In this case, the plaintiff sued to recover damages against her alarm company following a burglary.  At one point during the contract period, Firstline was acquired by ADT, a large home security alarm company. The Court’s decision which dismissed the claims against the defendants is significant for two (2) reasons:

1. The Court held that “courts applying New York law will enforce a shortened statute of limitations when it is reasonable and agreed to by contract.” (The Court also noted that reducing the claim period to one year is not unreasonable as a matter of law.) See, e.g., Cab Associates v. City of New York, 32 A.D.3d 229, 323, 820 N.Y.S.2d 21 (N.Y. 2006); and,
2. As a general rule, a party may not invoke the provisions of a contract to which it is not an original party. There are limited exceptions to this rule, however,  which include the following theories: (1) assumption;  (2) piercing the corporate veil or alter ego; (3)  incorporation by reference; (4) third-party beneficiary theories; or, (5) waiver [or] estoppel. Arthur Andersen LLP v. Carlisle, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009).

Here, the Court held that “assumption” was applicable.  Since the original Alarm Services Contract with Firstline Security Inc. specified that any lawsuit be brought within one year of the event that causing loss, damage or liability, ADT was also entitled to the benefit of that contractual provision, rendering plaintiff’s claim untimely.

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But there are a few important exceptions to this rule, such as where the plaintiff is an infant, or under a disability. Another important exception to this rule is the continuous representation doctrine, which states, in essence, that the time on the statute of limitations does not start to  run so long as there is “a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim” (McCoy v Feinman, 99 NY2d 295, 306; see Zorn v Gilbert, 8 NY3d 933, 934).

In a recent case, New York’s Appellate Division, Second Department held that a Forbes 500 company’s accounting malpractice claims against the firm that had been hired to perform their audits would be allowed to continue even though some of the audits had been performed more than 3 years before the malpractice claims were brought (and therefore appeared to be time-barred). The reason?

Because “[w]hen undertaking the [plaintiff's] audits for the fiscal years 1998 through 2001, [the defendant audit firm] contemplated that its work and representation on each audit year would continue beyond the issuance of the audit opinion” and that “[t]his contemplation is evidenced by [the defendant's] opinions on prior years’ financial statements, income statements and cash flow contained in each audit opinion.” In other words, since the defendant audit firm was still representing the plaintiff company with respect to those prior audits, the statute of limitations did not begin to run.

Clearly, the plaintiff in this case acted wisely by assuring that their underlying agreement with the audit firm reflected the defendant’s ongoing obligation to correct prior audits, and thereby saved their claim from a rapid defeat.

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