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Attorneys representing Wolf Block Schorr & Solis-Cohen of Philadelphia will be boning up in the months ahead to argue before the Pennsylvania Supreme Court that the firm did not lull a client into believing he was protected from a civil action by a settlement in a criminal action. Plaintiff Gerald Kress, represented by Richard A. Sprague and Theodore J. Chylack of Sprague & Sprague, is appealing the Superior Court of Pennsylvania’s decision that he filed his claim too late. In addition to arguing that the Superior Court used the wrong timeline in deciding when the statute of limitations began to run, Kress’ counsel will argue that Wolf Block is estopped from using the statute of limitations defense because it defrauded their client into sleeping on his rights. The justices granted allocatur review to Kress v. Wolf Block Schorr & Solis-Cohen on June 1. Wolf Block is represented by William T. Hangley of Hangley Aronchick Segal & Pudlin. Hangley did not return a phone call seeking comment. On the lower court’s panel of three sat Judges Joseph A. Hudock, Berle M. Schiller and William F. Cercone. The decision was issued as a memorandum opinion in 1997. According to that opinion, Kress hired Wolf Block to represent him in a criminal case brought by the U.S. government in federal court. A partner, Gregory T. Magarity, was assigned to the case. Kress pleaded guilty to all 59 counts against him for mail fraud. On Magarity’s advice, Kress entered guilty pleas to all charges. When Kress was sentenced, he agreed to pay the parties $300,000 in restitution. He alleges Magarity told him that money would act as a “global settlement” and would resolve all the government’s criminal and civil claims against him, the opinion said. Nonetheless, after the criminal case was over, the government filed a civil action against Kress stemming from the same basis as the criminal action. In his motion for summary judgment, Kress argued the global settlement precluded the action. The federal court denied the motion, instead granting the government’s motion for summary judgment. Kress said he did not realize he was injured as a result of Magarity’s actions until the date summary judgment against him was granted in the civil case, Dec. 20, 1993. Up until that point, he said, he believed Wolf Block’s assertions that the civil claim was meritless. Kress was ordered to pay $2,344,530 as a result of the grant of summary judgment, a ruling which was later affirmed by the 3rd U.S. Circuit Court of Appeals. Kress filed the malpractice motion against Wolf Block under trespass and contract theories of liability in November 1995. The firm responded with an argument that his action was barred by the statute of limitations. Philadelphia Common Pleas Court Judge Arnold L. New agreed, granting the firm’s motion for summary judgment. OCCURRENCE OF HARM On appeal to the Superior Court, Kress argued that the statute of limitations did not begin to run until the government’s motion for summary judgment was granted in the civil case, since he suffered no economic harm until that date. Kress said he could not have discovered his claim against Wolf Block until that date. The court explained that a plaintiff in such a trespass action must prove the employment of the attorney, the attorney’s failure to exert ordinary skill and knowledge, and that the failure was the cause of damage to the plaintiff. A professional malpractice case in Pennsylvania must be brought within two years of the alleged negligent conduct. Under the “occurrence rule,” the statutory period begins to run when the alleged breach of duty actually happens. Another rule, the “equitable discovery rule,” is an exception to the occurrence rule. It applies when the injured person is not able to discover the injury or its cause. However, “lack of knowledge, mistake or misunderstanding, will not toll the running of the statute,” the court said. The opinion cited a Pennsylvania Supreme Court case from 1993, Bailey v. Tucker, in which the justices said harm is suffered in a criminal defense malpractice case on the date of sentencing. Using an occurrence/discovery analysis, the justices said the statute of limitations begins to run when the defendant becomes aware that his or her attorney was responsible for the harm. The latest point at which the defendant can reasonably become aware that his attorney was responsible is when the attorney-client relationship is terminated, the Bailey court said. In Kress’ case, the trial judge based his decision on the fact that Kress knew about the civil suit almost as soon as it was filed and felt “somebody screwed up.” But Kress claimed he could not have known he was harmed because he is not a lawyer and thought everything had been resolved through the global settlement. During the criminal trial, the federal judge discussed the restitution with both Magarity and the federal prosecutor. The opinion cites a statement from the prosecutor in which he twice states that $300,000 would be acceptable to settle the criminal action. Kress admitted being present during that discussion, but claims to not remember it. “However, [Kress] testified that when his attorney relayed the government’s proposed settlement, Attorney Magarity confirmed that if [Kress] accepted the deal, ‘Yes, that’s it. If we take this deal, that’s it,’” the opinion said. “Reading this evidence in the light most favorable to [Kress], the evidence establishes that on the date of sentencing, [Kress] was not aware of his criminal counsel’s alleged breach of duty or dereliction.” When Kress learned that the civil suit had been filed, he said, he was “shocked.” He said on that day Magarity told him “we’ll take care of it” and handed the matter off to another attorney, Robert Boote. At trial, Kress said he did not remember Boote specifically telling him that he was going to win or that the government didn’t have a case against him. He also said he could not remember whether he and Boote said that Magarity “screwed up.” During his testimony, Kress said that while Boote was representing him, he thought “somebody screwed up,” but felt more that “the government was pressing a meritless case, because [he] had been told that this was done; it was finished.” The court said Kress could still argue that he did not know of Magarity’s alleged negligence at that point. The court concluded that although Kress’ evidence was “weak,” it did support a finding that he did not know of Magarity’s negligence until his motion for summary judgment was denied on the civil claim. “The record discloses uncontradicted evidence that after Magarity’s initial assurances, [Kress] continuously informed Wolf Block that he believed that the firm had ‘got him into this’ and that he held the firm responsible for getting him out of the situation,” the opinion said. “[Kress] informed the firm administrator of this fact on a date probably prior to the time that Attorney Boote left the firm in 1989. However weak the evidence may be, we must view it in a light most favorable to [Kress].” MOTION FOR RELIEF After Kress’ motion for summary judgment on the civil claim was denied, he filed a motion for reduction and modification of sentence with the federal criminal court. In his brief, Kress alleged that he agreed to the restitution because he believed it would settle all the government’s claim against him and “he would not be forced to defend another costly legal action.” The federal court said there was no merit to those claims. “Thus, on that date [Kress] became aware that the criminal court did not believe that the parties had entered into a ‘global settlement’ of the criminal action,” the Superior Court said. The court relied on the Bailey precept that the statute of limitations begins to run on the date of sentencing, rather than on the date of economic harm. Even so, the opinion said, Wolf Block billed Kress during the civil lawsuit, so he was incurring economic harm throughout that entire time, or at the latest, when he received his first bill. Therefore, the court said Kress knew of Magarity’s alleged malpractice on May 22, 1990, the date on which the criminal court denied his motion for relief. Because his malpractice case was not filed until November 1995, it was barred by the statute of limitations. At the end of the opinion, the court wrote that regardless of whether a global settlement was reached in the federal action, Kress pleaded to 59 counts of mail fraud. He was originally sentenced to one year and one day in jail, but Magarity successfully had the sentence reduced to 108 days. “Based upon the apparently light sentence [Kress] received for 59 counts of mail fraud, [Kress] may have been satisfied with his representation and wished to retain Wolf Block, notwithstanding the alleged error in the amount of restitution,” the opinion said. ISSUES OF FACT In his dissent, Schiller said he believed there were genuine issues of material fact as to when Kress knew or should have known that he had a cause of action against Wolf Block and whether Wolf Block should have been estopped from asserting a statute of limitations defense for making Kress believe the civil case would be resolved in his favor. “Based on the evidence adduced thus far, it appears that [Wolf Block] led [Kress] to believe that he would suffer no liability in the civil case. … They represented repeatedly in court filings that they had negotiated a global settlement of the government’s criminal and civil claims,” he said. “They did not refer [Kress] to independent counsel to press his claim and did not demand payment of his bill. “Even after their motion to dismiss the civil case was denied, [Wolf Block] treated this ruling as a minor bump in the road. Based on [Wolf Block's] conduct it may well be that [Kress] had no reasonable expectation of civil liability until the court ultimately entered judgment against him…” The majority had refused to accept Kress’ argument that Wolf Block’s conduct prevented it from asserting a statute of limitations defense. Kress said the firm’s conduct “lulled” him into believing it would protect him from harm. Under state law, “where through fraud or concealment the defendant causes the plaintiff to relax his or her vigilance or deviate from his or her right of inquiry, the defendant is estopped from invoking the bar of the statute of limitations.” But the majority said Kress did not meet his burden of proof that Wolf Block’s conduct rose to the level of fraud or concealment. Schiller contended the burden of proof was somewhat less stringent. “The relevant question is whether the plaintiff was lulled into a false sense of security by the defendant’s conduct such that he or she delayed the timely filing of the action,” he said. It was premature for the court to make a conclusion either way on that question, Schiller said. PETITION In their petition for allowance of appeal, Sprague and Chylack concentrate on arguing that Wolf Block should not be allowed to use the statute-of-limitations defense. Using the record to take “a glimpse into Wolf Block’s thought process,” the petition says that less than one month after the civil judgment the firm drafted a letter telling Kress it could no longer represent him because he owed more than $500,000 in fees. But the letter was never sent. “While this letter was never sent, nor was any similar letter, nor were the contents of the letter ever orally conveyed to Mr. Kress during the six years that he remained a client of Wolf Block, they nevertheless showed that there was a force of sufficient strength to forestall Wolf Block from seeking to collect fees owed to them totaling over half a million dollars,” the attorneys said. The attorneys allege that Wolf Block knew that if it sought the fees, Kress would have acquired outside counsel to represent him in the federal civil action and would have been in the position to commence a malpractice action years before he did. “Clearly, it would be unreasonable to expect a lay person such as Mr. Kress to possess the requisite knowledge and wherewithal to determine what knowledgeable attorneys who represented him failed to do over a five-year time period; namely, that no global settlement existed because of the failure by Mr. Magarity to secure one,” the petition said. The fact that Wolf Block thought it was “clear” that a global settlement had been reached for more than five years and continued to represent Kress during that time indicated to Kress that the filing of the civil action was a legal mistake and not a result of the firm’s malpractice, the petition says. The attorneys said a 1964 Pennsylvania Supreme Court case, Nesbit v. Erie Coach Co., established the rule that it is the natural effect of fraud or concealment, and not the intention of the party, that establishes whether that party is estopped from asserting a statute of limitations defense. “In the instant matter, the ‘natural effect’ upon Mr. Kress of Wolf Block’s conduct served, at the very least, as efforts by Wolf Block to get Mr. Kress to sleep on his rights by lulling him into believing that Wolf Block would see to it that he suffered no harm and that it was the government, not Wolf Block, who was at fault,” the petition said. The attorneys also claim the lower court misread and misapplied Bailey. According to the petition, while the Bailey court said that harm occurs on the date of sentencing, the statute of limitations does not begin to run until the attorney-client relationship is terminated because the defendant becomes aware of the injury at that point. If the justices were to accept that as true, then Kress’ action would have been timely filed as Wolf Block represented him until April 1996, the petition says.

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