FANDY CORP. v. LUNG-FONG CHEN, N.Y. App. Div., Judgment, Law, casemine.com

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Attorney(S)

Steven L. Herrick, Mineola, N.Y., for appellant. Siller Wilk, LLP, New York, N.Y. (Stuart M. Riback of counsel), for respondent.

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Smart Summary

Factual and Procedural Background

In 1986, Geranium Development Corp. (the seller) contracted to sell three parcels of real property. Lung-Fong Chen, the defendant, acted as the seller's attorney. The initial sale was not completed because the seller alleged a breach by the purchaser and retained the down payment, which the purchaser disputed. Subsequently, a second purchaser, C.P. Chen, entered into a contract to buy the same parcels conditioned on the cancellation of the prior contract. In October 1989, Chen assigned his interest to the plaintiff, Fandy Corp. On October 25, 1989, the defendant allegedly informed the plaintiff that the prior contract had been cancelled and the parties could close, but did not disclose that the down payment from the first purchaser had not been returned. After closing, the first purchaser filed notices of pendency and foreclosure actions due to the seller's failure to return the down payment. The plaintiff sued alleging, among other claims, fraud and negligent misrepresentation against the defendant. The Supreme Court, Queens County, granted the defendant's motion to dismiss the plaintiff's causes of action for constructive fraud and negligent misrepresentation as time-barred. The plaintiff appealed that portion of the order.

Legal Issues Presented

Whether the causes of action for constructive fraud and negligent misrepresentation were barred by the applicable statute of limitations.
When the statute of limitations began to run for the plaintiff's claims based on constructive fraud and negligent misrepresentation.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Pacheco v. Alvia, 209 A.D.2d 493	Six-year statute of limitations applies to equitable actions generally.	Confirmed the applicable statute of limitations for the plaintiff's claims.
Milin Pharmacy v. Cash Register Sys., 173 A.D.2d 686	Six-year statute of limitations for equitable actions.	Supported the court's conclusion on the limitations period.
509 Sixth Aven. Corp. v. New York City Tr. Auth., 15 N.Y.2d 48	Cause of action for constructive fraud accrues at the time of the fraud.	Applied to determine the accrual date for constructive fraud claims.
Wall Street Assocs. v. Brodsky, 257 A.D.2d 526	Accrual of constructive fraud claims.	Supported the accrual date determination.
Monaco v. New York Univ. Med. Ctr., 213 A.D.2d 167	Accrual of fraud-based causes of action.	Reinforced the timing of accrual for fraud claims.
Starkey v. Starkey, 192 A.D.2d 844, 846	Constructive fraud accrual rules.	Applied in determining the start of limitations period.
Rattner v. York, 174 A.D.2d 718	Accrual of constructive fraud claims.	Supported the court's accrual date ruling.
Brown v. Tonawanda Hous., 123 A.D.2d 493	Timing of accrual for constructive fraud.	Used to affirm accrual date for plaintiff's claims.
I.F.D. Constr. Corp. v. Coddry Carpenter Dietz Zack, 253 A.D.2d 89	Accrual of negligent misrepresentation claims upon plaintiff's reliance.	Applied to hold that limitations began at closing when plaintiff relied on the misrepresentation.

Court's Reasoning and Analysis

The court analyzed the applicable statute of limitations and the accrual dates for the plaintiff’s claims. It held that the causes of action for constructive fraud and negligent misrepresentation fall under the six-year statute of limitations for equitable actions (CPLR 213). The court explained that a constructive fraud claim accrues at the time the fraud is committed, which in this case was when the plaintiff closed on the properties in 1989, induced by the defendant’s alleged fraudulent representations. Similarly, the negligent misrepresentation claim accrues at the time the plaintiff relied on the misrepresentation, also at closing in 1989. Since the plaintiff commenced these claims in 1997, beyond the six-year limitations period, the court correctly dismissed them as time-barred.

Holding and Implications

The order of the Supreme Court, Queens County, dated January 27, 1998, is affirmed insofar as appealed from, with costs.

This decision directly results in the dismissal of the plaintiff's causes of action for constructive fraud and negligent misrepresentation on statute of limitations grounds. No new legal precedent was established; rather, the court applied established principles regarding accrual and limitations periods to the facts before it.

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FANDY CORP., appellant, v. LUNG-FONG CHEN, respondent.

DECISION ORDER

ORDERED that the order is affirmed insofar as appealed from, with costs.

In 1986 Geranium Development Corp. (hereinafter the seller) entered into a contract to sell three parcels of real property. The defendant, Lung-Fong Chen, was the seller's attorney. The sale was never consummated and the seller, alleging that the purchaser had breached the contract, retained the down payment, although the purchaser denied that a breach had occurred. Subsequently a second purchaser, C.P. Chen (hereinafter Chen) entered into a contract to purchase the same parcels on condition that the seller cancel the prior contract. In October 1989 Chen's interest in the contract was assigned to the plaintiff, Fandy Corp. On October 25, 1989, the defendant allegedly advised the plaintiff that the prior contract had been cancelled and that the parties could close. The defendant did not inform the plaintiff that the seller had not returned the down payment of the first purchaser. After the closing with the plaintiff the first purchaser filed notices of pendency against the properties and commenced foreclosure actions based on the seller's failure to return the down payment. The plaintiff alleges, inter alia, that the defendant fraudulently and negligently misrepresented that the prior contract had been properly cancelled.

The plaintiff's causes of action based on constructive fraud and negligent misrepresentation are covered by the six-year Statute of Limitations governing equitable actions in general ( see, CPLR 213; Pacheco v. Alvia, 209 A.D.2d 493; Milin Pharmacy v. Cash Register Sys., 173 A.D.2d 686). Contrary to the plaintiff's contention, a cause of action to recover damages for constructive fraud accrues on the date of the commission of the purported fraud ( see, 509 Sixth Aven. Corp. v. New York City Tr. Auth., 15 N.Y.2d 48; Wall Street Assocs. v. Brodsky, 257 A.D.2d 526 [1st Dept., Jan. 28, 1999]; Monaco v. New York Univ. Med. Ctr., 213 A.D.2d 167; Starkey v. Starkey, 192 A.D.2d 844, 846; Rattner v. York, 174 A.D.2d 718; Brown v. Tonawanda Hous., 123 A.D.2d 493). The plaintiff has alleged that it was induced to close on the contract for the purchase of the properties due to the defendant's fraudulent representations. Therefore, the court was correct in holding that the period of limitations for purposes of the cause of action based on constructive fraud began to run in 1989 when the plaintiff closed on the properties.

A cause of action based on negligent misrepresentation accrues on the date of the alleged misrepresentation which is relied upon by the plaintiff ( see, I.F.D. Constr. Corp. v. Coddry Carpenter Dietz Zack, 253 A.D.2d 89 [1st Dept., Feb. 23, 1999]). The court was correct in holding that the period of limitations for purposes of this cause of action began to run from the date of the closing in 1989 since that is the date on which the plaintiff relied upon the alleged misrepresentation. Since the causes of action at issue were interposed in 1997, they were properly dismissed as time-barred.

FANDY CORP. v. LUNG-FONG CHEN