Equitable Tolling: “Estopping” the Clock from Running on Your Claims
March 20, 2020
Generally speaking, a court does not have the discretion to extend a statute of limitations. A court can, however, consistent with its inherent equitable powers, preclude a defendant from asserting a statute of limitations defense where the defendant’s own intentional misconduct prevented the plaintiff from timely filing suit. This equitable doctrine, known as equitable estoppel – or, “equitable tolling” – is consistent with the principle that a wrongdoer should not be able to benefit from his own wrong, and is often raised by a plaintiff in response to a statute of limitations defense. But, as recently illustrated by the Suffolk County Commercial Division in Shoreham Hills, LLC v Sagaponack Dream House, LLC (2020 NY Slip Op 50326[U] [Sup Ct, Suffolk County Mar. 4, 2020]), its application is rare, and “estopping” a defendant from asserting a statute of limitations defense where it is otherwise appropriate is no simple feat.
In Shoreham Hills, the plaintiffs, Shoreham Hills, LLC (“Shoreham”) and Clinton Heights I, LLC (“Clinton”) (together, “Plaintiffs”), and the defendants, MP Sagaponack, LLC (“MP”) and DH Sagaponack, LLC (“DH”), formed the defendant Sagaponack Dream House, LLC (“SDH”) (collectively, “Defendants”) to purchase and develop 30 parcels of land located in Sagaponack, New York. The parties’ membership interests were 40% each to MP and DH and 20% collectively to Shoreham and Clinton. SDH’s operating agreement, which designated MP as the administrative member, required MP to make cash distributions to the members within 30 business days following the sale, disposition or refinance of any of the 30 parcels.
In 2008, SDH sold one of the parcels for $3.55 million and distributed $2 million from the proceeds of the sale to its members in proportion to each member’s percentage stake. In July 2019, however, Plaintiffs commenced an action against Defendants, claiming that they never received their 20% distribution from the proceeds of the sale, and that they had no knowledge of the distribution until 2018, nearly ten years later. Defendants moved to dismiss the complaint as, among other things, time-barred. In response, Plaintiffs argued that the doctrine of equitable estoppel applied to toll the statute of limitations because Defendants allegedly concealed the 2008 distribution from them.
The Suffolk County Commercial Division (Emerson, J.) rejected Plaintiffs’ equitable estoppel argument and concluded that the claims were time-barred. As the Court explained,
“To benefit from the equitable tolling doctrine under New York law, a plaintiff must establish that subsequent and specific actions were taken by the defendant, separate from those that provide the factual basis for the underlying cause of action, and that those subsequent actions by the defendant somehow kept the plaintiff from timely bringing suit . . . Moreover, when the alleged concealment consists of nothing but the defendant’s failure to disclose the wrong committed, New York courts have held that the defendant is not estopped from pleading the statute of limitations as a defense.”
In other words, equitable tolling is only triggered by some affirmative conduct on the part of the defendant after the initial wrongdoing – the mere failure to disclose the wrongdoing is insufficient. The Plaintiffs in Shoreham Hills alleged that Defendants knew in 2008 that a distribution had not been made to Plaintiffs, failed to correct the problem, and failed to notify Plaintiffs that the distribution had not been made. In the Court’s view, these allegations “amount[ed] to nothing more than a failure by the defendants to disclose their wrongdoing,” and did not allege any subsequent and specific conduct on the part of Defendants that prevented Plaintiffs from timely commencing their action.
The importance of the “subsequent and specific” requirement was emphasized by the Court of Appeals in Zumpano v Quinn (6 NY3d 666 ). In Zumpano, multiple plaintiffs sued several priests, a Monsignor and both the Bishop and the Roman Catholic Diocese of Brooklyn, alleging sexual abuse by the priests while they were children. Although all of the claims were initiated after the statute of limitations had expired, the plaintiffs argued that the defendants should be equitably estopped from asserting a statute of limitations defense, since the defendants knew about the ongoing abuse and failed to notify or warn plaintiffs about it.
The Court of Appeals rejected this argument, finding that there was no subsequent and specific conduct on the part of the defendants that prevented plaintiffs from timely initiating suit. Indeed, the plaintiffs knew that they had been abused, the identity of their abusers, and that the abusers were employed by the Diocese. According to the Court, “[s]ubsequent conduct by the dioceses did not appear in any way to alter plaintiffs’ early awareness of the essential facts and circumstances underlying their causes of action or their ability to timely bring their claims.” And so, because the plaintiffs could not demonstrate that the defendants’ actions contributed to the delay in bringing their claims, their claims were time-barred.
The Court of Appeals reached a different conclusion in Simcuski v Saeli (44 NY2d 442 ) and General Stencils, Inc. v Chiappa (18 NY2d 125 ), two of New York’s leading cases on equitable estoppel. In Simcuski, the plaintiff alleged that the defendant negligently severed one of her nerves during an operation, and subsequently concealed his malpractice by falsely assuring the plaintiff that her postoperative pain would disappear if she continued her prescribed regimen of physical therapy. In response to the defendant’s motion to dismiss based on the statute of limitations, the Court of Appeals applied the doctrine of equitable estoppel, reasoning that the defendant “intentionally concealed the alleged malpractice from plaintiff and falsely assured her of effective treatment, as a result of which plaintiff did not discover the injury” until after the statute of limitations had expired.
Similarly, in General Stencils, Inc., the defendant was plaintiff’s head bookkeeper who stole from her employer and concealed her theft for several years by misrepresenting the state of plaintiff’s finances. The Court of Appeals held that the defendant was equitably estopped from asserting a statute of limitations defense as a result of her affirmative conduct in concealing the crime, which prevented plaintiff from timely bringing its action.
There are two common factors in Simcuski and General Stencils. First, in each case, the defendant had control and superior (if not exclusive) knowledge of the facts necessary for the plaintiff to assert a claim. Second, the defendant, by subsequent, affirmative actions or misrepresentations, concealed these essential facts from the plaintiff. In Simcuski, the defendant’s false assurances regarding curative treatment precluded the plaintiff from earlier discovery of the defendant’s malpractice and, consequently, produced the delay in filing suit. Similarly, in General Stencils, the defendant bookkeeper’s subsequent manipulation of the books concealed her conversion, thereby preventing the plaintiff from timely commencing an action.
Equitable estoppel, or “equitable tolling,” may be raised by a plaintiff in opposition to a statute of limitations defense. But, for equitable estoppel to apply, there must be some conduct on the part of defendant after the initial wrongdoing: mere silence or the failure to disclose the wrongdoing is insufficient. The plaintiff has the burden of showing that subsequent and specific action by the defendant somehow prevented the commencement of the action in a timely manner.