Toll-Free Legal Strategy: The Benefits of a Tolling Agreement
Filing a lawsuit may not always be the answer when a business or individual has been harmed by another’s wrongful conduct. It is important to evaluate all options and consider strategies that will avoid litigation altogether or, at a minimum, allow additional time to file a lawsuit. In California, tolling agreements can provide you the time to explore other ways to resolve the dispute before filing a lawsuit.
What is a tolling agreement?
A tolling agreement is a written contract that suspends the statute(s) of limitation. A statute of limitation is the maximum time for a plaintiff to file legal action on a given claim for relief, such as a cause of action for breach of contract or tortious conduct causing harm.
Both (or all) parties must sign the tolling agreement to acknowledge acceptance and confirmation that applicable statute(s) of limitation are, as it sounds, tolled; or put another way, paused for a period of time. With the limitations period suspended, the parties can negotiate and settle the dispute without the pressure of running against the clock.
Plaintiffs use this legal tool to buy extra time to resolve a dispute without going to court. Tolling agreements also benefit prospective defendants, who can engage in informal resolution opportunities and try to settle before a lawsuit is commenced and a complaint filed.
The benefits can be tremendous: the plaintiff is not pressured to promptly sue another due to limited timing to bring an action; the prospective defendant avoids being named in a lawsuit, a public filing that anyone could find; and both (or all) parties divert substantial legal fees and costs that often come with protracted litigation.
A tolling agreement never hurt anyone.
1. Aids Settlement Discussions: Generally, neither side wants to spend excessive time and money in court. Stopping the proverbial clock encourages both sides to compromise and find some middle ground since the threat of litigation, alone, is often enough to put pressure on both sides of the aisle.
2. Plaintiff Has Negotiating Power: The threat of litigation is a powerful bargaining chip often overlooked.
A plaintiff can and should use the threat of protracted litigation and future fees and costs before the dichotomy shifts and the parties find themselves in the protracted litigation. The plaintiff can also use this time to request or propose the exchange of documents, information, and answers informally rather than in formal discovery. This is cost-effective and assists both sides in evaluating strengths or weaknesses of claims and defenses prior to entering a courtroom.
3. Reduces Litigation Costs: Plaintiffs are often hesitant to pursue their legal rights due to economic costs, and defendants are not only worried about legal expenses but also the possibility of paying damages to the plaintiff. Tolling agreements increase settlement chances, reducing the anxiety stemming from the cost associated with litigation.
4. Provides More Time to Think: With added time and without threat of a looming filing deadline, both parties can carefully evaluate their positions. They are afforded more breathing room to think calmly and reasonably about meaningful settlement options. Also, Plaintiffs gain extra time to assess the strength of their case and defendants can explore informal resolution while building a defense strategy.
5. Jump starts the litigation, if necessary: Tolling agreements do not guarantee a settlement. If the plaintiff ultimately files a lawsuit, both sides can use previous negotiations and informal discovery for their litigation strategies while reducing some fees and costs.
Final Thoughts
For those considering filing a lawsuit, you may first want to consider requesting a tolling agreement with the other side to buy yourself (and the other side) more time to evaluate your case and settlement possibilities. And for those receiving demand letters and the like, you should certainly consider proposing a tolling agreement to secure sufficient time for meaningful settlement discussions.
Both sides will be better off by settling prelitigation, or by having a better understanding of the opposing party’s view of the dispute when entering litigation. A tolling agreement also reduces, and possibly eliminates, some of the costly and lengthy expenses of a lawsuit.
Jessica W. Rosen is a business litigation attorney accomplished in alternative dispute resolution.