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Utah Court Holds That Fraudulent Concealment Tolls Statute of Limitations

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:

¶2 In April 2009, Plaintiffs retained Savage to defend them in a lawsuit filed against them in Utah by McGillis Investments Company. During the discovery period on this lawsuit, Plaintiffs collected and produced approximately 19,000 documents, which Savage intended to present as exhibits at trial. However, Savage failed to comply with the pretrial disclosure requirements of rule 26(a) of the Utah Rules of Civil Procedure, and as a result, the trial court struck “substantially all” the exhibits Savage intended to use to defend Plaintiffs at trial.

¶3 The case proceeded to trial, and the jury entered a verdict against Plaintiffs on October 22, 2010, which included a $1,250,000 judgment. Plaintiffs paid the judgment, as well as $700,000 in legal fees to Savage. Subsequently, McGillis filed a second suit against Plaintiffs in Colorado, which went to trial in June 2014. At trial in that case, “McGillis was allowed to make references to the Utah case.” The Colorado jury ultimately found against Plaintiffs as well and entered judgment “in the amount of $1,450,000 and property worth $400,000.”

¶4 Plaintiffs filed a complaint against Savage on October 17, 2017, alleging legal malpractice, breach of contract, and breach of fiduciary duty. The complaint alleged that Savage did not tell Plaintiffs the exhibits had been stricken until just before trial, that he told them “not to worry” about the stricken exhibits because he could rely on the other party’s exhibits at trial, and that he assured them the trial court had erred in striking the exhibits and its decision would be overturned on appeal. It further alleged that Savage did not inform Plaintiffs that the exhibits were stricken due to his failure to comply with the pretrial disclosure requirements of rule 26(a) and that Plaintiffs did not learn of his failure until June 2014.

¶5 Savage moved to dismiss Plaintiffs’ complaint on the ground that the statute of limitations on their malpractice claims had expired. Savage asserted that the statute of limitations on Plaintiffs’ claims began to run on October 22, 2010, when the verdict was entered against them in Utah, and that pursuant to the four-year limitations period on legal malpractice claims, see Utah Code Ann. § 78B-2-307 (LexisNexis 2018), their claims expired on October 22, 2014. Savage further asserted that the statute of limitations was not tolled, because Plaintiffs admitted that they discovered the facts giving rise to their claims in June 2014, within the limitations period.

¶6 In response to Savage’s motion, Plaintiffs sought to amend their complaint to include additional allegations relevant to the tolling issue:

36. At the time Plaintiffs first heard of Savage’s failure, Savage was still representing Plaintiffs.

37. When Plaintiffs first learned of Savage’s failure, they did not know that such failure amounted to legal malpractice.

38. Furthermore, they could not discover their legal malpractice claim because they were still being represented by Savage and the severity of Savage’s failures was still being concealed by Savage.

39. However, Plaintiffs later retained independent counsel not associated with Savage to work on appellate matters related to verdicts against them in April of 2016.

40. At this time, with the direction of independent counsel, Plaintiffs first learned the significance of Savage’s failure, and they began investigating potential malpractice claims against [Savage] . . . .Plaintiffs did not dispute that the statute of limitations began to run as of October 22, 2010, but argued that the statute of limitations should be tolled under the fraudulent concealment doctrine. They asserted that “despite learning about the factual circumstance giving rise to their legal malpractice claim” in June 2014, “Plaintiffs acted reasonably not fully understanding the legal significance of Savage’s failure, and therefore, they acted reasonably in not filing suit immediately.” Because “they acted reasonably in light of [Savage’s] fraudulent concealment,” Plaintiffs maintained that the statute of limitations should be tolled until June 2018, four years after they first discovered the facts underlying their claim.

The Court of Appeals reversed the trial court’s dismissal of the case and held that the lawyer fraudulently concealed the cause of action.

¶14 Plaintiffs’ amended complaint asserted (1) that their ongoing attorney-client relationship with Savage precluded them from timely filing their claim and (2) that based on Savage’s representations and statements regarding the significance of the exhibits, they did not understand that Savage’s error amounted to legal malpractice. Savage asserts that Plaintiffs’ factual allegations as pleaded in their complaint and amended complaint are insufficient to toll the statute of limitations because, contrary to Plaintiffs’ assertion, Savage had concluded his representation of Plaintiffs before June 2014 and because Plaintiffs’ ignorance of the legal significance of the facts cannot be a basis for tolling the statute of limitations. We disagree.[3]

¶15 In ruling on a motion to dismiss, the court must “accept the factual allegations in the complaint as true and interpret those facts, and all reasonable inferences drawn therefrom, in a light most favorable to the plaintiff as the nonmoving party.” Russell Packard, 2005 UT 14, ¶ 34. Although “[t]he district court may take judicial notice of public records and may thus consider them on a motion to dismiss,” BMBT, LLC v. Miller, 2014 UT App 64, ¶ 6, 322 P.3d 1172 (quotation simplified), the court was still required to accept Plaintiffs’ factual allegations as true. The amended complaint asserted that Plaintiffs were hindered in recognizing and pursuing their malpractice claim because Savage continued to represent them and to be involved in their litigation. The amended complaint does not provide details regarding the ongoing relationship between Savage and Plaintiffs, but the mere fact that Savage withdrew as counsel in the Colorado case around this time does not demonstrate that their attorney-client relationship was terminated altogether or that he was not continuing to consult with them on other matters.

¶16 Further, Plaintiffs’ allegation that Savage’s actions precluded them from understanding the legal significance of their claims is relevant to an inquiry into the reasonableness of their actions in this case. Savage accurately points out that it is “the discovery of facts forming the basis for the cause of action” that is relevant to the tolling of the statute of limitations, not the legal significance of those facts, and that “[m]ere ignorance of the existence of a cause of action will neither prevent the running of the statute of limitations nor excuse a plaintiff’s failure to file a claim within the relevant statutory period.” Russell Packard, 2005 UT 14, ¶¶ 20-21. However, Plaintiffs alleged that Savage led them to believe that they lacked a cause of action because he told them that the exclusion of the exhibits would not hurt their case. In other words, accepting Plaintiffs’ allegations as true, they did not delay pursuing their cause of action out of mere ignorance; they delayed as a result of misinformation allegedly provided by Savage.[4]

¶17 While four months may be “ample time” for a plaintiff to file a lawsuit under some circumstances, we cannot say, as a matter of law, that Plaintiffs did not act with reasonable diligence in this case. Accepting the allegations in Plaintiffs’ amended complaint, it is reasonable to infer that Savage’s misrepresentations led Plaintiffs to believe that they could not pursue a malpractice claim, despite knowing of the facts underlying that cause of action, and that Plaintiffs were not in a position to file a suit against Savage during those four months by engaging another attorney because of their continuing relationship with Savage. We simply do not view this as the “clearest of cases.” See Berenda, 914 P.2d at 54. Because the amended complaint alleged facts sufficient to withstand a motion to dismiss, the district court erred in dismissing Plaintiffs’ claims and in denying their motion to amend their complaint.

The court reversed the judgment and remanded the case to the trial court for further proceedings.

Comments: This is a thoughtful opinion on what can be a contentious and difficult issue. Different courts may view these issues very differently. The cases on this issue are divided. In my opinion, the plaintiff’s argument was well-taken. Most client do not understand the legal process and do not understand whether legal work is going to meet the standard of care. Also, errors become more clear in hindsight.

Should you have a question about a legal malpractice case, do not hesitate to contact me at (312) 357-1515.

Ed Clinton, Jr.

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