On April 4, 2022, Justice Cohen of the New York County Commercial Division issued a decision in Freedom Trust 2011-2 v. HSBC. In the excerpted portion below, the Court addresses the question of how long a tolling agreement can extend the time to bring a lawsuit. This is highly relevant to structured finance disputes, where it is not unusual to see tolling agreements between trustees and other trust participants. At issue is the interpretation of General Obligations Law 17-103, which provides in relevant part:
1. 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.
2. A promise to waive, to extend, or not to plead the statute of limitation may be enforced as provided in this section by the person to whom the promise is made or for whose benefit it is expressed to be made or by any person who, after the making of the promise, succeeds or is subrogated to the interest of either of them.
3. A promise to waive, to extend, or not to plead the statute of limitation has no effect to extend the time limited by statute for commencement of an action or proceeding for any greater time or in any other manner than that provided in this section, or unless made as provided in this section.
This statute has been commonly thought to mean that the longest you can extend the statute of limitations with a tolling agreement is the relevant limitations period. So, the longest you can toll a breach of contract claim would be six years, the limitations period for such a claim.
Not so, according to Justice Cohen, in an opinion he read from the bench. He held that the court should look at each tolling agreement, not the total time tolled by a series of tolling agreements, explaining:
However, in any event, even if New York Law applied, the tolling agreement would be enforceable. The key statute is, General Obligations Law 17-103. That statute requires an agreement to extend the Statute of Limitations to be made after accrual of the cause of action, and it allows extension of the limitations period for only at most, the time period that would apply if the cause of action had accrued on the date of the agreement.
It seems to be an interesting question of first impression here, whether and how the statute applies to a series of sequence tolling agreements, each one extending the prior one. I would note that that is far from an unusual situation. That’s the way in the real world parties negotiate. And then you come to the — toward the end of the tolling period and you have to decide do we break off and litigate or do we toll it again so it’s not an unusual fact pattern. Although, strangely, it has apparently never come up in the context of this particular statute.
I think that the natural reading of the statute by its terms, it limits the amount of tolling that can be attached to “a promise,” a single agreement.
Tolling here was pursuant to a series of separate agreements and promises each one in compliance with Section 17-103 because each one came after accrual of the cause of action, and each one extends the limitations period by a permissible amount.
The fact that each successive agreement incorporates the prior does not change the fact that the relevant promise in each one is the one to extend the tolling which is effective at the date of extension. So the key 12th extension is dated January of 2021 and ended up being, you know, in effect for less than a year.
There are other interesting points made by the decision and it is worth a read in its entirety (Justice Cohen’s decision starts on page 49 of the transcript).