Plaintiffs now have eight years instead of 15 to file breach of written contract suits. Most companies should save money and cut their exposure.
It was the year of Titanic and Beanie Babies. Princess Diana died in a car crash and China took control of Hong Kong from Great Britain. The year was 1997, and up until last year, parties to written contracts who felt they were wronged could reach back that far to sue Ohio businesses.
However, a new law that took effect in September shortened the statute of limitations for breach of written contract from 15 to eight years. For the most part, attorneys on both sides of the aisle applaud the change.
"It's high time," says Tony Seegers, labor and human resources policy director for the Ohio Chamber of Commerce. "That law has been on the books since Ohio became a state in 1803. The world has changed a lot since then-communications, technology, transportation-but the law had not."
"The reduction moves Ohio more into the mainstream, because we found that 40 states have a statute of limitations of six years or less," says attorney Mark Johnson, a partner at Baker Hostetler. He and colleague Rodger Eckelberry co-authored a 2011 article in the Columbus Bar Lawyers Quarterly advocating for the reduction that launched the legislative push.
Some plaintiffs' attorneys question the consistency of lawmakers as well as the legal and business communities. "The stated reason for the change was to get Ohio in line with other states, but Ohio is one of only four states to have a one-year medical malpractice statute of limitations. Ohio also is one of a few states to have a two-year product liability statute of limitations," says Andy Goldwasser, chair of the business torts section of the Ohio Association of Justice, an organization of plaintiffs' attorneys. He's also principal of the Cleveland law firm Ciano & Goldwasser.
"I agree with the logic, but not the application. The logic should be applied evenly across the board. No one is talking about lengthening those statutes of limitations to bring them in line with other states," Goldwasser says.
Proponents of the change say businesses will see immediate document retention savings and reduced insurance liability. Some go so far as to say the revision will increase Ohio's competitiveness. Here's a look at what the new statute of limitations means, and some advice on how companies can capitalize on the changes.
The eight-year limit applies only to written contracts; breach of verbal contract has a six-year statute of limitations in Ohio, Seegers says. The updated law covers the spectrum of consumer relationships. "Individuals or businesses, the change affects every written contract in Ohio," says attorney William Mattes, a partner at Dinsmore & Shohl.
When a dispute occurs, parties who feel they've been wronged generally file sooner rather than later. "If breach of contract is claimed near the end of the 15-year statute of limitations, how bad could it have been?" asks Eckelberry, a partner at Baker Hostetler.
"When someone feels they've been wronged, they usually hire an attorney rather quickly. But the law still lets them file their breach of contract claim eight years later if they want to," Mattes says.
New court rulings also may lead to later-than-normal filings. "Based on any new interpretation of a longstanding law, plaintiffs' attorneys can look back at the issue in that new light," Eckelberry says.
The later a claim is brought, the harder it is to defend. "Memories fade. The business may not be able to locate employees and others with knowledge of the events surrounding the contract. If you do locate them, they may have forgotten the details. People with relevant information may have passed away, too," says attorney Scott Campbell, a partner at Thompson Hine and vice chair of the firm's Columbus business litigation practice group.
The new law may be particularly effective in limiting the size of consumer class action lawsuits. "Its impact is greater for class actions, because you're aggregating claims," Eckelberry says. "Our clients that weren't from Ohio were exasperated that Ohio's [former] lengthy claims period cost them more."
"A long statute of limitations can increase the size of the class action and affect the exposure. Going back 15 years instead of eight gave plaintiffs' attorneys more time to gather members for the class," Johnson says. He cites an example of a lawsuit where 6,667 class members are added annually over a 15-year statute of limitations, yielding a class of 100,000; if each member claims $100 in damages, the total claim is $10 million. Under an eight-year statute of limitations, membership in the lawsuit drops to 53,000, cutting alleged damages to $5.3 million.
While those numbers sound good on paper, it's too early yet to quantify the potential impact of the statute of limitations reduction. "The full benefit won't be realized until 2020," says Campbell. Sept. 28, 2020 will mark eight years from the date the new law was passed.
The more immediate effect lies with the exposure analysis that attorneys regularly assess with their clients. "There'll be a dramatic difference under new law, since clients won't have to wait 15 years to know if they're being sued," Johnson says.
Additionally, insurers are taking note. "Reducing the statute of limitations lessens a company's potential for breach of contract lawsuits for all of their written contracts. That reduces their liability," Mattes says. "Insurance companies look for long-term exposure like this, so a shorter period of time to look back will impact their rates."
Even though the likelihood of being sued diminishes over time, business owners still have to allow for such risks. "The business community was most interested in making this change," says Campbell. "They like certainty. At some point, they want to close the books and clear any financial reserves that they may be holding on old claims."
Various legal, insurance, tax and regulatory requirements dictate what documents businesses keep and for how long. But companies should be talking with their advisors about what adjustments they can make now.
"Document retention is a preventative measure, but companies can shorten those parameters. Document storage for physical and electronic documents has a real cost that businesses can capture under the new statute of limitations," Campbell says.
"There's a huge difference between 15 years and eight years, so companies will start to see the positive financial impact this year from a reduced document retention burden," Eckelberry says.
One area where the benefits of the new law are a bit more nebulous is economic development. However, as site selectors increasingly consider not just development incentives, but taxes and other business policies, the shorter statute of limitations could help level the playing field. Ohio was one of only two states with a comparatively lengthy 15-year claims period. Kentucky was the other.
"This legislative change makes Ohio more competitive in luring new businesses and in keeping existing businesses in the state. It's one factor they consider," Seegers says.
"When any business prices its product or service, it includes the total cost of doing business, and that includes litigation. By lowering the statute of limitations on [written] contract claims, it can impact the price that they sell their product or service for," Eckelberry says.
"It's not a very sexy issue, but it does have a huge impact on Ohio businesses," Johnson says.
Lisa Hooker is a freelance writer.
Reprinted from the March 2013 issue of Columbus C.E.O. Copyright © Columbus C.E.O.