6 F. Supp. 3d 372
S.D.N.Y.2014Background
- Peekskill contracted with All Phase for electrical work on a new middle school; All Phase obtained a performance bond from Colonial Surety guaranteeing completion if All Phase defaulted.
- The bond contained a contractual limitations clause requiring any proceeding under the bond to be instituted within two years after the contractor ceased working, contractor default, or surety refusal — whichever occurred first.
- All Phase stopped work and filed for bankruptcy on June 6, 2008; parties agree the two-year limitations period began that date.
- Colonial filed a declaratory judgment action against Peekskill in federal court on October 3, 2008; Peekskill moved to dismiss on December 19, 2008 and sought an extension to answer pending that motion.
- Before the court decided Peekskill’s motion, Colonial voluntarily dismissed its declaratory action on January 5, 2011; Peekskill never filed an answer or counterclaims in that action.
- Peekskill commenced this breach-of-contract suit on January 18, 2011 (more than two years after June 6, 2008). Colonial moved for summary judgment seeking dismissal as time-barred under the bond.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Peekskill’s claims were tolled while its Rule 12 motion to dismiss was pending | Rule 12(a)(4) delayed answer deadline and Rule 13(a) permitted asserting counterclaims later, so statute tolled | Rule 12 does not toll state statutes of limitations in diversity cases; tolling of counterclaims depends on state law and a counterclaim must be interposed to be saved | Not tolled; New York law requires the counterclaim to be interposed to save limitations, and Peekskill never served an answer/counterclaim |
| Whether the district court’s endorsement extending time to answer operated as a tolling agreement | The court’s December 8, 2008 endorsement extended time to answer and thus tolled limitations | The endorsement only extended the federal pleading deadline, not the state limitations period; it did not toll unasserted counterclaims | Not tolled; the order did not affect the bond’s limitations provision |
| Whether equitable estoppel prevents Colonial from asserting the bond’s limitations defense | Colonial consented to the extension and misled Peekskill into believing it need not answer or assert counterclaims, so estoppel should apply | No false representation or concealment; Peekskill sought dismissal and cannot claim it was prevented from timely suing | No estoppel; Peekskill offered no evidence Colonial’s conduct prevented timely suit |
| Whether Colonial’s voluntary dismissal under Rule 41(a)(1)(A)(i) improperly defeated tolling and should bar Colonial from asserting the limitations defense | Colonial shouldn’t be allowed to ‘sandbag’ by voluntarily dismissing and thereby avoid a counterclaim relation-back; federal dismissal practice differs from state | Peekskill never raised the counterclaim in the prior action; any procedural defect in Colonial’s dismissal does not retroactively toll the limitations period | No relief; even assuming dismissal should have required court approval, Peekskill is not entitled to tolling or revival of its time-barred claims |
Key Cases Cited
- Giordano v. Market Am., Inc., 599 F.3d 87 (2d Cir. 2010) (apply state substantive law and statutes of limitations in diversity cases)
- Brown v. Henderson, 257 F.3d 246 (2d Cir. 2001) (summary judgment standard)
- Timberline Elec. Supply Corp. v. Ins. Co. of N. Am., 72 A.D.2d 905 (N.Y. App. Div. 1979) (shortened contractual limitation periods enforceable absent adhesion or unreasonably short period)
- Gazza v. United California Bank Int’l, 88 A.D.2d 968 (N.Y. App. Div. 1982) (failure to interpose counterclaim in initial action defeats later relation-back/tolling argument)
- In re Vebeliunas, 332 F.3d 85 (2d Cir. 2003) (elements of equitable estoppel under New York law)
- Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777 (N.Y. 2012) (equitable estoppel requires showing specific actions kept plaintiff from timely suing)