The Basics of Tolling Agreements in Credit Card Lawsuits

What is a Tolling Agreement?

A tolling agreement is a written document signed by both parties which suspends the running of the statute of limitations. A statute of limitations is a list of time frames established by each state, and attorneys in a particular state must be sued within a specific number of years. If the statute of limitations expires, the claim must be filed before the statute of limitations expires or it can be barred, meaning that the client will lose their right to sue the defendant in the future. "Tolling" means to suspend, or discontinue temporarily the running of a tolling agreement does just that. The statute of limitations for a claim is generally determined by the type of lawsuit the claim contains .
In basic terms, a tolling agreement says to the defendant, "I won’t file my lawsuit until the agreed date in the future." If the defendant breaches the contract of agreement, the plaintiff can then re-file the lawsuit immediately even though the statute of limitations has been expired. The agreement does not prevent the defendant from filing the lawsuit at any point, however, a party who is protected under a tolling agreement can use this as a shield against any counterclaims filed by the then-defendant who is now the plaintiff. This "protection" in most cases, will allow a party to protect themself from the large costs of litigation.

Tolling Agreements and Credit Card Lawsuits

Tolling agreements are important when tried unsuccessfully or when disputed for many reasons. This is especially true in the credit card world. Tolling agreements can be useful in a variety of ways, most significantly by extending prescriptive deadlines.
When debt collectors sue credit card customers, they often file claims past the statute of limitations. Tolling agreements can protect consumers from their statute of limitations problems. Thus, tolling agreements, when properly negotiated, can be beneficial both to consumers and credit card companies who wish to suspend the running of the statutory time limits.
Tolling agreements hold the statute of limitations (legal claim periods) in place at their respective periods. With regard to the credit card account applicable to the credit card law suit, if it is six years old, say, the parties can agree in a tolling agreement to simply keep disputing the suit, as a potential negotiation tool, until the statute passes without the credit card company bringing the suit again.
Tolling agreements reduce the litigation timeline and allow the parties to focus on the merits of the underlying dispute rather than on procedural barriers and deadlines. Parties need not wait for a statute of limitation to run before bringing a legal action.
Tolling agreements are particularly useful for creditors in negotiating settlements with consumers. Creditors have strict and short prescriptive deadlines to collect under credit card debts (three years in Louisiana). With regard to the credit card accounts at issue, creditors can toll the statute of limitations in order to negotiate the best possible settlement terms with the debtor, without worrying about a time bar potentially eliminating a legitimate claim.
A tolling agreement cannot extend a prescriptive period beyond what the period would have been had the prescription not been interrupted, i.e. by filing suit or by service upon the defendant of a written waiver of citation.
For example, if a creditor has filed a lawsuit within the applicable prescriptive period, that prescriptive period is interrupted and any amendment that relates back to the original petition shall not suspend or interrupt the preliminary and additional periods of prescription. La. Civ. Code art 3462. Therefore, if a creditor files suit on May 9, 2014, the creditor’s subsequent amendments shall not suspend or interrupt the prescriptive period; this is true regardless of the length of time granted during settlement negotiations.
If a creditor has served a waiver of citation upon a defendant, a subsequent waiver shall not suspend or interrupt the preliminary and additional periods of prescription La. Civ. Code art 3462. Plaintiff’s subsequent petition and amending petition suspends any running of prescription if the new claim or theory was asserted in an extant pleading or an amendment to the extant pleading, and relates to the same transaction or occurrence as the original petition. La. Civ. Code art. 3462.
A creditor cannot file a law suit prior to the expiration of the credit card’s prescriptive period and then seek settlement prior to the expiration of the prescriptive period with the creditor with regard to the prescriptive period. The creditor must deal with the statute of limitations prior to filing suit. The creditor must either deal with the prescriptive period by amending its petition or by re-filing suit, i.e. suspending and interrupting the prescriptive period and then tolling the prescriptive period altogether. This type of tolling of credit card prescriptive periods are common.

Implications of Tolling Agreements in Credit Card Lawsuits

As noted earlier, a key function of the tolling agreement is that it tolls the statute of limitations. A statute of limitations is a pre-prescribed legal time frame within which a party must act in order to preserve their right to a legal remedy for a potential wrongful act / omission of the other party. If they do not act within the statutory time period, then their cause of action is lost, unless there are facts that prevent the running of the statute of limitations as a matter of law (e.g., minority, insanity etc). Thus by executing a tolling agreement, the parties effectively extend the time frame within which a legal action can be taken.
In credit card related cases, a lender or debt collector often takes the position that an account holder only has limited time frame to assert claims based on alleged violations of applicable law. The lender or debt collector argues that once the time frame has run out, then the claim is barred, even if those allegations are being made against a third party entity. In my experience, the lenders / debt collectors vigorously fight to have this time frame cut off and they do so without the benefit of actual case law that stands for the proposition that a claim becomes stale once the statute of limitations has run out as against one party, but may not be stale as against another party. Ultimately, lenders/collectors take the position that even if the time frame has run out as against the originating entity, it is automatically running as against third parties too, and thus no claims may be litigated.
That being said, the courts have not fully adopted this argument, and tend to look at it as an issue of fact in some situations. A good example of this very issue can be found in a recent Illinois case cited in a previous article. Essentially, the Court in that case refused to dismiss a claim based on the statute of limitations because the evidence against the credit card company clearly showed that they had no idea whether they were acting properly at the time of litigation, and thus they could not reasonably state that the statute of limitations had run out. Again, this demonstrates why having an attorney on your side makes this entire process more manageable.

Negotiation of a Tolling Agreement

When entering into a tolling agreement with a credit card processor, a merchant should pay close attention to the following terms that, at a minimum, every tolling agreement should contain:

• The period that is being tolled, for example, all disputes and claims relating to the relationship between a merchant and the credit card company "from January 1, 2002 and continuing through the present."
• What laws will govern the tolling agreement? Typically in the context of merchant agreements with credit card companies, the laws of the state of the credit card company’s principal place of business will govern.
• The definitions of the parties to the tolling agreement, which may or may not be the same as the principal contract. For example, if the principal contract is with a different entity than the one to which the tolling agreement is being agreed to, typically the definition of the party will include the "successors and assigns" of the company listed on the principal contract. In other words, if the tolling agreement were with MasterCard, and the principal contract was with First National Bank, the tolling agreement would define "First National Bank" as "First National Bank, its affiliates, subsidiaries, successors and assigns."
• The parties to the agreement, which may or may not be the same as the principal contract . For example, if the principal contract is with a different entity than the one to which the tolling agreement is being agreed to, typically the definition of the party will include the "successors and assigns" of the company listed on the principal contract.
• The Period for which the tolling agreement will last. Sometimes tolling agreements will toll the statute of limitations until the completion of mediation or arbitration, whereas other times tolling agreements will toll the statute of limitations for a fixed period of time. This is especially true where the parties are agreeing to toll the statute of limitations pending efforts to resolve disputes at the informal level.
• A clause relating to the application of the fee-shifting provisions of the principal contract agreement, if any. Fee-shifting provisions are found in almost all merchant agreements in one form or another. Sometimes they will allow for the prevailing party in a dispute to recover attorney’s fees and/or expenses incurred in successfully pursuing a legal claim against the other party to the agreement. Fee-shifting clauses can also apply to assertions of set-offs or other barred claims. When negotiating a tolling agreement, make sure you have an opportunity to review and assess how its terms will apply to your potential dispute with the credit card company.

Tolling Agreement Legal Considerations

Care must be exercised when entering into tolling agreements to insure that the applicable statute of limitations is in fact tolled according to the intent of the parties. New Jersey law provides in pertinent part that the "period of time during which an action is pending…without any voluntary discontinuance…is excluded in determining any statute of limitations." N.J.S.A. 2A:14-22. However, if the agreement intended to cover only the statute of limitations and not the statute of repose, it may not have done so. Tolling statutes of repose are generally much shorter in length than statutes of limitations—such as medical malpractice actions which must be brought within two years of the act, error, or omission. See R. 4:19-5. Treatises on the subject have described the difference thusly: The principal rationale for statutes of limitation and repose are different. Statutes of limitation advance two policies by recognizing the importance of finality in both litigation, as well as the need to assure that defendants have confidence in the finality of their judgments. Statutes of repose, in contrast, have as their basis the more fundamental theory that a plaintiff cannot open a new chapter in his or her life until the uncertain threat of suit for an alleged injury, which occurred long ago, is terminated. Burgess v. McCarthy, 172 N.J. 311, 317 (2002) (emphasis added; citations omitted). Accordingly, a tolling agreement that purports to simply toll the statute of limitations may not simultaneously toll the statute of repose. For example, suppose a tolling agreement is entered into providing that the signatories would not assert any claims against one another stemming from a particular construction project until 20 days after certain notice requirements of the tolling agreement were satisfied. In such a case, while the parties might avoid losing a lawsuit by tolling the litigation until the trigger for the notice requirement, they have not tolled the running of the repose period, which runs from the completion of the project.
Therefore, care must also be taken in drafting the notice provisions for tolling. For instance, notice should never be given in such a way as to technically trigger the running of the repose period. Likewise, notice should be drafted in such a manner as to prevent the notice itself from being misconstrued as an affirmative proceeding; for if the notice itself constitutes an affirmative action, the statute of limitations may still be tolled until the notice is sent regardless of the substantive document that follows it. Care must also be taken in the drafting of the language of a tolling provision itself. For instance, the words "until the earlier of" or the phrase "during an action pending" may have unintended consequences if not clear and precise. For instance, the former phrase might be construed to mean that a statute of repose might accrue from the date of the sending of the notice until the action is no longer pending—i.e. it may be misread as meaning that the repose period is tolled by sending a notice but begins running again until the action itself is adjudicated. Likewise, the phrase "during an action pending" might be construed to mean that if litigation is filed prior to the date upon which the notice is received by all interested parties, the statute of repose then begins to run again upon the dismissal of the case. Therefore, the language should be carefully crafted to prevent such misunderstandings.

Examples of Tolling Agreement

To illustrate how tolling agreements have been utilized in credit card disputes, consider this scenario: In September of 2019, Client ABC Corporation finds that for the past month, its corporate credit card has been maxed out with a series of suspicious charges. After accounting for recurring charges, ABC cannot identify the remaining charges, and believes it may have fallen prey to identity theft. ABC has 13 outstanding credit card transactions that need to be paid in order to avoid cancellation of the account. Client ABC sends a letter to the card issuer’s billing-inquiry department requesting detailed information on each of the following 13 charges: While awaiting response from the card issuer to the September 2019 letter, Client ABC receives notice from the credit card company that it is proceeding to collect on its outstanding balance, and that its account will be sent for collection unless ABC pays its outstanding balance consisting of these 13 charges. At that point, ABC promptly decides to file suit against the issuer to dispute the charge, and files suit in February 2020. In order to avoid cancellation of its credit card account, Client ABC also requests that the card issuer continue to pay the 13 disputed charges while the suit is pending, provided that those charges are paid in accordance with the tolling agreement signed by management personnel at both organizations. Client ABC’s customer-service representative advises that the 13 charges will be paid through the tolling agreement within 60 days. Meanwhile , ABC arranges for a brief, but protective, mediation phone call to resolve the dispute with each of the 13 merchants. After the mediation calls, Client ABC receives a successful mediation agreement for 10 of the 13 merchants. Under the mediation agreement, merchants agree to collect against ABC’s account after Client ABC is able to verify its identity with respect to each charge, and agrees to restrict the payment to $700 (the maximum monthly payment amount provided for under the cardholder’s agreement with the issuer for disputed charges). Client ABC successfully collects under its mediation agreements for each of the 10 merchants. Over time, three of the merchants confess their payments were fraudulent and agree to waive payments if ABC provides a verification of its identity, such as a copy of the police report. In settlement of its pending lawsuit, Client ABC also obtains an award against the issuer representing the consumer-advantage value of all of the disputed charges, which went to satisfy the 3 merchants who had previously confessed their charges were fraudulent. While signing a tolling agreement can be committed to writing in the context of a single litigation or transactional proceeding, it can be useful in multi-jurisdiction transactional practice over a decade or more under commercial agreements.