This blog previously has addressed the statute of limitations, a concept that has special significance for breach of fiduciary duty claims. Whether a fiduciary-duty claim is timely is highly fact-dependent and not always clear-cut. For that reason, plaintiffs’ lawyers often get creative in trying to salvage an otherwise viable fiduciary-duty claim that is on the brink of expiring. Indeed, the frequency with which statue-of-limitations questions are litigated at the appellate level shows how important it is for plaintiffs’ lawyers to master this concept. The continuing wrong doctrine, which was the subject of a recent decision of the Appellate Division, First Department involving a real-estate financing dispute, Ilan Properties, Inc. v. Benishai, 205 A.D.3d 541 (1st Dep’t 2022), is one important way that plaintiffs can try to extend their time to bring a fiduciary duty claim.
As a general matter, fiduciary-duty claims seeking monetary relief must be brought within three years of the misconduct alleged, whereas those seeking equitable relief (such as an injunction) must be brought within six years. There are certain exceptions to this general rule. For example, and as this blog previously has discussed, a breach of fiduciary duty claim based on fraud has a limitations period that is the longer of either six years from the misconduct alleged or two years from when the misconduct was or could have been discovered with reasonable diligence. Through this “discovery rule,” plaintiffs alleging breach of fiduciary duty arising from some underlying fraudulent conduct can extend their time to file.
Another tool at plaintiffs’ disposal is the continuing wrong doctrine. As a general matter, “[w]here there is a series of continuing wrongs, the continuing wrong doctrine tolls the limitation period until the date of the commission of the last wrongful act.” Palmeri v. Willkie Farr & Gallagher LLP, 156 A.D.3d 564, 568 (1st Dep’t 2017). So if the same defendant continues to commit a series of wrongful acts giving rise to fiduciary-duty liability, the plaintiff can use the continuing wrong doctrine to “toll” or extend the time to file up until the most recent instance of misconduct. Only then does the plaintiffs’ claim first accrue. That is, only then does the three- or six-year statute of limitations begin to run.
In Palmeri, the plaintiff brought a breach of fiduciary duty claim against the defendant, the well-known law firm of Willkie Farr & Gallagher (“Willkie”), arising from an alleged prior attorney-client relationship between the plaintiff and Willkie. Willkie had unilaterally terminated its representation of the plaintiff on June 25, 2009, which was more than three years before the plaintiff brought his fiduciary-duty claim against Willkie that was subject to a three-year statute of limitations. However, the court in Palmeri held that the plaintiff’s claim was timely under the continuing wrong doctrine, because Willkie continued to act in a manner that was adverse to the plaintiff’s interests after it terminated the representation on June 25, 2009. Specifically, the plaintiff alleged that Willkie represented a different client whose interests were directly adverse to the plaintiff’s well into 2011. For that reason, the court held that the plaintiff had stated a viable—and timely—breach of fiduciary duty claim that accrued within the three-year limitations period. Palmeri, 156 A.D.3d at 568 (“Here, plaintiff has presented evidence of a ‘continuing wrong,’ which is deemed to have accrued on the date of the last wrongful act.”).
More recently, the Appellate Division, First Department, revisited the continuing wrong doctrine in Ilan Properties, Inc., 205 A.D.3d at 541. Unfortunately, the plaintiff there was not as successful as in Palmeri.
The dispute in Ilan Properties arose from the parties’ real-estate dealings. The plaintiffs were shareholders of an entity (“Ilan”) that owned valuable Manhattan real property, and they brought derivative claims on Ilan’s behalf against certain entities that, as the plaintiffs alleged, effectively managed the entity’s affairs. As the plaintiffs claimed, these defendants owed Ilan a fiduciary duty that they breached by failing to refinance a mortgage loan on Ilan’s property at a favorable interest rate in or around March 2014. As a result, the plaintiffs claimed that Ilan sustained damages in the form of bank fees that could have been avoided if Ilan had refinanced under these favorable terms. These allegations formed the core of the plaintiffs’ breach of fiduciary duty claim, which was filed in April 2019—clearly more than three years after the misconduct alleged.
The plaintiffs conceded that the three-year statute of limitations governed their fiduciary-duty claim. The lower court dismissed their claim, and the plaintiffs appealed, apparently arguing that the continuing wrong doctrine applied and rendered their claim timely. But the appellate court disagreed, holding that “despite the Benishai plaintiffs’ argument to the contrary, there is no continuing wrong that would toll the statute of limitations, as the alleged harm relates to the 2014 loan refinancing itself.” Ilan Properties, Inc., 205 A.D.3d at 542. Unlike in Palmeri, the plaintiffs in Ilan Properties could point to no wrongful act committed by the defendants that occurred after the underlying misconduct concerning the mortgage refinancing in 2014. For that reason, their claim could not be salvaged.
In sum, there are ways around the three- and six-year limitations periods that govern breach of fiduciary duty claims, and plaintiffs with claims of questionable timeliness must make use of every tool at their disposal to keep their case alive.