. They also contended that her claims failed as a matter of law, because, while she is licensed as an insurance agent, there was no contractual agreement providing her with a right or entitlement to commissions. Accrual Issues In addressing when the fraud claim accrued for purposes of the statute of limitations, the Court described the law as follows:

A fraud claim must be commenced within six years from the date of the fraud, or within two years from when the fraud should have been discovered with reasonable diligence, whichever is later (CPLR 213 [8]; see CPLR 203 [g]; Sargiss v Magarelli, 12 NY3d 527, 532 [2009]). A claim accrues when the elements necessary to state a cause of action can be alleged in the complaint (see IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 140 [2009]). For a fraud claim, the period begins to run on the date of the fraudulent act (Ghandour v Shearson Lehman Bros., 213 AD2d 304, 305 [1stDept 1995]; see Malone v Bayerische Hypo-Und Vereins Bank, AG, 2010 WL 391826, at *5 [SDNY 2010] [fraud occurred when the misrepresentations or omissions were made], affd 425 Fed Appx 43 [2d Cir 2011] ), that is, when the plaintiff had knowledge of facts from which fraud could be reasonably inferred (Sargiss v Magarelli, 12 NY3d at 532).

The Court continued some confusion that courts have caused as evidenced by this basic description. Like many courts, this Court noted that the six year period starts when the “fraud occurred” citing CPLR 213(8). But CPLR 213(8) actually does not state that the six years start when the fraud occurs, but when the action “accrues” – leaving it up to the courts to decide when that actually occurs (CPLR 213(8): for “an action based upon fraud; the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.”)(emphasis added). The Court then cited IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132 (2009), a leading Court of Appeals case on accrual of the statute for tort claims. In that case, however, the Court of Appeals addressed a claim for breach of fiduciary duty, and held: “A tort claim accrues as soon as ‘the claim becomes enforceable, i.e., when all elements of the tort can be truthfully alleged in a complaint’ (Kronos, Inc. v AVX Corp., 81 NY2d 90, 94 [1993]). As with other torts in which damage is an essential element, the claim ‘is not enforceable until damages are sustained’ (id. at 94).” Even after citing this decision recognizing that the statute may not start until the damage occurs, the Court then reiterated that the accrual is on the date of the “fraudulent act.” Of course, damages may not actually occur until sometime after the fraudulent act. The Court then seemed to mix up the discovery rule with the six-year period in stating that “the period” (without acknowledging that the start of the six-year period is different than the two-year discovery period) starts “when the plaintiff had knowledge of facts from which fraud could be reasonably inferred.” So, to clarify, the six-year period starts when the fraud claim “accrues.” That could possibly be when the fraud occurred, or when the misrepresentations were made, or when the plaintiff relied on the fraudulent representations, or in an appropriate scenario, when the damages occur, if later. The two-year period is based upon when the plaintiff actually, or could have, discovered the fraudulent conduct, and could extend the statutory limitations period if that was after the six-year period expired. In applying the facts of the case, the Court ruled: “Here, plaintiff alleges that Defendants misrepresented her right to commissions when Defendants purchased and arranged for themselves to receive the commissions on the policies plaintiff signed in 2006 and 2007, and notified her that she was not entitled to receive any commissions.” The Court relied upon cases in which the deed to real property was fraudulently obtained through misrepresentations: Moore v. Baumgardner, 181 AD3d 1043, 1044 (3d Dept 2020) and Fava v. Kaufman, 124 AD2d 42, 44-45 (3d Dept 1987). Of course, the “damage” from the fraud in those cases occurred on the date that the deed was transferred. In this case, however, while the Defendants arranged for themselves to receive the commissions, Plaintiff arguably was not “damaged” thereby until the commissions were actually paid to the Defendants rather than the Plaintiff. The Court also ruled that Plaintiff could not take advantage of the discovery rule extension because she did not act reasonably in investigating the circumstances of this alleged fraud when it occurred:

Plaintiff’s own allegations, which this court must accept as true on this motion, establish that she was apprised of the facts from which fraud could have been reasonably inferred by at least 2007. At that time, during her employment from September 2006 through late 2007, she was told directly by Defendants that they were not paying her any commissions, and then, according to her own pleadings, Defendants required her to execute documents purporting to assign her commissions over to [Defendants]. … Accordingly, by at least 2007, New York law imposed on plaintiff, a licensed insurance agent, a duty to inquire about commissions on these insurance policies she wrote and signed, and triggered the running of the limitations period at that time. Her failure to pursue a reasonable investigation until 2018 did not satisfy her duty under these facts (see MBI Intl. Holdings Inc. v Barclays Bank PLC, 151 AD3d at 115; Aozora Bank, Ltd. v Deutsche Bank Sec. Inc., 137 AD3d at 689). It should be noted that plaintiff continued to work as a licensed life insurance agent after leaving Defendants’ employ, even for the same insurers, such as Hancock, but never inquired as to her right to commissions on Defendants’ COLI policies. Therefore, the fraud discovery rule fails to extend the statute of limitations, and her fraud claim is dismissed.

Tolling and Extensions The Court then disposed of other arguments the Plaintiff made to avoid the limitations bar. The Court rejected the “fiduciary duty” tolling doctrine. Actually, Plaintiff did not even allege a basis to impose a fiduciary duty on her former employer, since she was the agent for the employer, not the other way around. That doctrine, in any event, is applied to claims alleging breach of fiduciary duty against the fiduciaries, so as to extend the period for those claims to the time when the “fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated.” See Westchester Religious Inst. v Kamerman, 262 AD2d 131, 131-32 (1st Dept 1999). The Court further rejected Plaintiff’s equitable estoppel argument. The Court correctly ruled:

Under the doctrine of equitable estoppel, the plaintiff must show that the defendant made fraudulent misrepresentations to induce the plaintiff to refrain from timely commencing an action, the plaintiff reasonably relied on the defendant’s alleged misrepresentations and exercised due diligence in ascertaining the facts and bringing the action (see MBI Intl. Holdings Inc. v Barclays Bank PLC, 151 AD3d 108, 117 [1stDept 2017]). The “doctrine of equitable estoppel ‘will not toll a limitations statute where plaintiffs possessed timely knowledge sufficient to have placed them under a duty to make inquiry and ascertain all the relevant facts prior to the expiration of the applicable statute of limitations’” (Brean Murray, Carret & Co. v Morrison & Foerster LLP, 165 AD3d 582, 582 [1stDept 2018], quoting Rite Aid Corp. v Grass, 48 AD3d 363, 364-365 [1stDept 2008]).

See my post for further commentary on the equitable toll of the statute of limitations based upon fraud. Finally, the Court ruled that Plaintiff could not avoid the expiration of the statute of limitations by relying on the continuing wrong doctrine:

The continuing wrong doctrine is used where there is a series of continuing wrongs, and the statute of limitations is tolled until the last wrongful act (Henry v Bank of Am., 147 AD3d 599, 601 [1stDept 2017]). It is not applicable where there is a single wrong that has continuing effects, rather than “a series of independent, distinct wrongs” (id. at 601; cf. Ganzi v Ganzi, 183 AD3d 433, 434 [1^st Dept 2020] [executing new license agreements, not mere renewals, were new, overt acts and independent, distinct wrongs]).

Here, plaintiff urges that this doctrine applies because Defendants continued to divert the commissions to themselves, hiding that fact from plaintiff and failing to provide her with an accounting from 2006 to the present … . Defendants’ receipt of commissions, even for the renewals of the policies, did not constitute new, overt acts. Rather, it was merely “continuing consequential damages” from the same wrong committed in 2006 and 2007 in arranging to receive the commissions on the COLI policies and informing plaintiff that she was not entitled to them. There is no series of independent, distinct wrongs alleged, merely the continuing effects of Defendants’ allegedly unlawful conduct.

For more on the continuing wrong doctrine, see my post. Commentary Statute of limitations issues must be carefully addressed on fraud claims. The case law is, unsurprisingly, not clear or particularly consistent. Counsel must present the issues in a light most favorably to their clients’ position, lest the court be persuaded otherwise. This is particularly critical when an argument can be made that damages resulting from the fraud actually occurred after the fraudulent conduct was perpetrated.