Augstein v. Levey
3 A.D.2d 595 · Appellate Division of the Supreme Court of the State of New York · 1957
Facts
Plaintiffs allege that defendant Arthur Levey, while president and director of Scophony Corporation of America, acquired 625 shares of Scophony stock in 1951, mainly in exchange for Scophony assets. They also claim a similar stock acquisition by Levey in 1949 and allege former directors assisted in both transactions. A second cause of action asserts Levey orchestrated the illegal transfer of Scophony's patents to Skiatron Electronics and Television Corporation in 1949. Plaintiffs contend Levey made false statements in 1949 and 1952 regarding the patent transfer to estop him from using a Statute of Limitations defense, but they had seen a 1949 Skiatron prospectus detailing the patent and stock transfers. The third cause of action involves the diversion of corporate opportunities, including the transfer of SMatron stock to Levey in 1949.
Procedural history
These are three appeals from an order granting relief under rules 106 and 107 of the Rules of Civil Practice, which were consequent on three motions made by various defendants. The court below dismissed all claims in the first cause of action as barred by the three-year limitation, and also dismissed the fourth and fifth causes of action with leave to plead over. This court modified the order by permitting plaintiffs to serve an amended complaint for the 1951 transaction and otherwise affirmed.
Issue
What Statute of Limitations applies to a claim seeking surrender and cancellation of stock acquired by a fiduciary in exchange for corporate assets? Can a defendant be estopped from asserting the Statute of Limitations defense for patent transfers if plaintiffs had timely knowledge of the basic facts, despite later alleged fraudulent statements? What Statute of Limitations applies to a claim for diversion of corporate opportunities?
Holding
The court held that the six-year Statute of Limitations applies to the 1951 stock acquisition by Levey, not the three-year statute. The court held that the second cause of action for patent transfer is barred by the six-year Statute of Limitations because plaintiffs had sufficient timely knowledge of the basic facts to preclude an equitable estoppel claim against Levey. The court held that the third cause of action for diversion of corporate opportunities is barred by the three-year Statute of Limitations. The fourth and fifth causes of action were properly dismissed with leave to replead for failing to allege ultimate facts.
Rule
A claim seeking the surrender and cancellation of stock acquired by a fiduciary in exchange for corporate assets is governed by the six-year Statute of Limitations, as it involves following assets into the hands of a fiduciary, rather than the three-year limitation for waste or injury to property. Equitable estoppel to assert the Statute of Limitations cannot be claimed if the basic facts constituting the alleged fraud were known to the claimant within the statutory period, even if later evidentiary details or false representations caused delay in discovery. A duty of inquiry arises when facts are known that suggest fraud to a person of ordinary intelligence, starting the statute's running. A cause of action for diversion of corporate opportunities is considered based on waste and is subject to the three-year Statute of Limitations.
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