Claims Barred by Contract's One-Year Limitations Period to Make Claims

On August 10, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in MWW Group Holding Co., LLC v. Marcum LLP, 2018 NY Slip Op. 31921(U), holding the claims were time-barred under a contract's one-year limitations period to assert claims, explaining:

The one-year statute of limitations clause in the engagement agreement is enforceable. In New York, a reasonable contractual shortening of the period of limitations is statutorily authorized. Such a provision is enforceable absent a showing of fraud, duress or misrepresentation with respect to the actual shortened limitation. A one-year limitation period has been held to be reasonable.

Marcum could not provide independent audits because of Weiner's equity interest in MWW Holding. 8 NYCRR S. 29.10(a)(5) provides that unprofessional conduct in the practice of public accountancy shall include expressing an independent opinion or knowingly permitting his or her firm to express an opinion on financial statements of an enterprise, if the licensee or a partner or employee in the firm is not independent with respect to such enterprise. Weiner was not independent with respect to MWW. MWW argues that fraud permeates the engagement agreements because Weiner affirmatively misrepresented that upon his withdrawal from the MWW board. Marcum could serve as an independent auditor notwithstanding Weiner's continued equity interest in MWW. The representation was an opinion which was erroneous. It was not a statement of fact and even if it was, there was no justifiable reliance since the representation was reading verifiable. Further even accepting this allegation as true, the contract clause shortening the statutory limitations period is enforceable because there are no allegations that the contract provision itself was procured by fraud.

. . .

The engagement agreements all contain shortened limitations periods of one year following delivery of each individual audit report. Such shortened limitations periods have been found to be reasonable and upheld. The shortened limitations clause cannot be invalidated based on allegations that fraud permeated the engagement agreement as there are no facts alleged to support such a fraud claim. Moreover, to invalidate a contractual limitations period based on fraud, plaintiff must allege the limitations provision itself was procured by fraud.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether claims are barred by the statute of limitations.