Richard Catena v. Raytheon Company

Citations: 447 N.J. Super. 43; 145 A.3d 1085Docket: A-4636-13T4

Court: New Jersey Superior Court Appellate Division; August 18, 2016; New Jersey; State Appellate Court

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Richard Catena appeals the summary judgment dismissal of his fraud claims against defendants Daniel P. Andersen and Wells Fargo Bank, N.A. The claims arise from allegations that Andersen and a predecessor, First Fidelity Bank (FFB), fraudulently concealed hazardous waste contamination on a Teterboro property purchased by Catena in 1988, and that they conducted only a partial cleanup. The trial court found that Catena should have discovered the fraud by June 1998 when he learned about the contamination, rendering his claims time-barred under New Jersey law (N.J.S.A. 2A:14-1). However, the appellate court disagreed, stating that Catena's awareness of contamination did not equate to knowledge of the alleged concealment of facts regarding the contamination and cleanup. The court emphasized that, even with diligent inquiry, it would not have been reasonable for Catena to discover the fraud earlier than six years before filing his claims in 2005 and 2008. Therefore, the appellate court reversed the trial court's decision. 

Key facts include Andersen's ownership of the property since 1983, a loan agreement with FFB, and a 1987 environmental assessment revealing high levels of tetrachloroethylene (PCE) on the site. Following this, FFB authorized the excavation of contaminated soil, but EWMA could not confirm complete removal of the contamination.

In December 1987, FFB's attorney informed Andersen's attorney that contamination hindered the sale of a property, raising concerns among potential buyers. By March 1988, FFB expected Andersen to remove excavated soil from the site. In June 1988, Andersen and FFB agreed that Andersen would sell the property "as is" while FFB retained the sale proceeds and arranged for the removal of the contaminated soil, which was later disposed of offsite and replaced with clean soil. EWMA assessed that the property would pass inspection under the Environmental Cleanup Responsibility Act (ECRA), but neither EWMA nor FFB notified the New Jersey Department of Environmental Protection (DEP) about the cleanup. Catena, unaware of the contamination, purchased the property on June 29, 1988, under an "as is" contract, acknowledging that he had inspected the premises and that no additional representations were made.

The day before the sale, FFB provided Catena's attorney with a July 31, 1987 affidavit claiming that prior occupants had not engaged in hazardous substance activities. This affidavit was accompanied by a DEP "letter of nonapplicability" (LNA). Subsequently, Andersen submitted a second affidavit on August 12, 1988, to obtain another LNA, which also omitted mention of the previously found PCE-contaminated soil. Based on this second affidavit, DEP issued another LNA on September 1, 1988, indicating that the sale was not subject to ECRA but did not confirm environmental safety.

Catena closed on the sale on November 1, 1988. In 1989, he hired EcolSciences, Inc. for an environmental assessment, which noted past uses of the property without mentioning contamination but suggested further investigation. Nearly ten years later, when Catena sought refinancing, Property Solutions, Inc. found significant tetrachloroethylene contamination exceeding DEP standards in 1998 and reported this to DEP.

Catena was informed on May 26, 1998, about tetrachloroethane contamination at the site exceeding DEP standards through PSI's report. This report indicated that the contamination likely stemmed from historical airplane-related activities and requested a "No Further Action Required" letter from DEP, which was denied on June 4, 1998. DEP required Catena to enter a Memorandum of Agreement (MOA) to develop a cleanup plan, which Catena executed on June 22, 1998, acknowledging the presence of hazardous wastes including PCE, toluene, ethylbenzene, and xylene. Catena submitted a site investigation report in October 1998, leading DEP to mandate remediation of the contaminated soil by December 22, 1998. In July 1999, DEP deemed the MOA administratively complete and asked for a schedule for cleanup activities. Catena engaged EcolSciences for further investigation, which reported additional soil contamination in March 2000. Though DEP accepted a new investigation plan in June 2000, the plan was not carried out, resulting in the termination of the MOA in March 2001. After a delay, Catena contracted EcolSciences again in December 2003, and by May 2004, it reported a larger contamination area. Catena filed an initial complaint against Andersen and previous owners on August 22, 2005, claiming fraud and violations of environmental statutes due to undisclosed contamination. During Andersen's deposition in December 2007, documents revealed that prior owners were aware of the PCE contamination, which Catena had not seen before. Catena admitted he was unaware of environmental issues at the time of purchase and did not inquire about them. He filed an amended complaint in February 2008 detailing fraud claims against Andersen and later included Wells Fargo in May 2008. The defendants moved for summary judgment, arguing that the fraud claims were time-barred under N.J.S.A. 2A:14-1, as they were filed more than six years after they arose.

Catena's cross-motion for summary judgment was denied by the court on January 16, 2009, which granted the defendants' motion instead. The court determined that Catena's fraud claims accrued in June 1998, coinciding with his execution of the Memorandum of Agreement (MOA). The judge dismissed Catena's assertion that he only discovered the fraud in 2007, highlighting that he had first raised the fraud claim in 2005. Catena is appealing this ruling, contending that, under the discovery rule, his claims should not have been considered accrued until December 2007 when he deposed Andersen. Wells Fargo argues that the limitations period began in June 1998 when Catena acknowledged contamination by signing the MOA. Andersen asserts the period commenced no later than December 22, 1998, when remediation was mandated by the Department of Environmental Protection (DEP).

The appellate review of summary judgment is conducted de novo, applying the same standard as the trial court. The question of whether a cause of action is barred by the statute of limitations is also a legal issue reviewed de novo. The discovery rule, which allows a delay in the start of the limitations period, applies when a plaintiff has not discovered, or could not reasonably have discovered, the basis for an actionable claim. The burden to establish the applicability of the discovery rule lies with the party seeking its benefit. Historically, courts have recognized that the limitations period for fraud claims does not start until the fraud is discovered or should have been discovered with reasonable diligence. This principle has been accepted in modern jurisprudence, as illustrated by various case law affirming the application of the discovery rule to fraud claims. The discovery rule is fundamentally an equitable doctrine meant to prevent the unjust barring of claims from parties who are unaware of their rights due to fraudulent actions.

In fraud cases, the discovery rule is critical as it addresses the victim's ignorance of the fraud, which is often the aim of the wrongdoer. This rule prevents defendants from benefiting from their deceit. The U.S. Supreme Court noted that fraud can obscure a plaintiff's awareness of being defrauded, and the law must not inadvertently aid fraudulent actions. A defendant cannot exploit their own wrongdoing that leads to a delay in the plaintiff pursuing their claims. The date of discovery is marked by when a plaintiff learns or should have learned about the facts that equate to a potential legal claim. This determination is fact-sensitive and varies by case type. The statute of limitations does not stop until the plaintiff has legal certainty regarding their actionable claim or until the full extent of damages is clear. A claim accrues once a plaintiff is aware of facts that would alert a reasonable person to a potential claim; mere suspicion is insufficient. 

In common law fraud, the plaintiff must demonstrate that the defendant materially misrepresented a fact, knew it was false, intended for the plaintiff to rely on this misrepresentation, and that the plaintiff reasonably relied on it, resulting in damage. In real estate, misrepresentation can include intentional non-disclosure of a significant defect not visible to the buyer. Under the Consumer Fraud Act (CFA), a violation involves knowingly concealing or omitting material facts with the intent for others to rely on them. A CFA claim requires proof of an unlawful practice, an ascertainable loss, and a causal link between the unlawful conduct and the loss. The claim's accrual date aligns with when the fraud was or should have been discovered. In Belmont, a condominium association's CFA claim based on the contractor's misrepresentations did not accrue until the association realized it suffered an ascertainable loss, specifically when the extent of water damage became evident.

A claim for fraud does not accrue until the plaintiff is aware of facts that establish an essential element of the claim, specifically regarding the wrongdoer's mental state. Discovery of the claim occurs only when the plaintiff knows that the wrongdoer knowingly made a false statement intending for it to be relied upon. Courts emphasize that it would frustrate the discovery rule if the limitations period began before the plaintiff discovered any evidence of the wrongdoer's intent (scienter). Knowledge from public records will not be assumed for the plaintiff, as knowledge of facts that could have been obtained from public records is not imputed. Industry custom may inform but does not solely determine what a reasonable inquiry entails. The Supreme Court has indicated it is inequitable for a physician to claim a patient failed to act with reasonable diligence when the physician provided assurances of recovery. This principle extends to all fraud cases, where the wrongdoer's exploitation of trust can delay the victim's discovery of the fraud. New York decisions reinforce that mere suspicion is insufficient for discovery; actual knowledge of fraudulent acts is required. A plaintiff is considered to have discovered fraud when they possess knowledge from which fraud can reasonably be inferred. New York law also recognizes "inquiry notice," which triggers the limitations period if a plaintiff knows facts that would prompt a reasonable inquiry into potential fraud. However, New Jersey courts have not adopted this aspect of the discovery rule.

Wells Fargo improperly relies on cases that apply the discovery rule to strict liability environmental claims, which assert that a claim accrues when a plaintiff becomes aware of contamination and its attribution to another party. In relevant precedents, such as Hatco Corp. v. W.R. Grace Co., the claim accrual is triggered by awareness of contamination, whereas SC Holdings, Inc. v. A.A.A. Realty Co. emphasizes that knowledge of another's fault cannot be strictly tied to the first identification of contamination by regulatory agencies. For fraud claims, proof of intentional misrepresentation or concealment is required. Catena's awareness of contamination in 1998 did not equate to knowledge of fraud, as he had no reason to suspect deception nor had he discovered facts supporting such a claim. The discovery of contamination did not contradict any prior statements by Andersen or FFB, who had made no affirmative representations regarding the property’s contamination status. The 1987 Affidavit did not disclose prior excavation of contaminated soil, and Catena’s environmental assessment in 1989 found no contamination. Additionally, the 1998 report indicated contamination likely stemmed from unrelated industries, further supporting the notion that Andersen and FFB could have been unaware of the contamination at the time of sale in June 1988. Since Catena had no grounds to suspect fraud in 1998, his claims had not accrued, as a cause of action for fraud requires awareness of facts that would indicate wrongdoing. Thus, his claims were not yet actionable based on the established legal framework.

Determining the appropriate timeline for Catena to have discovered the alleged fraud hinges on whether he exercised reasonable diligence. If Catena can establish that reasonable diligence would not have uncovered the fraud before August 1999 in the case against Andersen and May 2002 against Wells Fargo, his claims remain valid. The court emphasizes that a plaintiff cannot be imputed with knowledge of fraud that could not have been discovered through reasonable diligence, particularly if they lacked access to relevant information. Catena had no access to details regarding a cleanup in 1987 since it was not disclosed by Andersen, FFB, or EWMA, and public records would not have revealed this information. The effectiveness of the defendants' concealment prevented even environmental assessments commissioned by Catena from uncovering evidence of the cleanup. Consequently, reasonable diligence would not have revealed any fraud-related facts until the discovery phase of the lawsuit, during which Catena obtained critical reports indicating that Andersen and FFB were aware of the contamination and had conducted a cleanup without disclosure.

The court dismisses the argument that Catena's delay in asserting the fraud claim caused prejudice to Wells Fargo, reiterating that the discovery rule acknowledges that a victim's delayed discovery is a result of the wrongdoer's deceit. Allowing the defendants to benefit from this delay would undermine the purpose of the law against fraud. The court concludes that Catena could only have discovered the facts underpinning the fraud claims after May 21, 2002, and since his claims were filed within the six-year statute of limitations, they are not time-barred. The decision to reverse is made without retaining jurisdiction.