Articles Posted in Discovery Rule

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Katz v. Katten Muchin 2021 IL App (1st) 200331, is a malpractice case in which the Illinois Appellate court reversed the dismissal of a legal malpractice case.  Andre Katz filed a petition to be appointed the temporary guardian of his mother on June 9, 2017. He learned that his mother had retained Katten Muchin to revise her estate plan to his detriment. On November 16, 2017, Katz took the deposition of one of the lawyers at Katten Muchin who had represented his mother and who had re-drafted the estate plan to Katz’s detriment (and to the advantage of his brother).

On June 27, 2019, Katz filed the legal malpractice action against Katten Muchin. Katten Muchin argued that the two-year statute of limitations had run because Katz was aware that Katten Muchin had done estate planning work for his mother on June 9, 2017, more than two years before the lawsuit was filed. The trial court dismissed the case on statute of limitations grounds.

Katz appealed. He argued that he was unaware that the lawyers were the cause of his injury until he took the deposition of the Katten Muchin lawyer on November 16, 2017. The Appellate Court reversed the dismissal of the Complaint on the ground that there was an issue of fact as to when Katz discovered his injury.  The opinion carefully discusses the discovery rule and how it is applied.

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In re Bruess, No. 19-2714, was decided by the District Court for the District of Minnesota. The debtor claimed that her bankruptcy lawyer made an error by filing a chapter 7 case on her behalf and thereby making her homestead interest in property subject to creditor claims. The court also held that the malpractice claim was an asset of the bankruptcy court. I don’t doubt that the reasoning was correct, but the practical effect is that the debtor’s interest in the claim will be subject to the claims of her creditors. The result of the case is a double whammy for the debtor.

Background Facts and Procedural History

On January 14, 2013, Plaintiff Sandra Jo Bruess of New Ulm, Minnesota, was granted a one-third interest in her father’s Brown County property (“Homestead”) valued at $562,760.33.[1] (Notice of Appeal, Attachment 4 (“Order on Appeal”) at 2, October 15, 2019, Docket No. 1.) Despite knowing of the Homestead interest, Bruess’s attorney, Stephen Behm, advised her to file for bankruptcy relief. (Id. at 4.) Behm incorrectly assured Bruess that her entire interest in the Homestead would be protected in bankruptcy. (Id.) On December 15, 2014, Bruess filed for Chapter 7 bankruptcy and claimed an exemption on her one-third interest in the Homestead. (Id. at 2.)

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The issue that arises often in litigation is: when was the plaintiff put on notice that the lawyer may have breached the duty of care? The answer to this question often determines whether or not the statute of limitations bars a claim. A case decided by the Delaware Supreme Court earlier this year captioned, ISN Software v. Richards, Layton & Finger 226 A.3d 727 (Del. Supreme Court), offers a thoughtful discussion of that very issue.

ISN Software wished to convert to an S Corporation. However, four of its shareholders could not legally be shareholders of an S Corporation. Thus, the question was how can we remove these shareholders from our company? The law firm allegedly advised ISN to use a merger to cash out the four shareholders. The way it typically works is that the company offers the shareholder a cash payment. If the shareholder accepts the cash offer, that is the end of the matter. If the shareholder elects appraisal, there is a court case where a judge decides the value of the shares. In this transaction, all four shareholders were eligible for appraisal rights. The law firm told the client in 2013 that its legal advice on who was eligible for appraisal was incorrect.

The company proceeded to litigate the value of the shares. When the court made its decision, the value was substantially higher than ISN thought it would be. ISN then sued the law firm for malpractice. The Delaware courts held the the case was time-barred because the cause of action accrued in 2013 (when the firm told the client that the advice it had given was incorrect) not 2018 when the unfavorable litigation ruling occurred.

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