Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503

In this California Supreme Court case, Horvitz & Levy LLP, in association with co-counsel John Moscarino, successfully reversed a Court of Appeal decision in a case involving the “continuous representation tolling” rule that governs the statutes of limitations in malpractice actions against attorneys. The Supreme Court ruled that, after an act of malpractice causes harm, the “continuous representation” rule tolls the statute only as to the attorney or firm that continues to work for the client, and not as to claims against a firm that previously but no longer works for the client in connection with the matter.

Beal Bank filed suit against Arter & Hadden four years after the firm’s alleged negligence resulted in an adverse bankruptcy court judgment against Beal, and almost four years after the attorney-client relationship between Beal and Arter & Hadden had ended. During that time, Beal’s appeals to the district court and Ninth Circuit were handled by an associate who had once worked on the case while at Arter & Hadden, but who had left the firm and taken the case with him. Beal argued that Code of Civil Procedure section 340.6 is ambiguous and should be construed to toll the statute of limitations on a legal malpractice claim is tolled as to all attorneys who have ever worked on the case, rather than only as to the attorney who continues to work for the client.

The Supreme Court rejected Beal’s arguments for three reasons. First, it ruled Code of Civil Procedure section 340.6 is not ambiguous and should be interpreted according to its plain meaning. “Under ordinary rules of grammar, ‘[t]he attorney’ in subdivision (a)(2) [i.e., the attorney who continues to represent the client] refers back to the ‘attorney’ who is the target of the action in subdivision (a) [i.e., the attorney who is sued for malpractice].” Second, the Court reasoned that applying the tolling rule to attorneys and firms that no longer represent the client would introduce into the statutory scheme the very uncertainty about statutory deadlines that section 340.6 was designed to eliminate. Third, the continuous representation rule was intended to avoid disrupting the attorney/client relationship by forcing clients to sue their own attorneys prematurely. The Court believed there was minimal risk that the relationship between the client and the attorney would be disrupted by a third party indemnity suit. In any event, the potential disruption caused by such third party litigation could be eliminated by stays and other procedural devices.

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