Wednesday, May 1, 2002
C.A. Clarifies Definition of ‘Injury’ in Transactional Malpractice Suit
By KENNETH OFGANG, Staff Writer/Appellate Courts
A businessman who claims that he hired a law firm to form an entity that would shield him from personal liability on some notes suffered “injury,” for purposes of the malpractice statute of limitations, when a creditor demanded that he pay the debt personally, this district’s Court of Appeal ruled yesterday.
A divided panel in Div. Seven affirmed a summary judgment in favor of the Century City firm of Jeffer, Mangels, Butler & Marmaro. The court held that Russell Seheult waited too long to sue the firm for failing to protect him from liability in connection with a real estate investment.
Justice Dennis Perluss wrote the majority opinion, which was joined by Justice Fred Woods. Justice Earl Johnson Jr. dissented, arguing that Seheult could not have been injured unless and until it was determined that he was actually liable on the notes.
Seheult’s suit stemmed from a 1995 agreement by which he was to invest in the development of a shopping mall in Redlands. He claims that he retained Jeffer Mangels to perform various legal services in connection with the project, including the formation of a limited partnership between himself and Nu-Western Development Company.
While the agreement was being worked on, he said, Sehuelt and Nu-Western entered into an arrangement by which Taubman Realty Group was to perform certain services in connection with the project. Seheult executed certain notes in favor of Taubman, but later claim that his understanding with Jeffer Mangels was that he would have no further liability once the limited partnership was actually formed.
Jeffer Mangels stopped work on the project in April 1997 due to nonpayment. Taubman abandoned the project a month later, and by August of that year was demanding that Seheult make payments on the notes.
Taubman sued Seheult in October 1997. Seheult sued Jeffer Mangels a little over a year later, claiming the firm was negligent in, among other things, failing to form the limited partnership, to obtain a final agreement with Taubman, and to disclose that it also had an attorney-client relationship with Taubman.
Taubman’s suit was settled in August 1999.
Los Angeles Superior Court Judge Stanley Weisberg granted summary judgment on multiple grounds, including that Jeffer Mangels had no attorney-client relationship with Seheult and that the one-year statute of limitations barred the action.
Perluss said the trial judge was correct as to the statute of limitations and did not address other issues.
To maintain a malpractice action, Perluss said, Seheult was required to sue within one year of the first injury caused by the attorneys’ negligence, subject to tolling.
The first injury, if there was one, was the creation of “an enforceable personal obligation” that would have been avoided by formation of the limited partnership, Perluss went on to say. Thus, the limitations period began to run, “at the latest, when the notes matured and Taubman made demand for payment of those debts.”
Seheult’s lawyer, Joseph R. Zamora, argued that the one-year period did not begin to run until the Taubman suit was settled, or at the earliest, when he retained counsel and began paying legal fees for that matter. But Perluss said that while success in the litigation might have mitigated damages, the injury had already been suffered.
He analogized to tax law malpractice cases, in which it has been held that the client suffers injury, resulting from bad advice, no later than the time the IRS assesses a tax penalty, even though the penalty might be overturned later.
“In the present case, the purpose of the lawyers’ retention was to form the [limited] partnership and thus to shield Seheult from personal liability on the Taubman notes,” the justice wrote. “When the notes came due and Taubman made a demand for payment, Seheult was under a real and current personal obligation to pay, and had thus suffered the unwanted consequence he hired the lawyers to avoid.”
Johnson, dissenting, said the majority was adopting an unwarranted “bright line” rule. An injury, he argued, must be “palpable and definite” in order to trigger the limitations period.
He cited Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, in which the high court held that a client had suffered injury when it began using its funds to pay lawyers for a defense. The client claimed the lawyers were negligent in failing to advise it that there was insurance coverage.
The injury that Seheult alleged to have suffered, Johnson said, was a “contingent injury” that did not become an actual one until he actually incurred costs, either to pay Taubman or to pay his lawyer for defending Taubman’s claim. Since he filed suit against Jeffer Mangels less than a year after that occurred, Johnson said, that suit was timely.
Robert P. Baker and Lawrence M. Jacobson of Baker and Jacobson represented Jeffer Mangels.
The case is Seheult v. Jeffer, Mangels, Butler & Marmaro, B146243.
Copyright 2002, Metropolitan News Company