The statute of limitations for fraud cases in Virginia is two years from the time the cause of action accrues. See Va. Code § 8.01-243. This is not necessarily two years from the time the fraud was committed. Fraud cases are subject to a “discovery rule,” meaning that the cause of action will not accrue until the alleged misrepresentation is either discovered, or, by the exercise of due diligence, reasonably should have been discovered. See Va. Code § 8.01-249(1). The clock on the two-year period does not begin ticking until that moment in time. As you might expect, precisely when that moment occurs is often the subject of fierce disagreement.
To exercise due diligence, as contemplated by the statute, a plaintiff must use “such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.” (See Schmidt v. Household Fin. Corp., II, 276 Va. 108, 118 (2008)). Who gets to decide whether a plaintiff exercised this level of prudence, activity, and assiduity? In most cases, it will be the jury. A motion to dismiss or plea in bar based on the statute of limitations normally will not be successful unless all the facts necessary for resolving the “due diligence” question appear on the face of the pleadings or are not in dispute. If there’s a factual dispute about whether due diligence was exercised, the case will normally need to go forward so that the jury can hear evidence on the matter.
The existence of such a dispute was why a federal court in Virginia recently denied a motion to dismiss a fraud claim on statute-of-limitations grounds in the case of Harald McPike v. Zero-Gravity Holdings, Inc.
Harald McPike is a wealthy Austrian adventurer who entered into a contract with Zero-Gravity Holdings (then called Space Adventures, Ltd.), a Virginia company specializing in space tourism. The contract called for Zero-Gravity to arrange to send McPike into space, around the moon, and to the International Space Station. This
In the course of negotiating the contract, Zero-Gravity represented orally to McPike that it had an exclusive arrangement with Roscosmos to complete a circumlunar mission. The parties signed the contract in March 2013. At some point after making an initial $7,000,000 deposit, McPike became concerned that Zero-Gravity might not actually have the ability to perform the parties’ agreement. He had read in the Moscow Times–in July 2014–that Zero-Gravity had not consulted with Roscosmos about the circumlunar mission and had no contractual relationship with the space agency. When he emailed the company’s President and CEO about the article, they replied that the story was incorrect and that Roscosmos had a new leader who was apparently unaware of the arragements with Zero-Gravity.
Zero-Gravity terminated the agreement after McPike failed to make an additional installment payment towards the deposit. Sixteen months later, McPike received a letter from Roscosmos in which it stated that “there are no valid documents containing any legal obligations of Roscosmos to [Zero-Gravity].” McPike concluded that he had been defrauded, and on May 17, 2017, he sued Zero-Gravity in federal court for fraud and a number of other claims. Zero-Gravity moved to dismiss the fraud claim, noting that the two-year statute of limitations had expired.
The issue became whether McPike had filed the lawsuit within two years of the time the alleged fraud was discovered or, through the exercise of due diligence, should have been discovered. Did McPike discover the fraud in July 2014 when he spotted that article in the Moscow Times? (If so, the lawsuit should have been filed by July 2016). Or, in light of the assurances he received from Zero-Gravity management, was the fraud not discovered until July 2016, when he received the letter from Roscosmos? (In which case, the lawsuit would have been timely filed in May 2017). Should McPike have done more than he did to investigate the situation? Would a person acting with “due diligence” have contacted Roscosmos sooner than McPike did?
These were questions best left for the jury, the court held, as the complaint alleged facts that were in dispute and which could cause reasonable jurors to disagree. The motion to dismiss was therefore denied.