Wednesday, April 20, 2011
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Court Revives Malpractice Action Against Gibson, Dunn & Crutcher
Justices Say Heirs of Real Estate Entrepreneur Did Not Wait Too Long to Sue
By SHERRI M. OKAMOTO, Staff Writer
This district’s Court of Appeal yesterday revived a legal malpractice action against Gibson, Dunn & Crutcher LLP arising from its allegedly negligent drafting of a partnership agreement for two brothers running a multimillion dollar family real estate business.
Div. Seven clarified that the statute of limitations had not begun to run when Robert and Oliver Inge executed the agreement in 1988 since the actionable injury did not occur until the allegedly defective provisions of the agreement relating to succession and termination came into effect.
Robert and Oliver Inge retained Gibson Dunn to advise them on restructuring their business, then operating as a real estate trust, to minimize income tax liabilities and to implement a succession plan to ensure that Garden Grove-based Inge Realty Company could continue as a family-run enterprise after their deaths.
The firm drafted an agreement converting the business to a limited partnership, with each of the brothers serving as a general partner. As executed in October 1988, the agreement gave each brother a two percent interest in the partnership and an equal right to run the business, while the Oliver E. Inge Trust and Robert E. Inge Trust were both given a 48 percent limited partnership interest in the business.
Oliver Inge died in 2003, leaving his brother as the sole general partner of their company. According to Oliver Inge’s estate plan, his assets were held in the Oliver E. Inge Trust upon his death. The primary asset in the trust was its now 50 percent limited partnership interest in the Inge Realty Company, which was valued at approximately $10.5 million.
Estate Executor
Bank of the West, which was executor of Oliver Inge’s estate, began making demands for partnership income distributions from Inge Realty Company on behalf of the trust, which were refused, apparently on the ground that Oliver Inge had impermissibly amended his trust in late 2001 by adding non-Inge family members as beneficiaries and that distributions from Inge Realty Company to non-Inge family members were not authorized.
The bank initiated a probate action in 2004 seeking dissolution of the partnership, in part because Robert Inge had been largely incapacitated by a stroke and was unable to act on behalf of the company. The parties eventually settled their disputes, and their settlement was approved in 2006.
Robert Inge died while the probate action was pending, and shortly after his death, his family members entered into tolling agreements with Gibson Dunn regarding claims that might be asserted regarding the firm’s legal representation of Inge Realty Company and its partners, with respect to the limited partnership agreement.
The family members filed a complaint one day before the tolling agreement was set to expire in June 2007, asserting claims against Gibson Dunn for professional negligence, breach of fiduciary duty and negligent infliction of emotional distress. They claimed that the firm had failed to satisfy the brothers’ primary goal of preserving the Inge Realty Company as a family business since the agreement only authorized continuation of the partnership upon the death of both partners and contained no provision addressing a situation where one partner were disabled or incapacitated after the death of the other.
Gibson Dunn moved for summary judgment, which Los Angeles Superior Court Judge Rolf M. Treu granted, finding the Inge family members’ claims were time-barred pursuant to Code of Civil Procedure Sec. 340.6(a)’s four-year statute of limitations for legal malpractice actions.
Summary Judgment
Writing for the appellate court, Presiding Justice Dennis M. Perluss explained that Treu had erred in granting summary judgment based on his finding that actual injury had occurred in 1988, upon execution of the partnership agreement and payment of Gibson Dunn’s legal fees.
He reasoned that Gibson Dunn’s alleged negligence in drafting the succession and termination provisions in the partnership agreement “created only a potential for harm prior to Oliver’s death and the onset of Robert’s purportedly disabling physical and mental condition.”
Had Robert Inge died while fully engaged in managing the company as its sole general partner, Perluss said, “Gibson, Dunn’s alleged negligence in failing to provide a succession plan in the event of the retirement or incapacity of the surviving general partner would have never ripened into actual injury.”
Perluss further suggested that even if Robert Inge had not been incapacitated prior to his death, his family “nonetheless suffered actual injury when Bank of the West, as Oliver’s trustee, claimed his condition permitted it to force the dissolution of the limited partnership and the Robert Inge family members were required to incur attorney fees to respond to that claim.”
In light of the parties’ tolling agreements, Perluss said, “it appears the exact date of actual injury in this case—whether when Robert became disabled (if he did) or when Bank of the West first sought dissolution of the partnership based on paragraph 13.1 of the partnership agreement—is immaterial.” To the extent that any question remained on this point, the justice said, such an issue should be resolved by the trier of fact on remand.
Justices Laurie D. Zelon and Frank Y. Jackson joined Perluss in his decision.
Raymond P. Boucher and Michael C. Eyerly of Kiesel Boucher Larson, together with Michael C. Alder of Alder Law and Stuart B. Esner of Esner, Chang & Boyer represented the Inge family. Gibson Dunn attorneys Joseph P. Busch III, Daniel M. Kolkey and Maura M. Logan represented the firm.
The case is Callahan v. Gibson, Dunn & Crutcher LLP, B221338.
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