Weekly Law Resume - October 18, 2012: Tolling Agreements vs. Statute of Limitations Waivers

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Don Johnson Productions, Inc. v. Rysher Entertainment
California Court of Appeal, Second Appellate District

Code of Civil Procedure Section 360.5 allows parties to waive the statute of limitations if the parties follow certain procedures. This case considered whether a written tolling agreement between the parties was subject to the same requirements.

On December 7, 1994, plaintiff Don Johnson Productions, Inc. (“Johnson”) entered into a contract with Rysher Entertainment, LLC (“Rysher”) to provide acting services for the “Nash Bridges” television series. In return, Rysher agreed to fund production. The contract was extended in 1997, 1998 and 1999. Rysher was operated by 2929 Entertainment, LP which later sold Rysher to Qualia Capital, LLC in 2006, which eventually dissolved Rysher (collectively “defendants”).

Prior to the airing of the final 2001 season of “Nash Bridges,” Rysher sold worldwide syndication rights for the series to USA Network. Johnson was not a party to the syndication transaction and did not receive a share in the syndication profits. A dispute ensued between Rysher and Johnson regarding his 50% ownership share in the syndication profits. On May 16, 2002, the parties executed a tolling agreement, providing that Johnson’s time to bring any action related to the Nash Bridges series would be tolled to at least May 14, 2002 until and unless Rysher provided reasonable notice (30 days) to Johnson rescinding the tolling agreement. Neither party attempted to rescind the tolling agreement prior to litigation.

Approximately five years later on February 19, 2007, Johnson filed a complaint related to the syndication profits dispute against Rysher, alleging breach of contract, conversion, unjust enrichment, and interference with prospective economic advantage. The complaint sought compensatory damages, injunctive relief, attorney’s fees, punitive damages and interest. The parties agreed that Johnson’s contract claim vested on March 17, 1998 when the accountant employed by Rysher provided Johnson’s employee with a “participation/distribution statement” for the period ending December 31, 1997 detailing income for the series.

Defendants alleged that Johnson’s 2007 lawsuit was untimely because it was filed more than four years after the parties’ 2002 tolling agreement expired by operation of law. Defendants contended that California Code of Civil Procedure § 360.5 (“Section 360.5”) required that the 2002 tolling agreement be renewed in writing every four years (i.e., 2006). Section 360.5 allows parties to waive the applicable statute of limitations governing a dispute if the waiver is set forth in writing and signed by the person obligated. A Section 360.5 waiver is effective for no more than four years unless successively renewed by parties. Defendants argued that the May 16, 2002 tolling agreement was executed by Pryor more than four years before Johnson’s 2007 lawsuit such that the tolling agreement expired in 2006. Defendants contended that absent timely renewal of the tolling agreement pursuant to Section 360.5, Johnson’s claims were barred under California Code of Civil Procedure §337, setting forth a four-year statute of limitations for written contracts.

The Court of Appeal rejected defendants’ argument that Section 360.5 and its four-year renewal requirement was controlling as to the 2002 tolling agreement between Johnson and Rysher. The court held that the 2002 tolling agreement did not involve a waiver of the right to assert the statute of limitations. Rather, the parties’ 2002 tolling agreement “suspended” the running of the statute of limitations under California law. The court referenced case law noting that “tolling may be analogized to a clock that is stopped and then restarted.” The court pointed out that the legislative intent of Section 360.5 specifically refers to waivers of the statute of limitations, not tolling agreements. After examining the language and legislative history of Section 360.5, the court concluded that the Section 360.5 four-year renewal requirement did not apply to the 2002 tolling agreement. There was no requirement that the tolling agreement be renewed after four years. Rather, the May 16, 2002 tolling agreement tolled the Section 337 statute of limitations. No party rescinded the tolling agreement. Therefore, Johnson’s February 17, 2009 complaint was timely filed.

COMMENT

The court confirmed that tolling agreements will be treated differently from waivers of the statute of limitations. Tolling agreements simply suspend the applicable statute of limitations until an agreed-upon time. Unlike a waiver, a tolling agreement is not subject to Section 360.5 requirements of renewal every four years, but it is very important when fashioning tolling agreements to clearly state when the statute of limitations will be suspended, the length of the tolling period and/or the type of notice required to re-start the running of the statute of limitations.

For a copy of the complete decision see:

http://www.courtinfo.ca.gov/opinions/documents/B225885.PDF