Commercial Division Blog

Posted: May 26, 2020 / Categories Commercial, Fraud/Misrepresentation, Statute of Limitations/Laches

Continuing Wrong Doctrine Does Not Save Plaintiff's Claims From Being Time-Barred

On April 28, 2020, Justice Cohen of the New York County Commercial Division issued a decision in Marjay N10, LLC v. Yashar, 2020 NY Slip Op. 31279(U), holding that the continuing wrong doctrine did not save the plaintiffs' claims from being time-barred, explaining:

Under CPLR § 3211(a)(5), Defendants bear the initial burden of establishing, prima facie, that the time in which to sue has expired. To determine whether the applicable statute of limitations has expired, Defendants must establish, inter alia, when Plaintiffs' cause of actions accrued. If Defendants meet that burden, then the burden shifts to Plaintiffs to aver evidentiary facts establishing that the cause of action was timely or to raise a question of fact as to whether the cause of action was timely.

At the outset, the parties dispute whether Plaintiffs' claims sound in contract or fraud, which are governed by different statutes of limitation. Because Westreich's core allegation is that Yashar failed to honor his agreement to hold the Morgensterns' Greenpoint interest in trust for Westreich, the claims are for breach of contract. A claim of fraud arising out of those same facts, and seeking the same damages, would be duplicative.

Plaintiffs' claims are governed by the six-year statute of limitations set forth in CPLR § 213(2). A breach of contract clause of action accrues at the time of breach, even if no damage occurs until later. Here, Plaintiffs allege that Yashar broke his promise with respect to Westreich's Greenpoint interest in 2008. It does not matter, for statute of limitations purposes, when Plaintiffs discovered Yashar's alleged breach of the agreement. Any knowledge of the occurrence of the wrong on the part of the plaintiff is not necessary to start the Statute of Limitations running in a contract action. Plaintiffs' claims were not brought within six years of the alleged breach and thus are precluded by CPLR § 213(2).

The claims would be time-barred even if, as Plaintiffs allege, they are deemed to be fraud claims. The statute of limitations for claims sounding in fraud is the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it. A plaintiff will be held to have discovered the fraud, when the plaintiff has knowledge of the facts for which the fraud could be reasonably inferred. Yashar allegedly represented to Westreich that he was holding Westreich's interests in trust beginning in 2008. The applicable statute of limitations thus began to run and expired in 2014, at the earliest. Taking the Plaintiffs' factual allegations as true, Westreich discovered Yashar's fraud in 2015. Thus, even after applying the discovery rule of CPLR § 213(8), Westreich had two years from his discovery of Yashar's fraud to bring these claims. Westreich failed to file this suit by 2017, and thus Plaintiffs' Greenpoint claims are time-barred.

Plaintiffs' reliance on the continuing wrong doctrine to toll the statute of limitations is misplaced. That doctrine is 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. Here, Plaintiffs' alleged damages flow from Yashar's failure in 2008 to hold Westreich's shares in trust. Yashar's actions in 2014 were merely consequences of Yashar's alleged original wrong. Any alleged damages sustained by Plaintiffs reflect only the continuing effects of earlier conduct alleged to have been wrongful.

Accordingly, Plaintiffs' Greenpoint claims are time-barred and must be dismissed.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have questions regarding whether claims are barred by the statute of limitations.