In Victory for Firm Client, Court Clarifies Effect of New York Statute Regulating Tolling Agreements
Ruling from the bench after oral argument on April 4, 2022, Justice Joel M. Cohen of the New York Supreme Court denied a motion to dismiss a breach-of-contract claim asserted by our client, Freedom Trust 2011-2 (“Freedom Trust”), against HSBC Bank USA, N.A. (“HSBC”). Freedom Trust, an investor in securities issued by a residential mortgage-backed securities (“RMBS”) trust, filed a complaint against HSBC for failing to perform certain duties on behalf of the RMBS trust.
Over the course of several years prior to the suit, Freedom Trust and HSBC had entered into a series of tolling agreements that purported to extend any statutes of limitation applicable to Freedom Trust’s claims against HSBC. If effective, those agreements would have preserved Freedom Trust’s claim and rendered it timely. But, in moving to dismiss, HSBC argued in part that our client’s claim was untimely because, under Section 17-103 of the New York General Obligations Law, parties may not agree to toll the applicable limitations period for longer than the underlying limitations period itself. HSBC argued that the combined effect of the multiple tolling agreements it had entered with our client ran afoul of this requirement.
GOL § 17-103 imposes certain limitations on a tolling agreement relating to breach-of-contract claims, including the effective length of such an agreement. No reported decision has addressed whether, consistent with GOL § 17-103, parties can enter successive agreements that together extend the limitations period for longer than New York’s six-year statute of limitations for breach of contract. Addressing this issue of first impression, Justice Cohen held that GOL § 17-103 only limits the effectiveness of a single tolling agreement, and that parties are free under the statute to execute a series of successive agreements that together accomplish a period of tolling longer than the statutory limitations period. For this and other reasons, Justice Cohen found our client’s lawsuit timely.
To read a transcript of the court’s bench decision, click here.