Background
Toby Maloney and Tonja Demoff were involved in both an intimate relationship and joint real estate ventures from the 1990s through the late 2000s. In 2005, Maloney purchased a house in Sedona and added Demoff to the title as a joint tenant. In 2017, Demoff asked Maloney to take out a $245,000 home equity line of credit secured by the property, promising to repay the loan and remove herself from title. Demoff made the loan payments but never removed herself from title.
Instead, Demoff proposed transferring the property into a limited liability company (K&L) in which both had 50 percent interests, with Demoff selling her interest to Maloney. The property was conveyed to K&L, and Maloney signed a purchase agreement for Demoff’s company interest—but Demoff never signed. Five years later, in 2022, Maloney sued for fraudulent misrepresentation, unjust enrichment, breach of contract, and breach of the covenant of good faith and fair dealing. Demoff counterclaimed and sought dissolution of K&L with an equitable accounting of rental income.
The Court’s Holding
The Court of Appeals affirmed on all issues. On the fraud claims, the court held they were barred by Arizona’s three-year statute of limitations under A.R.S. § 12-543(2). Applying the discovery rule from Mister Donut of America, Inc. v. Harris, the court found that Maloney knew in 2017 that Demoff had not removed herself from title and knew that Demoff had not signed the K&L purchase agreement. With reasonable diligence—such as requesting a signed copy or independently verifying the transfer—Maloney could have discovered the fraud in 2017, making the 2022 lawsuit untimely.
The breach of contract claims fared no better. Because the alleged oral agreement did not specify a time for Demoff to relinquish her interest, the statute of limitations began running at the time the contract was made in 2017. The court also upheld the equitable accounting order, rejecting Maloney’s argument that an accounting requires a formal fiduciary relationship. Under Mollohan v. Christy, a relationship “akin to a fiduciary status” is sufficient, and the parties’ intertwined personal and business relationship met that threshold.
Key Takeaways
- Arizona’s three-year limitations period for fraud begins running when a party “could have discovered” the fraud with reasonable diligence—not when actual knowledge is obtained. A plaintiff who knows key facts suggesting fraud but fails to investigate does so at the peril of the statute running.
- Where an oral contract is silent on the time for performance, the statute of limitations begins at the time the contract is formed, not when performance is demanded.
- An equitable accounting does not require a formal fiduciary relationship; a “mutual and confidential” relationship with a joint interest in a business venture is sufficient under Mollohan v. Christy.
Why It Matters
This case illustrates the pitfalls of informal real estate arrangements between parties in personal relationships, a common fact pattern in Arizona given the state’s active real property market. The opinion serves as a reminder that the discovery rule in fraud cases does not protect plaintiffs who had reason to suspect wrongdoing but failed to act. For practitioners handling LLC disputes and property co-ownership claims, the case also provides useful guidance on when equitable accounting is available and how the statute of limitations applies to oral agreements governing real property transfers.