Contract Term Unreasonably Limiting Statute of Limitations Unenforceable

On October 26, 2020, Justice Platkin of the Albany County Commercial Division issued a decision in State of New York v. All Around Stor., L.L.C., 2020 NY Slip Op. 51265(U), holding that a contract term unreasonably limiting the statute of limitations was unenforceable, explaining:

On a motion pursuant to CPLR 3211(a)(5) to dismiss a cause of action as time-barred, the defendant bears the initial burden of demonstrating, prima facie, that the time within which to commence the action has expired, and if the defendant satisfies that burden, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the action was actually commenced within the applicable statute of limitations.

Hanson and Barrett argue that the contract by which they supplied asphalt to the Project gave Ruston one year from the 2015 delivery of the materials to bring suit. While there is nothing inherently unreasonable about a contractual limitations period of one year, the Court agrees with Ruston that the shortened period is unreasonable under the particular facts and circumstances of this case.

The problem with the limitations period here is not its duration, but its accrual date. An indemnification/contribution claim does not even accrue until the party seeking such relief has made payment to the injured party.

Thus, accepting Hanson and Barrett's argument would mean that Ruston's right to pursue indemnification was extinguished before its cause of action even accrued. Indeed, Ruston's time to sue for indemnity would have expired before the State even learned that the asphalt lot had failed. A limitation period that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim.

Accordingly, the Court concludes that Ruston has demonstrated that application of the alleged one-year contractual limitations period would be unreasonable under the circumstances presented here. Accordingly, the branch of Hanson and Barrett's motion seeking dismissal of the Fourth-Party Complaint as time-barred is denied.

(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.