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Filing a Malpractice Suit Against a Firm? Better Be Quick About It
Under unanimous Calif. Supreme Court ruling, former clients will have less time to hit their old firms with malpractice suits
The Recorder
September 28, 2007
A Thursday ruling from the California Supreme Court leaves former clients less time to hit a firm with a malpractice suit.
The clock for filing a malpractice suit starts ticking when a client ends its relationship with a law firm -- even if the client still retains one of the firm's former attorneys, the court ruled.
"When a lawyer leaves a firm and takes a client with him, the firm's representation of the client ceases," Justice Kathryn Mickle Werdegar wrote for a unanimous court.
The decision, which came a scant 22 days after oral arguments, should be met with relief by the state's lawyers. Nine major law firms joined the Los Angeles County and Orange County bar associations in filing amicus curiae briefs that sought the result reached Thursday.
John Moscarino, a partner in Los Angeles' Moscarino & Connolly who represented the winning law firm, hailed the ruling as significant "because it closes what could have been an open-ended liability."
The former partners of the now-defunct Arter & Hadden are now off the hook for any damages in a $3.5-million malpractice suit filed in late 2003 by Texas-based Beal Bank. The Cleveland-based firm was accused of negligence in a case in which it unsuccessfully tried to collect unpaid loans for the bank.
Arter & Hadden's lawyers argued that Beal Bank had failed to comply with Code of Civil Procedure §340.6, which requires malpractice suits to be filed within one year of when a client should have discovered a lawyer's wrongdoing, or within four years of the date the act was committed, whichever comes first.
Arter & Hadden and Beal Bank had parted ways on Dec. 31, 1998 -- about five years before the bank sued.
Beal Bank contended that 340.6's continuous representation rule, which tolls the statute of limitations as long the attorney still works for the client, should apply because Steven Gubner, a former Arter & Hadden associate, continued to represent Beal Bank when he left to start his own practice.
Beal Bank claimed, therefore, that its deadline to file for malpractice was Sept. 26, 2005, four years after its relationship with Gubner ended.
Los Angeles County Superior Court Judge John Shook sided with the law firm, but the 2nd District Court of Appeal reversed -- and created a conflict within the state appellate courts.
The Supreme Court said the 2nd District's decision had gone against the Legislature's intent, to balance a client's right to relief from negligence with attorneys' need for a reasonable limitations period.
"Contrary to the Legislature's express intent to curtail open-ended liability," Werdegar wrote, "the court of appeal rule would revive indeterminate liability for firms every time an attorney leaves and takes a client with him or her. In each such instance, exposure would extend indefinitely based on forces outside the firm's control."
The court, however, went on to encourage lawyers to consider tolling agreements with clients.
"The liberal use of tolling agreements and stays in malpractice cases," Werdegar wrote, "may reduce the impact on the underlying litigation, ensure that plaintiffs do not have their claims prematurely barred ... and allow current counsel, to the extent practicable, to continue to work to ameliorate the consequences of any past mistakes."
Beal Bank's appellate lawyer, San Francisco-based David Rice, managing partner of Carroll, Burdick & McDonough, didn't return a call seeking comment.
Elwood Lui, a partner in Jones Day's Los Angeles office who represented the L.A. County and Orange County bars as amici, said the ruling places "a balance on the statute of limitations" and doesn't let "stale claims sit forever."
Moscarino, who represented Arter & Hadden, noted that the ruling helps not only large firms, but solo practitioners and small-firm lawyers who might leave their practices for other law-related jobs or judgeships.
The ruling is Beal Bank SSB v. Arter & Hadden LLP, 07 C.D.O.S. 11711.
