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Statute of Limitations Bars Claim Against Employment Law Firm

This case discusses the discovery rule in legal malpractice cases. Specifically, when should the plaintiff know that he had a claim against his employment lawyer?

The Facts:

In 2011, Nelson hired Padgitt, Padgitt & Peppey to negotiate an employment agreement with his new employer Launch Creative Marketing. Nelson signed the agreement in June 2011. Six months later, Launch terminated Nelson’s employment on the ground that the revenue collected from Nelson’s clients totaled less than $250,000 over the first six months of employment. The employment agreement permitted Launch to terminate Nelson for cause if the revenue collected from his old clients did not total $250,000 during the first six months of employment.

In 2012, Nelson sued Launch Creative for breach of fiduciary duty and fraud. Ultimately, in 2014, the trial court granted Launch Creative’s motion for summary judgment, which was based on the terms of the contract. The court explained the ruling in this passage:

¶ 6 On December 4, 2014, the trial court granted summary judgment in Launch’s favor. In a written decision, the trial court pointed out that Nelson was “a successful businessman, and was represented by competent counsel throughout the negotiation of his employment agreement.” The trial court attributed the outcome to “Nelson’s failure to properly negotiate on his own behalf,” which gave Launch much discretion under the employment agreement. In sum, “Nelson was in a position at the bargaining table to ensure none of these complications arose by better protecting his interests through negotiation.”

On July 7, 2015, Nelson sued his employment law firm, Padgitt for legal malpractice. He alleged that Padgitt had breached the duty of care by failing to obtain better terms in the employment agreement with Launch Creative. The most important allegation is set forth here:

But Nelson alleged Padgitt neglected to tell him that (1) the agreement did not provide steady income past six months, (2) Launch could fire Nelson after six months if the revenue from his customers fell short of the specified target, (3) Launch had the ability to insure that Nelson would not meet his target, (4) Launch had broad discretion in billing and defining Nelson’s job description, or (5) the agreement lacked a specific start date. Nelson alleged that any reasonable attorney would have negotiated an agreement that would have better protected Nelson. Finally, Nelson alleged that he had suffered damages, including future benefits from employment with Launch, the value of the customers he brought to Launch, the cost of settling his suit with Launch, and the cost of suing Launch. He estimated these damages exceeded $100,000.

The trial court dismissed the case on the ground that Nelson had not filed the case within the two-year statute of limitations. The Appellate Court affirmed. It held that Nelson must have known of his injury (the alleged legal malpractice) when he filed suit against Launch Creative in 2012. The Appellate Court explained its ruling as follows:

¶ 22 A legal malpractice claim can accrue before an adverse judgment if it is “plainly obvious” that a plaintiff has been injured as a result of professional negligence. Lucey, 301 Ill. App. 3d at 358. In 2012, Nelson (a sophisticated businessperson eventually assisted by a new attorney) knew that his economic loss from the firing stemmed directly from Launch’s reliance on the employment agreement, which had been negotiated by Padgitt and plainly did not include the economic protections that Nelson allegedly had instructed Padgitt to include. He did not need the trial court’s adverse judgment to know that he had been harmed by Padgitt.

Comment: The Nelson case builds on a line of recent cases in which the Illinois Courts have held that the legal malpractice was discovered or court have been discovered by the plaintiff when the plaintiff became involved in other litigation. The two cases are Janousek v. Katten Muchin Rosenman LLP, 2015 IL App (1st) 142989 and Carlson v. Fish, 2015 IL App (1st) 140526, ¶ 22. In the Janousek case, the plaintiff alleged that he was frozen out of a business by his former partners. He filed suit against them. Three years later he filed suit against Katten Muchin, alleging that the Katten Muchin lawyers had assisted his former partners in forcing him out. The Illinois Appellate Court held that Janousek’s case was time-barred because his claim against his partners “cannot be separate” from his claim against Katten. In other words, Janousek should have been aware that he had a lawsuit against Katten once he sued his former partners.

In the Carlson case, the plaintiff (assisted by the defendant lawyers) settled a dispute with his former business partners. More than two years later, he sued his lawyers for malpractice. The court held that his case was filed too late because he was aware of his injury when he settled with his former partners.

The Nelson opinion provides an excellent discussion of Janousek and Carlson. See ¶¶ 17-21.

The obvious conclusion to be drawn from these cases is that the plaintiff should know that he has a claim against his lawyer right around the time that the adverse business event occurs. He cannot wait until the underlying business case has been resolved (or is lost) to sue his lawyers for legal malpractice. These cases represent a gradual tightening of the statute of limitations for legal malpractice. They encourage the client to sue everybody right away rather than waiting until one lawsuit has been resolved to sue his lawyer.

Source: Nelson v. PADGITT, 2016 IL App (1st) 160571 – Ill: Appellate Court, 1st Dist., 2nd Div. 2016 – Google Scholar

Edward X. Clinton, Jr.

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