Elavon v. Katz: Principal Place of Business Dictates Accrual Under C.P.L.R. 202 for Corporate Plaintiffs

Introduction

In Elavon, Inc. v. Katz, the Second Circuit affirmed the Eastern District of New York’s dismissal of a fraud and unjust‐enrichment suit brought by Elavon, a credit card processor, against a group of individuals who allegedly orchestrated a sham “chargeback” scheme with one of Elavon’s merchant clients. At the heart of the appeal was the choice‐of‐law analysis under New York’s CPLR 202—specifically, where a purely economic injury to a corporate plaintiff “accrues” for purposes of selecting the applicable statute of limitations. The court held that a corporate plaintiff’s loss is deemed to accrue at its own principal place of business (or state of incorporation), not at the headquarters of a non‐party parent corporation.

Key issues:

The application of New York’s choice‐of‐law rule (CPLR 202) in diversity cases;
The determination of “place of accrual” for a corporate plaintiff’s purely economic injury;
The availability of a parent corporation’s domicile for tolling or extending a limitations period;
The standards for resolving affirmative defenses on a Rule 12(b)(6) motion.

Parties:

Plaintiff‐Appellant: Elavon, Inc., a Georgia‐incorporated credit card processor headquartered in Tennessee.
Defendants‐Appellees: Joseph Katz, Joseph Mering, Shlomo Kornhauser, Devorah Mering, Mordechai Kohn, Mordechai Levi, Naftuli Morgenstern, Judy Berger, Sarah T. Levi, Shlomo Berger (and others originally named).
Procedural posture: Appeal from an order of the U.S. District Court for the Eastern District of New York (Chief Judge Brodie) dismissing Elavon’s amended complaint under Fed. R. Civ. P. 12(b)(6) for failure to state timely claims.

Summary of the Judgment

The Second Circuit, in a summary order, affirmed the district court’s dismissal of Elavon’s claims of fraud, unjust enrichment, and conspiracy. Elavon had alleged that defendants made sham purchases from Silvertown of NY, Inc., triggered more than $1 million in chargeback reimbursements to customers, and left Elavon “holding the bag” when Silvertown failed to reimburse the processor. The district court applied New York’s choice‐of‐law rule (CPLR 202) to determine that Tennessee’s three‐year statute of limitations governed Elavon’s fraud and unjust‐enrichment claims, and that the claims were time‐barred. It also held that New York does not recognize an independent conspiracy claim when all underlying claims are dismissed, and denied Elavon leave to amend as futile. The Second Circuit reviewed the 12(b)(6) dismissal de novo, agreed that the limitations defense appeared on the face of the complaint, and concluded that Elavon’s alleged losses accrued at its principal place of business in Tennessee, not in Minnesota, where Elavon’s parent is headquartered. Accordingly, the three‐year period had expired and the judgment was affirmed.

Analysis

1. Precedents Cited

Global Financial Corp. v. Triarc Corp. (93 N.Y.2d 525): Defines accrual as the time and place of injury and identifies the “plaintiff-residence” rule for purely economic losses.
International Business Machines Corp. v. Liberty Mutual Insurance Co. (363 F.3d 137): Confirms that New York courts apply New York choice-of-law rules in diversity cases when there is no conflict.
Deutsche Bank Nat’l Trust Co. v. Barclays Bank PLC (34 N.Y.3d 327): Approves the “financial base” test for individual plaintiffs, but underscores that the plaintiff-residence rule promotes predictability.
Thea v. Kleinhandler (807 F.3d 492): Reiterates that CPLR 202 requires application of the shorter limitations period between New York law and the law of the state where the cause of action accrued.
Staehr v. Hartford Financial Services Grp., Inc. (547 F.3d 406): Permits resolution of affirmative defenses on a pre-answer Rule 12(b)(6) motion if they appear on the face of the complaint.
Luv N’ Care, Ltd. v. Goldberg Cohen, LLP (703 F. App’x 26): Suggests that New York would treat accrual as happening at a corporation’s principal place of business.
Lang v. Paine, Webber, Jackson & Curtis, Inc. (582 F. Supp. 1421): Establishes the “financial base” test for individuals, later cited in Deutsche Bank.

2. Legal Reasoning

Choice-of-Law under CPLR 202
In diversity cases, New York courts apply CPLR 202 to choose between New York’s statute of limitations and that of the state where the cause of action accrued. The shorter period governs.
Accrual of a Purely Economic Injury
New York defines accrual as the time and place where the plaintiff sustains the injury. For purely economic losses, the “plaintiff-residence rule” identifies the place of accrual as where the plaintiff lives and bears the financial impact—typically its principal place of business or state of incorporation.
Subsidiary vs. Parent Location
Elavon argued that losses “rolled up” to its parent (U.S. Bank, based in Minnesota) and thus Minnesota’s six-year fraud limitation should apply. The Court rejected the argument, predicting that New York would limit accrual to the corporate plaintiff’s own residence or place of incorporation. There is no precedent for attributing a subsidiary’s injury to its parent for CPLR 202 purposes.
Affirmative Defense on a 12(b)(6) Motion
Although statutes of limitations are typically affirmative defenses, they may be decided on a Rule 12(b)(6) motion when the relevant dates are undisputed and the defense appears on the face of the complaint.

3. Impact

This decision provides critical guidance for corporate litigants in federal diversity cases:

It affirms that New York’s plaintiff-residence rule for accrual applies narrowly to the corporate plaintiff’s own domicile, not a parent’s.
It underscores the importance of early limitation analysis in fraud and quasi-contract claims, discouraging attempts to extend tolling via an unrelated entity’s jurisdiction.
It reinforces that limitations defenses may be resolved on the pleadings when the complaint’s timeline is clear.
It promotes certainty and uniformity in choice-of-law by ensuring that corporate plaintiffs cannot alter accrual by internal corporate structures.

Complex Concepts Simplified

Chargeback: A reversal of a credit‐card transaction initiated by a customer dispute, obligating the processor to reimburse the card‐issuing bank and seek repayment from the merchant.
CPLR 202 (New York): The statute governing choice-of-law for statutes of limitations in New York when the plaintiff’s cause of action arose elsewhere.
Accrual: The moment and location when a legal claim is deemed to arise; for economic losses, typically where the plaintiff suffers the financial impact.
Affirmative Defense on Rule 12(b)(6): A defense that may be raised in a motion to dismiss when its validity is apparent from the complaint itself (e.g., clear expiration of a limitations period).

Conclusion

Elavon, Inc. v. Katz clarifies that, under New York’s choice-of-law rules, a corporate plaintiff’s purely economic injury “accrues” at its own principal place of business (or state of incorporation), not at the headquarters of an affiliated parent. As a result, a subsidiary may not import its parent corporation’s domicile to secure a longer limitations period. The decision emphasizes the predictability of CPLR 202 and confirms that limitations defenses apparent on the face of the complaint can be resolved via Rule 12(b)(6). Corporate litigants should take heed: careful attention to domicile, accrual rules, and the timeline of alleged wrongs is essential to preserving claims for fraud and unjust enrichment.