In Hawk Mountain LLC v. RAM Capital Group LLC, the First Department held that, under New York General Obligations Law (“G.O.L.”) § 17-101, an acknowledgment of a debt tolled the limitations period for an action to recover a debt owed on a promissory note, even though the acknowledgment did not specifically mention the note at issue or the precise amount due on the note. This decision clarifies that “there is no requirement that an acknowledgement of a debt pursuant to [G.O.L.] § 17–101 leave no room for doubt as to the nature and quantum of the debt to be acknowledged.”
Hawk Mountain LLC (“Plaintiff”) brought an action in Supreme Court, New York County, against RAM Capital Group LLC (“Defendant”) to recover a debt owed on a promissory note. Plaintiff alleged that, on April 1, 2005, Defendant borrowed $100,000 from Plaintiff by way of a promissory note. Plaintiff further alleged that this note provided for an additional $6 million line of credit and that, between April 13, 2005 and February 20, 2007, Defendant drew on the line of credit in the amount of $5,344,000 without Plaintiff’s knowledge and consent. On December 18, 2013, Plaintiff allegedly demanded repayment of the entire principle of the note and accrued interest, but Defendant has allegedly not repaid the balance owed on the note.
Defendant’s owner and operator, Raymond Mirra, and Plaintiff’s sole manager, Gigi Jordan, are ex-spouses and former business partners. On March 12, 2008, Mirra and Jordan entered into a Separation Distribution Agreement (“SDA”) to sever their business interests and finances. The SDA did not specifically refer to the note at issue, but it provided that Defendant “agrees to make full payment and satisfaction of all the outstanding indebtedness plus accrued interest which [Defendant] owes to [Plaintiff].” The SDA also included, in a schedule annexed to the SDA, loans of $7,078,772 and $1,034,252 made by Plaintiff to Defendant—amounts that differed from what Plaintiff alleged had been loaned on the note.
Dispute over the Application of G.O.L. § 17-101
Defendant moved to dismiss Plaintiff’s claim on multiple grounds, including that the claim was time-barred because it was not filed until September 30, 2016. According to Defendant, the statute of limitations ran on February 20, 2013, six years after Defendant last drew on the line of credit.
In response, Plaintiff did not dispute that, but for state and federal tolling provisions, the claim would be untimely. Plaintiff contended, however, that the action was timely through the combined functioning of such provisions. Plaintiff claimed first that, under G.O.L. § 17-101, the claim did not accrue until March 12, 2008, the date Mirra and Jordan entered into the SDA, meaning that the six-year limitations period did not run until March 12, 2014. Under G.O.L. § 17-101, the statute of limitations period begins to run anew upon a written acknowledgment of a defaulted contract if the acknowledgment is “signed by the party to be charged thereby.” Second, Plaintiff claimed that, under 28 U.S.C. § 1367(d), the claim had been tolled through September 30, 2016 because Plaintiff had filed the claim before March 12, 2014 in a prior federal lawsuit in which the claim was dismissed without prejudice.
The Commercial Division granted Defendant’s motion to dismiss because, among other reasons, the court found that, even if G.O.L. § 17-101 applied as Plaintiff contended, 28 U.S.C. § 1367(d) did not toll the claim.
Plaintiff then appealed, reasserting that the claims were timely under G.O.L. § 17-101 and 28 U.S.C. § 1367(d). In response, Defendant conceded that the Commercial Division had erred in applying 28 U.S.C. § 1367(d); thus, the only limitations issue on appeal was whether G.O.L. § 17-101 applied.
Defendant argued before the Appellate Division that G.O.L. § 17-101 was inapplicable for two reasons: first, the SDA was only signed by Mirra “in his individual capacity” and not by Defendant, the borrower on the note; and second, the SDA did not convey an intention to pay the debt at issue in a manner that “leaves no room for doubt.” Defendant argued that the SDA left room for doubt because it did not specifically refer to the note, and the amount of debt listed in the annexed schedule did not match the amount claimed by Plaintiff.
The First Department’s Opinion
The First Department reversed the Commercial Division, holding that Plaintiff had “raised an issue of fact as to whether [the SDA] . . . acknowledged the debt and [D]efendant’s obligation to pay it within the meaning of [G.O.L.] § 17-101.”
Rejecting Defendant’s first argument, the court held that Mirra’s signature was sufficient to bind Defendant for the purposes of G.O.L. § 17-101 because he was Defendant’s agent.
Rejecting Defendant’s second argument, the court held that “there is no requirement that an acknowledgement of a debt pursuant to General Obligations Law § 17–101 leave no room for doubt as to the nature and quantum of the debt to be acknowledged.” “Instead,” the court explained, “an acknowledgement of a debt need only recognize an existing debt and . . . contain nothing inconsistent with an intention on the part of the debtor to pay it.”
And, the court reasoned, the SDA met this standard for the following reasons:
The SDA provides, in pertinent part, that [Defendant] “agrees to make full payment and satisfaction [of] all of the outstanding indebtedness plus accrued interest” that it owes [Plaintiff], and one of the schedules annexed to the SDA includes the amount owed by [Defendant] to [Plaintiff] on a note, as well as accrued interest on that amount. Although the SDA does not specify that the scheduled note is the note at issue in this action and the amounts listed in the schedule annexed to the SDA differ from those asserted in the complaint, plaintiffs allege that the scheduled note identified in the SDA refers to the note at issue here. On this motion to dismiss, we must accept the factual allegations in the complaint as true, accord plaintiffs the benefit of every favorable inference, and accept as true plaintiffs' submissions in opposition to the motion. . . .
. . . . [Moreover,] the SDA . . . was not inconsistent with defendant’s intent to pay [the debt.]
This decision clarifies that an acknowledgment of a debt may toll the statute of limitations under G.O.L. § 17-101 even if it contains some ambiguities.
It bears emphasizing, though, that this decision was issued at the pleadings stage, where the court was required to accept Plaintiff’s allegations as true. It remains to be seen whether Plaintiff’s tolling argument will ultimately succeed on the merits.