Breach of Contract, Statute of Limitations and the Continuing Wrong Doctrine

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Posted on: Dec 20 2023

A recurring question that courts and litigants often encounter is how to apply the continuing wrong doctrine to a statute of limitations.

Statutes of limitations restrict the time within which a defendant can be held liability for all types of alleged wrongdoing. Plaintiffs who do not pursue their rights within the limitations period will find the courthouse doors closed to their claims. For this reason, whether the statute of limitations has run is an important issue for a lawyer and client to discuss.

In today’s article, we examine 225 ADC Realty Corp. v. Popular Jewelry Corp., 2023 N.Y. Slip Op. 06469 (1st Dept. Dec. 19, 2023) (here), a case involving the statute of limitations for a breach of contract cause of action and the application of the continuing wrong doctrine.

This Blog has examined statutes of limitations and the continuing wrong doctrine on many occasions. See, e.g., here, here, here, here, and here. Before we examine 225 ADC Realty, we will discuss the relevant law, in particular the law concerning the continuing wrong doctrine. Since we have written on the topic on many occasions, we reprint our legal discussion below.

In New York, the statute of limitations for a breach of contract claim is six years.[1] It begins to run (i.e., accrue) from the date of the breach. The claim does not accrue from the date of discovery.[2] As the Court of Appeals explained, a contrary rule “would be entirely dependent on the subjective equitable variations of different Judges and courts instead of the objective, reliable, predictable and relatively definitive rules that have long governed this aspect of commercial repose.”[3]

Statutes of limitation can be tolled – that is extended. One doctrine that allows for tolling is the continuing wrong doctrine.

“The continuous wrong doctrine is an exception to the general rule that the statute of limitations runs from the time of the breach though no damage occurs until later.”[4] Where applicable, the doctrine “serves to toll the running of a period of limitations to the date of the commission of the last wrongful act” and “may only be predicated on continuing, unlawful acts and not on the continuing effects of earlier unlawful conduct.”[5] “The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.”[6] Thus, the doctrine does not apply where the subsequent wrongs are consequences of the original, time-barred wrongful act.[7]

The distinction between the consequences of a wrongful act and the wrongs themselves was discussed by the Appellate Division, First Department in Henry, a case involving a plaintiff who was enrolled in two credit card programs without his consent and billed monthly for those programs.[8] The First Department held that the doctrine did not toll the limitations period for two reasons: first, the absence of a breach of a recurring duty, and second, the wrongful acts – automatic monthly credit card fee charges – “represent the consequences of those wrongful acts in the form of continuing damages, not the wrongs themselves.…”[9]

The same result was rendered by the First Department in Matter of Yin Shin Leung Charitable Foundation v. Seng (Matter of Yin Shin), 177 A.D.3d 463 (1st Dept. 2019), where the Court held that the doctrine did not toll the plaintiffs’ claim because “[t]he loss of corporate income was merely a continuing effect of the initial decision” from which the claim arose.[10]

In CWCapital Cobalt VR Ltd. v. CWCapital Investment LLC (Cobalt), 195 A.D.3d 12, 13-16 (1st Dept. 2021), the plaintiff asserted a breach of contract claim against the defendant CWCapital Investment, LLC (“CWCI”) for CWCl’s failure to manage certain commercial mortgage-backed securities (“CMBS”) based on their agreement. The agreement required CWCI to, in pertinent part, appoint a special servicer to “direct and supervise the disposition of nonperforming and underperforming loans that are held by a particular CMBS trust so as to mitigate the losses suffered by the trust.” The parties’ arrangement also required CWCI “to ensure that the value of [plaintiff’s] assets is maximized.” The plaintiff alleged that CWCI breached the agreement in three distinct ways, each category of wrongdoing dealing “with the actions of the special servicer CWCI selected on [plaintiff’s] behalf”. CWCI moved to dismiss the complaint in its entirety, arguing that the plaintiff’s causes of action were time-barred.

The First Department held that the continuing wrong doctrine applied to toll the statute of limitations as to the last wrongful act because “[t]he explicit language of the [agreement] conferred on CWCI a continuing duty to manage [plaintiff’s] investment.” Cobalt alleged that, “with respect to special servicers like CWCA, this responsibility included wielding the power not only to appoint and terminate, but also to ensure that all services being performed by the special servicer were done only to benefit the COO investors.” “Essentially,” noted the Court, “the allegations describe an arrangement by which CWCI acted as [plaintiff’s] eyes and ears with respect to the CMBS trusts and had a responsibility to do everything in its power to prevent any activities that could possibly be to [plaintiff’s] detriment.” “Thus,” concluded the Court, “while certainly a claim accrued the first time CWCI failed to act upon CWCA’s engagement in behavior that allegedly diminished the value of its investment, there [was] no basis for the argument that each subsequent time CWCI failed to act did not constitute a separate, actionable, wrong.”[11]

The First Department placed heavy emphasis on the parties’ agreement, which conferred a “contractual obligation to manage the CMBS trust assets on an ongoing basis, with ‘reasonable care and in good faith.’”[12] Therefore, the defendants’ subsequent breaches were based on new failures or omissions of the ongoing, recurring duty.

In Marcal Finance SAA v. Middlegate Securities Ltd., 203 A.D.3d 467 (1st Dept. 2022), the plaintiff contracted with defendant Middlegate Securities Ltd. to “manage [plaintiffs’] inheritance for their benefit.” Plaintiffs sued defendant in October 2015 for breaching their agreement by misappropriating the funds in 2011. The First Department held that the plaintiffs sufficiently alleged a “series of unauthorized transfers” whereby the “continuing wrong doctrine tolled the running of the statute of limitations until the last such transfer was made.”[13]

Similarly, in Manipal Education Americas, LLC v. Taufiq, 203 A.D.3d 662 (1st Dept. 2022), the defendant, who was the plaintiff’s former director of marketing, repeatedly contracted with the company, Exit Editorial, Inc., for video editing services. The plaintiff brought suit, asserting that the defendant “falsely represented to it that he negotiated with Exit at arm’s length and that Exit’s prices were reasonable, when in fact its prices were well above market rate, he had an ownership interest in Exit, and he received a cash finder’s fee for each contract with Exit.” The First Department found that “a separate exercise of judgment, and thus a separate wrong, was committed each time Exit was hired, thereby enabling the application of the continuing wrong doctrine.”[14]

With these decisions in mind, we examine 225ADC Realty.

225ADC Realty involved an alleged breach of a sublease. Defendant entered the sublease on October 1, 2010, for use of plaintiff’s premises on Canal Street in New York City (the “Premises”). The term of the sublease extended to September 30, 2018.

Among other things, when work was to be performed by defendant on the Premises, the sublease required defendant to “comply with all laws, orders, rules and regulations of all government authorities having jurisdiction of the premises.”

On January 15, 2011, the New York City Department of Buildings (“DOB”) issued a Notice of Violation to plaintiff, after defendant installed signs on the building’s facade without a permit. Plaintiff cured the violation on March 1, 2011, and paid the fine assessed by the DOB on March 18, 2011.

Over seven years later, on December 21, 2018, plaintiff mailed a demand letter to defendant for the costs incurred from the DOB violation.

Plaintiff commenced the action on March 11, 2019, seeking to recover damages for defendant’s alleged breach of the sublease, indemnification, and attorneys’ fees.

Defendant moved to dismiss the complaint on statute of limitations grounds. Defendant maintained that plaintiff commenced the action well after the six-year limitation period under CPLR 213(2) expired.

The motion court granted the motion.

The motion court found that plaintiff’s breach of contract claim “plainly” arose from defendant’s alleged noncompliance with the DOB’s code. The motion court rejected plaintiff’s argument that the breach was caused by defendant’s failure to surrender the Premises in broom-swept condition. As such, the motion court held that the breach of contract claim arose in January 2011, well after the six-year limitation period expired.

The motion court rejected plaintiff’s argument that the continuing wrong doctrine tolled the statute of limitations until defendant’s last breach occurred. The motion court found that plaintiff failed to allege that defendant breached any “recurring duty.”[15] Rather, said the motion court, the complaint alleged that the breach arose from “the same DOB violation issued January 15, 2011.” Thus, concluded the motion court, “[a]bsent any allegation of continuing unlawful conduct, the continuing wrongs doctrine is inapplicable.”[16]

On appeal, the First Department affirmed.

The Court held that the motion court “properly found that the action [was] barred by the six-year statute of limitations applicable to breach of contract claims.”[17] Noting that the statute of limitations for breach of contract begins to run at the time of the alleged breach, the Court found that the breach occurred in January 2011, “over six years before this action was commenced.”[18]

The Court also held that the continuing wrong doctrine did not apply because “plaintiff alleged a single breach that caused the Department of Buildings to issue a violation in January 2011.”[19] Thus, concluded the Court, “the claim accrued, and the statute of limitation began to run, no later than March 1, 2011.”[20]

[1] CPLR § 213(2).

[2] ACE Sec. Corp., Home Equity Loan Trust, Series 2006-SL2 v. DB Structured Prods., Inc., 25 N.Y.3d 581, 594 (2015).

[3] Id. (citations and internal quotation marks omitted).

[4] Henry v. Bank of Am., 147 A.D.3d 599, 601 (1st Dept. 2017) (citation omitted).

[5] Id.

[6] Id. (internal quotation marks and citation omitted).

[7] Id. at 602.

[8] Id.

[9] Id.

[10] Id. at 464.

[11] 195 A.D.3d at 19-20.

[12] Id. at 20.

[13] 203 A.D.3d at 468.

[14] 203 A.D.3d at 663.

[15] Citing Henry, 147 A.D.3d at 602.

[16] Citations omitted.

[17] Slip Op. at *1.

[18] Id. (citation omitted).

[19] Id.

[20] Id.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.