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New CA Court of Appeal Opinion Re: Legal Malpractice Statute of Limitations and Tolling

The California Court of Appeal, Second Appellate District, Division Two (Los Angeles), published its opinion in Shaoxing City Maolong Muzhong Down Products, LTD. v. Keehn & Associates, APC, 238 Cal. App. 4th 1031 (Cal. App. 2d Dist. 2015), analyzing whether the legal malpractice statute of limitations was tolled based on actual injury and continued representation. 

In the underlying action, an arbitrator awarded plaintiffs $5.35 million dollars against defendants. Before plaintiffs could obtain a judgment, another company, Zhejiang Hengdi Bedding Co. Ltd. and Zhejiang Liuqiao Feather Co. Ltd. (collectively “Zhejiang”), filed a blanket lien that attached to the assets of one of the defendants, Aeolus Down, Inc. (“Aeolus”). After plaintiffs obtained the judgment, defendants filed for bankruptcy. Plaintiffs hired Keehn & Associates (“Keehn”) to obtain discovery and challenge Zhejiang’s lien as a fraudulent transfer. Keehn, then, missed the bankruptcy court deadline for the parties to conduct discovery and submit challenges to Zhejiang’s lien. On November 10, 2009, the bankruptcy court denied Keehn’s post-deadline request to retroactively extend the discovery deadline. A few weeks later, plaintiffs retained another law firm. Plaintiffs engaged in mediation with defendants and agreed to accept $3.75 million—$1.6 million less than the arbitration award. Plaintiffs sued Keehn for malpractice in February 2011, more than a year after the November 10, 2009 order. The trial court granted summary judgment in favor of Keehn. Plaintiffs appealed. 

The Court of Appeal affirmed. Plaintiffs were injured on November 10, 2009, when they lost their right to challenge Zhejiang’s lien, not when plaintiffs settled for less than the full amount of their debt. For purposes of Code of Civil Procedure section 340.6, “‘[a]ctual injury occurs when the client suffers any loss or injury legally cognizable as damages in a legal malpractice action based on the asserted errors or omissions.’” (quoting Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 742-743.) “What matters is ‘discovery of the fact of damage, not the amount.’” (quoting Laird v. Blacker (1992) 2 Cal.4th 606, 612.) The actual injury in this case occurred on November 10, 2009, when the bankruptcy court definitively confirmed that plaintiffs lost their right to challenge the Zhejiang lien. Moreover, “the absence of a pending challenge to the Zhejiang lien substantially weakened plaintiffs’ negotiating position in the ensuing mediation, and the loss of considerable settlement value also constitutes actual injury.” Accordingly, the trial court correctly determined that plaintiffs’ malpractice claim was not tolled until the completion of the mediation.

Further, the Court of Appeal concluded that “the undisputed evidence established that plaintiffs’ relationship with Keehn ended when the new firm substituted as counsel.” “The sole evidence of a continuing relationship after that point in time is the statement of a Keehn employee that Keehn would ‘oversee the transition’ and ‘assist’ ‘with his work on the case.’” This statement, however, does not establish a continuing attorney-client relationship. “Assisting the transition from one attorney to another is not providing assistance on the same subject matter.” Thus, there was no evidence of continued representation to toll the statute of limitations. Accordingly, “the one-year statute of limitations began to run on November 10, 2009, and had expired by the time plaintiffs filed their lawsuit in February 2011.”

Los Angeles partner Ken Feldman and associate David Samani took the laboring oar on ‎behalf of the Association of Southern California Defense Counsel to get the decision published.

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