Conkle, Kremer & Engel represented Jordache Enterprises and its owners, Joe, Ralph and Avi Nakash, in a legal malpractice action against Brobeck, Phleger & Harrison. Brobeck had represented Jordache and the Nakashes in litigation involving the ownership of Guess? (manufacturer of Guess? jeans) in the late 1980’s. Jordache’s malpractice suit alleges that Brobeck’s failure to advise Jordache as to the possibility of insurance coverage for its legal expenses in the case involving Guess?, which resulted in Jordache settling its claims against its insurers for far less than the amounts the insurers would otherwise have been required to pay. As its principal defense to the malpractice claims of Jordache and the Nakashes, Brobeck asserted California ‘s statute of limitations.
After a lengthy battle Jordache, through Conkle, Kremer & Engel, obtained a definitive decision that Brobeck’s principal defense, the statute of limitations, was not viable. Brobeck’s defense in the Jordache v. Brobeck action went from the trial court, to the Court of Appeal, to the California Supreme Court on one issue, then back to the Court of Appeals for a final decision on another. The final decision was that Brobeck had no statute of limitation defense: The statute of limitation was tolled during Brobeck’s continuous representation of Jordache in the Guess? Jeans litigation. The legal malpractice claims of Jordache and the Nakashes could proceed against Brobeck.
The malpractice case arose because Brobeck failed to advise Jordache that there might be insurance coverage for claims made against Jordache and the Nakash Brothers in the litigation by Guess? and the Marciano Brothers. If there is potential coverage for the claims, insurers are generally required to pay attorney fees to defend the policyholder. Jordache had incurred in excess of $30 million in fees and expenses in the litigation arising from its dispute with the Marciano Brothers, which fees and expenses were paid by Jordache rather than its insurers.
Conkle, Kremer & Engel represented Jordache in litigation against the insurers to recover the attorney fees paid in the Marciano action. The insurers defended by asserting that they were not given notice of the Marciano action until some three years after it had started. Although Jordache was able to settle its claims with the insurers for $12.5 Million, that amount was substantially less than the fees and expenses Jordache actually paid out in the Marciano litigation.
California law requires that cases against lawyers for claims other than actual fraud be filed within one year. The clock starts ticking as soon as the client knows or should know he has a claim against the lawyer. There are several exceptions or “tolling provisions” which may apply to stop the clock. One is where the client has suffered no “actual injury” from the lawyer’s malpractice; another is when the lawyer continues to represent the client with respect to the same subject matter. The one year statute of limitation for legal malpractice is one of the shortest limitation periods in California , and can put considerable pressure on clients to make difficult decisions quickly. It is therefore a common experience in lawyer malpractice claims that a major battle ensues as to whether the case has simply been filed too late. Even if the conduct of the lawyer is egregious, the short time to file may cause a court to throw out a client’s meritorious claim
In an argument which can perhaps best be characterized as “sue your lawyer first,” Brobeck asked the trial court to rule that Jordache should have sued Brobeck within a year of the first suggestion of possible error. According to Brobeck, Jordache had suffered “actual injury” sufficient to start the running of the limitation period for a malpractice action years before Jordache even filed its claims against its insurers. In other words, Jordache was not allowed to await the outcome of its disputed claims against the insurance companies before suing Brobeck. Brobeck also claimed that it had ceased to represent Jordache years earlier, when it was replaced as lead counsel on the Guess? case. Brobeck’s contention was that it had stopped representing Jordache in the “specific subject matter” in which the malpractice occurred, despite remaining part of Jordache’s legal team and billing Jordache more than $300,000 in additional fees.
Conkle, Kremer & Engel represented Jordache in the trial court and in its successful challenge to the trial court’s ruling that the malpractice action was filed by Jordache too late. On September 18, 1996, a unanimous panel of the California Court of Appeal in Los Angeles reversed a trial court’s ruling in favor of Brobeck based on the “actual injury” exception to the statute of limitations. The Court of Appeal held that the statute of limitations did not start to run until Jordache settled with its insurers. In its 1996 opinion, the Court of Appeal emphasized the need to establish a causal connection between the alleged negligence of the attorney and the injury alleged to have accrued to the client. The Court of Appeal held this connection could not be established until the resolution of Jordache’s action against its insurers.
After holding that the case was not filed late, the Court of Appeal held that upon proof of Brobeck’s negligence concerning Jordache’s insurance rights, Jordache will be entitled to recover the damages which flowed from Brobeck’s negligence. The Court of Appeal stated, “These damages might include, among other things, Jordache’s costs in defending the Marciano Action, the amount representing the loss of use of the funds which were expended in payment of legal fees instead of being used for business or investment opportunities” and other expenses. In the 1996 decision, the Court of Appeal did not address the second exception to the one year filing requirement which Jordache argued. The Court of Appeal determined that it need not rule on Jordache’s argument that “continuous representation” tolling applied, because the Court agreed with Jordache’s argument that “actual injury” tolling applied to stop the statute of limitations.
The California Supreme Court reviewed the 1996 Court of Appeal decision. The Supreme Court used the opportunity to announce a new rule that precludes the tolling of the one-year statute of limitations on “actual injury” grounds once any appreciable damage occurs to the client. Most often, this would be in the form of the first few dollars in attorneys’ fees or expenses incurred to investigate the potential problem. The limitation period starts even though the questions of whether, and to what extent, the client was damaged (or even whether the lawyer actually made a mistake) cannot be determined for years to come. The effect is to start the clock ticking on the “actual injury” aspect of the limitations period for filing a malpractice lawsuit against a lawyer almost immediately once the client knows or “should know” of the lawyer’s potential mistake. This rule results in the statute of limitation for legal malpractice claims potentially starting — and ending — far earlier than most clients would imagine.
Developments concerning California ‘s statute of limitations controlling this “actual injury” issue of attorney malpractice actions have arrived at a furious pace in the last several years. The new rule announced by the Supreme Court in the Jordache v. Brobeck decision expressly overruled another Supreme Court case decided only three years earlier. Indeed, the Supreme Court’s principal author, Justice Chin, found himself expressly disapproving language in a case he himself had written as a Justice in the Court of Appeal just three years prior.
But the Supreme Court victory for Brobeck was short-lived. Because California ‘s statute of limitations provides other methods of tolling the statute of limitation, and one of these had been argued by Jordache, the Supreme Court remanded the action to the Court of Appeal for further determinations of that aspect of the statute of limitations defense. Thus, in the Court of Appeal’s second review of the case, the Court was called upon to decide the issue of “continuous representation” tolling of the legal malpractice statute of limitations. Jordache argued that the specific subject matter in which Jordache alleges that Brobeck committed malpractice was in the latter’s defense of the Marciano Action. The evidence presented to the trial court was that Brobeck had continued to represent Jordache in the defense of the Marciano Action until November 1989, even though it was no longer lead counsel. The Court of Appeal agreed, and further declined Brobeck’s invitation to assess the substantiality of the legal services rendered and to create an exception to the continuous representation rule for “insubstantial” or “de minimis” services. Conkle, Kremer & Engel was able to demonstrate that Brobeck had continued to represent Jordache and the Nakashes in the Guess? Jeans litigation within a year before the commencement the legal malpractice lawsuit. That continuous representation tolled the statute of limitation for Jordache’s legal malpractice claims, and defeated Brobeck’s defense.
Developments concerning California ‘s legal malpractice statute of limitations, Code of Civil Procedure Sec. 340.6, are likely to continue at a rapid rate. Given the rapid onset of the limitation period that the Supreme Court imposed by its new “actual injury” rule, “continuous representation” tolling is likely to become an even more important litigation battleground in the future.
Full Text of the First Court of Appeal Decision, Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison, et al. , 49 Cal. App. 4th 609, 56 Cal. Rptr. 2d 661, 96 C.D.O.S. 7026, (California Court of Appeal, Second Appellate District 1996) ( Reversed )