For Whom the Claim Tolls - 5 Reasons to Consider a Tolling Agreement Before Filing a Lawsuit
Thursday, September 22, 2011 at 2:42PM
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by Stephan Mihalovits

Whenever a business or individual has been wronged by another and has suffered harm as a result, civil litigation may serve as one of several options.  But filing a lawsuit should be the result of a thoughtful, deliberative strategy. 

Before filing suit or initiating arbitration, you should consider a simple legal tool called a tolling agreement, which can help resolve disputes and avoid litigation entirely. 

Part of the pressure in filing a lawsuit is being sure to file before the applicable statute of limitations runs.  A tolling agreement is a written agreement, signed by both sides to a potential lawsuit, that suspends the statute of limitations for an agreed amount of time. 

In exchange for the plaintiff agreeing to delay filing a lawsuit until after the tolling agreement expires, the defendant agrees to waive the right to use this buffer period in calculating the claim’s expiration, per the limitations period.  With the limitations period suspended, the parties can have the time they need to negotiate and settle the dispute.  

Temporarily suspending the statute of limitations seems simple, but it can provide a number of advantages for potential plaintiffs and defendants to consider. 

If you are about to file a lawsuit, or you think you are about to be sued, you should consider proposing a tolling agreement.

Here are 5 good reasons why:

1.         Encourages Settling the Dispute. 

A tolling agreement establishes a deadline for the parties to negotiate before a plaintiff must file suit to enforce legal rights.  Typically, neither side wants to spend energy and money proving their case in court.  Thus, a tolling agreement pushes the parties towards compromising their positions and settling.  This implicit threat of litigation, should negotiations fail, puts pressure on both sides to settle the dispute.           

2.         Increases Plaintiff’s Leverage. 

Threat of eventual litigation is the elephant in the room that makes a tolling agreement effective.  An astute potential plaintiff can use this elephant as an advantage, since a potential defendant may well bend over backwards to avoid being sued. 

The plaintiff can capitalize on defendant’s anxiety by asking the defendant to cooperate in other ways.  For example, as part of the tolling agreement, plaintiff could request the defendant produce documents and/or answer questions about the dispute. 

By contrast, in a lawsuit, this “discovery phase” can be expensive, frustrating, and lengthy.  Thus, a tolling agreement can offer a way for a potential plaintiff to both save money and get more information from the defendant than he would otherwise be willing to offer.  

3.         Avoids Litigation Costs. 

Often, anticipated economic costs of civil litigation will cause a potential plaintiff to avoid acting on her rights.  Defendants are also attentive to potential litigation costs, since defendants may eventually be responsible for paying damages to plaintiff, separate from defendant’s attorney fees. 

This mutual anxiety helps push parties together and formally settle the matter.  With settlement more likely due to the tolling agreement, the parties receive the benefits of litigation (threat of potential money judgment against defendant), without actually initiating litigation and incurring costs. 

4.         Allows for More Time To Think. 

The tolling agreement must state for how long the parties wish to suspend the statute of limitations. 

Separate from other potential benefits, this buffer period provides both sides with more time to think calmly about how best to resolve the dispute.  A plaintiff has more time to consider the claim’s strengths and weaknesses.  A defendant has more time to negotiate resolution or build a defense. 

5.         Provides a Head Start on Litigation, if Necessary. 

The possibility remains that parties won’t be able to work it out, and a plaintiff may choose to file suit.  If so, the time spent in negotiations can provide a valuable, less expensive head start. 

Because of the tolling agreement, the plaintiff’s attorney should have a firm grasp on any statute of limitation issues.  Information gathered informally in negotiations need not be the subject of costly discovery requests. 

A defendant may also benefit from the process, by becoming better informed about the plaintiff’s claims and positions.  Thus, tolling agreements can help inform the parties about litigation and avoid some costs. 

So if you think you might soon be party to a lawsuit, consider buying some time with a tolling agreement. You’ll receive some of the benefits of a litigation strategy without all the costs.

 

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Article originally appeared on Los Angeles Attorneys (http://www.lewitthackman.com/).
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