Chancery Decision Seeks to Further Clarify Operation of Del. Borrowing Statute
Delaware's borrowing statute provides that a suit to enforce a cause of action that arises outside of Delaware cannot be brought in a Delaware court after the expiration of the applicable Delaware statute of limitations or the statute of limitations of the state or country where the cause of action arose, whichever is shorter.
July 01, 2020 at 02:55 PM
8 minute read
Delaware's borrowing statute provides that a suit to enforce a cause of action that arises outside of Delaware cannot be brought in a Delaware court after the expiration of the applicable Delaware statute of limitations or the statute of limitations of the state or country where the cause of action arose, whichever is shorter. 10 Del. C. Section 8121. The rationale is to prevent plaintiffs from bringing suit in Delaware on a claim that would otherwise be stale in the jurisdiction where the claim arose.
In Saudi Basic Industries v. Mobil Yanbu Petrochemical, 866 A.2d 1 (Del. 2005), the Supreme Court held that there were certain situations in which the borrowing statute did not apply, notwithstanding the literal language that would seem to make it applicable. The Saudi Basic case has led to some confusion regarding when the borrowing statute will not be applied according to its terms. In 2015, we noted a decision by Vice Chancellor Donald Parsons, in which he wrote, "the Saudi Basic decision appears to have engendered some uncertainty as to when the borrowing statute applies." TrustCo v. Mathews, (Del. Ch. Jan. 22, 2015). See Klayman & Felger, "Court Adopts Narrow View of Exception to Borrowing Statute," Delaware Business Court Insider (Mar. 10, 2015). As illustrated by a recent decision from Vice Chancellor Kathleen McCormick, "the dueling reasonable interpretations of Saudi Basic" still beg for greater clarity, whether in the form of legislative action or binding judicial authority.
In Saudi Basic, a Saudi corporation sought a declaratory judgment in Delaware that certain payments to it by a joint venture partnership were valid and did not violate their contract; the corporation's partners counterclaimed to recover the payments, which they alleged were improper. The cause of action arose in Saudi Arabia, which had no applicable statute of limitations, but the applicable limitations period under Delaware law had run. If the borrowing statute were strictly applied, the counterclaims would have been barred. Instead, the Supreme court affirmed the Superior Court's determination that the counterclaims were not barred by the borrowing statute. The court stated that applying the borrowing statute literally to require the use of Delaware's shorter limitations period would "subvert the statute's fundamental purpose by enabling [the Saudi corporation] to prevail on a limitations defense that would never have been available to it had the overcharge claims been brought in the jurisdiction where the cause of action arose, i.e., Saudi Arabia." The court explained that the borrowing statute was designed to address a specific kind of forum-shopping (which the court termed the "standard scenario") where a plaintiff brings a claim in a Delaware court that arises under the law of another jurisdiction, and is barred by that jurisdiction's statute of limitations, but would not be time-barred in Delaware because it has a longer statute of limitations. The borrowing statute operates to prevent a plaintiff from circumventing the shorter limitations period mandated by the jurisdiction where the cause of action arose, which was not this case.
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