Court Analyzes Application of Equitable Estoppel to Statute of Limitations

On August 17, 2020, Justice Cohen of the New York County Commercial Division issued a decision in First Equity Realty v. Harmony Group, II, 2020 NY Slip Op. 50973(U), analyzing the application of the doctrine of equitable estoppel to the statute of limitations, explaining:

The statute of limitations on a breach of contract claim is six years, and the cause of action accrues when the contract is breached. As of January 31, 2002, if MAIP decided to make a distribution to its members under Section 4.3 of the MAIP Operating Agreement, then the distribution was to be made within 45 days after the cash becomes available for distribution, subject to deduction or offset for expenses, repayment of Provided Resources loans, and/or provision of such reserves as Bryan Gordon determines to be reasonable. In support of their motion, Defendants submitted a schedule of distributions made from MAIP to its members between 1999 and 2008. FER challenges the propriety of these distributions but does not dispute the dates on which they occurred. Under FER's theory of the case, each incorrect distribution breached the contract, and therefore the statute of limitations ran from the date of each incorrect distribution.

That the distribution under Section 4.3 is subject to deduction or offset or the provision of certain reserves does not change the result. Those conditions modify the amount of each distribution, not the timing, so the breaches alleged by FER would have still accrued when each distribution was made. And the prospect of a future remedy — that Defendants could have, at any time, corrected a past distribution — does not change the date of the breach.

Even if some of its claims fall outside the applicable statute of limitations, however, FER's equitable estoppel defense raises fact issues that preclude summary judgment.

Our courts have long had the power, both at law and equity, to bar the assertion of the affirmative defense of the Statute of Limitations 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. However, where the defendant has a fiduciary duty to the plaintiff, the doctrine of equitable estoppel may be invoked based on the defendant's failure to disclose facts underlying the claim.

Here, the evidence raises a triable issue of fact about whether equitable estoppel should apply. In light of the parties' fiduciary relationship, Defendants' failure to inform FER that they were cutting off MAIP distributions starting in 2007 could estop Defendants from asserting a statute of limitations defense. Even setting aside the fiduciary dimension of the parties' relationship, Defendants' affirmative acts may be sufficient to invoke the doctrine. Until 2014, Defendants issued yearly K-1 reports to FER related to its ongoing interest in MAIP. These reports, which constituted the only financial information Mr. Dickerman received on a regular basis from MAIP or Harmony, took on special significance because Mr. Gordon was solely responsible for the administration and day-to-day management of the business and assets of MAIP following the separation. There are questions of fact about whether these reports misled FER into believing that its interest in MAIP remained unchanged, while in fact its distributions had been terminated years earlier.

To be sure, an ultimate finding of equitable estoppel will require FER to also demonstrate that it relied on defendants' fraud, misrepresentation, and deception to its detriment. But in this case, reliance is a fact issue to be resolved at trial, not on summary judgment.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether claims are barred by the statute of limitations.