By: Raymond J. Tittmann and Barry N. Endick
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
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
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 plaintiffs
securities fraud claim was time-barred because the defendant disclosed
relevant facts in the plaintiffs 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 defendants 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 plaintiffs
obligation to determine whether those facts give rise to a cause
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
- 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
- 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 LLPs San Francisco
office. They specialize in complex civil litigation, often in the
class action context.
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