Alerts and Updates
Client's Malpractice Suit Against Former Law Firm Not Time-Barred, CA Court of Appeal Rules
February 6, 2006
The limitations period for a legal malpractice claim is tolled, or suspended, as to a lawyer's former law firm and one of its partners while the lawyer continues to represent the client at a new law firm in the same specific subject matter in which the alleged malpractice occurred, a California Court of Appeal ruled on January 10, 2006. In reversing the Superior Court's dismissal of the lawsuit, the appellate court permitted the plaintiff bank to pursue its malpractice claim against a law firm and one of its partners, which it had retained to handle certain debt collection matters.
The appeals court based its decision on California Code of Civil Procedure section 340.6(a), which provides for a one-year statute of limitations for filing legal malpractice suits, except that the period is suspended if the attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred (among other exceptions). The Court of Appeal rejected the law firm's argument that the tolling of the statute ended when the firm ceased representation of the bank.
Background
In March 1997, the plaintiff bank retained the law firm and one of its partners to handle certain debt collection matters. These matters later were taken up in bankruptcy court and an associate with the firm began representing the bank in bankruptcy court. On the bank's behalf, the firm filed a motion for summary judgment on the ground that the bank was entitled to recover the default interest rate on the outstanding debts. In May 1998, the bankruptcy court ruled against the bank and the bank appealed.
The associate representing the bank in bankruptcy court left the law firm in December 1998 and continued to represent the bank in its appeals, which the bank ultimately lost. During the course of his representation of the bank, he became a partner in another law firm and then later moved on to a third law firm.
On September 24, 2002, the bank filed a legal malpractice suit against the lawyer, his two prior law firms, his current law firm, and the partner from the first law firm who had primary responsibility for representation of the bank, for their alleged negligent handling of the debt collection matter. Two days later, the lawyer and his current firm filed a notice of withdrawal as counsel for the bank in bankruptcy court. In November 2002, the bank and all defendants entered into a tolling agreement that tolled any applicable statute of limitations for the period between September 24, 2002, and December 31, 2003. The bank dismissed its malpractice complaint without prejudice on November 20, 2002.
On December 30, 2003, the bank refiled its complaint against all defendants. The first law firm (and its partner who originally had primary responsibility for the bank's representation) filed a demurrer to the complaint, asserting that the statute of limitations had expired. They argued that the bank suffered an actual injury on May 28, 1998, the date the bankruptcy court issued the adverse ruling, and the statute of limitations was tolled only until December 31, 1998, the date the lawyer left the firm, taking the bank with him as a client, and when the first law firm ceased representing the bank. The firm further argued that the statute of limitations was not tolled by any continuous representation of the bank by the lawyer and his new firms, so that the one-year limitations period expired on December 31, 1999, nearly four years prior to the filing of the present case. The trial court agreed with this argument and dismissed the first law firm and original partner from the action, declaring the claims against them time-barred.
Court of Appeal Decision
The appellate court found that the malpractice action was timely filed. The court observed that the original complaint was dismissed after the parties entered into a tolling agreement, which tolled the action until December 31, 2003. The court found that the bank timely filed the present action on December 30, 2003, within the one-year statute of limitations. The court wrote, "Thus, we conclude that the trial court erred in sustaining the demurrers of [the first law firm] and [that firm's partner] on the grounds that the action against them was time-barred."
Pursuant to California Code of Civil Procedure section 340.6(a), "An action against an attorney for a wrongful act or omission, other than for actual fraud, arising from the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission." However, the one-year time period is tolled if "[t]he attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred."
The Court of Appeal found that there was no dispute between the parties that the lawyer who left the firm continued to represent the bank in the same subject matter in which the alleged malpractice occurred and that the one-year statute of limitations period applied. However, the dispute concerned whether the tolling provision applied after the lawyer left the firm.
The prior firm argued that because the plain language of the tolling provision refers to the time that "the attorney" continued to represent the client, and does not refer to the law firm or its attorneys with whom the lawyer was associated when the alleged malpractice occurred, the tolling provision cannot be applied to anyone but the attorney who continued the representation.
The Court of Appeal stated that the continuing-representation tolling provision has two purposes: 1) to avoid the disruption of an ongoing attorney-client relationship by a lawsuit while enabling the attorney to correct or minimize an apparent error; and 2) to prevent an attorney from defeating a malpractice claim by continuing to represent the client until the statutory period has expired. Although the appellate court acknowledged that applying the provision to former law firms would extend the applicable statute of limitations, the court intimated that the more important issue was preserving the attorney-client privilege.
Furthermore, the Court of Appeal reasoned that because the malpractice occurred while the lawyer was an associate at the first firm, the firm should share in the liability and should not be able to avoid responsibility simply because the lawyer left the firm. However, the court noted that if the malpractice occurred after the lawyer left the first firm, the same rule would not necessarily apply.
The Court of Appeal concluded that the action against the first firm and its partner was timely filed and the case was remanded to the Superior Court.
For the full opinion, see http://caselaw.lp.findlaw.com/data2/californiastatecases/b179383.doc
For Further Information
For additional information regarding this case, please contact Joan N. D'Ambrosio or Jessica L. Kelly in the San Francisco office of Duane Morris LLP or any other attorney of Duane Morris' Professional Liability Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
