Statute of Limitations Bars Legal Malpractice Claim

In Athena of S.C., LLC v. Macri, No. E2016-00224-COA-R3-CV (Tenn. Ct. App. Oct. 14, 2016), the Court of Appeals affirmed the dismissal of a Tennessee  legal malpractice claim on the basis that the claim was barred by the one-year statute of limitations.

In the underlying matter, plaintiffs had purchased promissory notes from an individual and a business, and defendant attorney represented the sellers of the notes during the transaction. Thereafter, plaintiffs hired the same attorney to help them collect on the notes they purchased. Defendant attorney drafted two complaints and two agreed judgments against the debtors on the notes, which were entered in circuit court in November 2011. During the same time period, the debtor on the notes was involved in litigation in federal court, where his former business partner had sued him.

In May 2012, plaintiffs published a notice of foreclosure for condominiums that secured the notes, but the former business partner filed a motion in federal court to enjoin the sale. Finding that the transfer of the notes was likely fraudulent, the district court entered an order in May 2012 enjoining the sale. In July 2012, plaintiffs published a notice of foreclosure for lots that secured the note, and the same scenario played out, with the federal court enjoining the sale in August 2012.

On January 6, 2014, the sellers of the notes settled a claim with the district court receiver, and plaintiffs alleged that an affidavit filed in conjunction with that settlement “admitted that the sale of the [notes] to [plaintiffs] was fraudulent.”

On January 6, 2015, plaintiffs filed suit against several parties, including the defendant attorney who represented the note sellers in the transfer and later represented plaintiffs in their attempts to collect on the notes. The trial court granted defendant attorney’s motion to dismiss based on the statute of limitations, and the Court of Appeals affirmed.

Legal malpractice claims are subject to a one-year statute of limitations. § 28-3-104(c)(1).  “The accrual of a legal malpractice action is determined by applying the discovery rule[,]”, which is “concerned with two components: an actual injury and knowledge.” (internal citations omitted). In order for the clock to begin ticking, injuries do not have to become “irremediable,” and “plaintiffs may not delay filing suit until all of the injurious effects of the alleged wrong are actually known to them.” (internal citations omitted).

Plaintiffs’ complaint alleged two injuries—one related to the issuance of the injunctions and the damages the injunctions caused, and one based on the allegation that the affidavit filed in January 2014 by one of the sellers of the notes “rendered the Agreed Judgments prepared by [attorney] as worthless….” As to the injunction related damages, the Court quickly found that any claim based on the injunctions was time-barred, as the injunctions were issued in May and August of 2012 and plaintiffs’ complaint was not filed until January 2015, more than two years later.

With regard to the injuries plaintiffs alleged to have been caused by the affidavit, which they asserted in a reply brief that defendant attorney directed the note seller to file, the Court noted that the alleged injury was actually the inability to enforce the agreed judgments. The Court reasoned that if plaintiff was arguing that an affidavit insinuating that the transfer was fraudulent caused the judgments to be worthless, “then the federal district court’s orders would have had an identical or similar effect. …Because, as Plaintiffs themselves note, the agreed judgments were based on this sale, findings that the sale was likely fraudulent would certainly call the agreed judgments into question, make it more difficult to enforce them, and thus lower their value.” Ultimately, the Court held:

[Seller’s] affidavit may have provided a stronger indication that Plaintiffs had suffered an injury regarding the agreed judgments, It may also have increased the magnitude of Plaintiffs’ injury or given them notice of additional injurious effects of the negligence they have alleged in the complaint. However, Plaintiffs cannot delay filing suit until all the injurious effects of the alleged wrong are actually known to them. …Information about the fraudulent nature of the…transaction was available to Plaintiffs in May and August 2012. If the disclosure of such information caused the agreed judgments to become worthless, then Plaintiffs knew or should have known of this injury in August 2012 at the latest.

The Court accordingly affirmed dismissal of the case against defendant attorney.

As we have seen many times before, plaintiffs often face dismissal of their legal malpractice claims on statute of limitations grounds. The claims are often found to have been filed too late, as plaintiff waited too long to pursue the action or was found to have waited until “all injurious effects” were known. When a plaintiff believes he has a meritorious action against an attorney for malpractice, he must be diligent in strictly adhering to the one-year limitations period for filing a complaint to have a chance at success.