Business executives and communications directors often face complex situations involving intense media and public scrutiny. A local newspaper reporter telephones and asks for a comment on recent public allegations. The allegations may be based on a real event, but are inflammatory, distort the truth, and draw unfounded conclusions. Although the true facts would not give rise to any liability, the subject is sensitive and the business wants to avoid emboldening potential plaintiffs who may read the account. Should the spokesperson deny the allegations based on the inflammatory way they are worded? Should he or she admit potentially damaging facts but explain the context and inaccuracies of the allegations? Should he or she refuse to comment?

Usually these situations are addressed from the perspective of defusing the controversy and avoiding litigation. Pre-lawsuit communication strategies, however, can also have important post-lawsuit implications, particularly as they relate to possible statute of limitations defenses. In addition to the business and moral justifications, honestly disclosing damaging facts can put potential claimants on constructive notice of those facts, commencing the limitations period, and therefore – in many cases – advancing the business’ legal position if litigation should arise. Honesty may indeed by the best legal policy.

The Statute of Limitations and the Discovery Rule. Traditionally, a civil plaintiff must file claims against a defendant within a certain period of time after incurring "actual and appreciable harm" (for example, within one year after a personal injury, one year after libel or slander, or three years after fraud). CAMSI IV v. Hunter Tech. Corp., 230 Cal.App.3d 1525 (1991). If a plaintiff does not file the claim within the limitations period, it is time-barred.

However, California has incorporated a "discovery rule" into most causes of action, delaying commencement of the limitations period until the plaintiff "suspects or should suspect" that his or her injury was caused by wrongdoing. Jolly v. Eli Lilly & Co., 44 Cal.3d 1103 (1988). In the analysis of whether a plaintiff should have suspected the wrongdoing, Jolly and its progeny charge a plaintiff with knowledge of facts which he or she actually knows and to "constructive notice" of facts which "could reasonably be discovered," even though he or she may lack actual knowledge.

A corollary to the discovery rule charges plaintiffs with constructive notice of facts that would result from an investigation if available facts would put a reasonable person on inquiry. A plaintiff is therefore held to constructive notice of facts in "public records" or in other "sources open to his investigation." 3 Bernard E. Witkin, Cal. Procedure: Actions § 602 (4th ed. 1996). If a plaintiff does not file a lawsuit within the statutory time after public disclosures establish constructive notice, the claim should be time-barred.

Communication strategies and document retention policies should be developed with this discovery rule in mind. An effective plan in this regard can win cases.

Respond Openly to Requests for Information. In many situations, business or legal considerations call for silence or denials. However, in other situations, the statute of limitations consideration may justify some degree of disclosure. For example, the court reversed a summary judgment dismissal in Conmar Corp. v. Matsui & Co., 858 F.2d 499 (9th Cir. 1988) because the defendant had fraudulently denied the antitrust allegations at the outset. The summary judgment ruling might have been affirmed in Conmar if the defendant had been more forthcoming, as in Robuck v. Dean Witter & Co., 649 F.2d 641 (9th Cir. 1980). There, the plaintiff’s securities fraud claim was time-barred because the defendant disclosed relevant facts in the plaintiff’s monthly financial statement and in daily newspapers.

In disclosing facts, businesses should not feel compelled to acknowledge every detail. Jolly specifically held that a plaintiff need not be imputed with knowledge of "specific facts" to commence the limitations period. It is enough if the disclosed facts would lead a reasonable person to inquire into possible wrongdoing. Nor should businesses feel compelled to acknowledge facts already disclosed in widespread publicity, since publicity should be imputed on residents within the coverage area. McKelvey v. Boeing North American, Inc., 74 Cal.App.4th 151 (1999). Nevertheless, acknowledging such facts, even if not necessary, could strengthen the argument for constructive notice.

The law also does not require a business to admit wrongdoing or liability to take advantage of this rule. Carey v. Kerr-McGee, 999 F.Supp. 1109 (N.D Ill. 1998). In Stutz Motor Car of America, Inc. v. Reebok Intern., Ltd., 909 F.Supp. 1353 (C.D. Cal. 1995), the defendant’s own advertising campaign triggered constructive notice of a copyright infringement claim, although the advertisements obviously did not characterize the conduct as "wrong." So long as the underlying facts are disclosed, it is the plaintiff’s obligation to determine whether those facts give rise to a cause of action.

Therefore, a good communications strategy, at least from the statute of limitations perspective, would probably acknowledge any aspect of an allegation that is accurate, but could deny liability and challenge unjustified implications. This protects a business’ limitations defense, credibility, and public image.

Community Outreach. In addition to responding to requests, businesses may want to affirmatively reach out to potential plaintiffs by sponsoring community meetings, sending statements, letters, or newsletters, and establishing public repositories of information. Similar activities were specifically cited by the court in In re Burbank Envtl. Litig., 42 F. Supp.2d 976 (C.D. Cal. 1998) as examples of public information which established constructive notice for area residents.

However, new pitfalls may develop, and should be avoided, whenever a business takes such affirmative steps. Affirmatively misrepresenting or concealing facts could constitute "fraudulent concealment" justifying a further tolling of the limitations period. Rutledge v. Boston Woven Hose & Rubber Co., 576 F.2d 248 (9th Cir. 1978). Still, "a failure to ‘own up’ does not constitute active concealment." Grimmett v. Brown, 75 F.3d 506 (9th Cir. 1996). Thus, businesses should take precautions to confirm that their public statements are true and complete, but should not hesitate to deny false allegations.

Document Retention Policies. Setting up a statute of limitations defense does little good if a business does not retain sufficient records to prove the strength of this defense in court. Thus, businesses should retain evidence showing that (a) the business honestly disclosed relevant information, (b) the media and other third parties publicized relevant information, and (c) other individuals raised similar allegations, informally or formally (since prior complaints may be enough by themselves to put plaintiffs on constructive notice – see Ohio v. Peterson, Lowry, Rall Banker & Ross, 651 F.2d 687 (10th Cir.), cert. denied, 454 U.S. 895 (1981)). Examples of documents that businesses should retain include:

• all media reports regarding a controversy, including copies of newspaper articles and transcripts of television and radio broadcasts, if possible;
• press releases which the business issued to the media;
• any statements, letters, or newsletters sent to potential claimants;
• letters and notes of telephone calls regarding allegations of wrongdoing, and responses;
• any complaints, formally filed in court or informally published in other settings, which allege wrongdoing against the business;
• attendance lists and summaries of community meetings; and
• activities of third parties, such as watchdog groups, in publicizing accusations of wrongdoing.

Obviously, since the purpose of retaining these documents is to show that plaintiffs should have known about their claim outside the limitations period, these documents should be retained beyond the limitations period – the longer the better.

Conclusion. While many considerations are important in establishing an appropriate communication strategy for any specific situation, the statute of limitations issue should be considered among them. A statute of limitations defense is generally advanced when the business approaches controversies openly and honestly. Disclosing bad facts, even when accompanied by explanations and denials of liability, can put plaintiffs on constructive notice of potential claims, resulting in a statute of limitations bar.

Biographical Information: Raymond J. Tittmann (pictured below) is an associate and Barry N. Endick is an of counsel in the litigation group of Paul, Hastings, Janofsky & Walker LLP’s San Francisco office. They specialize in complex civil litigation, often in the class action context.

Contact Information:
Raymond J. Tittmann
Paul, Hastings, Janofsky & Walker LLP
345 California Street, 29th Floor
San Francisco, California; 94104-2635
Telephone: (415) 835-1638
Facsimile: (415) 217-5333
Email: RaymondTittmann@PaulHastings.com