For Whom the Bell Tolls – Only a Complete Litigation Stay Extends the Five Year Rule For Bringing a Case to Trial

On February 25, 2016 the Supreme Court of California in Gaines v. Fidelity National Title Insurance Company, et al. (Court of Appeal B244961, Superior Court Case BC361768), affirmed the lower courts’ holdings that a partial stay of the litigation to allow for mediation did not extend the five-year time period in which a case must be brought to trial. The Supreme Court upheld the lower court’s holding, finding that only a complete stay of the litigation will toll Code Civil Procedure § 583.310 (“An action shall be brought to trial within five years after the action is commenced against the defendant.”)

In Gaines, plaintiff Fannie Gaines (“Gaines”) sued various defendants for claims relating to the sale of her home. Her initial complaint was filed on November 13, 2006. In April 2008, Gaines’ asked the trial court to stay the action to allow the parties to mediate the dispute. The court stayed the action in all aspects except for responses to outstanding discovery requests. The case did not settle at mediation and the case was assigned to a new judge who terminated the stay in November 2008 and set a trial date for August 2009.

The trial date was vacated after defendant, Aurora Loan Services, LLC (“Aurora”), indicated it did not hold any legal title to Gaines’ property nor have any legal rights to an outstanding loan connected with it. Aurora alleged the loan was owned by Lehman Brothers Holdings, Inc., which had declared bankruptcy in 2008 and was not a named defendant. The matter was stayed five months during which time Lehman Brothers was added as a defendant to the action. Another delay occurred in November 2009 when the original plaintiff died. By January 2010, the court granted an application allowing her son, Milton Gaines, to succeed her as plaintiff and file a fifth amended complaint. Trial was re-set for August 2012.

In June 2012, the defendants moved to dismiss the complaint under Code of Civil Procedure §§ 583.310 and 583.360, arguing the five-year deadline period had expired in November 2011. The trial court granted the motion, dismissing the complaint against all defendants. The trial judge reasoned that the five-year period had been tolled for 185 days because of the death of Gaines, as well as for the five months Plaintiff attempted to obtain relief from the Lehman Brothers’ bankruptcy stay. However, the trial court determined the mediation stay agreed-to by the parties did not toll the five-year statute since it was only a partial stay and not a stay within the meaning of §583.340(b).

Plaintiff appealed the trial court’s dismissal of the entire action. The Court of Appeal affirmed the majority of the trial court’s holding, agreeing that allowing of discovery only constituted a partial stay, which did not fall within the exceptions for tolling the five-year statute. The Court of Appeal reversed the portion of the Court’s ruling that dismissed the action against two of the defendants that were brought into the case at a later time. As to those defendants, the Court of Appeal found the five-year statute had not yet expired. Plaintiff again appealed.

The Supreme Court upheld the Court of Appeal’s decision, agreeing with the Appellate Court’s holding that a mediation stay which was not a complete “stop” to the litigation did not toll the five-year statute of limitations because it was not a complete stay. The Supreme Court cited the “long-standing judicial understanding of the term stay in the context of the five-year statute … it refers to those postponements that freeze a proceeding for an indefinite period, until the occurrence of an event that is usually extrinsic to the litigation an and beyond the plaintiff’s control.” The stay here did not “freeze” the litigation since it did not call for a complete stop of the proceedings.

Gaines provides a stark illustration of the draconian results of the five-year statute. It also serves as an important reminder that the tolling exceptions to the five-year rule are narrowly and strictly enforced. For a stay to effectively toll the five-year statute, all litigation must stop.

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March 3, 2016