Loans payable in Installments, CPLR 202 and The Applicable Statute of Limitations

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Posted on: Oct 21 2024

In today’s post, we examine Student Loan Solutions, LLC v. Colon, 2024 N.Y. Slip Op. 05125 (2d Dept. Oct. 16, 2024) (here), a case involving the collection of student loan debt and the statute of limitations applicable to such collection efforts when the plaintiff is a nonresident suing on a cause of action accruing outside New York.

As noted, Student Loan Solutions involved the collection of student loan debt. In 2007, defendants entered into a private loan credit agreement (the “loan agreement”) with Bank of America, N.A. (“Bank of America”), pursuant to which defendants borrowed $38,000 to be repaid with interest in monthly installments over a period of 20 years after an initial period of deferment. The loan agreement provided that if defendants failed to make any monthly payment when due, Bank of America had “the right to give [defendants] notice that the whole outstanding principal balance, accrued interest, and all other amounts payable to [Bank of America] … [would be] due and payable at once.” In 2017, plaintiff purchased Bank of America’s interest in the loan agreement.

On June 4, 2019, plaintiff commenced the action to recover the outstanding amount owed under the loan agreement, alleging that defendants were in default of the loan agreement by failing to make payments when due. Defendants served an answer in which they asserted, as an affirmative defense, that the statute of limitations had run prior to the commencement of the action.

Plaintiff moved for summary judgment on the complaint, and defendants cross-moved for summary judgment dismissing the complaint, arguing that it was time-barred. In an order dated December 10, 2020, the motion court denied plaintiff’s motion and granted defendants’ cross-motion. Plaintiff appealed.

The Appellate Division, Second Department affirmed, holding that the action was time barred.

When a loan is payable in installments, as in Student Loan Solutions, there are separate causes of action for each installment accrued. The statute of limitations begins to run on the date each installment becomes due and is defaulted upon, unless the debt is accelerated.[1] Once a debt is validly accelerated in accordance with the terms of the contract, the entire amount is due, and the statute of limitations begins to run on the entire debt.[2]

To accelerate a loan payable in installments, “[a] borrower … must be provided with notice of the lender’s decision to exercise an option to accelerate the maturity of a loan, and such notice must be clear and unequivocal.”[3] “[T]o constitute such clear and unequivocal acceleration of a debt, the notice must demand an immediate payment of the entire outstanding loan and not refer to acceleration only as a future event.”[4]

The Court found that defendants had “established, prima facie, that the statute of limitations began to run on the cause of action on September 11, 2013.”[5] The Court pointed to a September 11, 2013 letter from Bank of America’s attorney in which the attorney “informed the defendants that [the firm] had been retained to collect the ‘total amount’ in connection with the defendants’ ‘delinquent’ debt,” and “that the defendants … should send ‘the balance in full’ or contact [the firm] ‘with respect to a full resolution.’”[6] The Court held that “this letter constituted an affirmative action clearly and unequivocally evidencing Bank of America’s intention to accelerate the debt, as the letter demanded immediate payment of the entire outstanding loan and did not refer to acceleration of the loan as a future event.”[7]

The Court also held that defendants “established, prima facie, that [the] action was time-barred under the applicable statute of limitations.”[8]

“When a nonresident sues on a cause of action accruing outside New York, CPLR 202 requires the cause of action to be timely under the limitation periods of both New York and the jurisdiction where the cause of action accrued.”[9]

“‘[A] cause of action accrues at the time and in the place of the injury.’”[10] A cause of action alleging a purely economic injury usually accrues in the state in which the plaintiff resides and sustains the economic impact of the loss.[11]

In Student Loan Solutions, the parties agreed that Bank of America was headquartered and injured in North Carolina.[12] Thus, said the Court, “since the cause of action accrued in 2013 when Bank of America held the loan agreement, North Carolina’s three-year statute of limitations for breach of contract actions applie[d] to this action.”[13] “As the plaintiff did not commence [the] action to collect the debt until June 4, 2019, more than three years after the cause of action accrued,” the Court found that “defendants [had] met their prima facie burden of demonstrating that this action was time-barred.”[14]

Takeaway

“‘A defendant who seeks dismissal of a complaint on the ground that it is barred by the statute of limitations bears the initial burden of proving, prima facie, that the time in which to commence an action has expired. The burden then shifts to the plaintiff to present evidence raising a triable issue of fact as to whether the action falls within an exception to the statute of limitations’ or whether the statute of limitations has been tolled.’”[15] In Student Loan Solutions, defendants met their burden; plaintiff was unable to raise a triable issue of fact that the statute of limitations had not run.

Student Loan Solutions reaffirms the principle that when a nonresident sues on a cause of action accruing outside New York, it must be timely under the limitation periods of both New York and the jurisdiction where the cause of action accrued.[16] As the Court of Appeals observed, “[t]his prevents nonresidents from shopping in New York for a favorable Statute of Limitations.”[17]

In Student Loan Solutions, the statute of limitations had run as the limitations period for breach of contract under North Carolina law – the “state in which the plaintiff reside[d] and sustain[ed] the economic impact of the loss”[18] – was three years. Plaintiff commenced the action in 2019, more than three years after Bank of America accelerated the loan.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Morrison v. Zaglool, 88 A.D.3d 856, 858 (2d Dept. 2011); Sce v. Ach, 56 A.D.3d 457, 458 (2d Dept. 2008).

[2] Nationstar Mtge., LLC v. Weisblum, 143 A.D.3d 866, 867 (2d Dept. 2016); Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980, 983 (2d Dept. 2012); EMC Mtge. Corp. v. Patella, 279 A.D.2d 604, 605 (2d Dept. 2001).

[3] Bank of N.Y. Mellon v. Dieudonne, 171 A.D.3d 34, 38 (2d Dept. 2019) (citations and internal quotation marks omitted); see also Wells Fargo Bank, N.A., 94 A.D.3d at 983.

[4] Sansone v. North Shore Invs. Realty Group, LLC, 218 A.D.3d 698, 700 (2d Dept. 2023); see also Freedom Mtge. Corp. v. Engel, 37 N.Y.3d 1, 27 (2021).

[5] Slip Op. at *2.

[6] Id.

[7] Id. (citations omitted).

[8] Id.

[9] Global Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525, 528 (1990); see also CPLR 202; Grynberg v. Giffen, 119 A.D.3d 526, 527 (2d Dept. 2014).

[10] Deutsche Bank Natl. Trust Co. v. Barclays Bank PLC, 34 N.Y.3d 327, 338 (2019) (quoting Global Fin., 93 N.Y.2d at 529).

[11] Global Fin., 93 N.Y.2d at 528.

[12] Slip Op. at *2.

[13] Id. (citations omitted).

[14] Id.

[15] Cammarato v. 16 Admiral Perry Plaza, LLC, 216 A.D.3d 903, 904 (2d Dept. 2023) (quoting Osborn v. DeChiara, 165 A.D.3d 1270, 1271 (2d Dept.2018)); see also Tantleff v. Kestenbaum & Mark, 131 A.D.3d 955, 958 (2d Dept. 2015).

[16] Global Fin., 93 N.Y.2d at 528. See also CPLR 202 (“An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.”).

[17] Global Fin., 93 N.Y.2d at 528 (citation omitted).

[18] Slip Op. at *2.