Fraudulent Concealment and the Statute of Limitations

How does fraudulent concealment pause a Minnesota statute of limitations?

Fraudulent concealment pauses a Minnesota limitations period by keeping it from running while the defendant hides the facts of the claim. In Minnesota Laborers Health & Welfare Fund v. Granite Re, Inc., 844 N.W.2d 509 (Minn. 2014), the Minnesota Supreme Court described the effect in plain terms: “EnviroTech’s fraudulent concealment stopped the clock as to the Funds’ claim, and the clock restarted when the Funds discovered, or had a reasonable opportunity to discover, their cause of action.”

The doctrine is an exception to a hard rule. The same opinion states that “Under most circumstances, the expiration of a limitations period is an absolute bar to the plaintiffs claim.” It also states: “Fraudulent concealment is an equitable doctrine.”

The court traced the doctrine to Schmucking v. Mayo, 235 N.W. 633 (Minn. 1931), which held: “We are of the opinion that fraudulent concealment tolls the statute of limitations.” Schmucking also drew the line that still matters most: “There is a real distinction between ignorance and concealment. The former is not the fault of the person liable; the latter is.” Not knowing about a claim, by itself, does not stop the clock. Someone else’s deliberate hiding of the claim can.

What must a business prove to toll the limitations period?

A business claiming fraudulent concealment must prove an affirmative act or statement that hid the claim, that the act or statement was knowingly false or reckless, and that reasonable diligence could not have uncovered it sooner. The Court of Appeals listed the elements in Haberle v. Buchwald, 480 N.W.2d 351 (Minn. App. 1992): “To establish fraudulent concealment, a plaintiff must prove there was an affirmative act or statement which concealed a potential cause of action, that the statement was known to be false or was made in reckless disregard of its truth or falsity, and that the concealment could not have been discovered by reasonable diligence.”

The burden sits with the party asking for more time. In Cohen v. Appert, 463 N.W.2d 787 (Minn. App. 1990), the court stated: “The party claiming fraudulent concealment also has the burden of proving that concealment could not have been discovered sooner by reasonable diligence and was not the result of his own negligence.”

The concealment must also hide the claim itself. In Hydra-Mac, Inc. v. Onan Corp., 450 N.W.2d 913 (Minn. 1990), the Minnesota Supreme Court held that tolling applies only when the very facts establishing the cause of action are concealed, and added: “Merely establishing that a defendant had intentionally concealed the alleged defects is insufficient; the claimant must establish that it was actually unaware that the defect existed before a finding of fraudulent concealment can be sustained.”

On the defense side, the statute of limitations is an affirmative defense. Hydra-Mac notes that the engine maker pleaded it in its answer and then proved the delivery dates at trial. Because the claimant carries the burden on concealment and diligence, its own evidence of both should be ready before that defense is raised; fraud allegations themselves carry the separate standards for pleading fraud with particularity.

When does silence count as fraudulent concealment?

Silence usually does not count as fraudulent concealment in Minnesota unless the silent party owed you a fiduciary duty. The Minnesota Supreme Court in Granite Re described the rule Minnesota follows: “[a]ny concealment by positive affirmative act and not mere silence is itself fraudulent so as to prevent the statute from running.” A false assurance, a doctored record, or a cover story is the typical affirmative act.

The exception is a relationship of trust. In Wild v. Rarig, 234 N.W.2d 775 (Minn. 1975), the Minnesota Supreme Court quoted a treatise stating that “the concealment must be fraudulent or intentional and, in the absence of a fiduciary or confidential relationship, there must be something of an affirmative nature designed to prevent, and which does prevent, discovery of the cause of action.” Relying on that passage, the Court of Appeals in Cohen concluded: “These cases imply that when fraudulent concealment occurs during a fiduciary relationship, the plaintiff need not show affirmative acts of concealment as a prerequisite to tolling the statute of limitations.” Cohen involved an attorney who did not tell his client about his friendship with the insurance adjuster who set her settlement figure.

The Minnesota Supreme Court has made a similar point about fraud claims generally. In Toombs v. Daniels, 361 N.W.2d 801 (Minn. 1985), it stated: “Delay in discovering fraud may be excusable when a confidential relationship exists.” For a business, the relationships that can qualify include a trustee, an attorney, and, depending on the entity and its documents, a manager or co-owner. When silence turns into a false statement in other settings is covered in when silence becomes misrepresentation.

When does the limitations clock start running again?

The clock starts again when you discover the claim or have a reasonable opportunity to discover it, and you need to know only that a claim exists, not every detail. Hydra-Mac put it this way: “A party need not know the details of the evidence establishing the cause of action, only that the cause of action exists.” In that case, International Harvester, which bought skid loaders built with the defendant’s engines, knew the engine problems continued after each repair, and the engine maker “specifically informed International Harvester in June of 1979 that the NHCV engines would never be totally free from problems.” The court held that this evidence rebutting the claimed concealment “precludes a trial court ruling that as a matter of law” the alleged concealment tolled the statute of limitations.

Notice triggers a duty to investigate. In Buller v. A.O. Smith Harvestore Products, Inc., 518 N.W.2d 537 (Minn. 1994), a farmer kept seeing spoiled feed in a silo sold as oxygen-limiting, while the dealer told him to “watch [his] management.” The Minnesota Supreme Court reinstated the trial court’s finding that he should have discovered the fraud sooner, stating: “A plaintiff must exercise reasonable diligence when he or she has notice of a possible cause of action for fraud.”

Suspicion is different from notice when the defendant keeps lying about the key fact. In Williamson v. Prasciunas, 661 N.W.2d 645 (Minn. App. 2003), the buyers of a house repeatedly denied having jewelry the seller had left in a safe, including to the police. The Court of Appeals held that their concealment tolled the period and stated: “Mere suspicion, in a case of fraudulent concealment, is not sufficient to stop the tolling of the statute of limitations.” The restart question is closely related to the discovery rule that some claims carry on their own.

How is the fraud discovery rule in § 541.05 different from concealment tolling?

The discovery rule in § 541.05 delays when a fraud claim begins, while concealment tolling stops a running clock while the defendant hides the claim. Minn. Stat. § 541.05, subd. 1(6) covers actions “for relief on the ground of fraud, in which case the cause of action shall not be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud.” The statute sets the length of the period; check the current text there rather than relying on a number repeated elsewhere.

Courts read “discovery” to include what diligence would have found. In Bustad v. Bustad, 116 N.W.2d 552 (Minn. 1962), the Minnesota Supreme Court quoted an earlier decision: “But the facts constituting the fraud are deemed to have been discovered when, with reasonable diligence, they could and ought to have been discovered.” Cohen stated: “The doctrine of fraudulent concealment is very similar to the discovery rule that tolls the limitations period for a fraud cause of action. In both cases, reasonable diligence is a question of fact.”

The difference matters for claims that are not fraud claims. The contract clause of the same subdivision, § 541.05, subd. 1(1), covers actions “upon a contract or other obligation, express or implied, as to which no other limitation is expressly prescribed,” with no discovery language. Concealment tolling is what reaches those claims. That subdivision opens “Except where the Uniform Commercial Code otherwise prescribes,” and a claim on a contract for the sale of goods, like the engine warranty claims in Hydra-Mac, runs under Minn. Stat. § 336.2-725, which “does not alter the law on tolling of the statute of limitations.” The period for the fraud claim itself is covered in Minnesota’s limitation period for fraud claims.

Construction-defect claims run under their own statute. Minn. Stat. § 541.051, subd. 1(a) opens with “Except where fraud is involved,” but in Dakota County v. BWBR Architects, Inc., 645 N.W.2d 487 (Minn. App. 2002), the Court of Appeals stated that “fraudulent concealment by respondents is relevant only insofar as it prevented Dakota County from learning of its injury.” It held: “Once Dakota County discovered an actionable injury, fraudulent concealment no longer tolled the statute of limitations.”

How does equitable estoppel differ from fraudulent concealment?

Equitable estoppel bars a limitations defense because the defendant’s promises induced you to delay, while fraudulent concealment stops the clock because the defendant hid the claim. Hydra-Mac stated the estoppel elements: “A party seeking to invoke the doctrine of equitable estoppel has the burden of proving three elements: (1) that promises or inducements were made; (2) that it reasonably relied upon the promises; and, (3) that it will be harmed if estoppel is not applied.”

Estoppel comes with a diligence requirement of its own. In Hydra-Mac, the engine maker kept promising repairs, then admitted the engines could never be made free of problems while time remained to sue. Assuming repair promises can support estoppel, the Minnesota Supreme Court remanded for a jury to decide whether the buyer used due diligence in suing after it knew, or should have known, that further reliance was unjustified. It observed: “Obviously, what constitutes due diligence is fact specific and is best left to the trier of fact.”

Timing of the assurances decides many estoppel claims. In Rhee v. Golden Home Builders, Inc., 617 N.W.2d 618 (Minn. App. 2000), a builder’s repeated assurances and repair efforts after the owners found the leaks raised a fact question, and the court reversed summary judgment. In Dakota County, by contrast, the court stated: “Any assurances respondents made during construction or before problems arose are not sufficient to permit estoppel.” When talks over a fix will take time, a written tolling agreement sets the timing in a signed document rather than leaving it to either doctrine.

How does concealment affect contractual limitation periods and sureties?

Concealment can extend a contractual limitations period too, and it can reach a surety that took no part in the concealment. In Granite Re, a payment bond required claims within a short period after the subcontractor stopped work. The funds’ audit found that the subcontractor had paid workers with checks recorded as accounts payable and with envelopes of cash, and according to the funds, those payments were left out of its fringe benefit reports. The funds sued after the bond’s period had run. Because the case came up on summary judgment, the court assumed for purposes of the appeal “that the Funds established a prima facie case of fraudulent concealment.”

The Minnesota Supreme Court held that the period could be tolled against the surety. It concluded: “Therefore, we conclude that fraudulent concealment can be applied to a surety that was not involved in the fraudulent concealment by the principal.” It treated the bond’s deadline as procedural, not a limit on what the surety owed: “Granite Re simply created a limitations period shorter than the applicable statutory limitations period in Minnesota.”

The court also pointed to the drafting choice the surety did not make: “To insulate itself from liability, Granite Re could have included a specific contractual provision in the bond that would have precluded tolling based on fraudulent concealment.” The court did not decide how far such a clause would be enforced. For a business that writes short claim deadlines into its contracts or bonds, the lesson is that a deadline alone does not answer the concealment question.

Which state’s tolling rules apply when another state’s law governs?

When a claim is based on another state’s law, Minnesota generally applies that state’s limitation period together with its tolling and accrual rules. Minn. Stat. § 541.31, subd. 1 provides that if a claim is substantively based “upon the law of one other state, the limitation period of that state applies,” and “The limitation period of this state applies to all other claims.” For a claim based on the law of more than one state, the same subdivision applies “the limitation period of one of those states chosen by the law of conflict of laws of this state.”

The borrowed state’s tolling rules come with it. Minn. Stat. § 541.32 provides: “If the statute of limitations of another state applies to the assertion of a claim in this state, the other state’s relevant statutes and other rules of law governing tolling and accrual apply in computing the limitation period, but its statutes and other rules of law governing conflict of laws do not apply.” When another state’s period applies, that state’s tolling rules, including its version of fraudulent concealment, decide the timing question.

The borrowing rule has two exceptions. Under Minn. Stat. § 541.31, subd. 2, a claim that arose outside Minnesota and is barred where it arose “may be maintained in this state if the plaintiff is a resident of this state who has owned the cause of action since it accrued and the cause of action is not barred under the applicable statute of limitations of this state.” Separately, Minn. Stat. § 541.33 returns to Minnesota’s period when the other state’s period “is substantially different from the limitation period of this state and has not afforded a fair opportunity to sue upon, or imposes an unfair burden in defending against, the claim.” Minnesota’s own periods for common business claims are collected in Minnesota limitation periods for business claims.

When Is a Late-Discovered Claim Still Timely?

Fraudulent concealment gives a Minnesota business more time to sue only while the claim stays hidden through the other side’s affirmative act, or through silence inside a fiduciary relationship, and only if the business stays diligent once it has notice. The record of what you knew, when you knew it, and what you did next usually decides the question. For the related fraud and misrepresentation claims, see my overview of Minnesota business torts. If you would like me to take a second look at whether a late-discovered claim is still timely, or whether a claim against your business is, email me at aaron@aaronhall.com with a brief description of the situation and its dates.