A “statute of limitations” is a law that places a time limit on when a claim can be brought. These time limits are designed to prevent fraudulent and stale claims from arising after the passage of time or the defective memory, death, or disappearance of witnesses. The statute of limitations is a defense that is ordinarily asserted by the defendant to defeat an action brought against him after the appropriate time has elapsed. In Gunn v. First American Financial Corporation, fraud was involved, which tolled the clock and gave the plaintiff more time to amend his complaint. 

La Mar Gunn lost his property through a foreclosure action. On February 1, 2013, he filed a complaint acting as his own attorney, alleging violations of the Real Estate Settlement Procedures Act (“RESPA”) and the Truth in Lending Act (“TILA”), as well as breach of contract, against First American Financial Corporation. First American provided Gunn with title and settlement services in connection with the foreclosed property. Gunn also asserted a claim of legal malpractice against attorney Douglas Shachtman, who represented him in state court proceedings related to the foreclosure. Gunn sought monetary damages from both parties.

Shachtman filed a motion to dismiss, and the District Court concluded that Gunn’s claims were time-barred and dismissed them as frivolous. Attorney Shachtman’s motion to dismiss was granted and the legal malpractice claim was dismissed without prejudice. Gunn appealed.    The Third Circuit Court of Appeals held that the District Court correctly noted that claims under RESPA and TILA must be brought within three years of the alleged violation. Gunn alleged that his loan was finalized in April 2006, which ended his relationship with First American, so his claims were time-barred, as his complaint was not filed until 2013—far beyond the time limit for filing an action. The District Court also correctly determined that the statute of limitations for breach of contract claims is three years. Gunn alleged that First American breached its contract in March 2006, when it issued the title insurance policy on the foreclosed property. The District Court concluded that this claim was also time-barred.    Although the statute of limitations is an affirmative defense, a complaint can be dismissed for failure to state a claim if the allegations show that relief is barred under the relevant statute of limitations. A district court may sua sponte dismiss a claim as time-barred where it is apparent from the complaint that the applicable limitations period has run. However, if a complaint is vulnerable to such a dismissal, a district court must permit a curative amendment, unless an amendment would be inequitable or futile. Dismissal without leave to amend is justified only on the grounds of bad faith, undue delay, prejudice, or futility. If a pro se plaintiff such as Gunn can cure their factual allegations in order to state a claim, they should be given an opportunity to do so, the Third Circuit said.   On appeal, Gunn argued that the District Court erred by dismissing his RESPA, TILA, and breach of contract claims. He argued that the statutes of limitations for the claims were subject to equitable tolling because First American concealed its fraudulent conduct so that he couldn’t have discovered it within the applicable time periods. The District Court didn’t consider whether equitable tolling applied and dismissed Gunn’s claims against First American as frivolous. Gunn argued that he should have been granted leave to amend his complaint before it was dismissed. United States Court of Appeals for the Third Circuit agreed.   The appellate court held that Gunn was correct that fraudulent concealment can serve to toll the statutes of limitations at issue here. For a statute of limitations to be tolled due to a First American’s fraudulent concealment, Gunn needed to prove that:   (1) First American actively misled him respecting his claim;    (2) First American prevented him from recognizing the validity of the claim within the limitations period; and    (3) he used reasonable diligence in uncovering the relevant facts that formed the basis of his claim.    The District Court should have granted Gunn leave to amend his complaint to include his allegations of fraudulent concealment, the Third Circuit said in its opinion.  “An amendment such as this”, the court held, “wouldn’t have been inequitable because First American had yet to enter an appearance in the case.  Nor would it have been futile, as a properly pleaded claim of fraudulent concealment could serve to equitably toll some, if not all, of the statutes of limitations imposed by the District Court.” The Third Circuit vacated the dismissal of Gunn’s claims against First American.   The Third Circuit did, however, affirm the District Court’s dismissal of the legal malpractice claim against Attorney Shachtman, but vacated the dismissal of Gunn’s TILA, RESPA, and breach of contract claims.  The case was remanded to the District Court for consideration of the issue of equitable tolling after Gunn filed an amended complaint. Gunn v. First American Financial Corp, — Fed.Appx. —-, 2013 WL 6068478 (C.A.3 (Del.)).