Articles Posted in Statute of Limitations Defense

I last discussed this problematic topic on June 30th. This unpublished decision, Godbold v. Karlin & Fleisher, LLC, 2014 IL App (1st) 131523-U, illustrates a malpractice trap contained in Illinois law.

Usually, the rule in Illinois is that you must wait to file your malpractice action until you lose the underlying lawsuit. However, you should not wait to sue while the underlying decision is on appeal. That is the unfortunate mistake that the lawyers made in the Godbold case.

Underlying Case - Plaintiff Missed the Statute of Limitations

Godbold hired the lawyers to represent her in a medical malpractice action Unfortunately, the trial court found that the case was not timely filed and dismissed it on May 7, 2010. Godbold then appealed that decision, which was affirmed on June 17, 2011 by the Illinois Appellate Court.

The Legal Malpractice Case – Plaintiff Again Misses the Statute of Limitations

On June 25, 2012, Godbold sued Karlin & Fleisher for legal malpractice. The problem with the lawsuit is that Godbold sued more than two years after the underlying case was dismissed. The appellate court affirmed. The court explained how the discovery rule works in this fashion:

“A suit for legal malpractice must be commenced ‘within 2 years from the time the person bringing the action knew or reasonably should have known of the injury for which damages are sought.’ 735 ILCS 5/13-214.3(b). The Illinois courts have held that the claim arises when the underlying case was dismissed, or May 7, 2010. The appellate court then held that the appeal of the medical malpractice dismissal did not toll the statute of limitations. This decision is consistent with other Illinois cases. As the court notes in its thoughtful opinion, “a ‘legal malpractice plaintiff does not have the burden to prove the exhaustion of all avenues of appeal on the underlying claim in order to state a legal malpractice action.’” Bloome v. Wiseman, Shaikewitz, McGivern, Wahl, Flavin & Hesi, P.C., 279 Ill. App. 3d 469, 475 (1996).

Conclusion

The key thing to remember is that it is better to sue too early than too late. If you lose a case due to the negligence of your lawyer, your injury has occurred and you should sue immediately.

Finally, this opinion discusses an important issue and should be published.

Edward X. Clinton, Jr.

 

Illinois has two statutes that establish time limits for when you can sue for legal malpractice. The statute of limitations gives the plaintiff two years from the time the negligence was discovered. However, the statute of repose bars any claim unless the negligent act occurred within six years of the filing of the lawsuit.  This means that you have two years from the time you discovered the injury to file a lawsuit, unless the negligent act of the lawyer is more than six years old.

What happens when you believe that your lawyer’s advice caused you to be sued? The Illinois courts have held in several such cases that the plaintiff is not required to sue for malpractice immediately. Instead, the plaintiff can wait until the underlying litigation is resolved. One such case is Warnock v. Karm Winand and Patterson, 1-06-0341, 876 N.E.2d 8 (2007).  The plaintiffs hired the defendant law firm to handle a real estate closing. The closing was to occur in April 2000. Plaintiffs claimed that the buyer (Mr. and Mrs. Brown) defaulted and plaintiff attempted to retain the earnest money. On August 1, 2000, the Browns filed suit, claiming that that plaintiffs had no right under the contract to withhold the earnest money.

Question – were the plaintiffs required to file suit against their lawyer when they were sued?  Did plaintiffs malpractice claim arise on August 1, 2000? Or did the claim arise when the plaintiffs lost the underlying case?

The Appellate court held that the injury did not arise until the underlying lawsuit was lost. “When the Browns initiated litigation, plaintiffs did not know if the Brown litigation was merely a frivolous attempt to recover $342,750, or whether the letter agreements were drafted in contravention of Illinois law. In fact, plaintiffs could not have known that Patterson’s letter agreements were faulty until the circuit court granted the Browns’ motion for summary judgment. … Since plaintiffs did not actually discover and reasonably could not have discovered that the letter agreements drafted by Patterson were negligently prepared until the circuit court entered judgment on the pleadings in Browns’ favor, we conclude that the entry of that adverse judgment marked the date on which the statute of limitations commenced.”

In a similar case, the Illinois Supreme Court stated: “The mere assertion of a contrary claim and the filing of a lawsuit [by a third party are] not, in and of themselves, sufficiently compelling to induce the client to seek a second legal opinion. Meritless claims and nuisance lawsuits are, after all, a fairly commonplace occurrence. It would be strange if every client were required to seek a second legal opinion whenever it found itself threatened with a lawsuit.” Jackson Jordan Inc. v. Leydig, Voit and Mayer, 158 Ill. 2d 240 (1994).  Indeed, if you file suit before the underlying case has reached a judgment, the malpractice case can be dismissed on the ground that it is premature. Lucey v. Law Offices of Pretzel & Stoufer, Chartered, 301 Ill. App. 3d 349 (1998) (Lawsuit was premature because damages were speculative where the plaintiff had not yet lost the underlying case).

In sum, the plaintiff should wait until the underlying case is lost before filing suit unless there is a risk that the statute of repose will expire.

Edward X. Clinton, Jr.

www.clintonlaw.net

 

Illinois has a statute of limitations (2 years from discovery) and a statute of repose (6 years from the alleged negligent act by the attorney). In estate planning matters, Illinois also has another provision 735 ILCS 5/13-214.3(d) which governs injuries that occur on the death of the client.

In 2002, LeRoy Voga retained James Nash, an estate planning attorney, to prepare an estate plan, including a trust. LeRoy Voga passed away on September 26, 2006.

In January or February 2009, plaintiffs, Voga’s children, sued on a number of theories, including legal malpractice. Plaintiffs alleged that the trust caused them to incur estate taxes they would not otherwise have incurred. They voluntarily dismissed the case without prejudice, but refiled the case in February 2010. After lengthy proceedings in the trial court, including the filing of two amended complaints, the trial court dismissed the case pursuant to Section 13-214.3(d).

This is the relevant text of the Illinois Statute of Limitations for attorney malpractice:

(b) An action for damages based on tort, contract, or otherwise (i) against an attorney arising out of an act or omission in the performance of professional services or (ii) against a non-attorney employee arising out of an act or omission in the course of his or her employment by an attorney to assist the attorney in performing professional services must be commenced within 2 years from the time the person bringing the action knew or reasonably should have known of the injury for which damages are sought.

(c) Except as provided in subsection (d), an action described in subsection (b) may not be commenced in any event more than 6 years after the date on which the act or omission occurred.

(d) When the injury caused by the act or omission does not occur until the death of the person for whom the professional services were rendered, the action may be commenced within 2 years after the date of the person’s death unless letters of office are issued or the person’s will is admitted to probate within that 2 year period, in which case the action must be commenced within the time for filing claims against the estate or a petition contesting the validity of the will of the deceased person, whichever is later, as provided in the Probate Act of 1975.”

The trial court held that the purported injury did not occur until the death of Larry Voga. Therefore, "'since the injury did not occur until the death of Larry Voga, the action must have been commenced within 2 year s of his death, unless letter[s] of office were issued. Letters of office were not issued following Voga's death, rendering the suit untimely."

The plaintiffs argued that Section (d) contains the word “may,” which should be permissive rather than mandatory. The Appellate Court disagreed and cited numerous prior cases, including cases decided by the Illinois Supreme Court. According to the court, “may” really means “shall.”

The court was very careful to review all of the confusing cases under subsection (d) of the Section 214. Given the thoughtful discussion of the statute and the review of the prior caselaw, it is a pity that the case is unpublished.

The case is captioned Voga v. Nash, 2014 Il App (2d) 130750-U.

EVANSTON INSURANCE COMPANY v. RISEBOROUGH, Ill: Supreme Court 2014 – Google Scholar.

The Illinois Statute of Repose bars claims against a lawyer arising out of actions that occurred more than six years before the case was filed. In this case, an insurance company (Evanston) sued two lawyers and alleged that the lawyer defendants wrongfully entered into a settlement agreement on behalf of Evanston’s insured.

The lawyer defendants moved to dismissed based upon the Statute of Repose. (735 ILCS 5/13-214.3 (West 2008). The trial court granted the motion, but the Illinois Appellate Court reversed. It held that the statute of repose did not apply because Evanston was not a client of the lawyer defendants.

The Illinois Supreme Court, in turn, reversed and held that the Statute of Repose applies to any claim against a lawyer arising out of the lawyer’s professional services.

The Court explained:

“¶ 19 The appellate court’s conclusion that section 13-214.3 applies only to a claim asserted by a client of the attorney is contrary to the plain language expressed in the statute. There is nothing in section 13-214.3 that requires the plaintiff to be a client of the attorney who rendered the professional services. The statute does not refer to a “client” nor does it place any restrictions on who may bring an action against an attorney. The statute simply provides that an action for damages against an attorney “arising out of an act or omission in the performance of professional services” is subject to the six-year repose period. Thus, under the express language of the statute, it is the nature of the act or omission, rather than the identity of the plaintiff, that determines whether the statute of repose applies to a claim brought against an attorney…

The complaint alleged damages to Evanston based on defendant’s actions in executing the agreement in the absence of Kiferbaum’s authorization. Thus, under the plain, unambiguous language of the statute, Evanston’s claims in its second amended complaint “arose out of” defendants’ actions “in the performance of professional services” on behalf of Kiferbaum, defendants’ client. We hold that the statute of repose in section 13-214.3(c) applies to Evanston’s second amended complaint, which was properly dismissed as time-barred pursuant to the statute.”

This case brings clarity to the law.

One final note. On June 7, 2012, I wrote an article in which I argued that the Appellate Court’s decision was erroneous:

“Comment: This is a highly controversial decision that should be heard by the Illinois Supreme Court.
The opinion should have been published as a matter of course so that those who follow these issues could comment on it.

My view is that the holding of the panel is erroneous.  These lawyers were doing legal work, defending their client from a claim.  They signed an agreement as agents of the client.  Later, the client and the insurance company threw the lawyers under the bus and the insurer brought a claim against them.  Since the lawyers were doing legal work, they are entitled to the protections of the Statute of Repose.  They should be protected and the case should be dismissed.  This is, in my view, an easy case for the Illinois Supreme Court. It cries out for review.”

Edward X. Clinton, Jr.

Cabrera v Collazo 2014 NY Slip Op 00622.

This is an opinion of the New York Supreme Court, Appellate Division. The facts were simple. The attorney missed the applicable statute of limitations and the client’s claim was barred. In such cases, the lawyer is liable for legal malpractice if the client can prove that, but for the attorney’s error, he would have won the underlying case.

Here, the lawyer’s estate raised an unusual defense. The attorney defendant passed away before the statute of limitations on the client’s claim ran. The lawyer’s estate is really making this argument: the lawyer passed away while the client’s claim was still viable, therefore, the client could have chosen another lawyer and filed the claim in timely fashion.

The Court correctly rejected the claim:

“Plaintiff is entitled to the inference that Tanzman died as a result of a chronic, terminal illness that he knew, or should have known, presented the immediate risk that his ability to represent his clients’ interests might be impaired (see Yuko Ito v Suzuki, 57 AD3d 205, 207 [1st Dept 2008]). Here, defendants offered no evidence to elaborate on the cause or circumstances surrounding Tanzman’s death. The submitted certificate of death for Tanzman merely states that Tanzman passed away on October 24, 2010 at Memorial Sloan-Kettering Cancer Center. The record suggests that plaintiff had cancer, and that his death may have been foreseeable, but the nature and duration of his illness cannot be determined from the death certificate and defendants’ other submissions”

In other words, if the attorney died a sudden and unexpected death (think of a heart attack or an accident) the attorney’s estate might be able to raise that as a defense. Then the estate would be correct that the attorney’s failure to file did not cause an injury to the client. Here, where the lawyer had cancer, it was the lawyer’s duty to notify the client that there could be a problem and to obtain successor counsel, if needed. Lawyers have fiduciary duties to the clients – those duties are created to protect clients. Here, the Court is correctly holding that the lawyer who is terminally ill has a duty to tell his clients so they can make other plans.

In sum, this is a thoughtful opinion that considers the issue in some depth and provides guidance for the future.

Edward X. Clinton, Jr.

800 SOUTH WELLS COMMERCIAL, LLC v. HORWOOD MARCUS AND BERK CHARTERED, Ill: Appellate Court, 1st Dist., 4th Div. 2013 – Google Scholar.

Plaintiff alleged that Horwood Marcus & Berk (HMB) aided and abetted a breach of fiduciary duty by Nicholas Gouletas and John Cadden.

Legal malpractice is governed by a two-year statute of limitations in Illinois. 735 ILCS 5/13-214.3(b). Breaches of fiduciary duty are governed by a five-year statute of limitations. The question presented was which statute of limitations applies when a lawyer is alleged to have aided and abetted a breach of fiduciary duty. Plaintiff argued that the two-year statute of limitations only applies in legal malpractice cases. The court, relying on the plain language of Section 13-214.3(b) disagreed because the text of the statute does not refer specifically to legal malpractice claims.

The court reasoned as follows:

¶ 13 The two-year statute of limitations in section 13-214.3(b) of the Code provides that it applies to claims “against an attorney arising out of an act or omission in the performance of professional services.” 735 ILCS 5/13-214.3(b) (West 2010). As there is no language in the statute restricting its application to legal malpractice claims or claims brought by an attorney’s client, the plain language of the statute directs that the two-year limitation applies to all claims against an attorney arising out of acts or omissions in the performance of professional services, and not just legal malpractice claims or claims brought against an attorney by a client. Had the legislature intended to restrict the applicability of the statute of limitations to malpractice claims, it could have explicitly done so in the text of the statute as it did when it prohibited the recovery of punitive damages in legal malpractice cases (735 ILCS 5/2-1115 (West 2010)), but chose not to do so in this instance.”

In so holding, the Appellate Court disagreed with a case decided in the Fourth Appellate District, Ganci v. Blauvelt, 294 Ill. App. 3d 508, 515 (1998).

Steinmetz v. WOLGAMOT, Ill: Appellate Court, 1st Dist., 1st Div. 2013 – Google Scholar.

In 1997, Dr. Steinmetz enrolled in a program known as AEGIS, which the defendants informed him would protect his assets and reduce his tax liabilities. The IRS disagreed and sent Dr. Steinmetz a deficiency notice on December 31, 1999. Years later the doctor sued the promoters of the tax shelter for fraud and his lawyer for legal malpractice.

The trial court granted the lawyer’s motion for summary judgment and the appellate court affirmed. In Illinois, the discovery rule applies. The plaintiff must bring his case within two years of the discovery of the legal malpractice. Here, the plaintiff claimed that he was unaware of the problem for many years (while his tax controversy with the IRS was being resolved). The Court disagreed. It held that the statute of limitations was triggered on December 31, 1999, when he received the Notice of Deficiency from the IRS. Because the doctor did not bring his case until December 2005, his claim was barred.

The appellate court then considered whether the lawsuit was barred if the doctor did not learn that he had a cause of action against the defendants until October 2003, when he retained other counsel to resolve his dispute with the Illinois Department of Revenue. The appellate court explained its reasoning as follows:

“¶ 39 In sum, all these notifications and subpoenas from 1999 to 2003 informed plaintiff that, far from reducing his tax liability as promised by defendants, his participation in the AEGIS program was increasing his tax liabilities and subjecting him to potential criminal prosecution and loss of his medical license. By the time plaintiff retained Meyer Capel on October 10, 2003, to handle any proceedings brought against him by the Illinois Department of Professional Regulation in connection with his failure to pay taxes under AEGIS, he reasonably should have known that he was injured by his participation in the AEGIS program, that his injury was wrongfully caused, and that he had an actionable claim against defendants. Plaintiff still did not file suit for legal malpractice until more than two years later, December 22, 2005. Thus, even under plaintiff’s reading of Khan as holding that the two-year limitations period does not begin to run until plaintiff realizes he has an actionable claim, plaintiff’s legal malpractice action against defendants still was not timely filed. Accordingly, the trial court correctly found plaintiff’s legal malpractice action was time-barred as a matter of law.”

Comment: this is an unfortunate situation where the plaintiff paid the defendants to participate in a program to reduce his taxes that, in reality, increased his taxes and put him in jeopardy of criminal prosecution and the loss of his medical license. The key question was when he should have discovered that the lawyers were negligent. In this case, the retention of a new lawyer to resolve the tax disputes indicated that the plaintiff was aware that he had been injured by participating in the tax shelter.

In sum, this is a classic statute of limitations defense.

VALUKAS v. BOTTI MARINACCIO, LTD, Dist. Court, ND Illinois 2013 – Google Scholar.

This is a decision dismissing a divorce malpractice claim on statute of limitations grounds. The plaintiff, James Valukas, hired the defendant law firm to represent him in his divorce. Valukas claimed that the law firm negligently drafted a marital settlement agreement, allowing his ex-wife to make a claim for a portion of the payout on certain stock options.

Defendant raised a statute of repose defense, arguing that the alleged error occurred outside of the limitations period. The statute of repose bars any claim against an attorney that occurred more than 6 years prior to the filing of the lawsuit.

Valukas countered that even though he filed his case after the limitations period had run, the limitations period should not apply because of equitable estoppel. Valukas argued that the lawyer misrepresented and concealed a material fact (the alleged error) so the statute of repose should not apply.

The district court, after trial, entered a directed verdict for the defendant. It held that Valukas had knowledge of the problem with the marital settlement agreement before the limitations period had run. Valukas was aware that there were issues surrounding the interpretation of the stock option provision in the marital settlement agreement.  Thus, he knew or should have known that there were drafting problems with the agreement. Because Valukas knew or should have known of the problem, equitable estoppel did not apply.

This is a thoughtful opinion and, because the opinion comes after trial, the facts were fully developed by the parties.

Edward X. Clinton, Jr.

O’KELLYN v. Dawson, 2013 PA Super 25 – Pa: Superior Court 2013 – Google Scholar.

This is a case where a lawyer was accused of legal malpractice for failing to properly document a settlement of a divorce case. The settlement related to an award of maintenance. The parties agreed on a certain amount. The lawyer did not draft up the papers and obtain the signature of the other spouse. As a result, the court entered a maintenance award that was substantially greater than the agreed upon amount.

The client was unhappy because he was required to pay far more maintenance than he agreed to pay. He sued the lawyer and, after a jury trial, obtained an award of damages in the amount of $100,363.64.

The Superior Court affirmed the verdict and rejected the lawyer’s argument that the statute of limitations had run. The statute of limitations issue centered on when the client had reason to discover the alleged error of the lawyer. The court affirmed a ruling that the date of discovery of the alleged error by the lawyer was the date of the adverse divorce court decision awarding the maintenance.

It is very difficult to prove legal malpractice in divorce cases. Here, the legal malpractice was not a divorce issue. Rather it was a claim that the lawyer botched the settlement documentation, an error that could occur in any case.

Edward X. Clinton, Jr.

Osborne v. Keeney, Ky: Supreme Court 2012 – Google Scholar.

This is a legal malpractice case in which the plaintiff alleged that her lawyer failed to file a lawsuit on time and missed the applicable statute of limitations.  The Kentucky Supreme Court upheld the claim and addressed other issues as well.  The court held that punitive damages are not recoverable against an attorney in a legal malpractice case.

The opinion reaffirms that the plaintiff in a legal malpractice case must prove a case within a case.  The court set forth the method for proving the case within a case requirement:

“The manner in which the plaintiff can establish what should have happened in the underlying action, but for the attorney’s conduct, will depend on the nature of the attorney’s error.[15] When dealing with a situation such as the instant case where a claim is lost, including, but not limited to, because it is barred by an applicable statute of limitations, a plaintiff must recreate an action that was never tried.[16] The plaintiff must bear the burden the plaintiff would have borne in the original trial. And the lawyer is entitled to any defense that the defendant would have been able to assert in the original trial. This is what is commonly known in Kentucky law as the suit-within-a-suit approach. While this approach has been repeatedly affirmed, the actual procedure for trying such a case remains elusive. Here, we are presented with the question of how a jury should be instructed in a suit-within-a-suit.

When trying a suit-within-a-suit, especially when the reason for the lost claim is the expiration of the relevant statute of limitations,[17] “all the issues that would have been litigated in the [barred] action are litigated between the plaintiff and the plaintiff’s former lawyer.”[18] And, in recreating the litigation, the usual instructions that should be given in the underlying case, including any special verdict forms, are those to be used in the malpractice trial.[19] Several states have used this commonsense approach to instructing the jury.[20]

One justice dissented on the punitive damages issue.

Edward X. Clinton, Jr.