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Current Developments in the Commercial Divisions of the
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Posted: April 4, 2015

Tolling Agreement Invalid for Lack of Termination Date

On March 3, 2015, Justice Ramos of the New York County Commercial Division issued a decision in Allenby, LLC v. Credit Suisse, AG, 2015 NY Slip Op. 50427(U), holding that a tolling agreement was ineffective for lack of a termination date.

In Allenby, the defendants moved for partial summary judgment on statute of limitations grounds based on the ineffectiveness of a tolling agreement. The trial court granted the motion, explaining:

Briefly, the subject of the instant motion relates to two tolling agreements executed by the parties. On September 24, 2010, the parties entered into the first tolling agreement (the First Tolling Agreement). The First Tolling Agreement was due to expire on January 14, 2011. The parties subsequently amended the First Tolling Agreement four times, ultimately extending the expiration date to September 15, 2011. The parties agreed that the tolling period, 356 days, would not be included in calculations determining if the parties’ causes of action were time barred.

The parties allowed the First Tolling Agreement to expire, and executed a new tolling agreement, also effective as of September 24, 2010 (the Second Tolling Agreement). The Second Tolling Agreement provided that it’s termination would occur thirty (30) calendar days following the date that either [party] provide[d] written notice to the other party that the Second Tolling Agreement is terminated.

. . .

[The defendants] argue[] that any alleged breaches that occurred prior to July 25, 2006 are time barred because the Second Tolling Agreement is unenforceable pursuant to General Obligations Law 17-103, which provides that:

A promise to waive, to extend, or not to plead the statute of limitation applicable to an action arising out of a contract express or implied in fact or in law, if made after the accrual of the cause of action and made, either with or without consideration, in a writing signed by the promisor or his agent is effective, according to its terms, to prevent interposition of the defense of the statute of limitation in an action or proceeding commenced within the time that would be applicable if the cause of action had arisen at the date of the promise, or within such shorter time as may be provided in the promise.

[The defendants] contend[] that the Second Tolling Agreement cannot be enforced according to its terms because it contemplates an indefinite extension of the statute of limitations.

. . .

The [plaintiffs] argue that the Second Tolling Agreement can be enforced according to its terms because the [plaintiffs] terminated the Second Tolling Agreement on June 11, 2013, thus, fixing the termination of the Second Tolling Agreement as July 12, 2013.

However, such an interpretation would require this Court to reform the terms of the Second Tolling Agreement to state a definitive termination date of July 12, 2013. Doing so, would ignore the legislative direction that a promise to extend the Statute of Limitations be enforced according to its terms and either to speculate on the parties’ intent as to the length of the extension they would have desired or to impose a blanket six-year extension irrespective of their intent.

Given the intent behind General Obligations Law ยง 17-103 as well as the public policy concerns related to the Statute of Limitations and agreements to extend it, an agreement that cannot be enforced according to its terms is ineffective to extend the limitations period.

Furthermore, this Court finds the [plaintiffs] fail to allege any inducement or misrepresentation by [the defendants] that would warrant equitable estoppel.

(Internal quotations and citations omitted) (emphasis added). One can sympathize with the plaintiffs, who no doubt thought they had an effective tolling agreement in place. This decision seems to create a procedural trap for plaintiffs who execute tolling agreements, but it is a trap plaintiffs can avoid by ensuring that any tolling agreement has clear terms, including a definitive termination date.

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