Articles Posted in Statute of Limitations Defense

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The Illinois Appellate Court recently decided Rosenberger v. Meltzer, Purtill & Steele, LLC, 2021 IL App (1st) 200414-U. Rosenberger hired the Defendant Law Firm to represent him in connection with the negotiation of an employment contract with CenTrust. CenTrust had entered into an operating agreement with the Office of the Comptroller of the Currency (OCC). Rosenberger was hired on February 1, 2012. His agreement provided for a three-year employment term with a base salary of $200,000 per year. The agreement also contained a clause providing for severance compensation which provided that:

“If this Agreement is terminated by the Company prior to the expiration of the Employment Period for any reason other than Cause,… then the Employee shall be entitled to receive in a single payment…an amount equals to two times his annual base salary then in effect.” The Agreement also contained section 28, titled Regulatory Suspension and Termination. That section provided that if the employee was “suspended from office and/or temporarily prohibited from participant in the conduct of the affairs of Employer by a notice served under Section 8(e)(3) …of the FDIA [Federal Deposit Insurance Act], Employer’s obligations under this agreement shall be suspended as of the date of service.”

CenTrust terminated Rosenberger on November 5, 2013 and refused to make any severance payment to Rosenberger on the ground that he had been terminated for cause and because OCC would not approve such a payment.

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In Illinois, there are two parts to the statute of limitations.  First, you have two years from the time you discover your injury to sue a lawyer. Second, you cannot sue the lawyer based on an action that he took more than 6 years prior to the date you file your case.  The two-year and six-year rules prevent many malpractice plaintiffs from suing. They also protect lawyers who gave advice long ago, when the law may have been different.

Saunders v. Hedrick, 20 C 6835 (N.D. IL) decided on February 18, 2021, is a classic example of how these statutes work in practice.  Saunders was fired from his job as a corrections officer in 2010. He retained Hedrick who negotiated a settlement for him in 2012. In 2020, Saunders discovered that because he took a settlement his pension would be reduced. He then sued Hedrick for legal malpractice. The court held the case was time-barred because the advice to settle was given in 2012, about 8 years before the lawsuit was filed.  Saunders argued that the lawyer fraudulently concealed the error from him. The court rejected that argument because Saunders was unable to plead any false representation by Hedrick that could form the basis of fraudulent concealment.  Result: case dismissed.

If you have question about a legal malpractice case, do not hesitate to contact us at 312-357-1515.

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This case, County Line Nurseries & Landscaping, Inc. v. Kenney, 2020 IL App (1st) 200615, presents a recurring issue: when does the statute of limitations for legal malpractice begin to run?  Illinois has a two-year statute of limitations for legal malpractice. The hard question is figuring out when the statute begins to run.

County Line hired James Kenney to represent it in a contract lawsuit. The parties allegedly entered into a settlement of that lawsuit on September 23, 2014. County Line appealed and alleged that it had not entered into a binding settlement. The Appellate Court disagreed and affirmed the settlement.

On October 26, 2016, County Line filed suit against Kenney. Kenney moved to dismiss on the ground that the two-year statute barred the claim, which, in his view, had arisen on September 23, 2014. County Line argued that Kenney had fraudulently concealed the disputed settlement agreement from the client and that, therefore, the claim had not arisen on September 23, 2014. The trial court dismissed the case and the appellate court affirmed the dismissal of the malpractice lawsuit.

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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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The case of Breitenstein v. Deters, 19 -cv-413 (S.D. Ohio Western Division) is unusual. Plaintiff retained the Defendant lawyers to represent her in a medical malpractice case. The underlying case was dismissed, but the plaintiff appealed that decision. While the appeal was pending, she sued her lawyers for legal malpractice. The court dismissed the legal malpractice case because plaintiff filed the case before her underlying case was resolved.  In other words, the plaintiff filed suit too soon. This case was decided in the 6th Circuit, under Ohio law. (In Illinois, the result might have been different.)  The discussion by the court notes that plaintiff might win her appeal and thus the dispute with her lawyers is not ripe.

Here, Defendants contend that dismissal for lack of subject matter jurisdiction is proper because Plaintiff’s claim lacks ripeness. The primary basis for Defendant’s argument is that Plaintiff’s 2013 suit is still pending on appeal. As such, Defendants are still representing Plaintiff. (Doc. 3 at 3). Because the appeal is ongoing, Defendants assert that Plaintiff has not yet suffered any ascertainable damages from the underlying lawsuit. Id. at 1. Further, because Defendants have tolled the statute of limitations, Plaintiff may bring her claims, if appropriate, within a year after the appeal is over. Defendants therefore conclude that Plaintiff does not face a threat of future harm that warrants the Court to entertain the matter before it is ripe. (Doc. 7 at 1-2).

In support of their assertions, Defendants heavily rely on the decision in Kovacs v. Chesley to support their arguments for dismissal. Kovacs v. Chesley, 2000 U.S. App. LEXIS 8989 (6th Cir. 2000). The fact pattern in Kovacs is similar to the current matter: Plaintiff sued her attorneys for negligent evaluation of her medical records during Defendant’s representation of Plaintiff in a medical malpractice lawsuit. When Plaintiff brought the lawsuit against her attorneys, the underlying lawsuit was still undergoing settlement processes. Consequentially, the Court of Appeals for the Sixth Circuit upheld this Court’s dismissal of the case for lack of ripeness. (Id. at 2-3).

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Whether or not a case is barred by the statute of limitations in the legal malpractice context is not a matter of science, but rather of art. Indeed, you may think the case you filed was timely and a thoughtful defense lawyer will use the facts to creatively argue that your client should have “discovered” the injury and the malpractice long before you think they might have discovered the injury. Often the statute of limitations is the only defense the lawyer has. If that defense fails, there is no defense to the case.

The Court of Appeals of Utah recently decided a case where the negligence occurred long before suit was filed, but the plaintiff successfully argued that the lawyer fraudulently concealed the cause of action. In other words, plaintiff claimed that the lawyer was negligent and then hid the evidence of the negligence so the statute of limitations would expire. The case is First Interstate Financial LLC v. Scott Savage and Savage Yeats and Waldron, P.C., No. 20180660-CA. The Plaintiff alleged that it lost a jury trial due to the negligence of the lawyer defendant. The problem for plaintiff was that the verdict occurred in 2010, which would render the case time-barred by the statute of limitations.

The court set for the pertinent facts and the statute of limitations issue as follows:

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The Iowa court of appeals decided a case, P&C Sierra v. John M. Carroll, 18-0826, which illustrates a common problem in the legal malpractice jurisprudence. Here, the plaintiff sold real estate to a third party, Richard Brown. According to the plaintiffs, their lawyer Mr. Carroll allegedly forgot to record the real estate contract and the mortgage. The owner of the property then borrowed money from a bank which did record a mortgage. This meant that the interests of the plaintiffs were junior to the interest of the bank. The transaction occurred in 2008.

Plaintiff argued that they were injured in 2012 when Brown stopped paying on their installment note. The court disagreed and found that the plaintiffs were aware, as early as 2009, that there was a problem with their security interest in the property. Therefore, the lawsuit, filed in 2017, was untimely. Iowa has a five-year statute of limitations for legal malpractice claims.

This is a classic case where a plaintiff waited too long to file suit. Once the plaintiff realized that the lawyer may have made an error, the plaintiff discovered the injury and the statute of limitations began to run.

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The case is Davis v. Cohen & Gresser, 2018 NY Slip Op 02542, a legal malpractice case filed against a law firm.

Davis alleged that the law firm allowed the statute of limitations to run on RICO claims by failing to name to key parties in a lawsuit. The court ultimately concluded that the statute of limitations had run on the claims. However, the law firm greatly strengthened its position by producing a copy of a carefully drafted engagement letter. The engagement letter demonstrated that the law firm was not retained to handle the RICO action.  Further, the law firm never filed an appearance in that lawsuit.

New York allows the statute of limitations to be tolled where there is a continuous representation of the client by the law firm. Davis attempted to argue that the continuous representation doctrine applied to his case. However, as the court explains, the engagement letter and the court record demonstrated that there was no continuous representation:

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The case is Alexander Prout v. Anne C. Vladeck & Vladeck, Raskin & Clark, P.C., 18 CV 260 (S.D. New York June 10, 2018). Prout alleged that he retained Vladeck to represent him in connection with claims against his former employer, Invesco. He further alleged that Vladeck advised him to reject Invesco’s settlement offer of $1.0 million and to instead file litigation. According to Prout, Vladeck failed to timely file his claims and some of those claims (Family Medical Leave Act and Sarbanes-Oxley Act) were barred by the statute of limitations. As a result, he was forced to accept a reduced settlement amount. The facts of the underlying employment law claims are complex and the opinion sets those facts out in some detail. The court concluded that the allegations stated a claim for legal malpractice under New York law because the lawyer allegedly allowed the statutes of limitations to run on the FMLA and Sarbanes-Oxley (Whistleblower) claims.

For further information on legal malpractice claims, please consult our webpage on legal malpractice. https://www.clintonlaw.net/legal-malpractice.html

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