Creation of an enforceable obligation is sufficient “actual injury” to trigger legal malpractice statute of limitations regardless of whether plaintiff has incurred any out-of-pocket losses.
The Second District has significantly expanded the scope of the “actual injury” necessary to commence the legal malpractice limitations period under Code of Civil Procedure section 340.6.
In 1995 plaintiff formed a limited partnership to develop a shopping mall. While the defendant attorneys worked on the partnership agreement, plaintiff entered a letter agreement with Taubman, a potential joint-venturer for the project. Plaintiff also signed promissory notes in favor of Taubman for development costs. The lawyers stopped work in April 1997, before the partnership agreement was completed because they had not been paid. The following month, Taubman abandoned the project because certain conditions of the letter agreement were not satisfied. Taubman formally demanded payment of the notes on August 18, 1997, and filed suit on October 17, 1997. The suit on the notes settled two years later. Plaintiff filed his malpractice action against the defendant attorneys on October 19, 1998, asserting causes of action for legal malpractice, breach of fiduciary duty, and breach of contract.
Plaintiff alleged, among other things, his attorneys negligently, (1) failed to form the limited partnership to limit his personal liability for the project’s debts; (2) failed to get a final agreement with Taubman; (3) failed to disclose their conflicting representation of Taubman; and (4) subjected plaintiff to personal liability for debts incurred by the unconsummated limited partnership.
Defendants obtained summary judgment the statute of limitations, Code of Civil Procedure section 340.6, barred the action. Defendants contended that the limitations period began to run when Taubman demanded payment on the note from plaintiff personally. Plaintiff contended that he did not suffer actual injury until he began incurring legal fees in Taubman’s suit to enforce the notes.
The Court of Appeal affirmed, holding plaintiff’s claims as all were based on the same conduct by the defendant attorneys. Accordingly, the statute of limitations would run from the first actual injury plaintiff suffered from any of the alleged wrongful acts, citing Bennett v. Shahhal (1999) 75 Cal.App.4th 384, 391-392.
The court examined the injury that occurred first, the lawyers’ failure to complete the partnership formation. Plaintiff asserted that this caused him to become personally liable for the promissory notes. The court assumed the truth of plaintiff’s allegation and concluded that plaintiff suffered ‘actual injury,’ at the latest, when the notes matured and Taubman made demand for payment of those debts.
Precedent established that when malpractice results in the loss of a right, remedy, or interest, or in the imposition of liability, there has been actual injury regardless of whether future events may affect the permanency of the injury or the amount of monetary damages eventually incurred.
Further the loss or diminution of a right or remedy constitutes injury or damage” and an existing injury is not contingent or speculative simply because future events may affect its permanceny or the amount of monetary damages eventually incurred.
The attorneys were retained to finalize a transaction that would give the plaintiff certain rights and avoid certain liabilities. When Taubman made the demand on plaintiff personally, plaintiff acknowledged that the lawyers had stopped working on the partnership agreement and that the project had terminated. At that point plaintiff had certainly lost the right he had retained the lawyers to secure: the protection he anticipated receiving from the limited partnership. Creation of an enforceable obligation can constitute “actual injury” prior to any effort by the obligee to enforce it.
One judge dissented, arguing plaintiff’s injury was only contingent until some portion of the debt was paid, or a lawyer had been hired to contest it. The majority reasoned the existence of the debt and Taubman’s demand would be reflected as a liability on plaintiff’s personal balance sheet, and would reduce his net worth to the same extent as the loss of an asset.