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California Court of Appeal Defines "Actual Injury" in Determining Whether to Toll the Statute of Limitations in Legal Malpractice Actions

September 5, 2012

Croucier v. Chavos

(July 18, 2012, G045323) __Cal.4th__ [D.A.R. 9977] 

HOLDING

In legal malpractice cases governed by California Code Civ. Proc., § 340.6, actual injuries accrue – and the one year statute of limitations is not tolled – because plaintiffs’ loss or diminution of a right or remedy is an “actual injury”, caused in this case by an attorney’s failure to timely recover a judgment.

WHY THIS CASE IS IMPORTANT

This case is important because it clarifies that in California legal malpractice actions, the underlying case need not be resolved to determine whether a plaintiff has sustained an actual injury.  A loss or diminution of a right or remedy is sufficient to constitute an actual injury.  Therefore, when a legal malpractice plaintiff has suffered a loss or diminution of a right or remedy, the statute of limitations will not be tolled to await the outcome of the underlying action.

FACTS

Plaintiffs’ attorney, Chavos,successfully obtained a default judgment but failed to enforce the judgment.  As a result of this failure,the assets to be recovered by enforcing the judgment were transferred beyond plaintiffs’reach, causing them further expense in litigation,time, and effort. The plaintiffs then filed the legal malpractice case at hand, alleging that Chavos committed legal malpractice and other torts in the underlying litigation, specifically failing to enforce the judgment obtained therein.

DISCUSSION

The limitations period to file a legal malpractice action is the lesser of one year from actual or imputed discovery, or four years regardless, unless tolling applies.  In this case, plaintiffs filed their malpractice complaint on August 13, 2009, within any possible four year limitations period.

There are three issues that address the one year limitations period: (1) did plaintiffs discover Chavos’s wrongful acts more than one year prior to filing their action against him;(2)if discovery occurred, did Chavos continue to represent plaintiffs; and (3) if discovery occurred, was the statute of limitations tolled because plaintiffs had yet to sustain an actual injury at the time they discovered Chavos’s wrongful act.  

The Court determined that Plaintiffs knew of Chavos’s wrongful acts and his representation ended on June 5, 2012, the date they substituted in new counsel and renewed litigation to enforce the judgment.  The third issue, whether plaintiffs sustained an “actual injury” by the time they discovered Chavos’s wrongful act, is the main issue addressed in this appeal. 

Plaintiffs argued that the statute of limitations is tolled because the “actual injury” in the malpractice suit is contingent upon the result of underlying business litigation.  The Court rejected this argument, stating litigating and resolving a legal malpractice case does not depend upon the judicial resolution of a separate action.  

The Court concluded that plaintiffs suffered an “actual injury” when Chavos failed to enforce plaintiffs’ judgment in the underlying business litigation from mid-2006 through June 2008.  Chavos’s failure in this time period enabled the defendants in the underlying action to transfer assets, negatively affecting plaintiffs’ ability to enforce the judgment.  It is this loss or diminution of the plaintiffs’right to enforce the judgment in the underlying business litigation that represented an “actual injury.”  

Because Plaintiffs had suffered an actual injury starting in mid?2006, the statute of limitations was not tolled until the resolution of the underlying action.  Instead, it began to run on June 5, 2008. Plaintiffs did not file their legal malpractice until more than a year later, on August 13, 2009, and therefore,the action is time?barred. The Court affirmed the lower court’s dismissal.

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