Come to a Full Stop

When parties enter into tolling agreements, the conventional wisdom is that the potential litigation has come to a complete standstill. It is presumed that this agreement results in prejudice to neither side, as the plaintiff gains the benefit of not having to file its claim prematurely or risk losing it, and the defendant puts off an imminent claim against it, which avoids litigation and the costs associated with it in the near term. However, what most defendants fail to consider is that under New York law, while the claim against a defendant may be tolled, in the ordinary course prejudgment interest on that claim continues to run unabated. Left to accrue for extended periods, prejudgment interest, often statutorily set at substantially above-market interest rates, can have a dramatic impact on the value of a case and alter the dynamic of resolving the dispute.

This does not have to be the case. As discussed below, under New York law, parties should structure their tolling agreements to include a clause tolling the accrual of prejudgment interest for the period that the agreement is in effect so as to create a true standstill.