Business Dispute Between Sisters Dismissed on Statute of Limitations Grounds

By: Jeffrey M. Haber

In New York, as in most jurisdictions, statutes of limitation serve as a cutoff point for initiating legal action. These statutes define the time frame within which a plaintiff must file a lawsuit after a cause of action accrues. Once the limitation period expires, the claim is generally barred, regardless of its merits.

The purpose of a statute of limitations is twofold. For plaintiffs, it encourages timely action, preserving evidence and ensuring witness testimony remains reliable. For defendants, it protects them from defending against stale claims long after evidence is no longer preserved and memories have faded. Over all, these statutes promote fairness, efficiency, and certainty in the legal system.

In business litigation, parties often encounter statutes of limitation issues involving, inter alia, breach of fiduciary duty and fraud claims.

Determining the appropriate limitation period to apply to breach of fiduciary claims often proves to be difficult. There is no single statute of limitations that the courts and the parties can look to. “Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks.” “Where the remedy sought is purely monetary in nature, courts construe the suit as alleging ‘injury to property’ within the meaning of CPLR 214 (4), which has a three-year limitations period.” “Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213 (1) applies.” Moreover, “where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213 (8).”

In considering the appropriate limitations period, the courts are careful not to elevate form over substance. Thus, for example, where a plaintiff uses “the term ‘disgorgement’ instead of other equally applicable terms such as repayment, recoupment, refund, or reimbursement,” it “should not be permitted to distort the nature of the claim so as to expand the applicable limitations period from three years to six.”

The initial burden of establishing that the limitations period bars the challenged claim is on the movant. “To meet its burden, the defendant must establish, inter alia, when the plaintiff’s cause of action accrued.” “A breach of fiduciary duty claim accrues when the fiduciary openly repudiates his or her obligation – i.e., once damages are sustained.” This is so because, “absent either repudiation or removal, the aggrieved part entitled to assume that the fiduciary would perform his or her fiduciary responsibilities.” “Open repudiation requires proof of a repudiation by the fiduciary which is clear and made known to the beneficiaries.” “Where there is any doubt on the record as to the conclusive applicability of a tatute of imitations defense, the motion to dismiss the proceeding should be denied, and the proceeding should go forward.”

Under New York law, an action based upon fraud must be commenced within six years of the date the cause of action accrued, or within two years of the time the plaintiff discovered or could have discovered the fraud with reasonable diligence, whichever is greater. The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged”, “even though the injured party may be ignorant of the existence of the wrong or injury.”

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.” “ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud. “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.”

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. The test as to when fraud should with reasonable diligence have been discovered is an objective one. 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. “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.”

In Franco v. Farr, 2025 N.Y. Slip Op. 04880 (2d Dept. Sept. 10, 2025) (here), the Appellate Division, Second Department, affirmed the dismissal of plaintiffs’ claims for breach of fiduciary duty and fraud on statute of limitations grounds. The Court held that the claims had accrued more than six years before the commencement of the action and that plaintiffs had knowledge of facts which should have caused them to inquire and discover the alleged wrongdoing with reasonable diligence.

Background

In May 2020, plaintiffs (who are sisters) commenced the action, inter alia, to recover damages for breach of fiduciary duty and fraud, alleging that their other sisters, defendants, wrongfully exercised control over defendant J-L-T-D, Inc. (“JLTD”), a family real estate business, and misappropriated its asset, real property located in Orangeburg, New York to plaintiffs’ detriment. Plaintiffs alleged that they are equal shareholders of JLTD, which was formed in 1989 and acquired the property via a deed dated January 12, 1990.

In August 1999, JLTD conveyed title to the property to defendants, allegedly without plaintiffs’ authorization. Plaintiffs alleged that they did not learn of this transfer until September 2018, after probate proceedings were commenced to settle their parents’ estates.

Thereafter, defendants moved for summary judgment dismissing the complaint as time-barred, arguing, among other things, that the applicable statute of limitations accrued as of the August 1999 transfer. Plaintiffs opposed defendants’ motion and cross-moved for summary judgment on the ground that they demonstrated, as a matter of law, inter alia, that each sister had an equal ownership interest in JLTD. In an order dated November 10, 2022, the Supreme Court, without addressing defendants’ statute of limitations contentions, granted defendants’ motion on the ground that defendants demonstrated, as a matter of law, that plaintiffs did not have any ownership interest in JLTD and denied plaintiffs’ cross-motion. Plaintiffs appealed. The Second Department affirmed on different grounds.

The Court’s Decision

The Court held that “defendants demonstrated, prima facie, that the alleged fraudulent transfer of the property in 1999 occurred more than six years prior to the commencement of th action.” The Court noted that, in opposition, “plaintiffs failed to establish that the action was timely commenced under the two-year discovery exception.” The Court explained that “lthough the plaintiffs alleged that they did not discover the alleged fraud until the probate proceeding in 2018, testified during her deposition that she was denied access to the records for JLTD, and she averred in an affidavit that the defendants defrauded, schemed, and misused property for many years.” “Thus,” concluded the Court, “the plaintiffs had knowledge of facts that should have caused them to inquire and discover the alleged fraud with reasonable diligence.” Accordingly, said the Court, “the plaintiffs failed to meet their burden to establish that they could not have discovered the fraud more than two years prior to commencing this action in 2020.”

The Court held that the same accrual analysis applied to the breach of fiduciary duty claim, since the claim was based upon fraud.

Takeaway

In Franco, the Court made clear that delayed legal action can be fatal to the success of a claim. Even if plaintiffs believe they were wronged, the decision underscores the point that courts expect plaintiffs to act promptly once they have reason to suspect misconduct.

The decision also provides guidance on the limits of the discovery rule, which, as noted, allows plaintiffs to bring fraud claims within two years of discovering the wrongdoing. Hints of wrongdoing, such as being denied access to corporate records or noticing irregularities, may be enough to trigger the duty to investigate. Waiting for definitive proof before filing suit may result in dismissal.

In short, Franco reinforces the principle that the law favors the diligent, not those who sit on their rights before seeking redress.

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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.

This BLOG has written numerous articles addressing the statute of limitations for a breach of fiduciary duty claim. To find such articles, please see the BLOG tile on our website and search for “statute of limitations” or “breach of fiduciary duty” or any other commercial litigation issue that may be of interest you.

IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d 132, 139 (2009) (citations omitted).

Id.; see also VA Mgt., LP v. Estate of Valvani, 192 A.D.3d 615, 615 (1st Dept. 2021).

Id.

Id.

Access Point Med., LLC v. Mandell, 106 A.D.3d 40, 44 (1st Dept. 2013); see also VA Mgt., 192 A.D.3d at 615 (stating that “

laintiff’s characterization of that relief as ‘disgorgement’ of

compensation does not convert it into a claim for equitable relief to which the six-year statute of limitations would apply”) (citations omitted)).

Lebedev v. Blavatnik, 144 A.D.3d 24, 28 (1st Dept. 2016) (internal quotation marks and citations omitted).

Id.

Id. Importantly, “o determine timeliness, consider whether plaintiff’s complaint must, as a matter of law, be read to allege damages suffered so early as to render the claim time-barred.” IDT, 12 N.Y.3d at 140.

Matter of George, 194 A.D.3d 1290, 1293 (3d Dept. 2021) (internal quotation marks, brackets and citation omitted).

Matter of Steinberg, 183 A.D.3d 1067, 1071 (3d Dept. 2020) (internal quotation marks and citations omitted).

Matter of Behr, 191 A.D.2d 431, 431 (2d Dept. 1993) (internal citations omitted); see Matter of Steinberg, 183 A.D.3d at 1071.

CPLR § 213(8). See also Sargiss v. Magarelli, 12 N.Y.3d 527, 532 (2009); Carbon Capital Mgmt., LLC v. Am. Express Co., 88 A.D.3d 933, 939 (2d Dept. 2011).

Carbon Capital Mgmt., 88 A.D.3d at 939 (citation and alterations omitted).

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

This BLOG has written numerous articles addressing the statute of limitations for a fraud claim. To find such articles, please see the BLOG tile on our website and search for “statute of limitations” or “fraud” or any other commercial litigation issue that may be of interest you.

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

Id.

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

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

Id. (citation and internal quotation marks omitted).

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

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

Slip Op. at *2 (citation omitted).

Id. (citation omitted)

Id.

Id. (citation omitted).

Id. (citation omitted).

Id. (citations omitted).