Insurers filed suit against ABB Power in New York Supreme Court to compel arbitration and to obtain a declaratory judgment as to the timeliness of their claims. ABB Power removed to the United States District Court for the Southern District of New York. In finding New York's six-year statute of limitations for contract actions applicable rather than the New York borrowing statute, N.Y. C.P.L.R. 202, which would apply the California statute of limitations, the court held that the contract claims were not time barred. ABB Power appealed. The Second Circuit certified the question of whether the New York borrowing statute was applicable to the present case.
An action based upon a cause of action accruing without the state cannot be commenced 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.N.Y. C.P.L.R. 202
The purpose of the statute has long been settled by the courts. As the Court of Appeals states, "the primary purpose of [N.Y. C.P.L.R.] 202 . . . is to prevent forum shopping by a nonresident seeking to take advantage of a more favorable statute of limitations in New York." Antone v. General Motors Corp., 64 N.Y.2d 20, 27-28 (N.Y. 1984) (citing National Sur' Co. v. Ruffin, 242 N.Y. 413, 417 (N.Y. 1926). Despite the clarity of purpose, New York courts have disagreed as to when the statute applies.
The New York Court of Appeals held that a cause of action accrues within the meaning of the statute when a lawsuit thereon may be brought. See, e.g., Martin v. Julius Dierck Equip. Co., 43 N.Y.2d 583, 591 (1978). Until the present decision however, the state's highest court has provided little guidance regarding where the cause of action is deemed to have accrued for purposes of determining the applicable limitation period. Particularly troubling has been the requirement that the statute only applies to "cause[s] of action accruing without the state."
In Martin, the Appellate Division used a "grouping of contacts" approach to ascertain where a cause of action accrued. Id. This approach dictates that a cause of action accrues within the jurisdiction which, considering the nature of the plaintiff's action, has the primary interest in the matters in dispute. Id. at 588. In affirming the Appellate Division, the Court of Appeals in Martin appeared to approve, or at least did not disagree with, the lower court's use of the "grouping of contacts" approach. At the same time, the Court of Appeals regarded the place of injury as dispositive of where plaintiff's contract and tort actions accrued. Id. at 591 (stating that "[p]laintiff possessed no cause of action, in tort or in contract, anywhere in the world until he was injured in Virginia").
Federal courts sitting in diversity jurisdiction have not uniformly construed New York's borrowing statute. Some have held that the place where an action accrues, for purposes of the statute is the "place of injury." See, e.g., Bache Halsey Stuart, Inc. v. Namm, 446 F. Supp.642, 696 (S.D.N.Y. 1978). Others take a "grouping of contacts" approach, in placing accrual in the jurisdiction with the most significant interest in the action. See, e.g., National Resources Corp. v. Royal Resources Corp., 427 F. Supp. 880 (S.D.N.Y. 1977). The Second Circuit found the New York borrowing statute to apply only to statute of limitations in states where the suit "could have been brought." Stafford v. International Harvester Co., 668 F.2d 142, 151 (2nd Cir. 1981). This holding was based on the idea that where another jurisdiction was not available for the suit, there was no danger of forum shopping, and no need to apply the borrowing statute. The District Court in Insurance Company of North America extended the reasoning in Stafford to arbitration agreements with choice of law clauses. Insurance Co. of N. Am. v. ABB Power Generation Inc., 112 F.3d 70, 73 (2d Cir. 1997). The court reasoned that because any enforcement proceedings must take place in New York, the parties could not have arbitrarily litigated in the foreign forum absent a waiver of the arbitration and choice of law agreement. Id. As the borrowing statute is not necessary to prevent forum shopping in such cases, the court held the borrowing statute inapplicable. Id.
The Court further emphasized that the accompanying factual analysis inherent in the out-of-state forum requirement urged by Stafford and the District Court in Insurance Company of North America would be difficult and subject defendants to potentially disparate treatment. The additional requirement would frustrate the remaining purposes of the statute, namely to add clarity to the law and provide certainty of uniform application. See Ling Ling Yung v. County of Nassau, 77 N.Y.2d 568, 571 (1991).
The Court concluded that N.Y. C.P.L.R. 202 requires New York courts to apply the limitation period of the jurisdiction where the cause of action originated if it bars the claim. The applicability of the statute is not affected by the defendant's amenability to suit in the foreign jurisdiction nor by the parties' choice of New York venue.
Following Insurance Company of North America, forum selection clauses by nonresident parties stipulating New York as lex arbitri and selecting New York law will include N.Y. C.P.L.R. 202, the New York borrowing statute. Moreover, New York courts may apply foreign statutes of limitations, even though it may not be possible to maintain suit in the foreign jurisdiction. In effect, a party may invoke the foreign jurisdiction's shorter limitation period, even if the foreign jurisdiction could not have maintained personal jurisdiction over the parties. Nonresident parties agreeing to the application of New York law will not be able to escape the shorter limitation periods if the cause of action accrues in the state with the shorter limitation.
What role, if any, the Insurer's acquisition of the nonresident corporation's claim plays in the case is also unclear. Somewhat ironically, the Court refused to apply precedent which would have ultimately benefitted a New York resident, Fidelity and Casualty Insurance Company of New York. How does this refusal to factor the Insurer's interest into the Court's analysis affect the status of resident companies who acquire claims from nonresidents?
Courts suggest various policy rationales for their interpretation and application of particular statutes. See, e.g., Wing v. Wiltsee, 223 P. 334 (Nev. 1924) (finding that the borrowing statute avoids court congestion by discouraging nonresidents from litigating issues that might have been litigated elsewhere); Pack v. Beech Aircraft Corp., 50 Del. 413 (1957) (finding that borrowing statutes discourage forum shopping). See generally SIMSON, supra, at 352 (citing John W. Ester, Borrowing Statutes of Limitation and Conflict of Laws, 15 U. FLA. L. REV. 33, 40 (1962)).
Several courts have considered whether a borrowing statute applies to foreign defendant corporations where the plaintiff is also a foreign resident. In Illinois for example, the borrowing statute applies only if neither party is a resident and the foreign statute of limitations is shorter than that of Illinois. See, e.g., LeBlanc v. G.D. Searle & Co., 533 N.E.2d 41 (Ill. 1988). In LeBlanc, a drug manufactured in Puerto Rico by defendant, a Delaware corporation with its principal place of business in Illinois, injured a Louisiana resident in Louisiana. Id. Finding that a corporation's residence is the place of incorporation, the court held the Illinois borrowing statute inapplicable as the plaintiff was a resident of Louisiana and defendant was a resident of Delaware. Id.