California Appellate Court Analyzes When Attorney-Client Relationship Ends Stopping Tolling of Statute of Limitations For Legal Malpractice Claim

A California appellate court issued a unanimous opinion in October providing guidance regarding the tolling provision for continued representation as to legal malpractice claims, as set forth in section 340.6 of the California Code of Civil Procedure.

The court in GoTek Energy, Inc. v. SoCal IP Law Group, LLP (2016) 3 Cal.App 5th 1240, reviewed a trial court’s order granting summary judgment to the defendant law firm. The case arose from the alleged failure of the law firm (“firm one”) to timely file patent applications. In the Summer of 2012, firm one informed its then client GoTek Energy, Inc. (“GoTek”) that it had failed to file applications for patent rights in certain countries and that it “was negligent.” GoTek subsequently retained new counsel (“firm two”) to investigate its rights arising from firm one’s negligence, and on November 5, 2012, firm one received a fax stating GoTek was making a malpractice claim against it.

On November 7, 2012, firm one sent an email to GoTek stating that it “must withdraw” as its counsel, and that the firm’s attorney-client relationship with GoTek “is terminated forthwith … with regard to any matters.” The next day GoTek sent a letter to firm one providing directions to send its files to another law firm, and expressing appreciation for the services firm one had provided.  On November 15, 2012, firm one sent an email to Gotek to “confirm that we have terminated the attorney client relationship with you,” and that it was transferring Gotek’s files to successor counsel (which was accomplished that day).

On November 14, 2013, firm two filed a legal malpractice action on behalf of GoTek against firm one. In granting a summary judgment motion of firm one, the trial court found that California’s one-year statute for legal malpractice claims arguably began to run in this instance on November 7, 2012 (when firm one announced that it was withdrawing as counsel for GoTek), but certainly began to run no later than the following day when GoTek responded by informing firm one where to send its files. The trial court ruled that on an objective basis, it would have been unreasonable for Gotek to believe that firm one would provide further legal services to it after that exchange of correspondence.

In affirming the trial court’s grant of summary judgment to firm one, the appellate court rejected GoTek’s assertion that a triable issue of fact existed as to when tolling of the statute of limitations based on continuous legal representation of GoTek by firm one ended. The appellate court found GoTek’s correspondence of November 8, 2012 to be dispositive of this issue, since by requesting that its files be transferred to successor counsel, GoTek “consented to firm one’s express withdrawal the previous day.”

However, the appellate court proceeded to state that even if firm one had withdrawn from representation of GoTek without GoTek’s consent, “the withdrawal would still have been effective” such that the statute would have commenced to run more than a year before the malpractice lawsuit was filed. Quoting from Gonzalez v. Kalu (2006) 140 Cal.App 4th 21, 30-31, the court stated, “After a client has no reasonable expectation that the attorney will provide further legal services, however, the client is no longer hindered by a potential disruption of the attorney-client relationship and no longer relies on the attorney’s continuing representation, so the tolling should end.” Given the termination of representation letter sent by firm one on November 7, 2016, the court stated GoTek “could not reasonably have expected that firm one would provide further legal services.”

The appellate court also brushed aside GoTek’s argument that it believed firm one continued to provide it with legal services by transferring its files to successor counsel on November 15, 2012. The court found any such belief by GoTek was “unreasonable as a matter of law,” since firm one had previously made it clear that it would not provide further legal services and the transfer of files was a mere “clerical, ministerial activity.”

Of note, the appellate court also affirmed the trial court’s award of $140,000 to firm one for its defense costs in the malpractice action, based upon an attorney’s fee provision in the retention agreement between firm one and GoTek. That provision stated, “in the event there is any dispute between us relating to this agreement, the prevailing party to any litigation or arbitration shall be awarded its reasonable attorneys fees and costs.” The appellate court concluded that the malpractice action arose from a dispute relating to the agreement “because it arose from firm one’s negligence in securing client’s patents.”

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