Do Your Due Diligence: A New York Case Study

In 2004, a complaint for divorce was filed in New York between Lisa Neckritz Koral (“Lisa”) and Gregg Saunders (“Gregg”). During the divorce proceedings, each party exchanged statements of net worth containing appraised values of several commercial properties of which Gregg was a fractional owner. The parties expressed satisfaction that all assets were fully disclosed, as reported on their respective statements of net worth, and signed a stipulation of settlement in July 2004.

Before signing the stipulation, Lisa voiced suspicions as to whether Gregg concealed or misrepresented certain of his assets. Specifically, Lisa noted that Gregg had not provided “complete and full information” pertaining to his commercial properties, stating that Gregg has “lied in the past.” As a result, Lisa’s counsel raised concern regarding those values, citing as support their belief that the appraisers were not “given complete and full information.” Despite Lisa’s suspicions, she indicated her satisfaction with Gregg’s disclosures and waived the need for further documents, appraisals, or inquiries to substantiate the value of said assets.

Nearly a decade later, Gregg died in a car accident, an incident that led to Lisa’s deposition in connection with a wrongful death suit. As a result of that deposition, Lisa became aware that Gregg’s investments into his commercial properties may have been worth millions of dollars, substantially more than reported on the divorce-related statements of net worth. Lisa’s suspicions resurfaced, and she then formally filed a fraud action against the Estate of Gregg Saunders and Alsou Saunders, Gregg’s widow, which was dismissed by the United States District Court for the Eastern District of New York on the ground that the claims were barred by the statute of limitations.

The United States Court of Appeals for the Second Circuit (“Court of Appeals”) then heard arguments. Lisa argued that “…her claims should be tolled pursuant to the doctrines of fraudulent concealment or equitable tolling;” conversely, the counterargument cited Pearl v. City of Long Beach¹ with the Court of Appeals citing the various instances in which Lisa could have requested further documentation and made further inquiries as to the value of the assets. Lisa invoked the discovery rule and equitable estoppel, the doctrine providing that an individual is estopped from asserting a specific right when such a right would lead to prejudice or other problematic outcomes, to argue that the suit was, nevertheless, timely.

The Court of Appeals ruled that Lisa could not invoke the discovery rule because of “…her failure to identify any ‘actual specific misrepresentation’ prior to initiating suit.”² As for Lisa’s argument of equitable estoppel, the Court of Appeals noted her argument as insufficient in establishing having been misled or defrauded. It emphasized Lisa’s failure to demonstrate due diligence in her fact-finding endeavors with respect to the value of the assets.

Due diligence during divorce proceedings is essential in ensuring assets, and their respective values, are properly disclosed with supporting documentation. This case proves the importance in verifying the accuracy and reporting of each asset, together with its respective value, before potentially losing the opportunity to contest such reported assets and values forever.

Sources

1. Pearl v. City of Long Beach, 296 F.3d 76, 81-83 (2d Cir. 2002) (explaining the varying uses of terminology regarding tolling).
2. Koral v. Alsou Saunders, Est. of Gregg Saunders, No. 20-3663 (2d Cir. 2022)