The Discovery Rule is Applied to Common Law and Consumer Fraud Act Claims

Catena v. Raytheon Company, 447 N.J. Super. 43 (App. Div. 2016).  The time when a cause of action accrues, for purposes of triggering the statute of limitations, is a recurring and often thorny one.  Most of the cases arise in the context of negligence cases.  Today’s decision, however, by Judge Ostrer, involved common law fraud and a claim under the Consumer Fraud Act, N.J.S.A. 56:8-2 (“CFA”), both in connection with environmental issues.

Plaintiff had bought property from one of the defendants, Andersen, in 1998.  Unbeknownst to Cattena, the property was contaminated.  An environment assessment performed for a mortgagee of Andersen, First Fidelity Bank (“FFB”), in 1987 found contaminated soil on the property.  Though contaminated soil was thereafter removed from the property, it was not clear that no contaminated soil remained.  FFB  made Andersen aware of the contamination finding.

Andersen supplied Catena with an affidavit that Andersen had given to the New Jersey Department of Environmental Protection (“DEP”), which identified three occupants of the property since 1984 and stated that none of them engaged in any activity on the property that involved hazardous materials or wastes.  On the basis of that affidavit,  DEP issued a letter of nonapplicability (“LNA”).  After Catena signed the contract of sale, but before the closing, Andersen submitted a second affidavit, similar to the first, to DEP, and received another LNA.  That LNA stated that the sale to Catena was not subject to the Environmental Cleanup Responsibility Act, which was then the key environmental statute, “with the caveat that the LNA was not a finding as to the “existence or nonexistence of any hazards to the environment at this location.”

On November 1, 1988, closing occurred on Catena’s acquisition of the property.  In 1989, Catena retained an environmental consultant, who notified him of various past uses of the property, including manufacturing, textile knitting and dyeing, and a distribution center for screen-printing inks.  There was no mention of contaminated soil, though the consultant recommended further investigation of the potential presence of other contaminants.

In 1998, Catena sought to refinance the property.  The lender hired another consultant to conduct an environmental investigation.  That consultant documented contaminated soil on the property.  Catena was advised of the finding and, later in 1998, DEP required him to sign a Memorandum of Agreement (“MOA”) that obligated him to clean up the property pursuant to a plan contained  in the MOA.  Several years passed without work being done.  In 2004, Catena got another environmental report that revealed a “larger area of contamination” on the property.

On August 22, 2005, Catena sued Andersen and successors of other prior owners, asserting common law fraud, CFA, and other claims arising out of the nondisclosure of the environmental contamination.  In December 2007, Andersen was deposed, and he produced the 1987 report and other documents from that period that showed the contamination and implicated FFB in the wrongdoing.  That was the first time that Catena had seen those documents.  In May 2008, Catena filed an amended complaint that asserted fraud and CFA claims against Wells Fargo, FFB’s successor.

Defendants moved for summary judgment based on the six-year statute of limitations, which they claimed began to run in 1998, when Catena signed the MOA that acknowledged the presence of contamination and when DEP required remediation.  The Law Division granted that motion, holding that the MOA triggered the statute of limitations.  Catena appealed and the Appellate Division, applying the de novo standard of review, reversed.

Judge Ostrer applied the discovery rule, under which “a claim does not accrue until the plaintiff discovers, or by exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an actionable claim.”  The discovery rule began to be applied to fraud claims long before it became applicable to negligence claims in the 1960’s, as Judge Ostrer showed.  Unlike in negligence cases, “the victim’s lack of awareness of the fraud is the wrongdoer’s very object.”  The discovery rule is “essentially a rule of equity” that mitigates the harsh result of barring claims by fraud victims who did not know that they had been victimized.

In the fraud context, “discovery does not occur until the plaintiff is aware of facts indicating the wrongdoer knew his statement was false, and intended the other party to rely on its falsity” (emphases by Judge Ostrer).  The panel found persuasive New York decisions that had applied the discovery rule to fraud claims.

Catena had no reason to suspect fraud in 1998.  The 1987 Andersen affidavit that was given to Catena described uses of the property only since 1984.  It was plausible that Andersen did not know about pre-1984 contamination, especially since Catena’s 1989 investigation report did not reveal contamination.  Since Catena had no reason to suspect fraud in 1998, he was unaware of facts that suggested a claim for fraud, and any fraud claim thus did not then accrue.  Catena needed only to show that his claims against Andersen, whom he sued in 2005, did not accrue before 1999, and that his claims against Wells Fargo, whom he sued in 2008, did not accrue before 2002.  Catena did that, so the summary judgment against him was reversed.