AuthorWisher, Benjamin J.
PositionNew York. Civil Practice Law and Rules

Amongst New York's legal practitioners, it is common knowledge that a claim for relief arising under the breach of a contract must be interposed within six years. (1) However, many of these same practitioners are ignorant of New York's borrowing statute, which may change the applicable statute of limitations and have disastrous consequences for any unknowing attorney. (2) New York's borrowing statute states,

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. (3) In other words, "When a cause of action accrues outside New York and the plaintiff is a nonresident, section 202 'borrows' the statute of limitations of the jurisdiction where the claim arose, if shorter than New York's, to measure the lawsuit's timeliness." (4)

Recently, the disastrous consequences of CPLR 202's applicability were highlighted by the New York Court of Appeals in its examination of a breach of contract claim arising out of Ontario, Canada. (5) In Ontario, "SkyPower Corp., an Ontario renewable energy developer, entered into a nondisclosure agreement (NDA) with [D]efendants." (6) The NDA mandated that Defendants be allowed to review SkyPower's confidential information to evaluate a potential transaction with SkyPower and its majority shareholder. (7) If the transaction was to never come to fruition, the NDA also called for a method of destroying the confidential information conveyed to Defendants. (8) Defendants decided to forego the transaction with SkyPower and subsequently entered into an agreement with the Ontario government to develop a renewable energy project. (9) SkyPower alleged Defendants improperly utilized SkyPower's confidential and proprietary information in the energy project with the Ontario government in violation of the NDA. (10) Shortly after, "SkyPower filed for bankruptcy... and SkyPower's claims were assigned to [P]laintiff, the creditor of... an Ontario corporation" that took over SkyPower. (11) Plaintiff then commenced an action against Defendants in New York Supreme Court "for breach of contract and unjust enrichment." (12) "Defendants moved to dismiss the complaint," arguing that both causes of action were untimely in violation of the Ontario Limitations Act. (13)

The issue on appeal was whether the applicable statute of limitations was Ontario's two-year statute, in accordance with CPLR 202, or New York's six-year statute. (14) The New York Supreme Court and the appellate division held that Plaintiff's claims were time barred because CPLR 202 applied to the NDA and Plaintiff failed to timely commence its action in accordance with Ontario's statute of limitations. (15) On appeal to New York's highest court, the Court of Appeals, looked to the actual language of the NDA to ascertain whether CPLR 202 was applicable. (16) The NDA contained a choice-of-law provision stating, "This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York." (17) Ordinarily, choice-of-law provisions only apply to substantive issues and do not impose procedural law. (18) "It is undisputed that had the NDA's choice-of-law provision incorporated only New York substantive law and contained a New York forum selection clause, New York would apply its own procedural law as the law of the forum... including CPLR 202." (19) In this case, both parties agreed that it was their intent for the choice-of-law provision to apply substantive and procedural law to any disputes arising under the NDA. (20) The Court of Appeals stated that "CPLR 202 is an abiding part of New York's procedural law" (21) and is "part of this State's procedural code." (22) Nothing in the NDA demonstrated any intent by the contracting parties to disregard CPLR 202 in any dispute arising under the contract. (23) "Here, the contracting parties chose New York's procedural law, and CPLR 202 is part of that procedural law. The borrowing statute therefore applies." (24) The Court of Appeals upheld the New York Supreme Court and Appellate Division decisions and deemed that Defendant's motion to dismiss was properly granted on the grounds that Plaintiffs claim was time-barred by Ontario's two-year statute of limitations. (25)

Ontario displayed CPLR 202's cruel nature by demonstrating the borrowing statute's ability to tank a seemingly meritorious contract claim. (26) Many other litigants have suffered the same fate. (27) So, how can a contract be drafted to avoid CPLR 202's disastrous effects? In Ontario, the New York Court of Appeals purposefully avoided this question. (28)

This Note is comprised of three Parts. Part I analyzes whether simple New York contract principles could be utilized to circumvent CPLR 202's applicability. Part II does not attempt to circumvent CPLR 202, but rather attacks it head on by attempting to precisely discern whether its language can be manipulated to achieve a desired outcome. Most importantly, Part III argues that the current application of CPLR 202 is unworkable and courts need to approach this issue differently.


    Many practitioners simply believe that parties could include express provisions in their contracts to circumvent CPLR 202. Among these ideas are (A) express provisions precluding CPLR 202's applicability to a certain contract; (B) express provisions enumerating a different limitation period than the one called for under CPLR 202; and (C) express provisions waiving a party's right to raise a statute of limitations defense that would render CPLR 202 useless. The potential effectiveness of these various methods is examined in detail throughout Part I.

    1. Express Provision Precluding CPLR 202's Application

      One idea to avoid CPLR 202's applicability to a contract is to simply include an express provision stating, "CPLR 202 will not apply to any disputes arising under this contract." More formally, such a contractual provision would probably be drafted as follows:

      Any litigation arising from this contract shall not be governed by CPLR 202 or any other borrowing statute. The parties agree that CPLR 213 will govern any litigation arising from this contract. As expressed in Ontario, the New York Court of Appeals has intentionally avoided determining whether such a provision would achieve its goal. (29) This Section attempts to ascertain whether such a contractual provision is effective.

      Any proper analysis of this provision's legal validity must start from the basic right to contract. "The right to contract is one of those fundamental rights in our society... and rightly receives primary credit for the establishment of a functional, market-based economy in which predictability is prized." (30) However, "the right to contract is not absolute." (31) Specifically, New York's jurisprudence is clear that parties may not draft contracts that contradict the State's public policy. (32) Contract provisions in violation of public policy will be deemed unenforceable. (33)

      This principle was recently applied by the New York Court of Appeals. (34) In Deutsche Bank, the defendant, Quicken Loans, sold mortgages to a non-party to the action, Morgan Stanley, under a contract dated June 1, 2006. (35) These same loans were then sold to a trust fund and the plaintiff, Deutsche Bank, was its trustee. (36) In 2013, a review of a sample of the mortgages revealed that the mortgages did not comply with the representations and warranties made by Quicken Loans in the contract. (37) Deutsche Bank commenced an action on August 30, 2013. (38) Quicken Loans moved to dismiss the complaint, alleging that the plaintiff's action was barred by CPLR 213. (39) In response, the plaintiff argued that the "accrual clause" of the contract was not triggered and, thus, the claim being brought had yet to accrue and, therefore, could not be precluded by New York's statute of limitations. (40) The trial court held that the accrual clause could not be enforced because it "could not serve to extend the statute of limitations." (41) The motion to dismiss was granted. (42) On appeal, the appellate division found that "the accrual clause was unenforceable because it violates New York public policy." (43)

      At the Court of Appeals, Judge Fahey, the same author of the majority opinion in Ontario, insisted, "When the public policy favoring freedom to contract and the public policy prohibiting extensions of the limitations period before accrual of the cause of action come into conflict... the latter must prevail." (44) "We simply hold that... to postpone accrual of a breach of contract cause of action to a subsequent uncertain date, the accrual clause 'may not serve to extend the Statute of Limitations....'" (45) The Court of Appeals affirmed the appellate division's decision. (46)

      This case may severely undermine the legality of our current proposition: whether parties can contract to preclude the application of CPLR 202. Deutsche Bank clarifies that contracting parties may not "put off" the accrual date of a cause of action to extend the statute of limitations under CPLR 213. (47) Would the same logic extend to parties attempting to avoid a shorter limitations period? The logical answer is yes. Fundamentally, attempting to avoid an applicable, otherwise shorter limitations period, is the same as trying to extend the statute of limitations itself.

      However, courts can distinguish Deutsche Bank in two ways. First, courts may narrow the holding of Deutsche Bank to only apply to situations in which the parties are attempting to extend the statute of limitations under CPLR 213--not CPLR 202. Second, courts may simply only apply Deutsche Bank to contracts which delay the accrual of the claim and not extend its...

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