Discovery Delays & Statues of Limitations
Statutes of limitation time-bar most civil and criminal cases if a lawsuit is not commenced by some prescribed date. Generally, this date is calculated from the date of the accident or injury, but what happens if the injury or damage was not discovered until after this time? For California civil cases, the Code of Civil Procedure (“CCP”) permits extensions to statutes of limitation under some circumstances. However, these so-called “delayed discovery” rules are specific to certain categories of cases and only activated when properly pled. Typically this means the plaintiff must explain why the filing was late and when he or she became aware of the injury, damage, or condition. At the same time, delayed discovery may itself be barred by other statutes. One good example of this is the statute governing the time in which to sue medical professionals for malpractice.
le, if a person claimed injuries following surgery by a Delayed discovery in legal cases medical professional, the plaintiff would likely have a statute of limitation governed by CCP § 340.5. This section provides timeframes in which to sue a healthcare provider for professional negligence allowing the lawsuit to begin, “one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the injury.” If the phrase “reasonable diligence” sounds vague or ambiguous, it should also come as no surprise that the courts often grapple with trying to define what is or is not “reasonable diligence.” At the same time, the statute seems to leave a door open for plaintiffs who discover the damages outside the one year date. Thus, if a plaintiff had a surgery two years ago, any case against the professional who conducted it would appear to be time-barred. However, if the plaintiff did not discover the injury resulting from the malpractice, and there was no way it could have been discovered even after exercising “reasonable diligence,” then the plaintiff could allege in his or her complaint the date of the actual discovery and the reasons why it could not be discovered until then—for example, perhaps the symptoms from the botched surgery did not manifest until two years after. This would then “trigger” the delayed discovery statute and allow the case to proceed at least until a possible summary judgment attempt if evidence was unearthed showing that plaintiff had constructive knowledge, or should have, prior to the two year claim.
CCP 340.5 is unique, however, as it also includes an outer bound to this. In addition to the one year statute with a delayed discovery allowance, the same code section for healthcare professionals also states that no legal action will “exceed three years unless tolled” by fraud, concealment, or “the presence of a foreign body, which has no therapeutic or diagnostic purpose or effect, in the person of the injured.” Thus, even if the injury or symptoms were not discovered until three years after the surgery, the plaintiff might be out of luck unless the doctor tried to conceal the malpractice or left some unnecessary object inside the patient’s body. If those specific circumstances did not apply, the plaintiff might not be able to rely upon the delayed discovery rules. In other words, if the doctor was merely negligent without trying to conceal or hide the malpractice, any case three years from the date of the procedure would be time-barred. Even though delayed discovery rules can help to protect victims who, reasonably, could not have discovered the injury until later, they may also be tempered by other rules—sometimes called statutes of repose—that narrow the circumstances under which they may be activated. Because of the complexity in determining how and when they apply, however, victims may find it challenging to know if they still have any legal recourse against the perpetrators of their injuries. That said, the code section governing medical malpractice helps to highlight the motivation behind many delayed discovery rules: when there is fraud or concealment on the part of an expert.
Historically, California courts began to allow extensions to statutes of limitation “[a]s early as 1872” when it allowed “relief on the grounds of fraud or mistake” (O’Neil, 1980, 107). Now, as then, relief from a statute of limitation on the grounds of the defendant’s fraud remains a key component of many delayed discovery rules as evidenced by CCP 340.5, above. Even in the late nineteenth century, the courts recognized that not having such rules would incentivize concealing or hiding professional misconduct in order to “ride out” the time to be sued. As O’Neil puts it, allowing defendants to do this, “would create an incentive for injurers to mislead their victims to the maximum possible extent” (108). As these laws evolved, the courts began to also recognize that, in some cases without actual fraud or intentional concealment on the part of the defendant, it was also possible that plaintiffs might not possess the expertise or ability to detect a problem. As people become more heavily dependent upon such experts and professionals for a wide variety of services, the California courts have recognized that plaintiffs cannot be expected to possess the skills necessary to “check” the work of experts and must often, instead, trust in their professionalism and ethics. Given this, it can be easy to conceive of cases where one may need additional time to even discover a problem or its consequences. Thus, even if a one year statute seems to be the operative one, it is often the case that plaintiffs may be protected by a delayed discovery rule when employing the services of a professional. As will be demonstrated later, this has become a central theme in many recent appellate cases before California courts involving delayed discovery.
At the same time, delayed discovery rules have run into some controversy as they have been used in recent cases involving sexual abuse of minors. Recently, this has meant they have been deployed to prosecute civil cases against predatory priests. However, these delayed discovery rules evolved from a wave of similar lawsuits in the early 1980s and 90s (O’Neil). While the victims of the Catholic Church often were able to successfully invoke the statutes both because of the age of the victim and the fraud and concealment involved in the abuse, the earlier cases were unique in that they began with a somewhat controversial therapy.
The idea that memories can be repressed was not new even thirty years ago, but the idea that victims of trauma and abuse should be able to sue their tormentors even decades after the alleged injuries was. Such cases often involved close, personal relationships with family and friends, and many questioned the veracity of such repressed memories and the practitioners claiming to recover them. Nonetheless, the courts, at that time, seemed inclined to agree that, abstractly, the repression or loss of a memory could be a reason to trigger a delayed discovery statute. At the time, those injured would have had no legal remedies given the length between the time of discovery and the injury itself because there was then no delayed discovery rule for such injuries. However, as more mental health professionals were willing to testify that victims might not know they had suffered as a result of a repressed memory, some courts agreed that such victims should not be denied legal remedies because their minds had repressed the trauma as a defense mechanism.
Under this thinking, such suits became a regular feature in the lower courts. One writer even notes that, “hundreds of lawsuits were filed by adult survivors of child sexual abuse” from 1987 to 2000, and “Such suits generated enormous amounts of controversy and publicity, and engaged a vast number of lawyers, psychologists, advocates, and victims in a life-or-death struggle for vindication” (E. Wilson, 2003, pp. 147-148). As the courts began to recognize them as potentially viable despite long exhausted statutes of limitation, the circumstances under which a delayed discovery rule might be triggered was widened to accommodate this new cause of action. In cases involving repressed memories, it was determined that even if the defendant was not actively trying to conceal the injury, a plaintiff might still be able to pursue him or her beyond the normal statute of limitation. Recent cases in California further illustrate how delayed discovery rules have been used in both traditional and non-traditional ways.
was a perforation in the staples that the surgeon had placed on Statues of limitation the plaintiff’s small intestine (Fox v. Ethicon). While the plaintiff was hospitalized until March of 2000, the original surgery was performed on April 10, 1999, and the plaintiff filed suit on June 28, 2000. As the lawsuit commenced towards trial, the doctor who performed the surgery was deposed by the plaintiff and revealed a possible products liability claim which the plaintiff had not originally included in his lawsuit: the doctor claimed the stapler, provided by a third-party manufacturer, was defective and had caused this same problem in past operations. By the time the plaintiff added this corporate defendant, Ethicon, to her lawsuit, it was late November in 2001, and the products liability cause of action that plaintiff added against the corporate entity seemed untimely since products liability cases must typically be commenced within two years. This would have meant the cause of action against Ethicon would have had to be filed by April of 2001—some two months before plaintiff actually filed suit. Was Fox’s assertion, that because she did not have, “knowledge that the gastric bypass surgery would involve the use of a stapler or any similar device” until the doctor testified about it, enough to toll the statute which would have required Ethicon to be named in the suit earlier? While it may be reasonable to suppose a stapler will be used in a gastric bypass procedure, to assert that the average layperson would or should know that they may be prone to failure as well may be assuming too much of someone with little or no knowledge about the procedure.
However, another important facet of delayed discovery is whether or not it was reasonable to suppose it could have failed. This is because the plaintiff will usually have to show that she or he had “no reason [ . . .] to suspect a factual basis” for any cause of action. In Fox v. Ethicon, the plaintiff knew that the injury occurred on April 10, 1999—the day of the surgery. The plaintiff probably also knew, or should have known, that a stapler was involved in it. However, many different medical devices are involved in a complicated procedure such as a gastric bypass, and, potentially, any one of them, some combination of them, or none of them could be the culprit in a botched surgery. While it might be reasonable to suppose that the malpractice could be, in whole or in part, due to a problematic device, it is not reasonable to expect the plaintiff, who is not a medical expert, to discover which, if any, might have been defective during that particular operation. In fact, it was only when the doctor discussed this possibility that plaintiff was appraised of a potential products liability cause of action. Ultimately, because the plaintiff claimed there was no way for her to discover Ethicon’s involvement via a potentially defective stapler, the court determined that the case was not time-barred and that the plaintiff’s suit could proceed. Of course, as it may turn out, the defendant manufacturer might later be able to prove that Fox actually had constructive knowledge of the defective stapler prior to the date she claimed. Then, her case against Ethicon could be dismissed following a summary judgment or trial. Still, once both the date of the discovery and a properly pled reason for not discovering it earlier is provided, the lawsuit would survive any initial demurrers.
This case demonstrates how delayed discovery has been widened to include products liability when such products may be outside the knowledge of the plaintiff. However, it also shows that, in order for a plaintiff to trigger a delayed discovery rule, “the plaintiff must plead that, despite diligent investigation of the circumstances of the injury, he or she could not have reasonably discovered facts supporting the cause of action within the applicable statute of limitations period” (Fox v. Ethicon). At the same time, the court made an important distinction, in this case, between knowledge of a cause of action and knowledge of a defendant. Had the plaintiff wanted to pursue the same medical malpractice cause of action against some unnamed defendant, she may have been time-barred from doing so since the operation was performed in April of 1999 and the injury was discovered in March of 2000. This explains why many complaints name DOEs as defendants: they can later be substituted for a real name when the true identity of the defendant becomes known so long as the statute is “preserved” by filing the cause of action.
In another case involving a different kind of professional negligence, the courts allowed plaintiffs to toll the statute of limitation for a cause of action involving an employment agency (E-Fab, Inc. v. Accountants, Inc.). This ruling further illustrates the two “prongs” necessary for plaintiff to successfully invoke the discovery rule: the plaintiff must show both, “the time and manner of discovery” as well as an “inability to have made earlier discovery despite reasonable diligence.” In E-Fab, Inc., the plaintiff hired an accountant who would be in a position to handle plaintiff’s money relating to a business. Accounts, Inc. had claimed to screen this person by way of a thorough background check. The defendant then assured plaintiff that the employee had no criminal background and otherwise passed their background check, yet it later turned out that she did have a criminal record relating to fraud and had also fabricated portions of her education and work experience. This was not discovered by plaintiff until some seven years after this employee had embezzled a million dollars from E-Fab, Inc. This was well past any statute of limitation to sue Accountants, INC. for fraud or negligence, but the plaintiffs invoked delayed discovery rules in an attempt to overcome this defect.
While the defendant employment company attempted a demurrer to the complaint given that this was well outside any statute of limitations relating to a referral agency’s negligence, the court did not accept defendant’s argument that plaintiff’s claims were time-barred. In fact, the court went out of its way, in this case, to note how “appropriate” it is to apply the discovery rule in cases involving certain professionals—such as doctors, lawyers, or even employment agencies—whom we must rely on for expertise, advice, and/or trust. As the court noted, when one employs such a professional, one expects “a sense of reassurance, not alarm” (E-Fab, Inc. v. Accountants, Inc.). Given this, plaintiff could not have been expected to conduct a thorough background check on the employee precisely because the plaintiff had expected the defendant to do that for them. Because of this, the court determined that there was no way the plaintiff could have discovered the injury earlier. Importantly, the court made this determination even though the plaintiff was receiving bank statements which should have alerted plaintiff that something was wrong: because such statements could not have proven that the embezzler actually had a criminal background which Accountants, INC. missed, it was not enough to put the plaintiff on notice that Accountants was negligent and/or fraudulent. Thus, the courts determined that a delayed discovery rule was in effect.
Because of this, the time to sue Accountants, Inc. was deemed to have begun on the date the plaintiff discovered that the agency had lied or negligently performed its duties. In other words, when the plaintiff is “unable to see or appreciate” that an expert or professional has breached his or her own ethical or professional code—in the instant matter by not actually conducting the said background check—then the courts have generally allowed plaintiffs to extend the statute out to the time in which the plaintiff discovered, or reasonably should have discovered, the problem. As bank statements could not clue a person in that one particular employee had a criminal background and had falsified employment records, the plaintiff prevailed in their motion to extend the statute by way of the delayed discovery rule. In another recent case, the rule was applied similarly to a real-estate agent/broker who acted on behalf of both the buyers and sellers of the same house.
Sometime in 2006, a real-estate agent and broker represented both the Henleys—a family seeking to buy a home—and the Costas—one seeking to sell that same home (Lyon v. Superior Court). Lyon, the broker/agent, made both clients sign a contract with a special provision: any legal action arising from the sale of the house had to be filed within “two years from the expiration of the Representation Period or from the date such cause of action may arise, whichever occurs first.” Given this, when the Henleys originally filed a lawsuit naming Lyon in May of 2009, the action would seem to have been time-barred as Lyon only represented the Henleys from “April 1, 2006 to April 1, 2007.” This would seem to make the lawsuit late by approximately one month. However, the courts determined that the delayed discovery rule did apply to extend the time in which to sue over the contract.
This was because the Henleys claimed to have not discovered the material defect—which was alleged to have been fraudulently concealed with paint—in the sold house until sometime in May of 2007. There was some inconsistency about when the plaintiffs first discovered that defects in and on the residence had been concealed by paint, but the courts seemed willing to accept that the real-estate agent and buyer relationship is similar to the attorney-client or doctor-patient relationships. Even though there was a “dispute” over the time in which the problem was actually discovered—this would be a triable issue for a jury to determine the nature and truth of.
At the same time, the court allowed that Lyon’s contract could impose a statute of limitations—parties can shorten statutes of limitation contractually—but that the discovery rule extended it given the fiduciary duty and duty of care that Lyon owed plaintiffs as their real-estate agent. As the court put it, “When a breach of contract is committed in secret, such as the intentional nondisclosure of a real estate broker regarding a previously visible construction defect, the contractual limitations period is properly held subject to the discovery rule.” It is, however, noteworthy that the court rejected Lyons’s argument that the case was also barred by a statute pertaining to brokers and clients whose houses they sell. While a seller could not try to sue a broker for such concealed defects—because the seller should also be aware of them—this should not apply when an agent or broker acts for both the seller and buyer in the same house. If anything, it would seem, the broker has more of a duty acting for the buyer than the seller, but, as the court also noted, the case highlights the “perils that real estate brokers and their agents assume when acting as a dual listing agent with duties to both the buyers and sellers of the same house.” In the Lyon case, it certainly seems as if the agent/broker was unable to balance the duties owed to both parties. A final case, in this regard, also helps to further emphasize the nature of using a delayed discovery rule when alleging ignorance of the facts.
In Fuller v. First Franklin, a couple initiated a lawsuit in November 2010 against the broker involved in their home sale, the original lender, and the successor in interest after that. As the home was purchased in 2006, the buyers should have had a two year window in which to sue these financial institutions for causes of action arising from that sale. Instead, however, the plaintiff invoked the delayed discovery rule by claiming to not discover the problem until 2009.
Here, the plaintiffs claimed that they had been victims of predatory lending. The plaintiffs alleged that First Franklin had pursued, “a scheme of predatory lending, made material misrepresentations and fraudulent concealments of circumstances in the appraisal of the residence and in the terms of the loan in order to maximize their profit” which was not discovered until “late 2009” (Fuller v. First Franklin). More specifically, the plaintiffs had credit scores that would have allowed them to obtain favorable loans, but they were instead pushed into ones with higher interest and payoff rates. Again, the plaintiffs here relied upon their professed ignorance of financial instruments to trigger the delayed discovery rule.
They were, after all, first-time home buyers. They had no experience “in real estate transactions,” and they finally alleged that defendants were actively trying to take advantage of them and conceal the true nature of the first and second loans they obtained for plaintiffs. When the loan closed in June of 2006, the plaintiffs “’had a few questions about the prepayment penalty and other [unspecified] details [of the loans],’ but the broker was not present and the notary did not have any answers for them” (Fuller v. First Franklin). Beyond this, the plaintiffs claimed to not know the full terms of the loan until November of 2009 when they attempted to refinance it after suffering financially in the 2008 recession.
The courts, however, seem to have taken a somewhat dim view of the plaintiffs’ professed ignorance. This may be because, procedurally, the plaintiffs had to amend some four times to finally allege delayed discovery, and they also continued to have some inconsistencies in their pleadings with respect to when and how they first learned of the breach. On the other hand, it may also stem from the length of time between the origination of the loans and the time in which plaintiffs claim to have discovered the truth about those instruments—as business owners, perhaps they should have possessed the foresight to at least hire someone to review the loans if they lacked the knowledge to do so. Nevertheless, because delayed discovery was otherwise alleged properly, the court agreed that the case could proceed against the lenders. That said, it isn’t always the case that the court sides with the plaintiff in such cases—the plaintiffs must show and later prove that their lack of knowledge was reasonable given the circumstances. Another recent case before California’s appellate courts shows when delayed discovery may not be triggered.
In WA Southwest v. First American Title Insurance, for example, the court rejected plaintiffs’ claim of delayed discovery. In this case, the plaintiffs were investors in a corporate building. As with many of the other above-cases, plaintiffs relied upon experts to invest and claimed that they were “misled” by these experts. Although these plaintiffs invested in the property as late as 2006, they did not file suit until 2012. The court noted that the statute would have run, “from one to four years,” so 2012 would have been too late without successfully pleading delayed discovery. If the cases before this one are any indicator, it would seem as if this one would also be subject to that rule; however, the courts dismissed plaintiffs’ entire action by way of demurer for being time-barred.
As the facts demonstrated, plaintiffs did not actually discover the problem until “September 2012” as they alleged. A “private placement memorandum” had been circulated among plaintiffs by the defendants. Within, it provided the fees, expenses, commissions, investments, risk involved with the property, and even the entire sales load. Even though plaintiffs did hire an expert to protect them, the courts stated that, “Reasonable diligence in such circumstances does not consist of ignoring a private placement memorandum received prior to making an investment.” Since that memorandum laid out the true nature of the investment, plaintiffs would have, or should have, known all of its terms. As a result, this case was not one in which the plaintiffs, “possessed no factual basis for suspicion,” and so the delayed discovery rule did not apply. Interestingly, this decision was rendered even though the court admitted that both defendants memorandum and later letters had some inconsistencies: since the memorandum itself gave the full terms of the investment, any later inconsistency should only have caused the kind of “alarm” or “suspicion” that would spur a “reasonable” person to conduct a diligent inquiry to find out the truth. In that case, the plaintiffs might have filed earlier and within the statute of limitations as the plaintiffs should have had a suspicion of a breach or other mistake as a result of the private memorandum. Because of this, the discovery rule did not apply, and the court dismissed the entire action without leave to amend. While the courts may be willing to accept claims of ignorance when the plaintiff had no clear recourse to get at the truth, the same cannot be said when plaintiffs have a clear reason to suspect a mistake. As well, the plaintiffs were all experienced business people who had invested many times before and not first-time home buyers.
Determining how informed or uninformed a plaintiff may be in delayed discovery suits may not always be so clear-cut, however. In an article which explores delayed discovery as it affects athletes in California, one author notes an interesting twist on pending lawsuits that NFL players may have against Riddell, “the official helmet manufacturer of the NFL” (Bernhardt, 2014, p. 107): “The vast majority of former NFL players embroiled in the pending litigation have been out of the NFL for more than two years and should be barred from recovery; however, there is an exception labeled the ‘Delayed Discovery’ rule, which states a plaintiff need only file a claim within two years from the date that the plaintiff knew or should have known of the injury and its cause through due diligence. A statute of limitations defense could come down to a case-to-case evaluation of which players understood the injury that they had sustained and which [. . .] did not understand the consequences of receiving a concussion” (p. 115). To do so, such plaintiffs may have to show that the very injury they are claiming damages for is why they should be able to activate delayed discovery rules. Of course, as products liability cases often involve strict statutes of repose, it is equally likely that many such cases are time-barred regardless of when the injury was discovered.
Delayed discovery remains an important cornerstone of California’s Code of Civil Procedure. While historically it was enacted for cases of fraud and concealment, it has since been broadened to encompass other cases in which the plaintiff could not have known or reasonably ascertained the damages. Cases involving experts or professionals are classic examples, but the plaintiff must clearly establish both the time and the reasons giving rise to the delay, and the courts may take a skeptical view if there are facts which show the plaintiff knew or should have known about the breach prior to the date claimed. That said, even if your case appears to be barred by a relevant statute of limitation, you may still have some legal recourse if you did not discover the damage or injury until later.
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