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February 24, 2006

Fritz v. Ehrmann (2006) Second Dist. Div. Four No. B178701

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The Second District holds that the “continuous representation” tolling provision of the legal malpractice statute of limitations includes clients who return to attorneys to rectify problems or mitigate damages after accrual of the cause of action and before expiration of the statute of limitations.  In addition, the court held that separate statute of limitations analysis applies to discrete acts of negligence that occur during the same representation.

In 1995 Norman Fritz retained Stanford Ehrmann to re-negotiate and draft a promissory note.  Ehrmann failed to include a clause precluding prepayment and a clause concerning payment of deferred interest.  Fritz filed suit against Ehrmann in November 2003, seven months after discharging Ehrmann as his counsel in litigation arising from the note.

In a summary judgment motion, Ehrmann took the position that Fritz suffered actual injury either when the note was signed in 1995 or in November 2000, when the maker of the note prepaid some of the principal on the note.  Ehrmann argued that his representation of Fritz in the litigation was not “continuous representation” sufficient to toll the statute of limitations.  The trial court granted the motion for summary judgment on the basis that actual injury occurred more than one year prior to the filing of the lawsuit.

The Court of Appeal noted that in determining when “actual injury” has occurred neither the date the plaintiff acquires knowledge of wrongdoing nor the date of the wrongful act are meaningful.  Injury may be delayed and attorneys generally do all they can to rectify a mistake by representing the client during any litigation that ensues.

The Supreme Court has held that a legal malpractice action does not accrue until the client suffers appreciable harm as a consequence of attorney negligence.  The one-year limitations period commences when the plaintiff actually or constructively discovers the facts of the wrongful act or omission, but this period is tolled until the plaintiff sustains actual injury.

Actual injury causes the statute to accrue but speculative or contingent damage does not.  Speculative and contingent injuries are those that do not yet exist, as when an attorney’s error creates only a potential for harm in the future.  The court concluded that Fritz’s cause of action did not accrue until the payors refused to pay the deferred interest due to ambiguity in the second note.  This occurred sometime between January 2002 when the payors claimed to have made their last and final payment and June 2002, when they filed a quiet title lawsuit.

In addition, the court held that the injury from the failure to amend the prepayment clause in the second note should be analyzed separately from the injury caused by the failure to account for the deferred interest.  A time-barred portion of a malpractice claim does not defeat the entire claim.  There were two separate and distinct acts of negligence with separate and distinct potential injuries and statutes of limitations.  Injury from prepayment of principal could arise at any time during the note’s 20-year term; injury from the failure to address the deferred interest would not necessarily manifest itself until it became due at the note’s end.

Although the cause of action was fully accrued by June 2002, the malpractice action was filed more than one year later, in November 2003.  Fritz maintained the statute was tolled by Ehrmann’s continuous representation.

Ehrmann represented Fritz with respect to the second note until it was executed in or around September 1995.  There was a hiatus until January 2002, when the payors claimed to have paid the note in full and began to demand reconveyance of the deed of trust.

Ehrmann became involved in attempting to negotiate the dispute.  The court analyzed the import of the statutory provision allowing tolling as long as the attorney “continues to represent” the client.

The legislative history reveals that the purpose of the continuous representation tolling provision is to avoid the disruption of an attorney-client relationship by a lawsuit while the attorney attempts to correct or minimize an apparent error and to prevent an attorney from defeating a malpractice cause of action by continuing to represent the client until the statutory period has expired.  In the majority of situations where an attorney commits malpractice during the preparation of transactional documents the mistakes are not manifest until after the project is completed.  The client’s first impulse is to return to the attorney for an explanation or a fix, which could take years.  The client is unlikely to consult another source for legal advice, it would be up to the attorney who made the mistake to inform the client that time is ticking on a legal malpractice action, affording unscrupulous lawyers an opportunity to simply let the statute run.

The court concluded that the Legislature intended “continues to represent” to include clients who return to attorneys to rectify problems or mitigate damages after accrual of the cause of action and before expiration of the statute of limitations.  Thus the statute was tolled while Ehrmann represented Fritz with in the dispute with the payors.

Comment: This decision clarified two important points concerning the statute of limitations.  Separate acts of negligence that occur in a single representation will be considered separately for statute of limitations purposes.  Continuous representation includes efforts to mitigate the effect of malpractice when a client returns to an attorney after accrual of a cause of action.

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