New York’s “Borrowing Statute” and How it May Shorten Your Statute of Limitations
Everyone knows that the statute of limitations for breach of contract under New York law is six years.[i] Six years provides ample opportunity to sue for breach of contract. Lulled into a false sense of security, commercial litigants often fail to assess a potential statute of limitations defense.
In today’s world, interstate litigation between a party located in New York and a party located elsewhere in the United States is all too common, especially when litigants invoke the federal courts’ diversity jurisdiction. In the context of interstate litigation, New York’s “Borrowing Statute,” CPLR § 202, may significantly shorten the statute of limitations.
As the name “Borrowing Statute” suggests, CPLR § 202 literally borrows a shorter limitations period from another jurisdiction under the right circumstances. CPLR § 202 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.
When the legal jargon is translated to English, CPLR § 202 dictates that New York will adopt another jurisdiction’s statute of limitations if: (1) the claim accrues outside of New York; (2) the claim accrues in favor of a nonresident; and (3) the statute of limitations of the state in which the claim accrues is shorter than New York’s statute of limitations.[ii]
New York courts have consistently held that a claim accrues in favor of a nonresident if the plaintiff’s principal place of business is located in another state.[iii] Tort and contract claims accrue in the jurisdiction where the plaintiff “sustains the economic impact of the loss,” even where the contract at issue was negotiated, executed, substantially performed, and breached in New York.[iv] “[I]n cases involving economic harm, [the] place [of harm] is normally the state of plaintiff’s residence.”[v]
Critically, the fact that a contract contains a New York choice of law provision cannot prevent New York from importing a foreign jurisdiction’s statute of limitations because New York law includes application of the Borrowing Statute.[vi] For this reason, litigants should always assess whether CPLR § 202 renders § 213 inapplicable, especially in federal actions based on diversity jurisdiction, which necessarily require litigants to be based in different states.
Practically speaking, the Borrowing Statute means that the shorter breach of contract limitations period applicable in Delaware (three years),[vii] Texas (four years),[viii] California (four years),[ix] Pennsylvania (four years),[x] Florida (five years),[xi] and certain other states with large business sectors may be adopted by a New York court, significantly shrinking the time in which a claim for breach of contract remains actionable.
The borrowing statute can yield some surprising results. Consider the following hypothetical: A consulting firm incorporated and headquartered in Delaware contracts to perform consulting services for a business in New York in 2016. In 2017, the New York business defaults and fails to pay the Delaware consulting firm. In 2021, four years after the breach, the Delaware consulting firm starts a lawsuit for breach of contract in New York because New York has a six year statute of limitations. Unfortunately for the consulting firm, Delaware has a shorter, three year statute of limitations.[xii] The Delaware consulting firm is not a New York resident and it suffered the economic loss at its Delaware headquarters. These facts trigger application of the Borrowing Statute. The Delaware consulting firm will be shocked when the New York business successfully moves to dismiss the suit as time barred because the Borrowing Statute imports Delaware’s three year statute of limitations for breach of contract.[xiii]
Of course, nothing is ever as simple as it seems. If the Borrowing Statute imports a foreign jurisdiction’s statute of limitations, then it also imports the foreign jurisdiction’s rules on tolling.[xiv] Therefore, litigants must wrestle with the Borrowing Statute, the statute of limitations, and the tolling doctrines of foreign jurisdictions. Sophisticated clients engaged in interstate commerce that want to avoid complicated statute of limitations issues should plan ahead by incorporating a privately agreed upon limitations period in their contracts.
[i] CPLR § 213.
[ii] Román y Gordillo, S.C., at *40; Muto v. CBS Corp., 668 F.3d 53, 57 (2d Cir. 2013); Tucker v. Janney Montgomery Scott, 1997 U.S. Dist. LEXIS 3856, at *3 (S.D.N.Y. Mar. 31, 1997, 96 Civ. 1823 (LLS)).
[iii] Deutsche Bank Natl. Trust Co. v. Barclays Bank PLC, 34 N.Y.3d 327, 335-337, 117 N.Y.S.3d 137 (2019); Pricaspian Dev. Corp. v. Royal Dutch Shell, PLC, 382 Fed. App’x. 100, at *102 (2d Cir. 2010).
[iv] Deutsche Bank Ntl. Trust Co., 34 N.Y.3d 327, 336-37 (2019); Global Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525, 529-30, 693 N.Y.S.2d 479 (1999)
[v] Deutsche Zentral-Genossenchaftsbank AG v. HSBC N. Am. Holdings, Inc., 2013 U.S. Dist. LEXIS 178462, at *14 (S.D.N.Y. Dec. 17, 2013); Portfolio Recovery Association, LLC v. King, 14 N.Y.3d 410, 416 (2010).
[vi] 2138747 Ontario, Inc. v. Samsung C&T Corp., 31 N.Y.3d 372, 380-381, 78 N.Y.S.3d 703 (2018); Jakobovitz v. PHL Variable Ins. Co., 2018 U.S. Dist. LEXIS 83946, 2018 WL 2291311, at *5 (E.D.N.Y. May 18, 2018)
[ix] Cal. Civ. Proc. Code § 337.
[x] 42 Pa. Cons. Stat. Ann. § 5525.