Court Finds Issues of Fact Over Intent to Shorten the Statute of Limitations

• Posted on: Apr 29 2020

On October 30, 2019, we posted an article, titled “How Short Is Too Short?” (here). The article examined the enforceability of a contractual provision that shortened the statute of limitations in a non-payment litigation. In today’s article, we revisit the issue with our examination of Murphy v. Williams, 2020 N.Y. Slip Op. 31009(U) (Sup. Ct., N.Y. County April. 23, 2020) (here), a case involving a breach of contract claim. 

The Law

[We repost legal framework for contractual provisions that shorten the statute of limitations below.]

It is well settled that parties are free to contractually shorten a limitations period as long as their intent to do so is clearly stated and the time period is reasonable. Whitney Lane Holdings, LLC v. Don Realty, LLC, 159 A.D.3d 1163, 1165 (3d Dept. Mar. 8, 2018); John J. Kassner & Co. v. City of New York, 46 N.Y.2d 544, 550-551 (1979); see also CPLR § 201, CPLR § 213. But what is reasonable?

The answer to the foregoing question depends upon the facts and circumstances of each case. And, in that regard, it is “[t]he circumstances, not the time, [that is] the determining factor.” Executive Plaza, LLC v. Peerless Ins. Co., 22 N.Y.3d 511, 519 (2014) (internal quotation marks and citation omitted).

Often, the issue of reasonableness turns on the accrual date for the cause of action. For this reason, “an otherwise reasonable limitation period may be rendered unreasonable by an inappropriate accrual date.” Executive Plaza, 22 N.Y.3d at 519. Indeed, the enforceability of a contractual accrual date depends upon “whether the plaintiff had a reasonable opportunity to commence its action within the period of limitation.” Id. (internal quotation marks and citation omitted). As the Court of Appeals noted, “[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.” Id. at 518.

Murphy v. Williams

Background

On February 2, 2015, plaintiffs, Jeffrey Murphy (“Murphy”) and Katherine Dillon (“Dillon”), purchased real property in New York City (the “property”) from defendant, Michael Williams (“Williams”). At the closing, Williams was required to sign and file a real property transfer tax return (“RPT”) with the City of New York (the “City”) to report the sale of the property and to pay the appropriate New York City transfer tax (“transfer tax”) pursuant to New York City Administrative Code § 11-2102. Williams informed plaintiffs that the transfer tax owed was $46,312.50, and that no further amounts would be due to the City. 

The parties executed a hold harmless agreement (the “agreement”), pursuant to which Williams promised to indemnify and hold harmless plaintiffs from any liability or claims made against them in connection with the transfer tax, and any amount underpaid by Williams pursuant to the RPT, including interest, penalties and reasonable attorneys’ fees.

On June 16, 2017, due to an alleged tax classification discrepancy, the City issued a further assessment with interest and penalties against the property in the amount of $46,980.04. Although the notification was sent to Dillon at an address where she no longer resided, plaintiffs later learned about the additional assessment on June 1, 2018 and, upon being so apprised, notified Williams to provide the payment. Williams refused. As a result, plaintiffs paid the additional assessment, as well as the related accrued penalties and interest, totaling $57,193.20. 

On July 30, 2019, plaintiffs commenced the action by filing a summons with notice, alleging, inter alia, that Williams breached the agreement and that they were therefore entitled to recover $57,193.20. Plaintiffs subsequently filed a complaint on September 4, 2019.

Williams filed a motion to dismiss on October 18, 2019, arguing that, inter alia, the action was untimely having been commenced on July 30, 2019, more than 17 months after the parties’ contractually agreed-upon statute of limitations expired (i.e., February 2, 2018). The provision to which Williams relied, provided that the right to indemnification would “survive Closing until the sooner of the statutory limit by New York City or the transfer of title by Purchaser.” Slip Op. at *3.

Williams claimed that the “statutory limit” referenced in the agreement was defined by Section 11-2116 (b) of the New York City Administrative Code, which provides, in relevant part, that “no assessment of additional tax shall be made after the expiration of more than three years from the date of the filing of a return.” Id. Williams maintained that under this provision, plaintiffs should have commenced the action on or before February 2, 2018, the date the original RPT was filed. 

In opposition, plaintiffs argued, inter alia, that it was unclear from the agreement whether Section 11-2116 (b) of the New York City Administrative Code applied. In light of this ambiguity, plaintiffs maintained that their claims were governed by the six-year statute of limitations under CPLR § 213 (2). Moreover, plaintiffs contended that, under Williams’ interpretation of the agreement, if the City had waited three years to issue the additional assessment, the statute of limitations would have expired on that same day, which “flies in the face of a contractually agreed upon statute of limitations being upheld if it is deemed reasonable as drafted.” Slip op. at *3. Even if Administrative Code § 11-2116 (b) applied, argued plaintiffs, the statute of limitations should begin to run from the date that the City issued the notice on June 16, 2017, because it was only then that they possessed a legal right to demand payment.

The Court’s Decision

The Court denied the motion, finding that Williams failed to meet his prima facie burden of demonstrating that the action was time-barred.

On a motion to dismiss under CPLR § 3211 (a) (5) (i.e., that the claim is barred by the statute of limitations), the movant bears the initial burden of establishing, prima facie, that the time in which to sue has expired. Benn v. Benn, 82 A.D.3d 548, 548 (1st Dept. 2011) (internal quotation marks and citations omitted); see also Norddeutsche Landesbank Girozentrale v. Tilton, 149 A.D.3d 152, 158 (1st Dept. 2017). If the initial burden is met, “[t]he burden then shifts to the [non-movant] to raise a question of fact as to whether the statute of limitations is inapplicable or whether the action was commenced within the statutory period.” MTGLQ Invs., LP v. Wozencraft, 172 A.D.3d 644, 645 (1st Dept. 2019) (citation omitted).

In explaining its holding, the Court observed that the agreement never mentioned Section 11-2116 (b) of the New York City Administrative Code. Slip Op. at *5. It was, therefore, “unclear whether the reference to ‘the statutory limit by New York City’ in the agreement implicate[d] the statute.” Id. “Given this ambiguity,” concluded the Court, “Williams [could not] prevail on a motion based on CPLR 3211 (a) (5).” Id. (citations omitted).

Finally, although the Court held that there was an issue of fact as to whether Section 11-2116 (b) of the Administrative Code applied, the Court nonetheless tipped its hand on how it might rule, stating that the Administrative Code did not apply: “Importantly, New York City Administrative Code § 11-2116 (b) precludes the City from making an assessment of additional tax after three years from the filing of a return. It does not, as Williams suggests, impose a three-year statute of limitations for actions based on an additional tax assessment.” Id. at *6 (orig’l emphasis).

Takeaway

Parties may contractually shorten a limitations period as long as their intent to do so is clearly stated and the time period is reasonable. Intent must be determined from the writing itself. Indeed, “[t]he best evidence of what [the] parties to a written agreement intend is what they say in their writing” Riverside South Planning Corp. v. CRP/Extell Riverside LP, 60 A.D.3d 61, 66 (1st Dept. 2008), aff’d, 13 N.Y.3d 398 (2009) (internal quotation marks omitted). Thus, if the agreement is clear and unambiguous on its face, the court must enforce it according to the terms of the writing. Id. Extrinsic evidence of the parties’ intent may be considered, as in Murphy, “only if the agreement is ambiguous.”