Nov
29

Discovery Rule for Application of the Statute of Limitations in Legal Malpractice Claims

The First District Appellate Court of Illinois recently issued a decision in the case of Nelson v. Padgitt, 2016 IL App (1st) 160571, which considered the discovery rule for application of the statute of limitations in legal malpractice claims.  The recent line of cases that has culminated in the Nelson decision represents a trend by the Court to more narrowly apply the discovery rule.  Ultimately, the Court appears to be concluding that a plaintiff should know that he has a claim against his attorney at or near the time that the injury or adverse event occurs, and no later than the filing of an underlying lawsuit.  A potential consequence of this narrow application is that clients may be encouraged to sue their attorney more quickly.  In the past, a client could arguably wait and see if the resolution of the underlying lawsuit against the employer or business partner, for example, sufficiently remedied the injury, so that a subsequent action against the attorney became unnecessary.  However, under the Nelson decision and its predecessor cases, a client may feel that he must sue his attorney at the same time as the various defendants in the underlying action.  Consequently, there could be an increase in legal malpractice actions in the future.

In Illinois, there is a two-year statute of limitations for legal malpractice actions.  Pursuant to 735 ILCS 5/13-214.3(b), an action for legal malpractice must be filed within two years from the time the plaintiff “knew or reasonably should have known of the injury for which damages were sought.”  Under the discovery rule, the limitations period begins when the plaintiff has a reasonable belief that the injury was caused by the lawyer’s wrongful conduct and the plaintiff, therefore, has an obligation to inquire further. Dancor International, Ltd. v. Friedman, Goldberg & Mintz, 288 Ill. App. 3d 666, 673 (1997).  Actual knowledge is not necessary. SK Partners I, LP v. Metro Consultants, Inc., 408 Ill. App. 3d 127, 130 (2011).

Prior to the Nelson case, the First District Appellate Court decided two other cases dealing with the discovery rule in legal malpractice actions, that of Janousek v. Katten Muchin Rosenman LLP, 2015 IL App (1st) 142989 and Carlson v. Fish, 2015 IL App (1st) 140526.  In Janousek, the plaintiff alleged that he was frozen out of a business by his former partners, who he filed suit against. Id. ¶ 3.  Three years later, Janousek filed suit against his former attorneys, Katten Muchin, alleging they had assisted his former partners in forcing him out of the business. Id. ¶ 6.  The Appellate Court held that Janousek’s case against Katten Muchin was time barred because he knew that he had been injured when he sued his former partners, “even though he may not yet have known that [Katten]’s representation was partly responsible and that their conduct gave rise to a cause of action.” Id. ¶ 21.  The Appellate Court further held that Janousek’s claim that his former partners defrauded him “cannot be separated” from his claim that Katten failed to protect him from that fraud. Id.

In Carlson, the plaintiff settled a dispute with his former business partners while represented by attorneys.  2015 IL App (1st) 140526.  More than two years later, Carlson sued his former attorneys for malpractice because he believed the settlement was inadequate and that his partners defrauded him. Id. ¶¶ 8-9.  The Appellate Court upheld the trial court’s dismissal on statute of limitations grounds because Carlson was aware of his injury when he settled with his former partners. Id. ¶39, 41.  The Appellate Court noted that, “Carlson’s identification of one wrongful cause of his injuries initiates his limitations period as to all other causes, particularly when, as here, he claims his partners engaged in fraud and the defendants failed to protect him from fraud, those claims are inseparable.” Id. ¶ 39.

In the most recent case of Nelson v. Padgitt, the plaintiff, Dwight Nelson, hired attorney, Donald Padgitt, to represent him in negotiating an employment agreement with his new employer, Launch Creative Marketing.  ¶ 3.  Mr. Nelson signed the employment agreement on June 6, 2011. Id. Six months later, on January 19, 2012, Launch terminated Mr. Nelson’s employment based on terms of the employment agreement. Id. ¶ 4.  On October 31, 2012, Mr. Nelson sued Launch for breach of contract and fraud. Id. ¶ 5.  The trial court granted summary judgment in Launch’s favor on December 4, 2014 and attributed the outcome to Mr. Nelson’s failure to properly negotiate the employment contract to better protect his interests. Id. ¶ 6.  On July 7, 2015, Mr. Nelson sued attorney Padgitt for legal malpractice, alleging that Mr. Padgitt negligently negotiated the employment contract with Launch. Id. ¶ 7.  The trial court, subsequently, dismissed Mr. Nelson’s legal malpractice complaint because he filed his action beyond the two-year statute of limitations. Id. ¶ 8.

The Appellate Court affirmed the trial court’s dismissal of Mr. Nelson’s legal malpractice action pursuant to the two-year statute of limitations. Id. ¶ 1.  It held that Nelson must have known that the employment agreement was not drafted in his best interests upon his termination by Launch and, at the latest, when he filed suit against Launch, both occurring in 2012. Id. ¶¶  15-16.  The Appellate Court looked to its prior decisions in Janousek and Castello, holding that Nelson’s claim of malpractice against Padgitt was inseparable from his claims against Launch.  The Appellate Court explained as follows:

In 2012, Nelson (a sophisticated businessperson eventually assisted by a new attorney) knew that his economic loss from the firing stemmed directly from Launch’s reliance on the employment agreement, which had been negotiated by Padgitt and plainly did not include the economic protections that Nelson allegedly had instructed Padgitt to include. Id. ¶ 22.

For the same reasoning, the Appellate Court also held that Nelson did not need the trial court’s adverse judgment to know that he had been harmed by Padgitt. Id. A legal malpractice claim can accrue before an adverse judgment if it is “plainly obvious” that a plaintiff has been injured as a result of professional negligence. Id.

Attorneys should be aware of the potential consequences of the Nelson decision.  While a statute of limitations defense may be more viable, Nelson may also prove to be a catalyst for increased legal malpractice lawsuits.

Jessica Allan

Jessica Allan

Jessica D. Allan is an associate in the firm's Libertyville office and focuses her practice on civil litigation, including medical and hospital negligence work. Ms. Allan also defends individuals and businesses in personal injury and property damage claims arising from product liability, premises liability, motor vehicle liability, general negligence, trucking and transportation matters. In addition, Ms. Allan handles wills, trusts, and basic estate planning matters as well as residential real estate closings.

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