Court Explains When A Continuing Wrong is a Continuing Wrong

• Posted on: Aug 19 2019

Statutes of limitations are statutory mechanisms that limit the duration of a defendant’s liability for all types of alleged wrongdoing. Depending upon the circumstances, the statute of limitations can be an important topic of discussion between lawyer and client.

As many practitioners know, there are exceptions to the general rule that the statute of limitations runs from the time of the tort or breach though no damage occurs until a later time. One exception that practitioners often try to invoke is the continuing wrong doctrine.

Under the doctrine, “where there is a series of continuing wrongs,” the statute of limitations will be tolled to the last date on which a wrongful act is committed. Henry v. Bank of Am., 147 A.D.3d 599, 601 (1st Dept. 2017).  If the continuing wrong doctrine applies, it “will save all claims for recovery of damages but only to the extent of wrongs committed within the applicable statute of limitations.” Id. (internal quotation marks and citation omitted).

The application of the continuing wrong doctrine must “be predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct.” Id. It therefore distinguishes “between a single wrong that has continuing effects and a series of independent, distinct wrongs.” Id. (internal quotation marks and citation omitted). Thus, the doctrine is inapplicable where there is one tortious act and “continuing consequential damages” that arise therefrom. Town of Oyster Bay v. Lizza Indus., Inc., 22 N.Y.3d 1024, 1032 (2013).

In contract actions, the doctrine is applied to extend the statute of limitations when the contract imposes a continuing duty on the breaching party. Bulova Watch Co. v. Celotex Corp., 46 N.Y.2d 606, 611 (1979); King v. 870 Riverside Dr. Hous. Dev. Fund Corp., 74 A.D.3d 494, 496 (1st Dept. 2010). Thus, where a plaintiff asserts a single breach – with damages increasing as the breach continues – the continuing wrong theory does not apply. Henry, 147 A.D.3d at 601-02.

Earlier this month, in Newman v. HSBC Bank USA, N.A., 2019 N.Y. Slip Op. 32398(U) (Sup. Ct., N.Y. County Aug. 9, 2019) (here), Justice Robert D. Kalish of the Supreme Court, New York County, dismissed an action on statute of limitations grounds, holding that the continuous wrong doctrine did not save the claims from dismissal.

Newman v. HSBC Bank USA, N.A.

Background

Newman arose out of a banking relationship between Defendant, HSBC Bank USA, N.A. (“HSBC”), and Plaintiffs, Michael and Linda Newman (collectively, the “Newmans”).

Between 1980 and 2001, the Newmans owned and operated Card Rack, Inc. (“Card Rack”). In connection with a commercial lease, the Newmans obtained from Republic National Bank (“Republic”) a $25,000 letter of credit and a $300,000 line of credit and deposited approximately $500,000 worth of stock certificates into an account as collateral for the line of credit and letter of credit.

In 1999, HSBC acquired Republic and converted the collateral account into a brokerage account (the “Securities Account”). As the Card Rack business wound down in 2001, the Newmans attempted to cancel the letter of credit. HSBC did not agree to their request. In 2003, the Newmans made a second attempt to cancel the letter of credit. Again, HSBC did not agree to cancel the letter of credit.

In December 2006, after closing the line of credit, HSBC agreed to release the contents of the Securities Account on the condition that the Newmans deposit $25,000.00 into an HSBC savings account (the “Bank Account”) as collateral for the letter of credit. The Newmans complied and deposited the funds into a savings account, whereupon the contents of the Securities Account were transferred to the Newmans’ brokerage account at Charles Schwab Co.

On September 26, 2006, the Newmans made another attempt to terminate the letter of credit and to obtain the funds in the Bank Account that were being held as collateral for the letter of credit. Again, HSBC did not agree to the request, prompting Michael Newman to commence an action against HSBC in December 2011, which was ultimately abandoned for failure to serve a complaint.

On March 2, 2016, the Newmans commenced the action. In their amended complaint, the Newmans asserted causes of action for conversion, breach of contract, unjust enrichment, attorney’s fees, and punitive damages arising from the alleged improper restraint of the Securities Account and the Bank Account after discovering that all the funds in the Bank Account were notated as a “pending miscellaneous debit.”

On May 10, 2016, and October 26, 2017, HSBC notified the Newmans that there were no restrictions on the Bank Account and that the funds were readily accessible. Since that time, the Newmans obtained access to the funds, made withdrawals, and continued to use the Bank Account.

HSBC moved for summary judgment dismissing the amended complaint. HSBC argued that the causes of action were time barred and that the causes of action were moot because (1) the Securities Account had been closed as of 2006, and (2) the funds in the Bank Account were released to the Newmans in May 2016.

The Court’s Decision

The Court granted the motion, holding that the causes of action for conversion, breach of contract, and unjust enrichment were time barred under the relevant statutes of limitations.

Under New York law, a cause of action for conversion is subject to a three-year statute of limitations. Vigilant Ins. Co. of Am. V. Housing Auth. of City of El Paso, Tex., 87 N.Y.2d 36, 44 (1995). A breach of contract action is subject “to a six-year statute of limitations.” Chase Scientific Research. V. NIA Grp., 96 N.Y.2d 20, 25 (2001) (citation omitted). Although New York does not identify a “statute of limitations period within which to bring a claim for unjust enrichment,” where the “unjust enrichment and breach of contract claims are based upon the same facts and pleaded in the alternative, a six-year statute of limitations applies.” Maya NY, LLC v. Hagler, 106 A.D.3d 583, 585 (1st Dept. 2013) (citation omitted).

The Court held that “to the extent any of the Newmans’ claims arise from the Securities Account and the Bank Account, those claims accrued in 2006 upon HSBC’s first failure to comply with the Newmans’ demands to release its contents and cancel the letter of credit.” Slip Op. at *3. Since the Newmans initiated the action in 2016, observed the Court, “the causes of action were over 10 years old and already barred by the statute of limitations.” Id.

Turning to the issue of tolling, the Court held that the continuous wrong doctrine did not apply to the Newmans’ claims because the alleged continuing wrong was not a continuing wrong. Id. Rather, said the Court, “the Newmans were subject to [the] continuing effects of HSBC’s wrongful act in 2006.” Id. at *4. Such effects, held the Court “do[ ] not equate to a continuing series of wrongs … that would render the continuing wrong doctrine applicable and toll the statute of limitations.” Id.

Takeaway

The continuing wrong doctrine is predicated on continuing unlawful acts and not on the continuing effects of earlier unlawful conduct. The cases, such as Newman, make clear that the distinction is between a single wrongful act that has continuing effects and a series of independent, distinct wrongs. It is, therefore, inapplicable where, as in Newman, there is one tortious act and continuing consequential damages that result therefrom.

Tagged with: Business Litigation, Commercial Litigation, Continuing Wrong Doctrine, Statute of Limitations, Tolling