Metropolitan News-Enterprise


Friday, September 28, 2007


Page 1


State Supreme Court Rules:

Malpractice Statute No Longer Tolled After Lawyer Leaves Firm




The tolling of the statute of limitations for a malpractice action against a law firm does not continue if the responsible lawyer leaves the firm while continuing to represent the client, the state Supreme Court ruled yesterday.

Unanimously reversing a ruling of this district’s Court of Appeal, the high court said Los Angeles Superior Court Judge John P. Shook was correct in dismissing a claim against Arter & Hadden resulting from the firm’s representation of Beal Bank, SSB in its efforts to collect default interest on certain loans.

The bank sued the firm along with Eric Dean, a partner at the firm at the relevant times, and Steven Gubner. Gubner was an associate at Arter & Hadden when he began representing the bank, and continued to represent it after leaving to create Gubner & Associates—which became Ezra, Brutzkus & Gubner—in December 1998.

Beal Bank was unable to recover the interest, due to an adverse ruling by a bankruptcy judge while Gubner was still at Arter & Hadden. The bank, represented by Gubner’s new firm, lost its appeals.

Lawyers Sued

The bank sued the lawyers in September 2002, while Gubner was still its counsel of record in the bankruptcy court. It alleged that had the attorneys competently assessed and advised it of its legal position, it would have moved to settle the dispute and would not have continued to incur legal fees and expenses for litigation in the bankruptcy court, district court, and Ninth U.S. Circuit Court of Appeals.

The plaintiff, in opposing demurrers, cited the provision of Code of Civil Procedure Sec. 340.6 that tolls the statute of limitations while the allegedly negligent attorneys continue to represent the client. Noting a conflict of authority on the issue, however, Shook ruled that as to Dean and Arter & Hadden, tolling ended when Gubner took the case to his new firm, so the one-year limitations period had long expired.

Div. Two of the Court of Appeal reversed Shook, reasoning that the intent of the Legislature in enacting the tolling provision was “to benefit the client’s interest by preserving undisturbed the client’s relationship with its attorney so that the attorney can try to undo the damage he has done to the client.”

Better Rule

But Justice Kathryn M. Werdegar, writing for the high court, said the better rule is that of Crouse v. Brobeck, Phleger & Harrison (1998) 67 Cal.App.4th 1509, that the statute is no longer tolled against a law firm once the lawyer who committed the alleged malpractice leaves.

Werdegar noted that at one time, attorney malpractice claims were governed by a strict two-year statute of limitations.

In 1971, however, the court held that the delayed discovery rule applied, while acknowledging that this could lead to undesirable results in the form of open-ended potential for liability. That, in turn, led to higher malpractice insurance premiums, which prompted lawmakers to amend the statute to limit the circumstances under which the statute would be tolled, including that of continuing representation, Werdegar explained.

When the attorney handling the matter leaves his or her firm, the justice went on to say, there is little justification for continuing to toll the statute as to that firm.

“When a lawyer leaves a firm and takes a client with him, the firm’s representation of the client ceases,” Werdegar explained. “There is no risk the firm will attempt to run out the clock on the statute of limitations by offering reassurances and blandishments about the state of the case.  Conversely, the firm loses all ability to mitigate any damage to the client....Nor is there any ongoing firm-client relationship to disrupt.”

The justice acknowledged the Court of Appeal’s concern that forcing a firm’s ex-client to sue the firm while it is still trying to resolve the underlying matter may have a disruptive effect upon the client’s current relationship with its attorney. But that is “surely less of a concern than that which triggered enactment of the continuous representation tolling provision — i.e., forcing the client to prematurely sue the attorney,” she wrote, suggesting that voluntary tolling agreements and stays of litigation could be employed to mitigate the difficulties.

The case was argued in the Supreme Court by David M. Rice of Carroll, Burdick & McDonough for Beal Bank, John M. Moscarino of Moscarino & Connolly for Arter & Hadden, and Elwood Lui of Jones Day for the Los Angeles County Bar Association as amicus supporting Arter & Hadden.

Additional amicus briefs supporting the law firm were filed by several other large firms, and by the Association of Southern California Defense Counsel.

The case is Beal Bank, SSB v. Arter & Hadden, LLP, 07 S.O.S. 5967.


Copyright 2007, Metropolitan News Company