When a lawyer agrees to represent a client at trial and to be paid expenses at the end of the case, the time to sue that client for payment starts to run when judgment is first entered, a federal appeals court held on Tuesday.
The U.S. Court of Appeals for the Third Circuit held that the six-year statute of limitations begins to run when the case ends at the trial level rather than when the judgment is affirmed on appeal or ultimately satisfied.
But the panel differed with U.S. District Judge Jose Linares’ view that the discovery rule applied. It thus vacated the judgment in Peck v. Donovan, No. 07-5500, but remanded for a decision on whether there were other grounds for equitable tolling.
James Peck IV, a West Orange solo, agreed on Aug. 16, 1993, to represent Kenneth Donovan in a contract dispute with American Cyanamid Co. The retainer provided for a one-third contingency fee and required Donovan to reimburse any costs advanced by Peck “at the conclusion of the litigation,” plus interest at 1 percent above the prime rate. A separate retainer would be required for any appeal.
In late 1994, Peck told Donovan he no longer wanted to represent him. Donovan stated that he would sue Peck if he ever had the funds to do so and that Peck would never see a dime from the Cyanamid litigation.
U.S. District Judge Katharine Hayden allowed Peck out of the case in May 1995. At that point, he was out of pocket for expert witness fees and other expenses totaling $35,326.
Donovan hired a new lawyer and in September 2000, he was awarded $495,000 in damages plus fees and costs though the fees and costs portion was later vacated and not included in the final judgment on Dec. 15, 2000.
One day before judgment was entered, Peck wrote to the lawyer who replaced him, Philip Rosenbach, pointing out that the time had come to repay him the litigation costs.
Peck followed up in January 2001 with sworn affidavits itemizing those amounts. Rosenbach included them in the bill of costs, but they were denied.
Meanwhile, Cyanamid appealed and the judgment was stayed pending resolution.
The circuit court affirmed on Oct. 18, 2001, and a satisfaction of judgment was entered on Nov. 29, 2001.
Peck first sued in state court in January 2007 but the matter was deemed to belong in federal court because of the connection to the Cyanamid case, so on Nov. 15, 2007, Peck refiled in federal court in Newark.
Linares threw out Peck’s unjust enrichment and quantum meruit claims as untimely because the time to bring them started to run on the last date he provided Donovan with legal services.
On two occasions, however, Linares refused to dismiss the breach-of-contract claims. On March 30, 2009, he ruled the time to sue commenced when Donovan breached the retainer by refusing to repay Peck.
Peck contended that the “conclusion of the litigation” occurred when the appeal was decided and that he was not entitled to the money until the Nov. 29, 2001, satisfaction of judgment.
Donovan’s position was that the litigation concluded either Dec. 15, 2000, the date of the district court judgment, or when the circuit court ruled on Oct. 18, 2001, but whichever it was, Peck was too late. Donovan also argued that Peck’s Dec. 14, 2000, letter showed that he expected to be paid after the district court judgment.
Linares stated there was ambiguity concerning when the litigation concluded and a dispute on when Donovan breached the contract.
In denying summary judgment a second time on Nov. 4, 2010, Linares said the question of when the Cyanamid litigation concluded was for a trier of fact.
Following a September 2011 bench trial, Linares ruled for Peck, entering judgment for him on Dec. 22, 2011.
Though he held that the “conclusion of the litigation” happened on Dec. 15, 2000, and Donovan’s debt became due then, the suit was not filed too late. He applied the discovery rule, pushing the starting date back to Nov. 29, 2001. He explained that the timing of the breach was not clear despite Donovan’s statement about Peck getting nothing because a reasonable person would have believed he was referring to legal fees, not advanced costs.
Linares found further support in Donovan’s inclusion of the debt to Peck in the bill of costs. In addition, Peck was given no sign during the appeal that he would not be paid.
Circuit judges Marjorie Rendell, Julio Fuentes and Michael Chagares reversed. The discovery rule did not help Peck here because he “knew or reasonably should have known the facts giving rise to his … claim upon Donovan’s immediate breach,” wrote Rendell.
The court remanded for a determination of whether there were alternative bases for tolling the time to sue based on Linares’ “strong language … decrying Donovan’s conduct in leading Peck to believe that he would be paid.”
Rosenbach, of Berman Rosenbach in Morristown, who also represents Donovan in this case, says “I feel confident in our position.” He estimates that, with interest, the amount at issue exceeds $90,000.
Peck did not return a call.