New York’s Borrowing Statute May Be Used As An Affirmative Defense To Legal Malpractice

November 8, 2016 | Professional Liability

The New York Supreme Court, New York County (Justice Ostrager), recently issued a decision, Centre Lane Partners, LLC et al. v. Skadden, Arps, Slate, Meagher & Flom LLP et al., addressing New York’s borrowing statute in the context of legal malpractice claims.

New York’s borrowing statute, CPLR 202, provides that:

an action based upon a cause of action accruing without the state cannot be commended after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.

In Centre Lane, Plaintiffs Centre Lane Partners, LLC, 10th Lane Finance Co., LLC, ZM Private Equity Fund I, LP and ZM Private Equity Fund II, LP, New York-based entities, sued Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) and its New York-based corporate restructuring partner, Jay M. Goffman (“Goffman”), for legal malpractice and disgorgement derivatively on behalf of the bankruptcy estates of Oregon-based Evergreen International Aviation, Inc. (“Evergreen”) and certain of its wholly owned subsidiaries, which had been former clients of Skadden and Goffman.

Plaintiffs alleged that Goffman and other attorneys in Skadden’s New York office concurrently represented Evergreen’s subsidiaries whose interests conflicted in several deals involving transfers of ownership interests in airplanes and helicopters, totaling approximately $35 million.  The transfers which posed the alleged conflicts of interest occurred in Oregon in April and May of 2013.

In its motion to dismiss the complaint pursuant to CPLR 3211(a)(1), (a)(3), (a)(5) and (a)(7), Skadden argued that, among other things, plaintiffs’ claims were time-barred because Oregon’s two-year statute of limitations for legal malpractice claims applied, rather than New York’s longer three-year statute.  Since the complaint was filed in March 2016 (after the time to file had expired in April and May 2015), Skadden argued that plaintiffs were too late.  The Court, relying on First Department authority, agreed reasoning that since the relevant Evergreen transactions accrued in Oregon and plaintiffs are not New York residents, CPLR 202 applies and Oregon’s two-year limitations period, which was not tolled, barred plaintiffs’ claims.

It was irrelevant that plaintiffs Lane Partners, LLC et al. were New York entities because they sued derivatively on behalf of Oregon entities, which were the operative entities and principal places of business.  It was also irrelevant that defendants Skadden and Goffman were New York-based persons because CPLR 202 is triggered whenever a plaintiff is a non-New York resident.

The Court explained that where a claim accrues outside of New York and plaintiffs are non-residents, the Court will “borrow” the statute of limitations of the jurisdiction where the claim arose if that jurisdiction’s limitations period is shorter than that of New York.  The Court emphasized that CPLR 202 is designed to prevent forum shopping by non-resident plaintiffs who sue in New York seeking to take advantage of a longer statute of limitations than is available to them elsewhere.

New York-based attorneys and their insurers faced with legal malpractice claims from non-resident clients should be mindful of New York’s borrowing statute which may provide for a shorter limitations period (and therefore support a motion to dismiss the complaint) if the relevant transaction and/or alleged negligent legal advice accrued in another state.  New York’s borrowing statute is triggered whenever a plaintiff is a non-resident, and it should be considered along with CPLR 214, New York’s three-year statute of limitations period, as an affirmative defense.  Further, if a New York resident sues derivatively on behalf of a former non-resident client, the client’s residence is the operative residence for purposes of triggering CPLR 202.

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