Tolling agreements for counterclaims (inclusive of cross-claims and third-party claims) can be a useful tool to avoid taking an openly adverse position against a co-defendant during the pendency of a product liability case. A tolling agreement is typically an extrajudicial agreement entered into between the parties that tolls the statute of limitations for counterclaims for a specific period of time. Tolling agreements are contractual in nature, and as such, must be crafted for each individual case.
Co-defendants should consider tolling agreements when they want additional time to consider filing counterclaims against one another. Under some states' laws, counterclaims must be filed while a case is pending, requiring the defendants to decide whether to pursue counterclaims prior to trial. In some cases, this decision might be forced on a defendant before it is clear whether the plaintiff has a strong liability case. If counterclaims are filed, defendants may focus too much on shifting liability to one another and inadvertently help the plaintiff establish liability or increase the value of the case by developing facts overlooked by the plaintiff.
Client consent is required, of course, and implicates business considerations as well as litigation strategy. For example, clients who do business with a co-defendant may agree to enter into a tolling agreement because they do not want to litigate against a business partner, yet want to preserve their rights. Conversely, some parties may never want to counterclaim against someone with whom they are in business. Further, some clients who do not appear to share much, if any, liability for a particular case may want to actively prosecute a counterclaim against the target defendant. In addition, if your client has insurance, you should also work with the insurance carrier to ensure that the agreement does not negatively impact your client's coverage or conflict with any of the obligations imposed by the insurance policy.
If the parties agree to enter into a tolling agreement, the most important provisions in the agreement will govern its scope, including types of claims you might consider filing against the co-defendant. In product liability cases, you might have a contribution claim against co-defendants to ensure that your client does not pay more than its pro rata share of liability assessed in jurisdictions that have joint and several liability. You may also have an implied indemnity claim against a manufacturer if you are a distributor or downstream seller, or you may have a claim for contractual indemnity if your client has a contract with defense and indemnity provisions in it. Warranty claims may also exist. Clear language will help avoid litigation over the scope of the agreement down the road. See e.g., Camico Mut. Ins. Co. v. Citizens Bank, 474 F.3d 989 (7th Cir. 2007).
Depending on the needs of the parties, most defendants include the following clauses tolling agreements:
- No admission of liability by co-defendants;
- The effective date of the agreement, particularly when executed in close proximity to the running of a statute of limitation;
- Types of claims to which the agreement applies;
- Specific time period in which the agreement will toll the limitations period;
- Effect of dismissal of any defendant on the tolling agreement; and
- Time in which the parties should meet and confer prior to the expiration of the agreement to address whether to extend the agreement.
Although tolling agreements are useful tools, they do have potential drawbacks. First, consider whether the court entered a scheduling order with a deadline for counterclaims and that deadline's potential conflict with your tolling agreement. Further, if your client has a contractual or implied indemnity claim and the co-defendant has not agreed to indemnify your client, your client may want clarity on the issue of indemnity prior to trial.
Additionally, if you agree to toll counterclaims until after trial on the underlying the plaintiff's case, it could result in inefficiencies and more protracted litigation. Make sure your client understands this prior to agreeing to the tolling agreement. This particular issue may be dealt with by 1) allowing counterclaims to be filed during the tolling period if a party chooses or 2) ending the tolling period in advance of trial and with sufficient time to allow the filing of counterclaims, if necessary.
Practice Points
1. Consider scope and duration of tolling agreements.
2. Business considerations among co-defendants may impact decisions on tolling agreements.
3. Ensure that tolling agreements do not conflict with scheduling orders in a way that prejudices your client.
Keywords: product liability, litigation, tolling agreement, statute of limitations, cross-claims, counterclaims, third-party claims