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How Short is Too Short?

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  • Posted on: Oct 30 2019

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, 213. But what is reasonable?

As one might think, the answer to the 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.

In DiGesare Mech., Inc. v. U.W. Marx, Inc., 2019 N.Y. Slip Op. 07668 (3d Dept. Oct. 24, 2019) (here), the Appellate Division, Third Department, was asked to decide, among other things, whether a shortened limitations period was too short to be considered fair and reasonable.

DiGesare Mech. arose from the work at an improvement to public property known as the SUNY New Paltz New Residence Hall (“Project”). Defendant, U.W. Marx, Inc. (“Marx”), was engaged to construct the Project for the Dormitory Authority of the State of New York (“DASNY”) pursuant to a written agreement. The plaintiff, DiGesare Mechanical, Inc. (“DiGesare”), was engaged by Marx to perform certain work on the Project. Defendant, Liberty Mutual Insurance Company (“Liberty Mutual”), issued the Labor and Material Payment Bond required by State Finance Law §137, which promised, in relevant part, to pay unpaid subcontractors and suppliers to Marx under certain conditions. The Project began in mid-2014.

According to DiGesare, it performed the necessary work and properly invoiced Marx, who did not object to the submitted invoices within the statutorily provided l2-day period. DiGesare contended that FOIL requests made to DASNY revealed that DASNY paid the total amount of the Project cost “less only retainage[,]” including payment for DiGesare’s work on the Project. However, claimed DiGesare, Marx failed to remit $213,230.41 owed to Plaintiff for its services and supplies. DiGesare further noted that when it made a claim with Liberty Mutual for compensation, Liberty Mutual declined to make the payment, arguing that it was not obliged to do so under the bond.

According to Defendants, DiGesare was not paid due to its faulty workmanship, which resulted in remediation, and DiGesare’s failure to maintain its schedule in connection with both its exterior and interior work, thus causing significant delays in the Project which resulted in litigation between DASNY and Marx. As a result, said Marx, DASNY held $l,893,115.20 from Marx due to the significant delays. Defendants contended that DiGesare knew of these delays, as there were several meetings and correspondence sent regarding the payments. These included threats made to DiGesare that monies owed to it would be held, which Defendants contended DiGesare understood as its last invoice was for “payment in full, less only retainage.”

Plaintiff commenced the action on April 26, 2016. The Complaint alleged four causes of action against the Defendants: three against Marx, including breach of contract by non-payment, account stated on the unpaid invoices, and recovery in quantum meruit; as well as a single cause of action against Liberty Mutual seeking to collect against the statutorily required Labor and Material Payment Bond posted by Liberty Mutual.

Marx answered the complaint by general denials, alleging various affirmative defenses, including that the action was time-barred by a shortened statute of limitations, as well as a single counterclaim alleging that it was DiGesare that breached the written contract. Liberty Mutual joined issue by denying the allegations of the Complaint and asserting eight affirmative defenses.

DiGesare moved for summary judgment on its first, second and fourth causes of action (breach of contract by non-payment, account stated on the unpaid invoices, and against Liberty Mutual on the obligations of the Payment Bond), and Defendants cross-moved for summary judgment dismissing the complaint against Marx. Liberty Mutual opposed the relief sought by DiGesare, but made no affirmative application for relief.

The motion court denied DiGesare’s motion, finding that a triable issue of fact existed as to whether Marx had breached the contract, and granted Defendants’ cross motion for summary judgment dismissing the complaint against Marx on the ground that DiGesare’s claims against Marx were time-barred by a six-month limitation period set forth in the subcontractor agreement.

The motion court found the language of the two contracts at issue to be “clear and distinct”. Under the subcontractor agreement, “[a]ny claim by the Subcontractor against the Contractor [Marx] must be filed with the Court within six (6) months after the Subcontractor’s last day of work on the Project site and must be commenced in New York State Supreme Court, County of Rensselaer.” Under the Payment Bond, “[n]o suit or action shall be commenced hereunder by any claim . . . [a]fter expiration of one (1) year following the date on which [Marx] ceased work of said Contract,” unless the limitation was prohibited by law.

Similarly, the motion court found the shortened limitations periods to be fair and reasonable, noting that other courts had found a 6-month period in claims similar to the one at issue in the action to be permissible, including “this exact contract provision between a subcontractor and Marx. See Pace Plumbing & Heating, Inc. v. Ellis Hosp., Index No. 242191-12 (Sup. Ct., Rensselaer County 2015) (noting exact provision against Marx). Thus, concluded the motion court, DiGesare had six months from October 13, 2015 to commence an action against Marx, and had one year from August 2015 to commence an action against Liberty Mutual. DiGesare did not commence the action until April 26, 2017.

DiGesare appealed. The Third Department reversed.

The Court found that the shortened limitations period in the subcontractor agreement nullified DiGesare’s claims because it did not provide DiGesare a reasonable opportunity to commence a litigation for non-payment.

Here, plaintiff had no such opportunity, because the timing of its payment was subject to a condition – Marx’s receipt of payment from DASNY – that plaintiff could not control and that did not occur before the limitation period expired. Had plaintiff attempted to commence an action within the six-month period, the action would have been subject to dismissal as premature, as plaintiff’s claim had not yet accrued. Marx’s argument that plaintiff could have timely commenced its action within six months after the submission of its sixteenth invoice – the first invoice that Marx did not pay – is without merit, as Marx neither claimed nor showed that it had received payment from DASNY for plaintiff’s work within that time period, so that the claim would then have been due and payable.

…The conflict in the subcontractor agreement between the limitation period and the payment provisions had the effect of nullifying plaintiff’s breach of contract claim; thus, the six-month limitation period is unreasonable and unenforceable, and Supreme Court should not have dismissed plaintiff’s complaint as time-barred.

Slip Op. at *1.

The Court noted that the facts and circumstances surrounding the payment from DASNY to Marx supported its reversal:

The subcontractor agreement provided for plaintiff to receive monthly progress payments while work on the project was ongoing, less a specified percentage withheld as retainage, to be paid within seven days after Marx received payment from DASNY. Plaintiff was entitled to final payment of the entire unpaid balance following completion of the project and upon Marx’s receipt of payment from DASNY. Plaintiff established that it submitted a total of 20 invoices to Marx for its work on the project; Marx paid plaintiff for the first 15 of these invoices, but neither paid the amounts claimed in the final five invoices nor gave plaintiff written notice of disapproval of any of the invoices as required by the subcontractor agreement. In addition, plaintiff submitted pleadings from a separate litigation commenced by Marx against DASNY and the project architect. In that action, Marx had asserted that its work had been delayed by design defects and other errors and omissions on the part of DASNY and the project architect, and that DASNY had failed to make full payment to Marx for its work. DASNY counterclaimed against Marx for delay damages. Plaintiff submitted evidence revealing that this litigation was settled in February 2018, and that Marx received a settlement payment from DASNY thereafter. Plaintiff asserts that this settlement amount constituted DASNY’s final payment to Marx within the meaning of the subcontractor agreement. Therefore, plaintiff argues that Marx’s contractual obligation to make final payment to plaintiff was not triggered, and plaintiff’s cause of action for breach of contract did not accrue until the settlement was paid in 2018 — long after the six-month contractual limitation period expired in 2016.

Id.

Based upon the foregoing facts, the Third Department rejected Marx’s argument that DASNY’s settlement payment should not be considered the final payment for purposes of determining DiGesare’s entitlement to final payment by Marx under the subcontractor agreement as that payment was to settle a litigation only. “Marx commenced the litigation against DASNY to collect the unpaid balance it was allegedly owed,” observed the Court, “and it has neither claimed nor shown that DASNY made a payment that should be considered final payment to Marx on any other date.” Id.

Takeaway

Contractually shortened statutes of limitation limit a plaintiff’s right of action because they require him/her to act more quickly than the law would have otherwise permitted. “Generally intended to prevent stale claims which are difficult to defend,” a shortened limitations period encourages vigilance by the parties to a contract, thereby making it less likely there will be continued wrongdoing. Oppedisano v. D’agostino, 2017 N.Y. Slip Op. 32882 (Sup. Ct., Queens. County 2017). Thus, as long as the shortened period is reasonable, and otherwise conforms with the law, a shortened period of limitation is legally valid.

Parties run into difficulties when, as in DiGesare Mech., the shortened limitations period prevents the plaintiff from commencing his/her action within the limitations period. If the period “expires before suit can be brought,” then, as the Court of Appeals noted, and the DiGesare Mech. Court held, it “is not really a limitation period at all, but simply a nullification of the claim.”

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