What Exactly is a Tolling Agreement?

Tolling has a number of meanings in the law, so its use in the business context creates some confusion. In a business context, a tolling agreement is used to extend the length of time in which the parties may resolve the dispute before commencing any action. It can be used in both litigation and arbitration contexts, although its use is more prevalent in arbitration. The general rule is that the filing of a lawsuit or an application for arbitration tolls the statute of limitations until a judgment or award is entered. Since the purpose is to allow an extension of this time, a tolling agreement must be entered into before the statute expires.
In the litigation context, a tolling agreement serves to toll the statute of limitations so that the plaintiff does not have to join the defendant to the action before the statute expires. One context for its use is when a plaintiff does not know the identity of the proper defendant. The tolling agreement suspends the expiration of the statute of limitation for a time period, either definitive or indefinite, after it expires, thereby preserving the plaintiff’s right to join that defendant to the action. A tolling agreement can also be a means of keeping the statute of limitations tolled indefinitely while the parties negotiate the settlement of the underlying dispute. Once the negotiations are concluded, if they have not been successful, the tolling agreement can be terminated and the statute of limitations will start running again. A last use for a tolling agreement is as a discovery tool in litigation . By entering into a tolling agreement with the defendant, the plaintiff can avoid having to immediately file an action even if the statute would expire during the pendency of discovery because the tolling agreement preserves the right to sue if the defendant resists discovery. Depending on the applicable statute of limitation, the parties can either toll it for a specific time period in which to conduct discovery or toll the statute indefinitely so that they can conduct discovery over a longer time frame, if possible.
In the arbitration context, a tolling agreement serves the same function in arbitration as in litigation for the statute of limitations. It has two additional purposes. The first is to preserve the judge’s ability to compel arbitration. If the action is filed in court before or while the arbitrable dispute has been submitted to the court and the court has not ruled on the arbitrability of the dispute, the court can maintain jurisdiction over the matter and the parties by tolling the statute of limitations so that the parties have time to resubmit the dispute to the court for a determination of the arbitrability issue. The second use for a tolling agreement in the arbitration context is to preserve the arbitrators’ ability to award the full range of equitable remedies if the matter is ultimately submitted to them for arbitration. Although federal law governing arbitration gives the arbitrator the ability to grant the full range of relief that an injured party could obtain in court, in some states this power is limited to the arbitrator granting a damage award. The tolling agreement preserves the power of the arbitrators to award the full range of equitable remedies.

Key Factors in a Tolling Agreement’s Duration

The Parties’ Mutual Consensus. Absent a statutorily-imposed period of tolling, of which there is none under California law, the duration of a tolling agreement is generally governed by the express or implied intent of the parties to the tolling agreement. See, e.g., Campbell, 35 Cal. App. 4th at 189; Maloney-Cushman, 174 Cal. App. 3d at 998. The parties’ mutual consent may be evidenced by the contract language itself, but also "by [the parties’] conduct both before and after execution of the contract." Barrows v. Barrows, 4 Cal. App. 5th 166, 173 (2016), pet. for review granted, Feb. 15, 2017. Importantly, tolling "must be agreed to" by the parties "[a]fter a cause of action has arisen . . . ." Id. (emphasis added).
The Statute of Limitations. While the duration of a tolling agreement is generally governed by the intent of the parties, the statute of limitations may also impose either an absolute or an upper limit on the tolling period. For example, Civ. Code § 360.5 imposes a 5-year outer limit on the tolling of an obligation, requiring the parties to seek re-assertion of the obligation upon expiration of that time. See id., cmt. app. 360.5.
The Nature of the Legal Proceeding. The nature of the claim asserted or the legal proceeding involved may also be significant in determining the duration of a tolling agreement. For example, if the party seeking to enforce a tolling agreement is a bankruptcy plan trustee, courts have concluded that the nature of bankruptcy law and the policy concerns attendant to it require enforcement of a tolling agreement until the estate is administered. See, e.g., Campbell, 35 Cal. App. 4th at 189, citing Webb v. Junkin (In re Webb), 954 F.3d 1254, 1257 (10th Cir. 1992); In re Franchise Services of North America, Inc., 891 F.3d 198, 200 (5th Cir. 2018); Williams v. Evans & Luptak, LLP, 2011-1522 (La. App. 1 Cir. 12/29/11); 2012 La. Unpub. LEXIS 6, at *9 (La. Ct. App. Jan. 13, 2012)("[A] tolling agreement entered into during the pendency of [a] bankruptcy proceeding is valid and enforceable even though filed outside the time period prescribed by [La. Const. Art. 5 § 16(B)(1)] because debtor in bankruptcy enjoys immunity from suit."); In re Rexplore, Inc., 96 F.3d 211, 213 (5th Cir. 1996) (retail installment sales contracts executed in violation of Mississippi Consumer Credit Retail Installment Sellers’ Protection Act were unenforceable under complete bar on enforcement in such circumstances, and dealer was barred by the statute of limitations from maintaining actions on the contracts); Decker v. East Bay Mun. Util. Dist., 48 Cal. App. 4th 328, 337 (1996), disapproved on other grounds in California Ass’n of Prof’l Firefighters, Inc. v. City of San Diego, 48 Cal. 4th 275, 294 (2010)("'[O]utside of the [Government Code] section 911.2 et seq. time limits for tort liability, a public entity can agree to toll the one year statute of limitations for causes of action arising from the performance of a contract.’"), quoting Saldate v. Wilkerson, 35 Cal. App. 4th 160, 164 (1995).
The Specifics of the Underlying Transaction or Claim. In some instances, the nature of the factual circumstances surrounding the transaction or claim giving rise to the disputed obligation may impact the duration of the tolling agreement. For example, where the facts regarding the amount of the contested debt were not known by the parties at the time they executed the tolling agreement, some courts have permitted a longer tolling period to extend through entry of judgment. See, e.g., Sahlie v. Federal Trade Comm’n, 313 F.2d 1004, 1008 (5th Cir. 1963); Loughran v. National Gypsum Co., 129 F.3d 1261, 1267 (9th Cir. 1997).

How Long Do Tolling Agreements Usually Last?

The duration of tolling agreements tends to vary based on the particular scenario and jurisdiction involved in the dispute. While the most common duration is 1-2 years, tolling agreements may be less than one year or, in some cases, last for even longer.
Statutes of limitations in most jurisdictions are generally longer than 2 years for claims that require more complex fact-finding (such as fraud, or breach of fiduciary duty), and tolling agreements are often entered into for a period of 2-3 years for claims falling into that category.
In other situations, tolling agreements are entered into to allow for the parties to conduct informal discovery to determine whether the claim could be resolved without litigation. Such tolling agreements typically last 4-6 months.
In complex disputes, such as patent and securities claims, tolling agreements are sometimes entered into for a period of up to 5 years. However, this is much less common in the context of business or corporate disputes.
Often, the parties will extend existing tolling agreements which can make it difficult to determine the term of a tolling agreement up front if it touches on certain key dates or events, such as a shareholder meeting or the issuance of a major ruling.

Legal Restrictions on Tolling Agreements

Section 5: Legal Limitations and Restrictions
The duration of tolling agreements may be subject to statutory limitations and legal precedents which serve to restrict their enforceability after a certain period of time. In other words, while a tolling agreement may be valid for the period of time specified by the parties, it may become invalid—or at least unenforceable—after a certain point has passed.
Perhaps the most popular statute served to restrict the enforceability of tolling agreements is Pennsylvania’s statute of limitations. In the modern era, the Pennsylvania Code specifies that a plaintiff must file suit for a variety of claims within the following periods of time:
Other than the obvious threshold concern, the statute of limitations serves as a rough "expiration date" on a tolling agreement’s enforceability. The expiration date occurs when the specific bar date applicable to the plaintiff’s causes of action arrives. At that time, the tolling agreement may no longer require a defendant to litigate that plaintiff’s claim. The clock starts ticking on any claims that are subject to a tolling agreement as of the date the agreement is made. For example, a tolling agreement signed on July 1, 2013 as it pertains to a breach of contract claim expiring on January 15, 2016 would be unenforceable on that claim as of January 16, 2016.
Aside from the stated periods of time, the Pennsylvania Code also states that the "period of limitations shall be tolled during a period in which the commencement of an action is stayed or barred by the filing of a petition in bankruptcy."
In light of the above, adding a term to a tolling agreement to suspend the statute of limitations for a specific period of time—even a generous one—would seem to be an exercise in futility. The term would not only bar the parties to the agreement from bringing suit, it would also bar any attempted suits for all claimants who fall within the applicable statute of limitations. Further, in the vast majority of circumstances, the clause would merely prevent a plaintiff from satisfying his or her own statutory threshold. Any plaintiff who missed his or her bar date while the agreement was in force could still sue over a timely cause of action as soon as their time period lapsed, but not while the agreement was intended to remain in force.
In a slightly less obvious way, tolling agreements might also be restricted by equitable considerations. Unfortunately, Pennsylvania courts have yet to clarify how equitable doctrines should be considered in the context of tolling agreements. They have rarely discussed tolling agreements anywhere near the level of succinctness and clarity set forth in their relevant statutes. Thus, attempting to apply principles of equitable estoppel and similar doctrines may prove difficult until the Supreme Court of Pennsylvania rules on a relevant case with binding authority.

Extending and Renewing Tolling Agreements

When signatories wish to renew existing tolling agreements, typically there will be a short amendment to the tolling agreement, and a new expiration date will be substituted for the old expiration date. The duration of the tolling agreement may be extended by way of an amendment to the original tolling agreement, or by substitute tolling agreement between the parties, and governed by the same terms set forth in the original tolling agreement . The amendment extends the termination date under the prior tolling agreement, or evidences the intent to extend the prior tolling agreement by way of a separate tolling agreement.
The extension and renewal of tolling agreements among the parties and the operator must be carefully considered so as not to violate the provisions of the ICA. Parties should ensure extensions do not violate the duration requirements of 49 U.S.C. § 11323 (c)(2).

Penalties Involved in Violating the Duration

Continuing a tolling agreement for a period longer than that agreed upon in the parties’ tolling agreement can have serious legal consequences. The longer the tolling period, the more disputes can arise. The bar for breaches of tolling agreements is generally set high. Nevertheless, even if a plaintiff or defendant appears and participates in the litigation process, a defendant who exceeds the amount of time under the tolling agreement can move to have the complaint dismissed.
The courts may exercise their discretion under their inherent powers to dismiss a case for a seatbelt violation breach of a tolling agreement. Under CPLR § 3126(a)(1), a court can impose sanctions for a party’s failure to comply with an order or direction. Because tolling agreements are imposed as court orders in New York, a party may move to have the case dismissed pursuant to its inherent power, if the time period under the tolling agreement has expired. See Oppenheimerfunds Inc. v. Deutsche Bank Sec., Inc., 13 N.Y.3d 80, 883 N.E.2d 805, 886 N.Y.S.2d 215 (2009).
An example of a case where the court exercised its authority to make a dismissal based on the expiration of a tolling agreement is In re Madoff Sec. (Picard v. Katz), 462 B.R. 417 (S.D.N.Y. 2011). In that case, the bankruptcy trustee’s claim was barred by the Florida statute of limitations, which was applied to predicate pretentions fraudulent conveyance claims. Thus the Florida statute of limitations was used as a defense against the trustee’s lawsuit.
Under Florida law, a party cannot be liable for fraud if their claim is not made within two years after the claim must have been discovered. Because the plaintiff executed a tolling agreement extending the statute of limitation, the plaintiff was not barred from bringing his suit. However, the agreement expired on March 14, 2007, and the complaint was filed on December 8, 2009. The transfer of the assets alleged in the complaint began in 2001, and the statutory period ended in 2005. Therefore, the court found that the complaint exceeded the time of the agreement, and the complaint was barred by the Florida statute of limitation.
Thus courts may dismiss suits even if the parties are involved in discovery, or have actively participated in litigation. The courts will not look favorably upon a party who breaches the duration of a tolling agreement.

Real-Life Examples

Tolling agreements are often used in complex commercial litigation to extend the statute of limitations and suspend the running of time, and to promote early and efficient resolution of the dispute. Depending on the circumstances, tolling agreements can last anywhere from weeks to several years, depending on the duration of the agreement negotiated by the parties. This is often a principal point of contention as parties seek the most finality possible, and one side generally seeks to keep the dispute alive and the possibilities open. In the end, therefore, the duration of the tolling agreement might be the only certainty in an otherwise uncertain negotiation process. Several examples are set forth below.
In E&J Gallo Winery v. Andina Licores S.A.C., the following tolling was agreed to in connection with a pending false advertising action in federal court: [a]ll Parties shall toll (cease the running of) the Statutes of Limitation in connection with the causes of action in Plaintiffs’ Complaint and Defendants’ Counterclaims and Defense … until the Court decides E&J’s anticipated motion for leave to move for reconsideration of the claim construction order, or until thirty (30) days after the entry of final judgment on E&J’s claim construction motion filed in this Action . The Court’s decision must be published, and E&J is entitled to a total of three extensions of time to file their motion and serve their expert reports, each no longer than forty five (45) days, to enable E&J’s counsel to coordinate with counsel in other similar cases and to allow E&J to potentially either accept and pay a fine or judgment in order to have Plaintiffs’ core trademark claims resolved through the private settlement mechanism referenced in the Counterclaims, but not yet available to E&J."
In Pyro Mining Co., et al. v. Bee Kola Mining & Explosives Corp., and Shabir Noorani, the parties entered into the following: The statute of limitations for any and all claims arising out of or related to the subject matter of the above-captioned litigation shall be tolled through January 24, 2008.
In OptimisCorp. et al. v. Waite, et al., -F.3d-, 2010 WL 3257989, at *1 (2nd Cir. 2010), the Second Circuit affirmed that "plaintiffs’ claims were time-barred, the appeals court also ruled that surrogate mother’s claims against the alleged biofather in her adoption proceeding did not relate back to the original adoption proceeding."