Pre-answer motions to dismiss for untimeliness are exceptionally common in business divorce litigation. Statute of limitations analysis can be deceptively simple in theory, but elusively difficult in practice, even for veteran judges. Identifying the applicable statute of limitations is just one of three steps a court must perform as part of its decision making process:
- What’s the applicable statute of limitations?
- What’s the accrual date of the claim?
- Are there any applicable tolls or equitable exceptions?
A recent decision from the Albany-based Appellate Division – Third Department, Lambos v Karabinis (___ AD3d ___, 2025 NY Slip Op 03367 [3d Dept June 5, 2025]), is a reminder to business divorce litigants – on either side of the v. – not to overlook that crucial third step in the statute of limitations analysis, which can rescue complaints from pre-answer dismissal even if they allege misconduct from decades earlier.
The Coffee Business and the Merger
In the late 1980s, Paul Karabinis (“Paul”), and his son, Anastasios Karabinis (“Anastasios”), incorporated B.K. Associates International, Inc. (“B.K.”), a coffee import and export business in Otsego, becoming equal 50% shareholders.
In 2008, William ‘Bill’ Lambos (“Bill”) merged his separate coffee business in Long Island City, Lambos Coffee Company, with B.K. in exchange for 33.3% of the Corporation’s stock.
The Insider Loans and the Asset Sale
According to Bill, Paul and Anastasios secretly engaged in three large, interest-bearing loan transactions with B.K., immensely depressing shareholder equity value. The first was in 2008, four days before Bill became a shareholder, in which a separate diner corporation Paul and Anastasios owned loaned B.K. $1,059,310. The second, in 2014, was a refinance of the 2008 loan, in which Paul loaned B.K. $869,419. The third, in 2015, was a $500,000 loan to B.K. from a real estate corporation Paul and Anastasias owned, which owned the land on which B.K. operated upstate.
Paul and Anastasios documented all three loans in corporate resolutions available here, here, and here. Bill claimed he received no information about any of the three transactions, until November 2019, when Paul, Anastasios, and Bill unanimously agreed to sell B.K.’s assets to a third party for $1.5 million. According to Bill, he received just $65,000 at the closing because “the bulk of the proceeds went to pay off the self-dealing loans.”
The Books and Records Proceeding
Nine months after the closing, Bill made a books and records demand, which Paul and Anastasios partially rejected, then commenced a books a records proceeding, which ultimately lasted three years, and included a deposition of Bill himself.
According to Paul and Anastasios, Bill admitted at his deposition that after he became a shareholder in 2008, he received ongoing financial disclosure of the business, including annual financial statements and income tax returns, which they argued should have revealed to Bill the existence of Paul and Anastasios’s loans, but which Bill never bothered to read, testifying:
- “Q: Since you have been a shareholder in 2008, were you ever interested in what the financial condition of the company was? A: No.”
- “Q: You did not care to see what the company’s financials were? A: Never. No.”
The Second Litigation
In 2023, shortly after wrapping up the books and records proceeding, Bill sued Paul and Anastasios in Otsego County Supreme Court for their “self-dealing” loan transactions, alleging claims for “breach of the duty of loyalty,” “breach of the duty of care,” corporate waste, breach of fiduciary duty, and conspiracy to breach fidicuary duty.
As remedies, Bill sought rescission of the loans, an injunction prohibiting use of the proceeds of the sale from four years prior to repay the loans, imposition of a constructive trust upon the sale proceeds, and money damages.
The Statute of Limitations Dismissal Motion
Paul and Anastasios moved to dismiss the complaint under CPLR 3211 (a) (5), among other grounds, arguing in their moving brief that Bill “knew, or he should have known had he exercised any reasonable diligence whatsoever, of all the . . . loan transactions and payments made on the loans,” and that the “allegation in Plaintiff’s Complaint that Defendants ‘purposefully and intentionally concealed’ said loans is demonstrably false and disproven with credible documentary evidence.”
Bill opposed, arguing in his brief that under the open repudiation doctrine, his claims “accrued no earlier than November 5, 2019, when the Defendants concealed the loans from the Plaintiff, sold all corporate assets, and pocketed the sale proceeds.”
The Dismissal Decision
In a Decision and Order, the Hon. Brian D. Burns – the same Justice who handled the books and records proceeding – held Bill’s claims untimely in full.
The Court applied a three year statute of limitations under its belief that the claims were predominantly monetary, not equitable, holding:
The actions, if the allegations are accepted as true, accrued on September 1, 2008, as they relate to the [first] loan, on January 1, 2014, as they relate to the [second] loan, or on May 3, 2015, as they relate to the [third] loan. This action was commenced on July 19, 2023, more than three years after the last loan transaction which is the subject of the Complaint and outside any applicable statute of limitations. Given that the information regarding the loans was disclosed to Lambos in 2008, and at least annually since then, through financial statements and tax returns, his failure to exercise diligence in reviewing that information makes application of a discovery accrual rule inappropriate.
Unfortunately for the motion court, it skipped the all important third step of the statute of limitations analysis: whether any tolling or equitable exceptions applied to Bill’s claims, teeing up Bill’s appeal to the Third Department.
You can read all three appeal briefs here, here, and here.
The Appellate Decision and its Implications
The Hon. Stan L. Pritzker, writing for a unanimous appellate panel, “reversed, on the law,” the motion court’s dismissal of the complaint, writing:
Claims alleging a breach of fiduciary duty do not accrue until there is either an open repudiation of the fiduciary obligation or a judicial settlement of the account. This is so because, absent either repudiation or removal, the aggrieved party is entitled to assume that the fiduciary would perform his or her fiduciary responsibilities.
(quotations and brackets omitted).
Applying the law to the facts, the Court concluded:
Here, defendants did not proffer, or even assert, that they have openly repudiated their obligations as fiduciaries or that the relationship has otherwise terminated. To the contrary, at oral argument, defendants’ attorney conceded that all fiduciary duties still exist as the corporation has not yet been dissolved. As such, plaintiff’s breach of fiduciary duty claims have not yet begun to accrue.
Appellate reversals of statute of limitations decisions are frequent. As Lambos illustrates, part of the problem for motion courts and practitioners is that for every rule, it seems there’s an exception. Or two. Or three.
For example, a claim for breach of fiduciary duty is governed by a three-year statute of limitations. But if a claim for breach of fiduciary duty seeks predominantly equitable relief, then the statute jumps from three years to six.
Or, if the pleader alleges the claim derivatively on behalf of a business entity, the statute again jumps from three years to six.
Or, if the claim is fraud-based, then the statute extends from three years to either six years from the date of the fraud, or two years from the date the plaintiff discovered, or could have discovered, the fraud with the exercise of reasonable diligence.
In Lambos, the appeals court sidestepped entirely the threshold question of which statute of limitations applied, writing, “Given that the statute of limitations has not yet begun to accrue, it is irrelevant whether a three- or six-year statute of limitations applies.”
Making things more complicated still, as Lambos illustrates, conflicting lines of case law emerge depending upon in which court one happens to be venued at the time.
Some courts impose upon plaintiff “the burden of demonstrating that they exercised due diligence and reasonable care” (Miele v Pension Plan of New York State Teamsters Conference Pension & Retirement Fund, 72 F Supp 2d 88 [ED NY 1999]).
Lambos expressly rejected any such requirement, ruling: “Nor does the open repudiation rule place an affirmative burden on a plaintiff to exercise due diligence in order to benefit from this toll, unlike the discovery accrual rule in fraud cases.”
Some courts hold that “the open repudiation doctrine . . . only applies to equitable fiduciary duty claims” (Chazen v Ma, 223 AD3d 608 [1st Dept 2024]), like “claims for accounting,” but not where “plaintiffs seek money damages for their breach of fiduciary claims” (Cusimano v Schnurr, 137 AD3d 527 [1st Dept 2016]). Others, like Lambos, recognize no such distinction.
Bill acknowledged this curious inconsistency in his dismissal motion opposition papers, writing that “the Third and Fourth Departments of the Appellate Division have rejected the First Department view . . . that the open repudiation doctrine applies only to claims for accounting or equitable relief.”
One of the lessons of Lambos is that when litigating open repudiation, be thoroughly familiar with the subtle nuances and variations in law across the Departments. Failure to do so can mean the difference between success and defeat.
Another lesson of Lambos: always assiduously apply in one’s statute of limitation analysis the burden-shifting standards of CPLR 3211 (a) (5), the functional equivalent of a motion for summary judgment. The motion court skipped this analysis, which contributed to its reversal.
Unlike most pre-answer motions, pre-answer dismissal based upon statute of limitations requires the defendant to make an evidentiary showing – to satisfy the “initial burden of proving, prima facie, that the time in which to sue has expired,” only after which the “burden then shifts to the nonmoving party to raise a question of fact” (Yudkin v Evergreen Terrace 888 Corp., ___ AD3d ___, 2025 NY Slip Op 03223 [2d Dept May 28, 2025] [quotations omitted]).
The Court noted in Lambos that this standard is stringent for the defendant, and forgiving for the plaintiff: “Where there is any doubt on the record as to the conclusive applicability of a statute of limitations defense, the motion to dismiss the proceeding should be denied, and the proceeding should go forward” (quotations and brackets omitted).
Paul and Anastasios’s motion failed this burden-shifting standard, according to Lambos, because they “did not proffer, or even assert, that they have openly repudiated their obligations as fiduciaries,” and “other than their own self-serving statements,” they “did not provide documentary proof that the[] documents” upon which they relied to try to prove Bill’s knowledge of the loans “were actually sent.” In other words, they failed to carry their own prima facie burden of proving untimeliness.
The biggest question left open by Lambos: what exactly would it have taken for Paul and Anastasios to have “repudiated” their fiduciary duties? What is required to “openly repudiate?”
In Lambos, the Court seemed to suggest that even if a defendant imparts upon plaintiff knowledge of a breach of duty, it does not constitute “open repudiation” so long as “fiduciary duties still exist” and/or “the corporation has not yet been dissolved.”
A more precise definition of “open repudiation” would be either: i) the date on which defendant clearly disclosed, or engaged in conduct which clearly disclosed, the wrongful conduct; or ii) the date on which the fiduciary relationship finally ceased, whichever is earlier:
- Matter of Twin Bay v Kasian, 153 AD3d 998 [3d Dept 2017] [“respondents’ attempt in 2009 to force petitioners to sell their shares is the earliest point at which respondents can be said to have openly repudiated the fiduciary relationship. Given that this proceeding was commenced within six years of the 2009 force-out attempt, we agree with Supreme Court that this proceeding is not time-barred”]
- Star Meth Corp. v Steiner, 134 AD3d 555 [1st Dept 2015] [“in 1993 Steiner disclosed defendants’ fraudulent payroll scheme . . . . Accordingly, the motion court correctly concluded that, based on the ‘open repudiation’ rule, the six-year statute of limitations began to run in 1993”]; and
- In re JPMorgan Chase Bank, N.A., 122 AD3d 1274 [4th Dept 2014] [“the open repudiation rule requires proof of a repudiation by the fiduciary which is clear and made known”].
Applying this principle, I would argue – as Bill did – that Paul and Anastasios’s conduct qualified their alleged breaches as “clear and made known” in 2019, when they revealed after the asset sale that Bill’s net proceeds were only $65,000. The Lambos Court saw it otherwise, ruling that because the parties remained in an ongoing fidicuary relationship, the claims had not yet even accrued, nor the statute of limitations begun to run.
Taken literally, Lambos is a generous gift for sluggish plaintiffs: so long as one remains in a fiduciary relationship, or the business entity remains in a state of incorporation, a claim for breach of fidicuary between co-owners is perpetually tolled, the statute of limitations never starts running, and one need not exercise due diligence before suing.