What is a Tolling Agreement?
A tolling agreement is a written document entered into by all parties involved in a dispute or matter that would otherwise ordinarily have a relevant statute of limitation run out on it, and that would potentially serve to resolve the relevant matter before the limitations period on same expires. In California, Civil Code Section 360.5, provides for the ability to do the same without an actual agreement.
In effect, a tolling agreement serves to extend or toll the statute of limitations or a timeline in order to afford the parties an opportunity to continue to litigate the matter and preserve their respective rights to later pursue a legal claim or action if necessary .
A tolling agreement is thus a very valuable tool in the litigation process, as it serves to simply document a prospective agreement between all parties with respect to the running of the statute of limitations period – which is no small feat. Such agreement may serve to: buy time; allow the parties to engage in additional informal discussions of settlement while preserving their rights to pursue legal remedies whenever necessary; afford each party the ability to conclude the matter promptly if such further discussions bear no fruit; provide for simultaneous or successive tolling in the event of additional identified disputes; and allow for the resolution of ancillary claims, including attorneys’ fees and costs.
Elements of a Tolling Agreement Template
When parties enter into a tolling agreement, there are several important components that must be included to satisfy the relevant regulatory requirements. There are numerous templates available for use as a guide in drafting an agreement. However, regardless of the template used, there are common elements that need to be adequately addressed. This section highlights some of the key components that are typically included in a tolling agreement template.
Parties
All parties to the agreement must be clearly identified. Stakeholders for each party to the agreement, both organizationally and at the divisional or business unit level, need to be clearly defined. Each party needs to confirm and accept their obligations as outlined in the agreement, including defining who will have primary responsibility for the management of any clinical development activities. Contracted services and roles and responsibilities must be specifically outlined, as appropriate.
Time Element
The agreement must clearly delineate the term of the tolling agreement and when the door to door time period begins and ends. Though many factors may be considered in the time frame for delivery of drug product, a contractual time element should be included, covering both manufacturing and delivery of product to allow adequate time to cover the full distribution lifecycle.
Product Definitions
The product definition section of the tolling agreement template provides an overview of the scope of the agreement. It should include drug product identification and definitions for related intermediates or raw materials that will be jointly developed by the parties. The agreement should clearly define whether the scope includes the API only; or the API and packaging; or the API and packaging and labeling. Once the scope of the agreement is defined, the applicable US Food Drug and Cosmetic Act (FDCA) regulation under which the drug products are regulated and manufactured needs to be identified.
Regulatory Considerations
It is important that the tolling agreement complies with all applicable state and federal laws and regulations. In addition, FDA is to be notified of any modifications that may significantly affect the agreement.
Advantages of a Tolling Agreement
For both parties, the biggest benefit of a tolling agreement is time. Often, litigation is rather time-consuming before it is terminated, as parties and their counsel start to aggressively present their cases via discovery, dispositive motions, and other pre-trial efforts. By borrowing time, parties can pick back up where they left off (in litigation) immediately.
Other benefits include consideration of proposed settlement options, a less combative atmosphere, voluntary assistance from experts and investigators, and control of the narrative as discovery continues. The most important reason, however, is that litigation, when properly done, costs money to pursue.
It would be silly to squander money on a case that parties know is going to settle no matter what. Litigation costs can reach well into the hundreds of thousands of dollars. A tolling agreement allows the parties to go through the motions of reaching a settlement without wasting time or money.
Consider, for instance, if Plaintiff was ready and willing to settle quickly but Defendant wanted to drag out the process in hopes of gaining leverage elsewhere. A potential tolling agreement here would benefit both parties. For Plaintiff, he could settle expeditiously, while for Defendant he can save money while in forbearance. If Defendant was the one hoping for a quick and final resolution (dispositive motion, settlement, etc.), the tolling agreement would benefit him as well. For both parties, it means money saved.
None of this even gets into a third-party mechanism for resolving the dispute. Non-binding mediation can be expensive. In those instances where both parties are unwilling to make the necessary concessions to achieve a settlement, that tolling agreement may serve as a stick in forcing the other side to consider non-monetary solutions.
When to Use a Tolling Agreement Template
One of the most common situations we see where it makes sense to enter into a Tolling Agreement involves the investigation of alleged patent infringement. Many times, when an entity suspects another entity of infringing one or more of its patents, it (or its patent litigator) will contact the suspected infringer in an effort to reach out and resolve the matter amicably. The suspected infringer, in the meantime, will look at its patent portfolio and may find something that may be infringing the inquiring party’s product or services, and so both parties exchange information about the technologies, and the possible infringement. After talking back and forth, the parties may decide to enter into a Tolling Agreement with each other wherein both sides agree that they will defer filing suit for some period of time while they continue the discussion, probably in order to see if they can work out a deal. But, on the other hand, they may do so simply because they each want to explore the possibility of additional infringement on their part by the other, and/or they just want to "toll" the statute of limitations so they don’t lose the ability to file suit later.
At least one court has held that where two parties are talking back and forth about the alleged infringement (and possible additional infringement), but have not reached any agreement previously, if the parties enter into a Tolling Agreement, they have not waived any rights, even where the Agreement was not entered into to settle an existing dispute, and that even if the parties may have reached an agreement in principle, that agreement was tentative. Gaming Enters., Inc. v. CYBERsiter Entertainment, 2006 U.S. Dist LEXIS 94708, at *7 (S.D. Fl. Dec. 15, 2006).
How to Modify a Tolling Agreement Template
A tolling agreement template concentrates on what is thought to be relatively known to the parties subject to the tolling agreement. To understand the process of modifying such a general approach, it may help to think of the process similar to that of writing agreements for a new venture. The venture, while understood by the parties, may require additional insight on modifying the typical language (particular to other ventures) to meet the specific expectations of the parties.
Tolling agreement templates develop many different starting points. When modifying a typical tolling agreement, the parties must always ascertain all relevant facts before making the modification . A few specific factors warrant attention: (1) understanding the duration of tolling of the statute of limitations; (2) the scope of the tolling arrangement; (3) what conduct is reasonably contemplated in the tolling agreement; and (4) the parties to the tolling agreement. When defining the requirements of the tolling agreement, the parties are essentially defining a contract. In this sense, when a party is combining specific requirements to meet its particular needs, it should do so with competent legal counsel. Good legal counsel will be able to assist parties in drafting a tolling agreement that satisfies the needs of both parties.
Tolling Agreement Terms and Other Legal Issues
When it comes to the application of the statute of limitations, there are many legal risks and potential pitfalls that should be evaluated when entering into or drafting a tolling agreement and its effect on related malice actions and coverage issues.
Statutes of Limitations
As noted above, tolling agreements establish a period of temporary cessation of ongoing litigation to allow additional time for evaluation of certain facts and issues. Under common law, certain limitations can apply to have the statute of limitations remain suspended for a specified period of time while the parties consider settlement or other similar options. While courts may refer to the period of time that the statute is tolled as "equitable tolling" in many instances, different language may be used depending upon the jurisdiction and what is laid out in the tolling agreement itself. Because the language can vary considerably, it is important that you carefully read the entire tolling agreement. You should pay particular attention to whether the agreement extends the statute of limitations with respect to some or all parties or claims and whether it extends the statute indefinitely or only for a specific period of time. If your organization has a choice of language for a tolling agreement, you can decide whether to extend the statute of limitations as to particular claims or parties. In addition, you should be aware that a tolling agreement needs to be finalized before expiration of the statute in order to preserve the applicable rights. If the parties intend to settle the matter in a short period of time, you should coordinate the settlement with appropriate language that makes the equity tolling explicit.
Malpractice Actions
In the event that the potential losses covered by the policy are more than the limits available, the requirement that the statute of limitations be tolled as to "all defendants" becomes critically important. For example, if one or more years of exposure needs to be tolled to include the statute for a significant loss period at the beginning of the claim period for which there is an emerging consensus among the potential insured parties involved in the matter, the tolling agreement language should be written to cover "all defendants." Careful attention should be paid to the definition of "all defendants" and whether the coverage might be expanded to add policies or companies not currently involved in the lawsuit. In some jurisdictions, language that tolls the statute as to "all parties" may be interpreted to toll the statute with respect to a malpractice action against an insured, even though there is no allegation of active participation in the matter as to the malpractice action.
Coverage Issues
Tolling agreements may have a significant impact upon the existence of insurance coverage for the specialty professional insurer. Many tolling agreements do not discuss whether the tolling agreement tolls the applicability of the claim for a particular claim year, either for policies that are still in place or policies that were not yet in existence. Careful attention should be paid to whether the tolling agreement changes when the coverage is in effect. If the tolling agreement clearly states the time period during which the claims arose, the parties should be on notice that it may not be covered in future policies after the tolling agreement has been finalized. In some cases, it may be necessary to make a prospective reservation of rights due to the date of the loss being in the future.
A recent decision highlighted the potentially ambiguous nature of tolling agreements. In Fieldturf International, Inc. v. South Carolina Ins. Co., 859 A.2d 567 (N.J. App. 2004), the insured entered into a tolling agreement with multiple other parties after the policy expired, but before the inception of subsequent policies regarding the same losses that would be covered under those policies. The court held that the tolling agreement created a "separate transaction" between the insured and potentially liable third-parties because the tolling agreement did not protect the insured from other insurance coverage.
Mistakes to Avoid with Tolling Agreements
When assessing a valid tolling claim, one must first consider the applicability of the PTAB rules and whether or not tolling is an option. There are a number of common errors that patent owners make when tolling is the question and each of these can lead to lengthy legal disputes, which the tolling period was meant to avoid.
The most straightforward error comes in the timing of the request for tolling. Parties must be careful to understand what the PTAB rules say on the issue, and be sure to seek a tolling agreement before seeking an extension of time such as an additional day beyond the scheduled filing date. If an extension is requested through a separate joint stipulation page or another method, then it may not apply to the currently pending trial dates. Similarly, the specific date of the tolling agreement must be carefully considered before submitting, to ensure that the PTAB rules are still being adhered to.
Another common error is simply not having the agreement signed by all necessary parties. Because tolling agreements can affect a wide range of issues, including settlement agreements, they must be signed by any party who may be affected by the tolling. Of course, there are often situations in which a party may not need to sign the agreement, if there is limited effect in the case. However, it is always better to get the signature before proceeding with any legal action.
Parties may try to use the tolling agreement to sneak in an unfair advantage over the other party by attempting to receive unlimited extensions during the tolling period. This is not actually permitted by the rules and must be avoided.
Flouting the rules on stipulations can also lead to lengthy legal maneuvers. The trial scheduling orders explicitly prohibit stipulations that are not in keeping with the PTAB rules and each party is obligated to be aware of the full effect of their actions.
Tolling Agreement Template Example
It’s typical for a tolling agreement template to have the following sections and clauses.
- Purpose of the Tolling Agreement. A recitation of what the tolling agreement is designed to achieve.
- The Parties. The parties to the tolling agreement.
- Definitions. Terms that are defined in the tolling agreement. Also the recitation of terms in the definitions.
- Background/Factual Recitation. A recitation of the facts related to the dispute between the parties.
- Tolling. 1 An argument should be made on both sides – doesn’t help either!
- Waiver of Coverage. This clause typically states that the tolling agreement doesn’t toll any of the statute of limitations periods for any coverage or defense issue, such as the number of occurrences .
- Claims Handling. Typically states that the parties each reserve their rights as to coverage. If there is an issue as to who will handle the claims, that will be set out as well.
- Reservation of Rights. If a tolling agreement is entered into after the claims have been made, then there might be a reservation of rights clause either in the recitals or as a separate clause. It usually state all coverage defenses are reserved.
Endnotes
1 A time limit. A break in the continuity of a toll road during which the toll cannot be collected, as in a legislative tolling of a statute of limitations, suspension of normally running interest, or remedial tolling of a criminal statute. Bouvier Law Dictionary.