In Puig v. Seminole Night Club, LLC, et al., C.A. No. 5495-VCN (Del. Ch. July 29, 2011), read opinion here, the plaintiff sought rescission of certain contractual agreements he had entered into when he invested $400,000 in a nightclub venture; he also brought a claim for fraudulent inducement. The defendants moved to dismiss arguing that, among other things, Puig’s claims were time barred, using the three-year statute of limitations under 10 Del. C. § 8106 applied by analogy. The defendants also argued that Puig’s claim of fraudulent inducement also failed because the cause of action accrued at the time the misrepresentation induced the execution of the contract. For that reason, Puig’s claims accrued on September 22, 2004, the date he signed the SPA and the LLC Agreement and as a result, the analogous limitations period expired on September 22, 2007.
In response, Puig asserted that because his claims were equitable, they were not directly governed by a limitations period, and that certain factors—for example, procedural complexity in the Florida litigation, delay outside of his control, and the lack of prejudice to the defendants, would counsel against applying the analogous limitations period. In addition, even if a statute of limitations was applied, his cause of action, he argued, is saved by the Savings Statute.
While it is true that the Court of Chancery does not “blindly apply a statute of limitations to bar equitable claims, unless there are ‘some unusual circumstances’, a court of equity will deny a plaintiff relief when suit is brought after the analogous statutory period.” (Compare the recent opinion highlighted on these pages here, in which the Court did not apply the otherwise applicable statute of limitations.) However, in this case, because Puig’s request sounded in fraudulent inducement, the Court looked to 10 Del. C. § 8106, which applies a three-year statute of limitations to fraud claims. As a result, if Puig’s claims had accrued by September 22, 2004—the date that Puig entered into the SPA and the LLC Agreement, the statutory period within which to assert those claims expired by September 22, 2007. Moreover, the defendants argued that even if the statutory period was tolled, the statute of limitations on Puig’s claims at issue must have commenced running by November 15, 2006; the date he filed his original complaint in Florida state court, which raised those claims, which means that the statutory period expired by November 15, 2009. Puig did not file in Delaware until May 14, 2010.
The Savings Statute (10 Del. C. § 8118(a)) provides, in relevant part, as follows:
If in any action duly commenced within the time limited therefor in this chapter, the writ . . . is abated, or the action otherwise avoided or defeated . . . for any matter of form; . . . or if a judgment for the plaintiff is reversed on appeal or a writ of error; a new action may be commenced, for the same cause of action, at any time within one year after the abatement or other determination of the original action, or after the reversal of the judgment therein.
According to the Court:
[t]he Savings Statute is a remedial provision that Delaware courts construe liberally so that actions may be decided on the merits, as opposed to procedural technicalities….the statute is designed to allow a plaintiff, within prescribed limitations, one year to file a second cause of action following a final judgment adverse to his position if such judgment was not upon the merits of the cause of action…. [T]he Savings Statute may be applicable (1) whenever the writ has abated or (2) the action was avoided or defeated for any matter of form.
After analyzing the procedural history of the dispute in the Florida courts, the Court found that:
[B]ecause the Florida action persists and the May 2008 Dismissal Order was a non-final, interlocutory order, the savings provision in the Savings Statute is not applicable at this juncture. At some future stage, that analysis may change should the duly commenced Florida proceeding abate or result in a final judgment. Although the determination that the Savings Statute is not presently applicable creates a peculiar situation where Puig is, in a sense, both too early and too late in asserting the claims raised in this action….
As a result, the Court concluded that Puig’s claims were not timely filed within the analogous statutory period and were not saved by operation of the Savings Statute, so the motion to dismiss was granted.
This summary was prepared by Kevin F. Brady of Connolly Bove Lodge & Hutz LLP