On July 7, 2022, Justice Masley of the New York County Commercial Division issued a decision in 333 E. 91st St. Owners Corp. v 1765 First Ave. Assoc., LLC, 2022 NY Slip Op. 32189(U), analyzing the application of the continuing wrong doctrine, explaining:
The statute of limitations for a breach of contract claim is six years. New York does not apply the discovery rule to statutes of limitations in contract actions. Rather, the ‘statutory period of limitations begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury. This is so even though the result may at times be ‘harsh and manifestly unfair, and creates an obvious injustice because 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. Indeed, to extend the highly exceptional discovery notion to general breach of contract actions would effectively eviscerate the Statute of Limitations in this commercial dispute arena. Admittedly, the First Closing occurred in either May 2010, when the Sponsor sold shares belonging to apartment 4E, or in September 2010, when the Sponsor sold the shares belonging to apartment 6D. Thus, 2010 is when the breach occurred, although Azure did not discover it until March 2020.
To avoid the barring of its claims as untimely, Azure invokes the continuing wrong doctrine, arguing that the obligation to transfer the RM Unit was a continuing one and each overpayment of monthly rent constitute a new breach in a series of continuing wrongs. 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. 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. The distinction is between a single wrong that has continuing effects and a series of independent, distinct wrongs.
Since the submission of this motion, recent cases have shed additional light on the applicability of the doctrine and merits discussion. In CWCapital Co/bait VR Ltd. v CWCapital Investment LLC (Cobalt), the plaintiff asserted a breach of contract against defendant CWCapital Investment, LLC (CWCI) for CWCl’s failure to manage certain commercial mortgage-backed securities (CMBS) based on their agreement. The agreement, in pertinent part, required CWCI to 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 their agreement in three distinct ways, each category of wrongdoing dealing with the actions of the special servicer CWCI selected on plaintiff’s behalf, CWCl’s affiliated entity and defendant CWCA. CWCI moved to dismiss the complaint in its entirety, arguing that plaintiff’s causes of action were time-barred.
The First Department in Cobalt held that the doctrine of continuing wrong applied to the case and tolled the statute of limitations as to the last wrongful act as the explicit language of the agreement conferred on CWCI a continuing duty to manage plaintiff’s investment. Cobalt alleges 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, 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, 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 is no basis for the argument that each subsequent time CWCI failed to act did not constitute a separate, actionable, wrong.
The First Department in Cobalt 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, ultimately concluding there was a continuing duty on CWCI to management plaintiff’s investment. Therefore, defendants’ subsequent breaches were based on new failures or omissions of the ongoing, recurring duty.
In MarcaD Finance SAA v Middlegate Securities Ltd (MarcaD), the plaintiff contracted with defendant Middlegate Securities Ltd. (Middlegate) to manage plaintiffs’ inheritance for their benefit. Plaintiffs sued Middlegate in October 2015 for breaching their agreement by misappropriating the funds, involving at least one of the transfers made in or about March 2011. The First Department held that 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.
Similarly, in Manipal Education Americas, LLC v. Taufiq (ManipaD, defendant, who was plaintiff’s former director of marketing, repeatedly contracted with company Exit Editorial, Inc. (Exit) for video editing services. Plaintiff sued defendant, asserting that 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. There, 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.In contrast, the doctrine of continuing wrongs does not apply where the subsequent wrongs are consequences of the original, time-barred wrongful act. The distinction between consequences of a wrongful act and the wrongs themselves was discussed in Henry, a case involving a plaintiff being enrolled into two credit card programs without his consent and being billed monthly for
those programs. The First Department held that the doctrine of continuing wrong would not toll the applicable limitations period for two related reasons: one, the absence of a breach of a recurring duty and two, the First Department’s finding that 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, and do not qualify for the application of the continuous wrong doctrine.The same was true in Matter of Yin Shin Leung Charitable Foundation v. Seng (Matter of Yin Shin), where the First Department held that the doctrine of continuing wrong would not save plaintiffs’ claim arising from the singular decision to permit corporate property to be used gratis. The loss of corporate income was merely a continuing effect of the initial decision. Here, Azure does not allege there is a recurring duty to transfer the RM Unit and Special Risk No. 17 does not impose a recurring duty. Instead, Azure alleges that the first closing occurred in either May 2010 or September 2010, and thus the RM Unit should have been transferred no later than August 2020 or December 2010; when Sponsor failed to do so it breached its contract with the Azure by failing to timely transfer the RM Unit to Azure, and by charging it rent beyond the three-month period permitted by the Offering Plan. Special Risk No. 17 explicitly states that the Sponsor shall within three (3) months of the First Closing sell the RM Unit to Azure for use subject to unavoidable delays which are no fault of Sponsor.
Thus, accepting as true Azure’s allegations, Sponsor breached that its obligation to timely transfer the Unit as early as September 2010 and as late as December 2010. And, because, the transfer was allegedly never made on time, the alleged rent payments-over the three-month period permitted-occurred because of the initial alleged breach in 2010. It was Sponsor’s single failure to transfer on time that gave rise to the excessive rent payments and other contributions, and without a contractual bligation imposing a recurring duty and no breach of a recurring duty thereof, the monthly rent payments are consequences of the alleged failure to timely transfer the RM Unit. Thus, the doctrine will not toll the statute of limitations period. The applicable
limitations period accrued in December 2010 at the latest and the limitations period expired in December 2016.The court disagrees with Azure’s contention that each monthly overpayment of rent constituted a new breach in a series of continuing wrongs. The monthly overpayment of rent is more aptly analogous to the consequences of wrongful acts, as Azure’s overpayment of monthly rent, following the permissible three-month period of rent payments, flowed from the alleged breach of parties’ contractual obligation to transfer the RM Unit within the three months of the First Closing.
(Internal quotations and citations omitted).