Counterclaim Cannot Involve Time-Barred Claims as Set-off Unless It Arises From Same Transaction or Occurrence

On January 2, 2020, Justice Schecter of the New York County Commercial Division issued a decision in Capone v. LDH Mgt. Holdings LLC, 2020 NY Slip Op. 30013(U), holding that a counterclaim cannot involve time-barred claims as a set-off unless the time-barred claims arise from the same transaction or occurrence as the claim against which they will be set-off, explaining:

Nor can the counterclaims based on Scheinman's alleged misconduct be used to set off defendants' liability on his breach of contract claims. CPLR 203(d) provides that a counterclaim that arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends is not barred to the extent of the demand in the complaint notwithstanding that it was barred at the time the claims asserted in the complaint were interposed. The statute's "arose from" language is interpreted strictly to exclude claims that merely relate to but do not actually arise out of the same transactions or occurrences. Here, Scheinman's conduct concerns the advice he allegedly improperly gave to Capone about the merits of the claims that Capone asserts in this action. While Scheinman's alleged malfeasance relates to Capone's claims, it does not arise out of the transactions or occurrences giving rise to Capone's claims - namely, the valuation used to compute his buy-out. The propriety of the advice does not turn on the validity of the valuation; it was advice, give after the fact, about how to challenge the valuation. Ergo, the advice merely relates to the valuation. A set-off under CPLR 203(d), therefore, is impermissible.

Defendants' proposed breach of contract counterclaim for overpaying Scheinman under paragraph 3(d) of his separation agreement is indisputably not time-barred (and, in any event, would be permitted as a set-off since it arises out of the disputed valuation).

(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.