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Ask Not for Whom the Statute Tolls: It Tolls for Thee

Ask not for whom the statute tolls

Tell me if you’ve been here: the client comes in and tells a story that sounds like it just might be a really good case. In fact, it might even settle without two years of discovery—if you can just package present it properly. You ask some pointed questions about when these events occurred and quickly recognize the possibility that limitations may run in the very near future. You can, of course, file an immediate lawsuit. But you also could approach the defendants about a tolling agreement to prevent the running of limitations while you and the defendant explore the possibility of settlement without the public filing of a lawsuit. My experience has been that many defendants will agree to these tolling agreements, as the only other option is the immediate commencement of litigation.

Of course, there are numerous traps for the uninitiated in the drafting and signing of a tolling agreement. Both sides have every right to seek an advantage in the drafting the agreement, so do not assume that preparation of a tolling agreement is a ministerial act. Remember, if you get it wrong, you will be the reason the claim was barred by limitations. So let’s look at some potential issues.

It may seem obvious, but remember that this agreement will toll limitations only for the parties to the agreement. Any potential defendant you fail to include in the tolling agreement will be able to assert limitations under the original governing period. And this problem is not just limited to naming defendants—an unnamed plaintiff will lose the right to sue as well. And when you are relying on a tolling agreement as a defense to limitations, you do not have the benefit of the procedural rules governing—doctrines like misnomer or real-party-in-interest—that extend you an opportunity to add parties to litigation while preserving your original filing date.

Your tolling agreement should also do more than simply toll the running of a specific statute of limitations. It should reference all statutes of limitations without restriction to a specific jurisdiction. And it should include all other time-based defenses such as laches or statutes of repose or equitable estoppel. It does you no good to avoid the limitations defense if you nevertheless lose because of the passage of time under some other legal theory.

Defendants should pay special attention to the language of the agreement to ensure that it cannot be construed to waive the limitations defense for claims that became time-barred before execution of the agreement. Put another way, make sure that if limitations ran before the agreement is signed, the claim will remain barred by limitations notwithstanding the tolling agreement. Defendants also should make certain that the agreement tolls limitations and other time-based defenses on any counterclaims. Lastly, defendants should specify as narrowly as possible the claims on which limitations are being tolled—especially in a commercial context where the parties may have multiple transactions and relationships.

Another issue that must be confronted is whether suit can be filed during the term of the tolling. If the agreement provides that no lawsuit will be filed during the term of the agreement, the plaintiff must ensure that there is adequate time to file suit after expiration of the agreement. A tolling agreement signed the day before limitations runs that prohibits filing suit during the term of the agreement can easily result in a situation where the claim becomes barred the minute the tolling agreement expires. To ensure the ability to file suit timely, the plaintiff should reserve the right to file suit during the tolling period. Defendants can address this by a provision requiring notice if suit is to be filed during the tolling period.

From the plaintiff’s perspective, the agreement should prohibit the defendant from filing suit during the tolling period and from taking any other action designed to deprive the plaintiff of its right to decide the venue if litigation is necessary. Advance notice of a claim to a defendant always carries the risk that the defendant will sue first and deprive the plaintiff of forum selection, but you can at least prevent this from occurring during pendency of the tolling agreement.

Another reason to avoid waiting to the last minute to request a tolling agreement is that it always takes longer to get the agreement signed than you anticipate. If insurance is involved, your defendant will have to secure approval from the insurance company before signing. And even though we design our form tolling agreement to be fair and neutral, we never have had anyone sign it without first modifying it. While all this is going on, days are passing by—making the expiration of limitations closer and closer and correspondingly giving you less time to file suit once the tolling agreement expires. Plan for a week or two of negotiations when you present the tolling agreement, so you are not trapped by a defendant who “agrees in principle” but nitpicks your agreement to death while the clock keeps running.

You should also keep in mind that limitations will be tolled from the date the defendant signs, not the date they orally told you that they were willing to toll. I always insist that the start date for tolling be the day they agree and I draft the proposed agreement to reflect that.  But until they sign, there probably is no tolling, so be careful. Delay favors them, so be on your toes.

So, what you do if your tolling agreement is about to expire but both sides want to continue the tolling? Obviously, you enter into a new agreement for an additional tolling period. But new agreements present a litany of new problems. You must be ready to file suit in case the defendant refuses at the last second to extend the tolling period. The new tolling agreement must be signed before expiration of the old one. So when you see a deadline approaching and you want to extend, notify the other side far enough in advance to ensure that you know their intentions. And then get it documented before the current agreement expires.

You must also be careful how you word the new agreement. I don’t like to use the form of “amendment” or “supplement” to the old agreement when I am extending an existing tolling period.  I prefer to enter into a new tolling agreement that uses the original date of tolling from the first agreement but changes the expiration date to expand the tolling period. That way, I need introduce only one exhibit at trial to defeat the limitations defense. And I have avoided the argument that my “amendment” to the first agreement—with a new start and end date—should be treated like a pleading amendment which replaces the original agreement and thereby eliminates all tolling of the first agreement. The most recommendation on any extension of a tolling agreement is that the lawyer prepare it—do not delegate this task to a legal assistant.

Lastly, keep in mind that you can always deal with a defendant that is slow-walking you on signing by filing a bare-bones lawsuit. If you are concerned that the filing of a lawsuit will result in unwanted publicity that will hurt your settlement chances, you can file the lawsuit in a smaller neighboring county where the likelihood of discovery is dimished. Once the defendant signs a tolling agreement, you can nonsuit the case and no one will be the wiser.

Now, go forth and toll.