Rachunow v. Jamieson

Background

Jeremie Ruth Rachunow, Ageonics Medical, P.C., and Medrock Medical, P.C., sued Jeffrey Jamieson and Annette Jamieson under New York law. The complaint alleged fraud and conversion based on Jeffrey Jamieson’s diversion of more than $3.5 million from the plaintiffs between 2014 and 2017. The complaint alleged that Jeffrey managed Ageonics and Medrock, had access to their books, records, and bank accounts, and made improper payments to himself, JMAJ Consulting, Annette, and others. It also alleged that he made false entries in the books and records to describe or conceal the payments.

The complaint alleged, among other things, that Jeffrey paid himself amounts labeled as bonuses or loan repayments, paid Annette for “no show jobs,” and used the plaintiffs’ accounts for personal credit-card bills, investments, and other expenses. The complaint also alleged that Jeffrey was terminated in 2018 after the plaintiffs learned of his conduct.

The complaint called the second claim “Conversion/Embezzlement.” The court stated that New York does not recognize a civil cause of action for embezzlement and therefore treated that claim as one for conversion.

Defendants’ Motion

The defendants filed a partial motion to dismiss under Rule 12(b)(6), which tests whether a complaint contains enough factual allegations to state a legally plausible claim. They argued that claims based on conduct before March 19, 2017, were barred by the statute of limitations. They also argued that Rachunow was not a proper plaintiff because the complaint appeared to allege that the diverted funds belonged only to Ageonics and Medrock, not to her personally.

Rachunow’s Status as a Plaintiff

The court held that Rachunow was a proper plaintiff at the motion-to-dismiss stage. Although the complaint did not clearly identify which plaintiff owned each allegedly diverted fund, it alleged that Rachunow was the sole owner and shareholder of Ageonics and Medrock, that Jeffrey had access to the records and accounts of all plaintiffs, and that Jeffrey’s compensation was tied to Rachunow’s compensation. Drawing reasonable inferences in Rachunow’s favor, the court concluded that the complaint plausibly alleged that funds could have been diverted from her personally.

Statute of Limitations

The court concluded that New York’s three-year statute of limitations for conversion applied to both claims. Under New York law, the conversion deadline generally begins when the alleged conversion occurs, not when the plaintiff discovers it. The court found that the fraud claim was merely incidental to the conversion claim because the alleged false entries were used to conceal the alleged diversion, rather than causing a separate injury through deception. Both claims sought the same damages—the allegedly diverted funds—and the complaint did not allege separate damages caused by fraud.

The court treated the claims as filed on March 20, 2020, because the parties agreed that a New York executive order issued during the COVID-19 pandemic tolled the limitations period. It therefore concluded that claims based on conversions occurring on or before March 19, 2017, were subject to the limitations defense.

However, the complaint alleged some transfers after March 19, 2017, including checks dated March 23, April 10, and May 26, 2017. Other allegations used broad date ranges, such as “2014 to 2017” or “in 2017,” making it impossible to determine from the complaint whether some conduct occurred within the limitations period. The court stated that the defendants were not prevented from raising the statute-of-limitations defense at trial.

Equitable Estoppel

The plaintiffs also argued that equitable estoppel should prevent the defendants from relying on the statute of limitations. Equitable estoppel is a legal doctrine that can prevent a defendant from asserting a deadline when the defendant’s later deception allegedly caused the plaintiff to delay filing suit.

The court held that the plaintiffs plausibly pleaded facts supporting that doctrine. The complaint alleged that Jeffrey made false entries in the books and records after diverting the funds, took the books and records, and thereby concealed the wrongdoing. It also alleged that the plaintiffs discovered his conduct and terminated him in 2018. The court concluded that these allegations plausibly supported the plaintiffs’ claim that they reasonably relied on the records and were prevented from discovering the conversion and filing a timely action.

The court emphasized that the plaintiffs would bear the burden of proving equitable estoppel at trial.

Disposition

Judge P. Castel denied the defendants’ partial motion to dismiss. The Clerk was directed to terminate the motion. The opinion did not finally decide whether the plaintiffs would prevail on their fraud or conversion claims, whether particular transfers were time-barred, or whether the plaintiffs would ultimately prove equitable estoppel.