The Statute of Limitations for Fraud and the Discovery Rule
What constitutes fraud? What is the statute of limitations on fraud? What is an exception to the statute of limitations? What is the discovery rule? These are among a few of the many questions business fraud attorneys frequently get asked. An experienced business attorney helps clarify and answer questions regarding the discovery rule exception to the statute of limitations for fraud.
Fraud vs. Intentional Misrepresentation or Deceit
First, many people confuse actual fraud with deceit or intentional misrepresentation. Fraud “includes all unfair means by which another is deceived.” 34A Cal. Jur. 3d Fraud and Deceit § 1. In California, there is also a heightened pleading standard for fraud. California requires that “fraud must be pled specifically; general and conclusory allegations do not suffice.” Lazar v. Superior Court (1996) 12 Cal.4th 631, 645. Intentional misrepresentation, on the other hand, occurs when “a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract” makes “[t]he suggestion, as a fact, of that which is not true, by one who does not believe it to be true.” Civil Code § 1572(1); see Civil Code § 1710(1). Because of the many elements to fraud under California law, we highly suggest you consult with a knowledgeable business fraud attorney.
What is the Statute of Limitations for Filing a Fraud Lawsuit?
How important is timing when it comes to filing a complaint for fraud? The statute of limitations, which dictates timing for filing such a complaint, is extremely important to filing an actual fraud complaint. According to § 338(d) of California’s Code of Civil Procedure, the statute of limitations for fraud is defined as:
Within three years:
An action for relief on the ground of fraud or mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.
Accordingly, the operative statute provides for the general rule that there is a three year statute of limitations for fraud in California.
When Does the Statute of Limitations Start Running?
Determining the statute of limitations for fraud requires a careful analysis of when the law will deem the plaintiff to have discovered the wrongdoing. As explained by California Jurisprudence:
The statute of limitations in an action for relief on the ground of fraud or mistake begins to run from the time the facts constituting the fraud or mistake are discovered, or should reasonably have been discovered. With respect to the application of the statute of limitations, generally, to an action to set aside a deed, the statute cannot run against a grantor weak in mind and body and incapable of doing any business. Moreover, an action brought by a guardian ad litem to set aside a deed executed by an incompetent person is not barred when it appears that the incompetent person never recovered his or her mental powers sufficiently to comprehend the situation and the guardian did not learn all the facts until the trial.
11A Cal. Jur. 3d Cancellation and Reformation § 30.
As the law provides: “An action for relief on the ground of fraud or mistake. The cause of action in that case is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” Code Civ. Proc. § 338(d).
A plaintiff’s ignorance of the facts constituting the fraud or negligent misrepresentation of itself is insufficient to prevent the accrual of the cause of action; a plaintiff must establish facts showing ignorance and the inability to discover the true facts earlier. To take advantage of the delayed discovery rule under the fraud statute of limitations, the plaintiff must show the substantive elements of fraud and an excuse for late discovery of the facts. It is necessary for a fraud plaintiff to allege facts showing that suit was brought within a reasonable time after discovery of the fraud without unnecessary delay, and that failure to make the discovery sooner was not due to negligence.
34A Cal. Jur. 3d Fraud and Deceit § 73
The Discovery Rule in California
In California, what is known as the “discovery rule” or the “delayed-discovery rule” has been established as one of the few legal exceptions to the statute of limitations. The discovery rule tolls, or suspends, the statute of limitations so that it will not start running when the cause of action occurred.
Instead, the discovery rule allows the statute of limitations to begin running when plaintiffs, by the exercise of due diligence, knew or reasonably should have known of the alleged fraud. As American Law Reports (ALR) explains, courts have held that “in actions for relief on the ground of fraud, the bar of the applicable statute of limitations commences to run only from discovery or from when, with reasonable diligence, there ought to have been a discovery of the facts constituting the fraud.” 172 A.L.R. 265. This prevents the three-year statute of limitations period clock from ticking until the cause of action is, or reasonably should have been, discovered.
Contact a Reliable Business Fraud Attorney in Los Angeles, Orange County, San Diego, Riverside, Palm Springs, San Bernardino, Palo Alto, and San Jose
The complications regarding discovery tolling for the statute of limitations in a fraud case are easily misunderstood. If you are involved in a case involving fraud or allegations of fraud, a fraud attorney in California can provide a full assessment of your rights. For a free consultation with the experienced business attorneys at Talkov Law, call us at (844) 4-TALKOV (825568) or contact us online.
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