Tolling Agreement: What Is It?
A tolling agreement is a pre-litigation contractual instrument used among parties in a variety of contexts. The purpose of such an agreement is to temporarily eliminate the running of a statute of limitations so that the parties can further investigate their claims or defenses before a potential lawsuit is commenced. It is well-established that a tolling agreement generally does not affect vested substantive rights. Rather, it "merely tolls the running of the applicable statute of limitations, i.e., it postpones the expiration of the applicable statute of limitations for a certain period of time." See Carrick v. Central Bus. Dist. Corp., 288 F.4th 88 (3d Cir. 2002) (quoting Wilcox v. Taylor, 136 N.J.L. 484, 487, 56 A.2d 192 (N.J. Sup. 1948), cert. denied, 136 N.J.L. 499 , 57 A.2d 29 (N.J. Sup. 1948). A tolling agreement operates to remove the running of a statute of limitations for a fixed tolling period. However, it is important to recognize that a tolling agreement does not prevent the parties from commencing a civil action during the tolling period if they otherwise have, or believe they have, a justiciable controversy. See Nova Chem. Corp. v. Dow Chem. Co., 295 F. Supp. 2d 405, 407 (Del. Ch. 2003). The following are the five primary factors that need to be considered when entering into a tolling agreement:
- Written notice to other party of intention to sue;
- Tolling period begins on signature date, unless otherwise stated in agreement;
- Signed acknowledgement and agreement to tolling terms;
- Waiver of all statutes of limitation;
- Enforceability of tolling provision.
Elements Of A Tolling Agreement
For any tolling agreement to be effective, there are several components that must be included within the document. First and foremost, like settlement agreements, a tolling agreement should identify the parties involved in the agreement. This includes not only the primary party issuing the tolling letter, which is often a defense counsel, but also the party making the demand for the tolling agreement. Additionally, the parties to the tolling agreement must include the person or entity from whom tolling is sought. For example, if a company offers a cure letter, but the party seeking the tolling agreement is a party that will not actually be making a demand for the cure, the identity of the party issuing the demand should be clearly disclosed. A tolling agreement also should be clear as to the time period over which it applies, such as six months or one year. It is important to be precise as to when the limitation period will end and so, if possible, the exact date on which the time period ends should be provided. A sample provision on this is provided below. The agreement should also clearly set out the terms of tolling. Whether it is the one year period or some other time frame, the terms of tolling should be clear as to what claims are affected by the tolling agreement, and this includes the statute of limitations as well as the statute of repose. For example, if a party is tolled until a particular date, and the statute of limitations has run but there is still time on the clock for the repose period, the agreement should state so. In addition, if there are particular provisions of the Code that affect the tolling provisions, such as 10-161 or 13-215, the agreement should cite to these provisions. To the extent practical, the agreement should identify the specific matter at play, as well as the specific parties to the deal that are being tolled, as opposed to including within the terms of the agreement merely a general reference to non-specific parties that may be included in the abbreviation of the names. Unfortunately, this is not always practical, especially when it comes to public entities or government agencies that do not like to provide their real name and address on a document for a short time period. A sample tolling agreement is provided below: This TOLLING AGREEMENT is made and entered into as of [insert date] by and between TRUCKING COMPANY, defendant in an action for negligence and punitive damages styled: Jane Doe v. John Smith and TRUCKING COMPANY, Service of process and/or notice of any claim shall be made to the following address: [insert address], and DOES 1-10, inclusive, DOE TOW TRUCK, and ABC GARAGE, INC., defendants in an action generated by the release of hazardous materials from a truck owned by TRUCKING COMPANY and driven by JOHN DOE, an employee of TRUCKING COMPANY, and caused damage to plaintiff Jane Doe on [insert date of accident]. By entering into this Agreement and tolling applicable statutes of limitations and repose, Jane Doe may continue to engage in settlement discussions with defendants regarding her claims against TRUCKING COMPANY, and all other parties, without the fear of having her claims become barred by the running of the limitations and/or repose periods.
[insert notice provision]
Advantages Of A Tolling Agreement
In the realm of legal disputes, one of the most advantageous strategies is often the simplest: the tolling agreement. Essentially a mutual pause button, a tolling agreement in Texas suspends the running of the statute of limitations in order to give both parties an opportunity to further explore the potential merits of their arguments through negotiation.
The first benefit of a tolling agreement is that it can save everyone a considerable amount of time. Often, lengthy and expensive litigation is avoided simply because the statute of limitations runs out. A tolling agreement, by tolling the statute of limitations, keeps the door open to a more amicable resolution. This is especially beneficial, as a tolling agreement is generally a very non-confrontational approach to resolving a dispute. In addition to time savings, a tolling agreement also saves all parties from the headaches that are part and parcel of litigation — that stress is not always easy on the entire family, not just those who are directly involved in the conflict.
A tolling agreement can also save everyone involved the cost of hiring a lawyer to represent them in court. Instead of having to file pleadings, attend court dates and trail dates, and pay their lawyer to defend their interests in the case, they can simply enter into an agreement to suspend the statute of limitations and then work together to resolve their differences. This can lead to a faster resolution of any legal conflicts, freeing the parties to move on with their lives.
Last but certainly not least, a tolling agreement can help everyone involved avoid additional stress and strife typically associated with viewing facing a lawsuit or the possibility of one. Depending on the nature of the conflict, parties may also be highly stressed about what a public disclosure of their dispute may cause in terms of their reputation, their public persona, and other factors. The litigation process can be long and grueling. Back and forth arguments with lawyers and litigants can wear down the parties involved. In the end, however, a tolling agreement can put an end to all of that.
In the midst of a legal dispute, some parties find the threat of impending litigation to be a strong, persuasive message. Yet a tolling agreement can show that a potential litigant is willing to work with the other party to resolve the dispute amicably. For many people, this is simply a better way to solve a problem and put the disagreement behind them. For others, however, it can prevent them from undertaking a legal battle that could prove to be a costly, grueling experience. During this time, the parties can reassess their positions and reach a compromise that works for everyone without involving the courts.
A tolling agreement is not legally enforceable itself — it is only the fruit that might come about as a result of successful negotiations during the period in which the statute of limitations has been tolled. However, it does buy you valuable time during which you might be able to negotiate a settlement. In many cases, a negotiated settlement prevents the need for most, if not all, litigation.
Disadvantages Of Tolling Agreements
While tolling agreements can be beneficial in various ways, such as potentially enhancing the likelihood that the statute of limitations will not be a bar to enforcement of a non-compete agreement, they may also have the effect of prolonging a dispute or strategically impacting the parties’ position in a suit. First, extensions of the limitations period may alter the balance of power between the parties, especially when the plaintiff could have brought suit as to certain claims before the original date of the tolling agreement. Courts may consider the "inequitable use of tolling agreements," including when "the tolling agreement provides a meaningful advantage to only one party."
A tolling agreement is not necessarily binding on the defendant in a lawsuit, i.e., the defendant may not be bound by the terms of a tolling agreement between the plaintiff and third-party, even if the defendant acted as if it would be bound. This principle was articulated in American Ins. Ass’n v. United States: Even if the agreement between competitor A and the government is interpreted broadly to include their coconspirators and to include the silent "understanding" in their February 5 meetings, we do not believe that it is binding on [defendant] because it was not undertaken ‘to bind the world’. [Defendant’s] exposure to treble damages and attorney’s fees is, and should be, independent of its competitors’ actions.
Moreover, the duration of a tolling agreement may have strategic implications. When one party has superior access to relevant evidence, an extended tolling agreement could give the producing party a strategic advantage by enabling it to more fully develop its position while potentially preventing the other party from discovering relevant information. Thus, a tolling agreement may have the unintended consequence of enabling the party that has the most evidence to dominate the strategic posture of the litigation.
A Sample And Instructions For Writing A Tolling Agreement
Typically, a tolling agreement will include at least the following provisions:
- The parties to the agreement
- A tolling provision that specifies the particular time frame or time frames for which the statute of limitations is tolled (stopped from running)
- Language that acknowledges that the defendants are not waiving jurisdictional defenses such as personal jurisdiction and/or venue
- Language that indicates that statements made or documents exchanged cannot be taken as an admission of liability
- An agreement to keep the facts and terms of the agreements confidential
- A representation that the agreement by all parties was voluntary
- A joint stipulation to be submitted to the court, under which the parties agree that the complaint on file doesn’t commence litigation, but rather serves as a Notice of Potential Claims.
Below is a sample tolling agreement. While this sample provides a good framework, it’s important that a tolling agreement be tailored to your particular dispute.
Tolling Agreement
Gordon v. ABC Company, Inc., United States District Court Case No.: 1:00-CV-2347-GBD
This Tolling Agreement ("Agreement") is entered into as of the ___ day of _________ , 201_., by and between ________" ("Plaintiff") and ___________ ("Defendant"). (collectively, the "Parties")
Whereas, Plaintiff filed a complaint on October __, 2010, in the United States District Court for the Eastern District of New York, styled Gordon v. (Defendant)"; and
Whereas, Defendant believes that Plaintiff’s claims are without merit; and
Whereas, the Parties wish to avoid additional costs during the investigation and preparation of this action;
Whereas the Parties wish to preserve their respective rights and defenses and to preserve any Tolling Agreement between the Parties;
Now Therefore , the Parties agree as follows:
- The Parties agree that the statute of limitations on Plaintiff’s claims shall be deemed to have been tolled from the date of Plaintiff’s Complaint to the date of filing of the Joint Stipulation and to be tolled from the filing of the Joint Stipulation until the filing of a responsive pleading. For the purposes of this Agreement, the Parties will deem the Defendant’s responsive pleading to be filed on date of filing of
- The Parties agree that the Defendant may assert any and all available jurisdictional defenses it may have, including but not limited to, that the case may not be heard in New Jersey federal court.
- The Parties agree that nothing in this Agreement will prejudice any party’s right to object to written discovery propounded by any party on the ground that such discovery is beyond the scope of permissible discovery.
- The Parties agree that they will hold as confidential this Agreement, including but not limited to the fact that it has been entered into, and all of its contents. In addition, this Agreement shall not constitute an admission by either party that its contentions or defenses are true. The contents of this Agreement are without prejudice to the Parties’ positions.
- The Parties agree that they have been represented by counsel of their choosing, or have had an opportunity to be represented by counsel, and that they have voluntarily entered into this Agreement.
- The Parties agree to jointly submit this Agreement to the Court along with a stipulation indicating that Plaintiff’s Complaint does not commence litigation, but is a Notice of Potential Claims, and to request that this matter be dismissed without prejudice. The Parties will also submit with the stipulation a proposed form of order that will contain similar language. Nothing in this Agreement shall be construed as an admission by any party that the Court has such jurisdiction or that this Court should hear this case.
Practical Examples To Illustrate How Tolling Agreements Work
A variety of real-world examples highlight the effectiveness and prevalence of tolling agreements. These documents can be found in many different types of cases and industries, as parties recognize their advantages.
In Palmer v. Liberty Mut. Fire Ins. Co., 08-40262 (S.D. Tex.), differing parties entered into a tolling agreement to extend the time limit for the statute of limitations on the plaintiff’s negligence claims. The plaintiff, a Texas resident, was involved in an auto accident in Mexico in February 2004. The defendant was allegedly partly responsible for the injuries the plaintiff sustained in the accident. In light of these circumstances, counsel for both parties agreed to undertake tolling discussions and ultimately reached a three-year tolling agreement. The court accepted the magistrate judge’s memorandum regarding the validity of the tolling agreement and the waiver of defenses of lapse of time.
In Newport News Shipbuilding & Dry Dock Co. v. Mackenzie Eng’g., Co., Inc., (VA), 2004 Kl 50385 (Va. Cir. Ct.), a dispute arose between the owner of a set of plans for a pump discharge duct and the manufacturer which was using the plans. The owner alleges that the manufacturer violated its patent and sought damages. The manufacturer responded by alleging that it had an implied license to use the plans. To avoid additional litigation during settlement discussions, the parties entered into a tolling agreement, which negated any statute of limitations issues for future litigation regarding the plans.
In Great Plains Trust v. Morgan Stanley Dean Witter, Inc., (NY), No. 0172151/04 (Sup. Ct., NY County, 2/8/05), a tolling agreement was a primary factor the court considered in dismissing the case for forum non conveniens. The plaintiff had initially filed suit in New York and then voluntarily dismissed it. Due to a court order requiring the plaintiff to file a subsequent action within a short time period, the plaintiff refiled in New York and did not seek a tolling agreement. The court found that the plaintiff, by voluntarily dismissing the prior action, should have been aware of the mandatory expiration date imposed by the order. Plaintiff was, in effect, using the litigation process as a "strategy" due to its own inaction, and therefore the court refused its request.
Legal Aspects Regarding Tolling Agreements
A tolling agreement is basically a consensual agreement between parties to extend a statute of limitations deadline as to certain claims. However, many of the legal principles that guide a court’s interpretation of filing deadlines also guide a court’s interpretation of a tolling agreement. First, a court presumes that, in entering into a tolling agreement, the parties have not intended to extend the statute of limitations for a claim for an infinite period. Therefore, a court will likely find the agreement unenforceable after a party to the agreement has had time to cure the potential problem that gave rise to the tolling in the first place. Second, courts have attempted to discourage the practice of entering into tolling agreements in order to intentionally give parties more time to investigate potential claims. To this end, in some jurisdictions at least, courts may find a tolling agreement unenforceable if it seeks to toll claims accrued before the entry of the agreement. The law governing statute of limitations also provides that dismissal of a case that has been tolling suspends the statute indefinitely as to all claims or suits until such time as the case is re-filed. A recent case discussed below addresses how a tolling agreement can impact a plaintiff’s claims where a defendant has filed a third-party complaint against another defendant.
In response to the motion to dismiss, XXXXXXXXXX argued that such a suit was time-barred by the statute of limitations because of a curative amendment to the Georgia statute of limitations. This amendment was passed in 2013 and, among other things, states: "An action pleading a deficiency in a product manufactured or supplied by a third party shall be commenced within two years after the date the action is filed asserting that a product manufactured or supplied by the defendant in such action is defective." O.C.G.A. § 9-3-33.1(b)(2). The plaintiff argued, however, that his filing of a tolling agreement 30 days before the statute of limitations would allow him to avoid the two year clock for filing a suit against a third-party defendant. Thus, the plaintiff argued that defendant’s third-party complaint was untimely filed because it was not filed until 10 months after the statute of limitations had run, and it fell within the time period proscribed by § 9-3-33.1(b)(2). The Court did not agree. The Court noted that the legislative intent behind § 9-3-33.1(b)(2) was to prevent the suspension of a statute of limitations by tolling agreements. Specifically, the Court stated, "The purpose of the amendment limiting [tolling agreements] is to prevent the indefinite extension of the statute of limitations through the continued entry of tolling agreements." Citing the Georgia House of Representatives’ First Reader Summary. The Court then stated that the tolling agreement in question could not be enforced because it "was entered into after the statute of limitations expired, and essentially did nothing to suspend its running – as it merely tolled the running pending the investigations of Defendants." Therefore, the plaintiff’s claims against the third-party defendants were barred and the third-party defendant’s motion to dismiss was granted.
There are some pitfalls to entering into a tolling agreement, and there are also some pitfalls to filing a motion to dismiss where a tolling agreement has been entered into. Where an agreement to toll is entered into, it is unclear whether the plaintiff is obligated to obtain a voluntary dismissal and file a new action within the timeframe contemplated by the tolling agreement. Therefore, an entity may be left without a remedy for what ultimately turns out to be an untimely suit.
FAQ About Tolling Agreements
You may have more questions about tolling agreements than you think. Here are some answers to common inquiries.
Can a tolling agreement compromise my statute of limitations?
Subject to the above legal standards, a tolling agreement can toll one or more statutes of limitation. This can be an effective tool to protect you in some circumstances. However, if you are the party proposing the tolling agreement and also have no other means of preventing the statute of limitations from running, this can be a very unsatisfactory position in which to be. This is because you will be giving up valuable time that you may later need to assert in a lawsuit.
What happens if the statute of limitations runs during a tolling agreement?
If the statute of limitations would have run but for the execution of the tolling agreement , then the time will be tolled (frozen) during the tolling agreement. For example, if the statute of limitations had been two years over which you could have filed a lawsuit but was tolled for an additional one year by the tolling agreement, you would have three years from the date of the injury to file a lawsuit.
If someone refuses to sign a tolling agreement with me, what can I do?
If forced to choose, you should proceed with filing your lawsuit. Otherwise, tolling agreements may be useful in numerous circumstances such as:
- When the other party requests a tolling agreement
- When your insurer raises coverage defenses or intermittently denies coverage
- When litigating multiple parties
- When there is a complicated fact pattern
- When alternative dispute resolution is recommended
