Adams v. Paul

904 P.2d 1205, 11 Cal. 4th 583, 46 Cal. Rptr. 2d 594, 95 Cal. Daily Op. Serv. 8913, 95 Daily Journal DAR 15457, 1995 Cal. LEXIS 679

• Court: California Supreme Court
• Decided: November 22, 1995
• Docket: S041623
• Status: Published

Opinions

Opinion

ARABIAN, J.

“The most common error of the attorney engaged in litigation is the failure to file the client’s claim or cause of action within the time required by a statute of limitations.” (2 Mallen & Smith, Legal Malpractice (3d ed. 1989) § 24.13, p. 481, fn. omitted.)

We granted review in this matter to determine when, in the event of such a failure or misadvice as to the applicable limitations period, the plaintiff sustains “actual injury” for purposes of tolling the statute of limitations in a subsequent suit for professional negligence. In light of the numerous variables arising in “missed statute” cases, we conclude, consistent with the general rule, that “the determination of the time when plaintiff suffered damage raises a question of fact.” (Budd v. Nixen (1971) 6 Cal.3d 195, 202 [98 Cal.Rptr. 849, 491 P.2d 433].) If the material facts are undisputed, the court may, however, resolve the issue of when the plaintiff suffered manifest and palpable injury as a matter of law. (Id. at p. 202.)

Factual and Procedural Background

Plaintiff Katherine Adams brought this legal malpractice action in October 1992 against her former attorney Aaron Paul, claiming he negligently provided incorrect advice regarding the time period within which she should file an underlying wrongful death action. Since we are reviewing the case following the trial court’s sustaining of defendant Paul’s demurrer, we draw the relevant facts from Adams’s pleadings.

On April 17, 1983, Adams’s former husband, Warren Standeven, shot and killed their son. Later that same day, he died in a fire at the family home. In late 1983, Adams contacted Attorney Steven Kazan for general advice concerning her rights surrounding her son’s death. Kazan, whose legal practice primarily involved personal injury law, referred Adams to defendant Paul, an experienced probate attorney, for purposes of setting up a probate estate, representing the administrator, and advising Adams and the Kazan office about pursuing claims and lawsuits.

On April 6, 1984, Paul received telephone calls from Adams and the Kazan office informing him Adams intended to file against the estate of her late husband. Paul agreed to represent the estate and to inform Adams and the Kazan office of the time limits for bringing claims and related actions. Several days later, Paul advised Adams the time for filing against the estate would not begin to run until letters of administration were issued. If the claim were rejected, a legal action should be filed 90 days after formal written notification.

Letters of administration were issued on October 16, 1984. On January 21, 1985, Paul told Adams the deadline for filing a claim against the estate was February 16, 1985, but failed to indicate the one-year statute of limitations on any wrongful death action had commenced when letters of administration were issued. Nor did he inform her of alternative procedures for seeking recovery limited to the estate’s insurance proceeds.

Adams filed a claim against the estate on February 12, 1985, which the administrator formally rejected in September 1986. Within 90 days thereof, on December 8, 1986, Adams filed a wrongful death action. In March 1990, the estate moved for summary judgment contending the complaint was barred by the statute of limitations.

Represented by the Kazan office, Adams opposed the motion on the ground the estate was estopped from asserting the statute of limitations defense. In support of this position, on April 3, 1990, Paul executed a declaration acknowledging his failure to advise Adams correctly on the deadline for filing the wrongful death action. Following this declaration Paul did nothing further on Adams’s behalf.

On June 1, 1990, the trial court denied the motion for summary judgment, finding triable issues of fact as to whether Paul, while acting in the capacity of attorney for the estate, made material representations to Adams or Kazan regarding the time for filing a complaint against it, and whether Adams and Kazan reasonably relied upon such representations.

On October 21, 1991, the parties to the wrongful death action settled the lawsuit. Kazan continued to represent Adams until March 1992, when she retained new counsel to investigate a potential legal malpractice action against Paul. On October 1, 1992, Adams filed the original complaint in this case. In her second amended complaint, she alleged Paul’s negligent advice and conduct resulted in her having to settle and dismiss the wrongful death action, and thereby receiving substantially less than she should have obtained had the statute of limitations defense not been raised. She sought damages in excess of $200,000.

Paul demurred on the ground the action was time-barred under Code of Civil Procedure section 340.6, subdivision (a), because it had been filed more than one year after Paul had executed his declaration admitting he gave erroneous advice. The trial court sustained the demurrer without leave to amend and dismissed the complaint. Following the reasoning of Finlayson v. Sanbrook (1992) 10 Cal.App.4th 1436 [13 Cal.Rptr.2d 406], the court determined Adams had suffered actual injury when the statute of limitations expired in her wrongful death action; and therefore her malpractice claim was untimely.

The Court of Appeal affirmed but applied a different rationale as to when Adams had suffered actual injury, finding it occurred when she was forced to oppose the motion for summary judgment in April 1990. At that point, the integrity of her lawsuit had been compromised, and she was required to engage an attorney to handle Paul’s alleged error. Since she discovered the negligence no later than that time in view of Paul’s declaration, the applicable statutory period began then. Thus, the malpractice action filed more than two and one-half years later was time-barred.

Discussion

Recently in ITT Small Business Finance Corp. v. Niles (1994) 9 Cal.4th 245 [36 Cal.Rptr.2d 552, 885 P.2d 965] and International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606 [38 Cal.Rptr.2d 150, 888 P.2d 1279], a majority of this court concluded in those very narrowly drawn circumstances that adverse judgment, settlement, dismissal, or the like constituted actual injury within the meaning of Code of Civil Procedure section 340.6, subdivision (a)(1) (section 340.6(a)(1)).¹ Those decisions were not paradigms, however, and did not articulate a “rule for all seasons.” As this court recognized almost 25 years ago in Budd v. Nixen, supra, 6 Cal.3d at pages 201-202, depending upon the particulars, actionable harm may occur at any one of several points in time subsequent to an attorney’s negligence. Hence, as with other causes of action, the determination is generally a question of fact. (Id. at p. 202; see. e.g., McCann v. Welden (1984) 153 Cal.App.3d 814, 824 [200 Cal.Rptr. 703]; cf. Brown v. Bleiberg (1982) 32 Cal.3d 426, 436 [186 Cal.Rptr. 228, 651 P.2d 815] [medical malpractice injury]; Oakes v. McCarthy Co. (1968) 267 Cal.App.2d 231, 255 [73 Cal.Rptr. 127] [injury from negligent construction].)

Moreover, we find nothing in the language or history of section 340.6(a)(1) indicating the Legislature intended, in codifying decisional law, to alter the well-settled principle that in legal malpractice actions statute of limitations issues, including injury, are at base factual inquiries. That established standard is reiterated or alluded to at least four times in Budd v. Nixen, supra, 6 Cal.3d at pages 198, 202, 203-204, from which the “actual injury” tolling provision of the statute derives. (Laird v. Blacker (1992) 2 Cal.4th 606, 612 [7 Cal.Rptr.2d 550, 828 P.2d 691].) Had the Legislature meant to significantly modify the law, it surely would have made that intention explicit.

The myriad of circumstances under which statute of limitations issues may arise in missed statute cases sharply illustrates the practicality of applying the prevailing “question-of-fact” rule to the determination of when actual injury occurs. The number of potential variables, which do not necessarily follow a set pattern, precludes defining the point of harm as a fixed point or event because reasonable application becomes too problematic. (See post, fn. 4, p. 591.) The issue may be resolved “as a matter of law” only if the facts are undisputed. (Budd. v. Nixen, supra, 6 Cal.3d at p. 202.)

Although affirming this central precept, the task remains nevertheless to give some contours to the pertinent inquiry to provide guidance to the trier of fact or the trial court on summary judgment if the parties agree on the material facts. To this end, Budd v. Nixen, supra, 6 Cal.3d 195, provides considerable insight.² To begin with, as the court reiterated in Laird v. Blacker, supra, 2 Cal.4th at page 625, the fact of damage rather than the amount is the relevant consideration. (See Budd v. Nixen, supra, 6 Cal.3d at p. 201.) In addition, the character or quality of the injury must be manifest and palpable. “The mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm—not yet realized— does not suffice . . . .” (Id. at p. 200; see also Davies v. Krasna (1975) 14 Cal.3d 502, 513-514 [121 Cal.Rptr. 705, 535 P.2d 1161, 79 A.L.R.3d 807]; Walker v. Pacific Indemnity Co. (1960) 183 Cal.App.2d 513, 517-518 [6 Cal.Rptr. 924].)

In the “classic” missed statute situation, in which the attorney negligently fails to file the underlying lawsuit within the applicable statutory period and does nothing further, the plaintiff suffers actual harm at the time the statutory period lapses because, assuming the claim was otherwise viable, the right and/or remedy of recovery on the action has been substantially impaired.³ (See, e.g., Finlayson v. Sanbrook, supra, 10 Cal.App.4th at p. 1442; Davies v. Krasna, supra, 14 Cal.3d at p. 514 [defendant’s breach of confidence “ ‘substantially destroyed marketability’ ” of plaintiff’s story causing “actual harm” within the meaning of Budd]-, Basinger v. Sullivan (Ind.Ct.App. 1989) 540 N.E.2d 91, cited with approval in Laird v. Blacker, supra, 2 Cal.4th at p. 629; see also Rest.2d Torts, § 7, subd. (1), p. 12 [defining “injury” as “the invasion of any legally protected interest of another”]; cf. Walker v. Pacific Indemnity Co., supra, 183 Cal.App.2d at p. 517; Campbell v. Magana (1960) 184 Cal.App.2d 751, 758 [8 Cal.Rptr. 32].) Despite uncertainty of amount or difficulty of proof (see, e.g., Benard v. Walkup (1969) 272 Cal.App.2d 595, 605-606 [77 Cal.Rptr. 544]), the fact of harm would not be speculative or inchoate. (See § 312 [expressly precluding commencement of any civil action except within “the periods prescribed”]; cf. Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 873-874 [254 Cal.Rptr. 336, 765 P.2d 498] [discussing sanctions for filing of frivolous lawsuits]; Marshall v. Packard-Bell Co. (1951) 106 Cal.App.2d 770, 774 [236 P.2d 201].) Moreover, the loss or diminution of a right or remedy is well recognized as constituting injury or damage. (See Hensley v. Caietti (1993) 13 Cal.App.4th 1165, 1175 [16 Cal.Rptr.2d 837]; Sirott v. Latts (1992) 6 Cal.App.4th 923, 929 [8 Cal.Rptr.2d 206]; Ruchti v. Goldfein (1991) 113 Cal.App.3d 928, 935 [170 Cal.Rptr. 375]; Jensen v. Sprigg (1927) 84 Cal.App. 519, 525 [258 P. 683], disapproved on another point in Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 190, fn. 29 [98 Cal.Rptr. 837, 491 P.2d 421]; see also Basinger v. Sullivan, supra, 540 N.E.2d at p. 94; Woodburn v. Turley (5th Cir. 1980) 625 F.2d 589, 592 [applying Texas law]; cf. Rand v. Bossen (1945) 27 Cal.2d 61, 65 [162 P.2d 457]; United States v. Gutterman, supra, 701 F.2d at p. 104 [applying Budd, actual injury arose and “ ‘the damage was done’ ” when attorney’s negligence caused plaintiff to incur liability for payment of taxes at unfavorable rate].)

In other circumstances, the actual loss of the underlying remedy may remain contingent, that is, the attorney’s negligence may have created only the potential for future harm. (Cf. Heyer v. Flaig (1969) 70 Cal.2d 223 [74 Cal.Rptr. 225, 449 P.2d 161], overruled on other grounds in Laird v. Blacker, supra, 2 Cal.4th at p. 617 [beneficiary’s actionable injury for negligence in drawing of will did not arise until testator’s death because no recognized legal rights under will until that time]; Horne v. Peckham (1979) 97 Cal.App.3d 404, 417 [158 Cal.Rptr. 714] [negligent preparation of trust documents did not cause “actual and true damage . . . until the trust was challenged and plaintiffs were forced to pay legal fees to defend” them]; Fazio v. Hayhurst (1966) 247 Cal.App.2d 200, 203 [55 Cal.Rptr. 370], disapproved on another point in Neel v. Magana, Olney, Levy, Cathcart & Gelfand, supra, 6 Cal.3d at p. 190, fn. 29 [since widow’s election was revocable, no “actual damage” from negligent advice until election was acted upon].) Notwithstanding apparent expiration of the statutory period, questions of waiver, estoppel, or even the applicable limitations period may raise factual issues concerning when the attorney’s negligence caused definite and certain injury or more than nominal or insubstantial damages. (See, e.g., Budd v. Nixen, supra, 6 Cal.3d at pp. 201-202; Benard v. Walkup, supra, 272 Cal.App.2d at p. 601 [issue whether two- or four-year statute applied in case of contingency fee agreement]; see also McCann v. Welden, supra, 153 Cal.App.3d 814; cf. Walker v. Pacific Indemnity Co., supra, 183 Cal.App.2d at pp. 517-519.)

Consistent with the rule and rationale we articulate, it is important to note that in these latter situations of contingent or speculative harm, the determination of actual injury does not necessarily depend upon or require some form of final adjudication, as by judgment or settlement.⁴ “ ‘[A]n injury does not disappear or become suspended because a more final adjudication of the result is sought.’ [Citation.]” (Laird v. Blacker, supra, 2 Cal.4th at p. 615.) In addition, as the court explained in Budd, “the facts may demonstrate that plaintiff suffered damage when . . . compelled to ‘incur and pay attorney’s fees and legal costs and expenditures’ ” as the result of the malpractice.⁵ (Budd v. Nixen, supra, 6 Cal.3d at pp. 201.) It would be for the trier of fact to determine when the requisite harm actually did occur as a consequence of the attorney’s negligence. (See Miller v. Bean (1948) 87 Cal.App.2d 186, 189 [196 P.2d 596]; cf. Oakes v. McCarthy Co., supra, 267 Cal.App.2d at p. .) Of course, if the facts are undisputed, the trial court can resolve the question as a matter of law in accordance with the general principles governing summary judgment. (Budd v. Nixen, supra, 6 Cal.3d at p. 202; see, e.g., McCann v. Welden, supra, 153 Cal.App.3d at p. 824, fn. 13; Yandell v. Baker (1968) 258 Cal.App.2d 308, 311-312 [65 Cal.Rptr. 606], disapproved on another point in Neel v. Magana, Olney, Levy, Cathcart & Gelfand, supra, 6 Cal.3d at p. 190, fn. 29; see generally, Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107 [252 Cal.Rptr. 122, 762 P.2d 46].)

A final passage from Budd v. Nixen, supra, 6 Cal.3d at page 201, may also inform the actual injury inquiry: “Ordinarily, the client has already suffered damage when he discovers his attorney’s negligence, as occurred in Neel v. Magana, Olney, Levy, Cathcart & Gelfand, [supra, 6 Cal.3d at pp.] 183-187 .... In other cases, the infliction of the damage will alert the client to the attorney’s negligence and thus the statute of limitations will then begin to run on any malpractice action. Only in the unusual case will the client discover his attorney’s negligence without having suffered any consequential damage.” In missed statute cases, the first observation will probably characterize the majority of circumstances. Nevertheless, given the number of variables potentially affecting the actual injury equation, the “unusual case” may routinely present itself as well.

Retaining the question of actual injury as a factual inquiry in missed statute cases also serves reasonably to accommodate the conflicting policy considerations implicated. Although sometimes characterized as a “technical defense” allowing a defendant “to obtain an unconscionable advantage and enforce a forfeiture” (Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 411 [154 P.2d 399]), statutes of repose are in fact favored in the law, “designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. The theory is that even if one has a just claim it is unjust not to put the adversary on notice to defend within the period of limitation and that the right to be free of stale claims in time comes to prevail over the right to prosecute them.” (Telegraphers v. Ry. Express Agency (1944) 321 U.S. 342, 348-349 [88 L.Ed. 788, 792, 64 S.Ct. 582, 586].) Since plaintiffs are also protected by the discovery and continuing representation provisions of section 340.6, it does not seem unfair to allow for actual injury to arise at some point short of an adverse judgment or settlement, and as early as the time when the underlying statute of limitations expired, depending upon the facts.

As to concerns for the premature filing of legal malpractice claims and the risk of inconsistent pleadings or judgments, they can be readily overcome under existing law. Statutory provisions permit consolidation or coordination of related actions. (§§ 404, 1048, subd. (a); see also Cal. Rules of Court, rule 1501 et seq.) Alternatively, trial courts have inherent authority to stay malpractice suits, holding them in abeyance pending resolution of underlying litigation. (Cf. Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 310 [24 Cal.Rptr.2d 467, 861 P.2d 1153] [stay of declaratory relief action pending outcome of third party suit]; Haskel, Inc. v. Superior Court (1995) 33 Cal.App.4th 963, 978-980 [39 Cal.Rptr.2d 520] [in insurer’s declaratory relief action, stay of discovery logically related to underlying action against insured]; Rosenthal v. Wilner (1988) 197 Cal.App.3d 1327 [243 Cal.Rptr. 472] [malpractice action stayed pending appeal of underlying suit].) Moreover, a party may plead in the alternative and may make inconsistent allegations. (See, e.g., Crowley v. Katleman (1994) 8 Cal.4th 666, 690-691 [34 Cal.Rptr.2d 386, 881 P.2d 1083]; Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 29 [223 Cal.Rptr. 806]; Skelly v. Rickman (1970) 10 Cal.App.3d 844, 856 [89 Cal.Rptr. 556]; 4 Witkin, Cal. Procedure (3d ed. 1985) Pleading, §§356-358, pp. 411-414.)

Turning to the disposition of this case: the trial court sustained defendant’s demurrer, citing Finlayson v. Sanbrook, supra, 10 Cal.App.4th 1436, and thus found plaintiff’s malpractice action time-barred as a legal question rather than as a matter of law on undisputed facts. Although for a different reason, the Court of Appeal reached the same result without consideration of any factual record. Both determinations were inconsistent with the rule we reaffirm that actual injury is generally a question of fact. On remand, the matter should be reconsidered and resolved on that basis. Although at least two possibilities are suggested on plaintiff’s pleadings short of the adverse settlement, i.e., when the underlying statutory period expired and when plaintiff first had to oppose the limitations defense, the facts may reveal other possibilities including the settlement. If the parties agree on the sequence of events and any other material matters, the court may then determine on summary judgment the point at which the fact of damage became palpable and definite even if the amount remained uncertain, taking into consideration all relevant circumstances. (Cf. Budd v. Nixen, supra, 6 Cal.3d at pp. 203-204.)

Disposition

The judgment of the Court of Appeal is reversed with directions to remand to the trial court for further proceedings consistent with this opinion.

Baxter, J., and Werdegar, J., concurred.

1 All further statutory references are to the Code of Civil Procedure.

Section 340.6(a)(1) provides: “An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first. In no event shall the time for commencement of legal action exceed four years except that the period shall be tolled during the time that any of the following exist: [<¡[1 (1) The plaintiff has not sustained actual injury . . . .”

2 The instructional value of the court’s discussion in Budd has some limitations in that prior to the enactment of section 340.6 the running of the statute of limitations coincided with accrual of the plaintiff’s malpractice cause of action, including damages. (See Budd v. Nixen, supra, 6 Cal.3d pp. 200-201, 202; see also United States v. Gutterman (9th Cir. 1983) 701 F.2d 104, 105-107.) By contrast, under the provisions of section 340.6, discovery of the negligent act or omission initiates the statutory period, and the absence of injury or damages serves as a tolling factor.

3 Generally, “the running of the statutory period does not extinguish the cause of action, but merely bars the remedy. . . . [Citations.]” (Western Coal & Mining Co. v. Jones (1946) 27 Cal.2d 819, 828 [167 P.2d 719, 164 A.L.R. 685].) This principle is not without qualification, however: “The general rule governs unless the action is created by statute and the language of definition requires a construction that the cause of action is destroyed by the lapse of the period of limitations provided by the statute. Under that exception to the rule the expiration of the time within which suit must be brought operates to terminate the obligation as well as to bar the remedy. [Citation.]” (Penn. R. R. Co. v. Midstate, etc., Co. (1942) 21 Cal.2d 243, 247 [131 P.2d 544], revd. on other grounds sub nom. Midstate Co. v. Penna. R. Co. (1943) 320 U.S. 356 [88 L.Ed. 96, 64 S.Ct. 128].)

4 Conditioning a finding of harm on such a consideration would conflict with the rationale of Laird v. Blacker, supra, 2 Cal.4th 606, in that it tends to resurrect the rejected notion of irremediability as the focus of actual injury. (Id. at pp. 615-617.) In Laird, the harm occurred no later than the loss of the underlying action, i.e., order of dismissal and entry of adverse judgment, due to the attorney’s negligence during the course of litigation. (See id. at pp. 612-615.) The court did not address the question of whether it could have arisen earlier. (See Hensley v. Caietti, supra, 13 Cal.App.4th at p. 1174.)

For this reason, we question the reasoning, if not the result, in Pleasant v. Celli (1993) 18 Cal.App.4th 841, 848 [22 Cal.Rptr.2d 663], in which the Court of Appeal discerned a “bright line rule formulated by the Supreme Court in Laird” and rejected the analysis in Finlayson v. Sanbrook, supra, 10 Cal.App.4th 1436,1442, which found actual injury upon expiration of the underlying statute. (Pleasant v. Celli, supra, 18 Cal.App.4th at pp. 848-850.) The court in Finlayson correctly recognized the principles articulated Laird did not demark adverse judgment as the categorical point of actual injury for all attorney malpractice actions. (Finlayson v. Sanbrook, supra, 10 Cal.App.4th at p. 1444.) Its rationale does imply, however, that a different “bright line rule” applies in these cases, i.e., when the underlying statute is missed. (Ibid.) To the extent the courts in both Pleasant and Finlayson failed to apply a factual analysis consistent with the principles articulated herein, their reasoning is disapproved.

5 Although expenditure of attorney fees or other costs in many instances clearly would be sufficient to constitute the requisite injury, nothing in the history of section 340.6(a)(1) or its decisional predicates suggests it is necessary. In some circumstances, the loss or substantial impairment of a right or remedy itself may constitute actual injury and may well precede quantifiable financial costs. (See, e.g., Fazio v. Hayhurst, supra, 247 Cal.App.2d at p. 203 [no evidence plaintiff incurred any expenses as consequence of attorney’s negligent advice on widow’s election prior to time plaintiff was harmed by finality of election]; cf. Laird v. Blacker, supra, 2 Cal.4th at p. 614 [“We disagree with plaintiff that actual injury should be defined in terms of monetary amount. . . .”].)