NY Commercial Division Blog

Recent Commercial Division Decision Provides a Refresher on Common Statutes of Limitation Issues

Recently, in F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 412 (Sup. Ct., Suffolk Cnty., May 7, 2021), the Commercial Division Court denied a motion to dismiss on statute of limitation as well as full faith and credit grounds.  This decision provides a good refresher on common limitations period issues that arise in commercial cases and is also an example of the impact, or lack thereof, of a settlement in a related matter.

Background

The dispute in F.W. Sims, Inc. v. Simonelli stemmed from alleged acts of embezzlement at F.W. Sims, a family-owned HVAC installation business.  Joseph Simonelli, the company’s Executive Vice President, allegedly embezzled $25 million from the company between 2002 and 2014 through a scheme that involved contractors submitting invoices for work that they never performed.  These funds were used “to purchase, inter alia, a horse farm, a residence, luxury automobiles, and other luxury items.”  As noted in the Amended Complaint, Patrick Simonelli—Vice President at F.W. Sims and Joseph’s brother—discovered the alleged fraud on October 3, 2014.[1]  Subsequently, F.W Sims terminated Joseph Simonelli’s employment on October 9, 2014, and he was arrested by the FBI for mail fraud on November 12, 2014.[2]

On November 26, 2014, F.W. Sims—along with the siblings and in-laws of Joseph Simonelli who ran the business—brought claims in Suffolk County Supreme Court against the following: Joseph Simonelli, the contractors that allegedly submitted the fraudulent invoices, the lawyer and law firm that allegedly handled the embezzled funds, the horse farm and shell company through which some of the funds were allegedly channeled, Joseph Simonelli’s wife (who operated the shell company),and his step-daughter (who operated the horse farm).[3]  Joseph Simonelli died in early February of 2015, which led to the dismissal of  the criminal complaint against him.[4]  The U.S. Government then brought an in Rem action on March 6, 2015 against the properties that were involved in the alleged embezzlement scheme.[5]

The private plaintiffs filed an amended complaint on July 14, 2016, and a number of defendants moved to dismissed; however, before the parties could complete the motion practice, one of the contractor defendants died and the Court stayed the motions in December of 2016 under CPLR 1015(a).[6]  The Court lifted the stay in December of 2020.[7]  In the interim there was settlement in the in Rem action between, inter alia, the U.S. Government, F.W. Sims, the estate of Joseph Simonelli, the horse farm, and Joseph Simonelli’s wife and stepdaughter.  The individual contractors involved in the alleged embezzlement scheme were not parties to the settlement.   Pursuant to the settlement agreement, which included a New York choice-of-law provision and an Eastern District of New York forum selection clause, the parties agreed to release each other for all claims made in the Suffolk County action, and to discontinue that action with prejudice. [8] 

Consistent with the terms of the agreement, in November 2017, the parties entered a stipulation discontinuing the Suffolk County action.  The stipulation was limited, however, as to those defendants who were parties to the settlement agreement, and the private plaintiffs continued to pursue their claims against the individual contractors who were involved in the alleged embezzlement scheme.[9]

When the stay was lifted in December of 2020, there was another round of motion to dismiss briefing between the plaintiffs and a set of contractor defendants, Prospective, LLC and its principal, Dorothy Covelli.  The plaintiffs alleged that Prospective and Covelli worked with Joseph Simonelli to misappropriate $5,273,627.99 from F.W. Sims between 2002 and 2014 and asserted claims of fraud (first count), money had and received (second count), unjust enrichment (third count), conversion (fourth count), and aiding and abetting breach of fiduciary duty (seventh count).[10]  Prospective and Covelli moved for an order directing the plaintiffs to file a stipulation of discontinuance, or in the alternative to dismiss all of the claims against them on the basis that the plaintiffs were required to do so under the in Rem settlement.  Prospective and Covelli also argued that a significant portion of the claims were time-barred under the three- and six-year limitations periods applicable to plaintiffs’ claims.[11]

Decision on Limitations Periods

In addressing the argument that plaintiffs’ fraud claim (first count) was time barred, the Court first noted that the limitations period for fraud, under CPLR 213(8), is the longer of six years from the time of the fraud or two years from when the fraud was discovered or could have been discovered with reasonable diligence.  It also noted that the question of whether the plaintiffs should have discovered an alleged fraud was a mix of fact and law, and that once “a plaintiff demonstrates that an action is timely, it is the defendant's burden to demonstrate, prima facie, that the fraud could have been discovered earlier with reasonable diligence.”[12]

The Court held that the plaintiffs met their initial burden of demonstrating that their fraud claim was timely, since the alleged fraud was discovered on October 3, 2014 and they brought suit on November 26, 2014.  Therefore, the burden was on Prospective and Covelli to demonstrate that fraud claim could have been discovered earlier.  The Court held that Prospective and Covelli failed to meet their burden, stating that “[t]heir conclusory assertions are insufficient to establish as a matter of law that the alleged fraud could have been discovered by the plaintiffs earlier.” The Court then denied the motion to dismiss as to the fraud claim.

As to the aiding and abetting claim (seventh count), the Court observed that “[a] claim that a person aided and abetted a tort is governed by the same statute-of limitations as the underlying tort”—in this case the breach of fiduciary duty claim.[13] The Court further noted that “[w]hen, as here, an allegation of fraud is essential to a breach-of-fiduciary-duty claim, courts will apply” the same limitations period to a breach of fiduciary duty claim as a fraud claim.[14]  Thus, the Court denied the motion to dismiss as to the aiding and abetting claim for the same reasons as the fraud claim.

As to the conversion claim (fourth count), the Court held that “the conversion cause of action is based upon fraud and governed by” the same limitations period. The Court then denied the motion to dismiss as to the conversion claim on the same grounds set forth above.

After dealing with the fraud and fraud-related claims, the Court addressed the money had and received claim (second count).  The Court noted this claim was governed by a six-year limitations period “applicable to quasi-contracts or contracts implied-in-law.”  This would knock out all of the plaintiffs’ claims for moneys had or received before November 26, 2008—six years prior to the complaint.  The plaintiffs argued that the limitations period for this claim, as well as the others, was tolled by (1) fraudulent concealment—which the Court characterized as the doctrine of equitable estoppel—and (2) the doctrine of continuing-wrongs.[15] 

The Court rejected the plaintiffs’ equitable estoppel argument.  It observed that the doctrine “does not apply when the misrepresentation or act of concealment underlying the estoppel claim is the same act that forms the basis of the plaintiff's underlying substantive cause of action” and noted that the plaintiffs relied on the same facts for their fraudulent concealment argument as their fraud claim.

As to the continuing-wrongs argument, the Court stated that while the doctrine “tolls the limitations period to the date of the commission of the last wrongful act when there is a series of continuing wrongs,” it only saves claims for the recovery of damages “to the extent of wrongs committed within the applicable statute of limitations.”  Therefore, the Court dismissed the plaintiffs’ claims for money had received that accrued before November 26, 2008.

Finally, as to the unjust enrichment claim (third count), the Court held “[s]ince this case does not involve a claim for replevin or conversion of chattels under CPLR 214(3) , the court will apply the six-year statute of limitations,” as opposed to the three-year limitations period that is applied to some unjust enrichment claims.[16]  The Court also held that the tolling provisions set forth above did not apply, for the reasons previously discussed, and that the unjust enrichment claim was “dismissed insofar as it alleges claims against Prospective and Covelli that accrued before November 26, 2008.”

Decision on the Impact of the in Rem settlement

As to the impact of the in Rem settlement, the Court first noted that the settlement  “is not a judgment that is entitled to full faith and credit”; instead, it was a contract that was subject to general principles of interpretation.  The Court then observed that Prospective and Covelli were not parties to the in Rem settlement and that there was nothing in the settlement that gave them the ability to enforce it.  Furthermore, the Court noted “that any dispute arising under and concerning the interpretation and enforcement of the Stipulation shall be resolved in the United States District Court for the Eastern District of New York. Such clauses are prima facie valid and enforceable.”  Therefore, the Court denied Prospective and Covelli’s motion for an order directing the plaintiffs to file a stipulation of discontinuance, with prejudice, or alternatively to dismiss based on the in Rem settlement.

Conclusion

The Commercial Division Court’s recent decision in F.W. Sims, Inc. v. Simonelli provides a good refresher for practitioners on various limitations period issues.  The decision on the in Rem settlement is also reminder that the impact of a settlement agreement, like any other contract, is limited by the scope of its provisions.

 

[1] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 209 at ¶ 51.

[2] Id. at ¶¶ 3, 19.

[3] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 8 at ¶¶ 6-30.

[4] United States of America v. Simonelli, Dkt. No. 2:14-mj-00955, Doc. No. 25 (E.D.N.Y. Feb. 19, 2015)

[5] United States of America v. Real Property and Premises Located at 69 Kerry Court, Riverhead, NY 11901 et al, 2:15-cv-01184, Doc. No. 1 (E.D.N.Y. Mar 06, 2015).

[6] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 209, 303.  CPLR § 1015(a) states that “[i]f a party dies and the claim for or against him is not thereby extinguished the court shall order substitution of the proper parties.”  Functionally, this means that New York Courts stay proceedings until a proper substitution has been made; “any determination rendered without such substitution will generally be deemed a nullity.”  Singer v. Riskin, 821 N.Y.S.2d 120, 120(App. Div. 2nd Dep’t, 2006).

[7] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 390.

[8] United States of America v. Real Property and Premises Located at 69 Kerry Court, Riverhead, NY 11901 et al, 2:15-cv-01184, Doc. No. 68 (E.D.N.Y. Jan. 4, 2017).?

[9] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 291.

[10] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 209.

[11] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 403.

[12] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, 2021 BL 176261, at *3 (citing House of Spices (India), Inc. v. SMJ Servs., Inc., 960 N.Y.S.2d 443, 446 (App. Div. 2d Dep’t, 2013)).

[13] Id. (citing Hudson v. Delta Kew Holding Corp., 992 N.Y.S.2d 158 (Sup. Ct., Suffolk Cnty., 2014)).

[14] F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, 2021 BL 176261,  at **3-4 (citing Kaufman v. Cohen, 307 A.D.2d 113, 760 N.Y.S.2d 157, 167 (App. Div. 1st Dep’t 2003)).

[15] See F.W. Sims, Inc. v. Simonelli, Index No. 022942/2014, Doc. No. 410.

[16] Note that there is a department split as to determining the limitations period for unjust enrichment claims. Compare Deutsche Bank, AG v. Vik, 40 N.Y.S.3d 23 (App. Div. 1st Dep’t, 2016), with Ingrami v. Rovner, 847 N.Y.S.2d 132 (App Div, 2d Dep’t, 2007).  See also Haraden Motorcar Corp. v. Bonarrigo, 202 BL 146141, at *13 (N.D.N.Y. Apr. 20, 2020) (discussing department split).