The Holcomb Decision
In Holcomb, the Nevada Supreme Court ruled that “[a] party can contractually agree to a limitations period shorter than that provided by statute in certain circumstances.” Holcomb Condo. Homeowners’ Assn., Inc. v. Stewart Venture, LLC, 300 P.3d 124 (Nev. 2013). The party can do so “as long as there exists no statute to the contrary and the shortened period is reasonable, and subject to normal defenses including unconscionability and violation of public policy.” Id.
In Holcomb, the parties disputed whether a provision in an arbitration agreement validly reduced the limitations period for constructional defect negligence and warranty claims. Under NRS 116.4116, a reduction of the six-year statute of limitations period to not less than two years was allowed so long as the reduction agreement was contained in a separate instrument. Holcomb held that the reduction provision was unenforceable because it was not contained in a separate instrument; the reduction provision existed in an arbitration agreement which was attached to and incorporated into a purchase contract.
No Statute to the Contrary
In Nevada, there are varying statutes of limitation for claims against a bond ranging from six months to six years. For example, an action against a license bond is two years: “[n]o action may be commenced on the bond or deposit six years after the commission of the act on which the action is based.” NRS 624.273(2). A state public works payment bond, or Little Miller Act claim, provides that no action “may be commenced after the expiration of 1 year from the date on which the claimant performed the last of the labor or furnished the last of the materials for the payment of which such action is brought.” NRS 339.055(2). A claim concerning a Nevada Department of Transportation project must be commenced within six months after project acceptance. NRS 624.363(2). Any agreement shortening these time frames must be explicit in order to survive under Holcomb.
So long as the Holcomb factors are met, the time limitation to assert a claim may be shortened. This may be most applicable to performance bond and subdivision bond related claims.
Reasonableness of the Shortened Period
Discussing the reasonableness factor, Holcomb explained that “[a] contractually modified limitations period is unreasonable if the reduced limitations period ‘effectively deprives a party of the reasonable opportunity to vindicate his or her rights.’” Holcomb at 129. “‘Reasonable’ in this context means the shortened period nevertheless provides sufficient time to effectively pursue a judicial remedy.” Id. (quoting Moreno v. Sanchez, 106 Cal.App.4th 1415, 131 Cal.Rptr.2d 684, 695 (2003)).
As such, under Holcomb, a reasonable opportunity to vindicate his or her rights means that a party must be given sufficient time to pursue a judicial remedy. Holcomb provides no further guidance as to the amount of time that is to be considered sufficient. However, the statutory time frames for bonds ranging from six months to two years provide some insight as to reasonableness.
Unconscionability and Violation of Public Policy
Holcomb also requires that any reduction of the statute of limitations be subject to normal defenses including unconscionability and violation of public policy. An overly aggressive time reduction may prove fatal to any such reduction.
Under Holcomb, parties can agree to a reduction of the statute of limitations period for a claim against a bond. However, while Holcomb provides factors the court will consider when ruling upon any such reduction, the waters remain murky as to the application. Specifically negotiated limitation periods have the best chance of success.