Kronos, Inc. v. AVX Corp.

• Decision Date: 01 April 1993
• Citation: 595 N.Y.S.2d 931,612 N.E.2d 289,81 N.Y.2d 90
• Parties: , 612 N.E.2d 289 KRONOS, INC., Formerly Known as NL Chemicals, Inc., Appellant, v. AVX CORPORATION, Respondent, and TAM Ceramics, Inc., Defendant. . 49
• Court: New York Court of Appeals Court of Appeals

Page 931

595 N.Y.S.2d 931

81 N.Y.2d 90, 612 N.E.2d 289

KRONOS, INC., Formerly Known as NL Chemicals, Inc., Appellant, v. AVX CORPORATION, Respondent and TAM Ceramics, Inc., Defendant.

Court of Appeals of New York.

49

April 1, 1993.

McGee & Gelman, Buffalo (William R. Bronner, Michael R. McGee, F. Brendan Burke, Jr. and Michael J. Cronin, of counsel), for appellant.

Cravath, Swaine & Moore, New York City (Paul M. Dodyk and Larry W. Miller, of counsel), for respondent.

OPINION OF THE COURT

SIMONS, Judge.

Plaintiff instituted this action in 1991 alleging in its third cause of action that defendant AVX had tortiously induced the breach of its contract with another. AVX moved to dismiss the cause of action claiming it was time-barred (CPLR 3211[a][5]. The parties agree that the three-year Statute of Limitations for injury to property applies (see, CPLR 214[4], and the sole question presented is whether the cause of action accrued when the contract was breached in 1984, as AVX contends, or in 1988 when plaintiff alleges it first suffered actual damages as a result of AVX's tortious conduct. Plaintiff had no cause of action, and the Statute of Limitations could not start to run, until plaintiff suffered injury (see, Schmidt v. Merchants Desp. Transp. Co., 270 N.Y. 287, 300, 200 N.E. 824; see generally, Siegel, N.Y.Prac. § 40, at 47 [2d ed.]. Inasmuch as plaintiff's complaint alleges facts demonstrating that no injury was sustained until 1988, AVX's motion to dismiss should be denied.

I

Assuming as we must for purposes of this motion that the facts set forth in the amended complaint are true (Nasaba Corp. v. Harfred Realty Corp., 287 N.Y. 290, 294, 39 N.E.2d 243), plaintiff's predecessor was the owner of patents for producing "multilayer capacitors" used in certain electronic devices. In 1974, it granted Corning Glass Works a nonexclusive license to produce capacitors under the patents. The agreement gave Corning "most favored licensee" status, i.e., if more favorable terms were subsequently negotiated by the licensor with another, the licensor was required to offer Corning the same terms. Five years later, plaintiff sold its capacitor assets to codefendant TAM Ceramics, Inc. and assigned the patents and its rights under the Corning license to TAM as a part of the transaction. TAM was to administer the Corning license in the interest of both parties and pay one half of all future royalties to plaintiff.

In 1984, without notice to plaintiff or Corning, TAM entered into a license agreement with defendant AVX under terms more favorable than those in Corning's licensing agreement, and AVX began competing with Corning in the capacitor market. In spite of this competition, however, plaintiff's share of royalties from the Corning license continued to rise through 1987. At that time, Corning learned of AVX's license and advised TAM that it had violated the "most favored licensee" provisions by not offering it comparable terms. The matter was never resolved, TAM taking the position it had no obligation to renegotiate the Corning license. A few months later AVX acquired from Corning the assets it used to manufacture capacitors without assuming any royalty obligation to plaintiff or TAM under the agreement. Because its own license contained no limit on production, AVX was able to use both its preexisting facilities and those acquired from Corning to produce its capacitors without resorting to the Corning license. In March of 1988, TAM informed plaintiff that no further payments from the Corning license would be made.

Plaintiff commenced an action in February 1991, seeking damages from AVX for its tortious inducement to breach plaintiff's contract with TAM and for intentionally inflicting economic harm. AVX subsequently moved to dismiss, arguing the claims were time-barred. ¹ It claims that accrual occurred in 1984, when TAM allegedly breached its contract with plaintiff by entering into the licensing agreement with AVX. The trial court found that no breach occurred until 1988, when TAM ceased making payments under the Corning license but the Appellate Division reversed concluding that the breach occurred, and the cause of action accrued, in 1984 on the date TAM and AVX entered into their licensing agreement, 181 A.D.2d 1005, 581 N.Y.S.2d 942. ² In response to plaintiff's contention that the damage element necessary for its tort claim did not arise until 1988, the Appellate Division relied on the well-established rule of contract law that the law will infer at least nominal damages at the moment of breach.

II

Were this an action sounding in contract, AVX would be correct in its insistence that settled law marks accrual from the contractual breach. However, plaintiff's cause of action is one sounding in tort, and, as a general proposition, a tort cause of action cannot accrue until an injury is sustained (Schmidt v. Merchants Desp. Transp. Co., 270 N.Y. 287, 300-301, 200 N.E. 824, supra; see generally, Siegel, NY Prac § 40, at 47 [2d ed]. That, rather than the wrongful act of defendant or discovery of the injury by plaintiff, is the relevant date for marking accrual (Schmidt v. Merchants Desp. Transp. Co., supra, at 300, 200 N.E. 824). The Statute of Limitations does not run until there is a legal right to relief. Stated another way, accrual occurs when the claim becomes enforceable, i.e., when all elements of the tort can be truthfully alleged in a complaint (see, Jacobus v. Colgate, 217 N.Y. 235, 245, 111 N.E. 837; Roldan v. Allstate Ins. Co., 149 A.D.2d 20, 26, 544 N.Y.S.2d 359).

The tort of inducement of breach of contract, now more broadly known as interference with contractual relations, consists of four elements: (1) the existence of a contract between plaintiff and a third party; (2) defendant's knowledge of the contract; (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible; and (4) damages to plaintiff (Israel v. Wood Dolson Co., 1 N.Y.2d 116, 120, 151 N.Y.S.2d 1, 134 N.E.2d 97; see generally, Restatement [Second] of Torts § 766; 4 Lee and Lindahl, Modern Tort Law § 45.02, at 20 [rev ed.]. Since damage is an essential element of the tort, the claim is not enforceable until damages are sustained. Thus, in its present posture, this action is time-barred only if plaintiff's complaint must be read to allege damages arising prior to 1988.

Plaintiff states in its complaint that it suffered damages in 1988: it has made no allegation of damage occurring before that date. AVX, advances two themes for finding otherwise: it maintains that the damage element must be construed as arising in 1984 because the law always infers at least nominal damages at a contractual breach or, alternatively, because actual damages at the time of breach must be inferred from the particular facts of this complaint.

AVX first proposes that the legal fiction of nominal damages be imported from contract law into this tort action. By doing so, and assuming for the sake of argument that the events of 1984 constituted a contractual breach, the court would be compelled to find that all the elements of the tort claim were present in 1984 and the cause of action accrued then. The use of the contractual breach as the date of accrual has been accepted in some jurisdictions (see e.g., Metro Oil Co. v. Sun Ref. & Mktg. Co., 936 F.2d 501, 504; Rock Is. Bank v. Aetna Cas. & Sur. Co., 692 F.2d 1100, 1103) with some courts expressly employing the legal fiction of nominal damages (see, e.g., Bankers Health & Life Ins. Co. v. Fryhofer, 114 Ga.App. 107, 150 S.E.2d 365, 369-370; Note, Damages Recoverable in an Action for Inducing Breach of Contract, 30 Colum.L.Rev. 232, 238). To do so, however, is to ignore the fundamental differences between tort and contract principles.

Nominal damages are always available in breach of contract actions (5 Corbin, Contracts § 1001, at 29), but they are allowed in tort only when needed to protect an "important technical right" (Note, Damages Recoverable in an Action for Inducing Breach of Contract, op. cit., at 238). For example, nominal damages have been recognized in tort to protect a landowner's right to be free of trespass, but that exception from the established rule that actual injury must be shown is warranted because a continuing trespass may ripen into a prescriptive right and deprive a property owner of title to his or her land (Prosser and Keeton, Torts, at 75 [5th ed.]. There is no similarly compelling reason for departing from the actual injury rule...