McELROY v. BIDDISON (1995)

Plaintiff Judy McElroy appeals from a judgment entered against her and in favor of Attorneys Mark Biddison and Allen Hassan in this legal malpractice action, which is based on the failure of Biddison's former law partner to file a timely medical malpractice complaint on McElroy's behalf.   She argues the trial court improperly granted summary judgment based on its findings that (1) the legal malpractice action was time-barred, (2) Hassan did not represent McElroy until after the statute of limitations had already run on the medical malpractice action, and (3) there was insufficient evidence of fraudulent concealment by the defendants of the expiration of the statute of limitations in the medical malpractice to sustain a fraud cause of action.

In the published portion of this opinion, we conclude McElroy's legal malpractice action against Biddison is not time-barred because she filed her complaint within one year after the termination, unfavorable to her, of her medical malpractice action.   We also determine that one of the appeals in these consolidated cases is from two superseded judgments and, therefore, must be dismissed.   In the unpublished portion of the opinion, we reject McElroy's remaining contentions.   Accordingly, we reverse the judgment as to Biddison on the legal malpractice action but otherwise affirm the judgment in case No. C016889 and dismiss the appeal in case No. C016404.

FACTS AND PROCEDURE

On August 24, 1984, McElroy underwent surgery at Kaiser Hospital to remove a tumor from her left lower abdomen.   After surgery, she had problems with her left leg, and, in October 1984, a doctor advised McElroy the problems were possibly caused by removal of 13 centimeters of her femoral nerve during the August surgery.   Subsequent surgery, performed in November 1984, was ineffective in alleviating the problem.

McElroy contacted attorney Gary Johnson and, in January 1985, hired him to represent her in connection with her claims against Kaiser.   At the time McElroy retained Johnson, Biddison was Johnson's law partner.   In March 1985, Johnson referred McElroy to Hassan, who is both an attorney and a medical doctor, for a medical evaluation.

The statute of limitations on the medical malpractice claim expired in November 1985, one year after discovery, and no complaint had been filed on McElroy's behalf.   Hassan became associated as counsel in the medical malpractice action, but, as we discuss later, his representation came after the statute of limitations on the medical malpractice action had already expired.

In July 1986, Johnson filed a complaint on behalf of McElroy against Kaiser Hospital for medical malpractice.   The same month Johnson filed the complaint, his partnership with Biddison was dissolved.   Biddison knew nothing about McElroy's case and never did any work for McElroy.

At Hassan's behest, McElroy fired Johnson in September 1987.   She hired another attorney, but, again on Hassan's promptings, fired him 10 months later and substituted herself in propria persona.

In April 1989, Hassan wrote to defense counsel in the medical malpractice case asking for a waiver of the statute of limitations defense.   Hassan untruthfully told McElroy the medical malpractice defendants agreed to waive the statute of limitations defense.   She believed this to be true until her case went to arbitration in February 1991.   At arbitration, the medical malpractice claim was rejected because the statute of limitations expired before suit was filed.

McElroy filed this action against Johnson, Biddison, and Hassan on December 6, 1991,—more than six years after the statute of limitations expired in the medical malpractice action and more than four years after McElroy fired Johnson, but only ten months after her medical malpractice claim was rejected in arbitration.   McElroy obtained a default judgment against Johnson, who was disbarred before these proceedings;  however, she lost to Biddison and Hassan on their summary judgment motions.   As to Biddison, the trial court ruled the statute of limitations for maintaining a legal malpractice action expired, at the latest, four years after McElroy fired Johnson.   As to Hassan, the trial court found the statute of limitations on McElroy's medical malpractice action expired before Hassan undertook her representation and, therefore, his malpractice, if any, could not have been the cause of her damage.

The court entered judgment in Biddison's favor on June 1, 1993, and in Hassan's favor on June 8, 1993.   McElroy filed a timely notice of appeal from both judgments on July 23, 1993.   On July 28, 1993, the trial court filed another judgment which disposed of the entire action against all defendants.   McElroy again appealed the portion of the judgment relating to Biddison and Hassan in a timely manner.

DISCUSSION

ISummary Judgment as to Biddison on the Legal Malpractice Cause of Action

Subdivision (a) of section 340.6 of the Code of Civil Procedure (section 340.6) is the statute of limitations for legal malpractice actions:  “An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first.”   Subdivision (a) also provides for tolling of the statute of limitations during any time “[t]he plaintiff has not sustained actual injury.”

Whether McElroy filed her complaint alleging legal malpractice against Biddison before the statute of limitations expired depends on the interpretation of the tolling provision of section 340.6.   Two districts of the Court of Appeal have interpreted section 340.6 to reach opposite results when applied to cases in which the claim of legal malpractice is based on the attorney's failure to file an action before the statute of limitations expired (missed statute cases) (Pleasant v. Celli (1993) 18 Cal.App.4th 841, 22 Cal.Rptr.2d 663 (Second District, Division Two);  Finlayson v. Sanbrook (1992) 10 Cal.App.4th 1436, 13 Cal.Rptr.2d 406 (Sixth District)).   Both cases purport to rely on the Supreme Court's pronouncement in Laird v. Blacker (1992) 2 Cal.4th 606, 7 Cal.Rptr.2d 550, 828 P.2d 691 for their mixed results, although Laird is not a missed statute case.   More recently, however, the Supreme Court decided another case, which discusses “actual injury” under section 340.6 and, by analogy, governs the outcome of this case.  (ITT Small Business Finance Corporation v. Niles (1994) 9 Cal.4th 245, 36 Cal.Rptr.2d 552, 885 P.2d 965 (Niles ).)

Tolling of the statute until actual injury is sustained lies at the heart of the divergence between Finlayson and Pleasant.  Finlayson holds the plaintiff sustains actual injury when the statute of limitations on the underlying action expires (10 Cal.App.4th at p. 1444, 13 Cal.Rptr.2d 406), while Pleasant concludes the plaintiff does not sustain actual injury until an adverse judgment, based on the statute of limitations defense, is entered in the underlying action because of the attorney's negligence in failing to file a timely complaint (18 Cal.App.4th at p. 850, 22 Cal.Rptr.2d 663).   We begin our consideration of actual injury with a look at the Supreme Court's decision in Laird.

The dispute in Laird concerned whether an appeal of a defense judgment entered in an underlying action due to legal malpractice by the plaintiff's attorney tolls the time within which the plaintiff must file a legal malpractice action against the attorney.   The court held the appeal did not toll the statute because the plaintiff sustained actual injury when judgment was entered.  (Laird, supra, 2 Cal.4th at p. 615, 7 Cal.Rptr.2d 550, 828 P.2d 691.)

The plaintiff in Laird hired the defendant attorneys to prosecute an action against a television production company.   Although the attorneys filed a complaint, the trial court exercised its discretion under Code of Civil Procedure section 583.410 and dismissed the suit for lack of prosecution.   The plaintiff discharged the attorneys and filed a notice of appeal in propria persona.   Nine months later, she voluntarily dismissed the appeal after settling with the television production company for $1,000.   Eight months after she dismissed her appeal and nineteen months after judgment was entered, the plaintiff sued the attorneys for legal malpractice.  (Laird, supra, 2 Cal.4th at pp. 609–610, 7 Cal.Rptr.2d 550, 828 P.2d 691.)

The dispositive issue in Laird was whether actual injury occurred when judgment was entered against the plaintiff or when she dismissed her appeal.   Because she knew about the malpractice as soon as judgment was entered and she immediately fired the attorneys, she only had one year under section 340.6 to file her legal malpractice action once actual injury occurred.   The trial court opined actual injury did not occur until dismissal of her appeal and entered judgment for damages on a jury verdict.   The Court of Appeal, however, reversed, holding the plaintiff sustained actual injury when judgment was entered against her in the underlying action for lack of prosecution and, therefore, the plaintiff's legal malpractice action was time barred.  (Laird, supra, 2 Cal.4th at p. 610, 7 Cal.Rptr.2d 550, 828 P.2d 691.)

Choosing between the entry of judgment and the dismissal of the appeal, the Laird court concluded the plaintiff sustained actual injury upon entry of the adverse judgment.   The court stated:  “Plaintiff herein ․ sustained actual injury when the trial court dismissed her underlying action and she was compelled to incur legal costs and expenditures in pursuing an appeal.”   (Laird, supra, 2 Cal.4th at p. 615, 7 Cal.Rptr.2d 550, 828 P.2d 691.)

In Niles, the Supreme Court held the statute of limitations for transactional, as opposed to litigational, malpractice does not begin to run until there is litigation involving the transaction and an unfavorable judgment, settlement, or dismissal is reached because of the attorney's transactional negligence.   That is when actual injury occurs.  (Niles, supra, 9 Cal.4th at pp. 251–257, 36 Cal.Rptr.2d 552, 885 P.2d 965.)   While Niles explicitly limits its holding to transactional malpractice, the analogies to the area of missed statute cases are undeniable.

In Niles, an attorney negligently prepared loan documents which were to give the lender a security interest in certain property in exchange for a loan to a business.   The documents, however, did not adequately convey the security interest.   The debtor business declared bankruptcy and sued the loan company in an adversary proceeding to prove there was no security interest.   The lender opposed the action, but finally settled for less than the full value of the security interest.   The lender then sued the attorney for malpractice in drafting the loan documents.  (Niles, supra, 9 Cal.4th at pp. 248–249, 36 Cal.Rptr.2d 552, 885 P.2d 965.)   The two possible dates of actual injury, according to the Supreme Court, were (1) when the loan company incurred attorney fees to defend against the adversary proceeding or (2) when the loan company settled the adversary proceeding for less than the full security interest.   The Niles court chose the latter date.  (Id. at p. 253, 36 Cal.Rptr.2d 552, 885 P.2d 965.)

 According to Niles in transactional malpractice cases which result in litigation, there is no actual injury until there is a settlement or judicial determination which proves the malpractice.   Actual injury does not occur when action is taken based on the negligence (for example, the adversary action in Niles ) or when the client incurs attorney fees to fight efforts to take advantage of the malpractice (for example, incurring attorney fees to defend against the adversary proceeding).  (Niles, supra, 9 Cal.4th at pp. 252–253, 36 Cal.Rptr.2d 552, 885 P.2d 965.)

Referring back to Laird, the Niles court stated:  “[T]he plaintiff in Laird suffered no ‘actual injury’ until the moment the trial court dismissed her complaint.”  (Niles, supra, 9 Cal.4th at p. 251, 36 Cal.Rptr.2d 552, 885 P.2d 965.)  Laird did not involve the issue of the earliest date a plaintiff suffers actual injury;  instead, it framed the issue as a choice between judgment or later resolution of the appeal.   Nonetheless, it is difficult to ignore the Supreme Court when it says the plaintiff in Laird “suffered no ‘actual injury’ until the moment the trial court dismissed her complaint.”   (Ibid.)

Niles avoids the issue of whether its definition of “actual injury” gives the plaintiff unilateral control over the statute of limitations.   Even though Laird cited such unilateral control as a reason for adopting its rule, Niles suggests “actual injury” and the possibility of unilateral control are completely different, unrelated issues.  (Niles, supra, 9 Cal.4th at p. 257, 36 Cal.Rptr.2d 552, 885 P.2d 965.)

Niles states actual injury should not be found before settlement or judicial determination because it would force the plaintiff to litigate both the initial action and the malpractice action simultaneously.  Niles says this is a waste of judicial resources because, if the plaintiff prevails in the first action, that proves there was no negligence in the first place.   (Niles, supra, 9 Cal.4th at p. 257, 36 Cal.Rptr.2d 552, 885 P.2d 965.)   In other words, the attorney did nothing wrong unless there is an unfavorable settlement or judicial determination.  (See Niles, supra, 9 Cal.4th at pp. 259, 262, 36 Cal.Rptr.2d 552, 885 P.2d 965, dissenting opn. of Kennard, J.)   The analogy to a missed statute case is unmistakable.   Under this reasoning, unless a defendant spots the statute of limitations issue and obtains a result unfavorable to the plaintiff based on the failure to file a timely complaint, there is no actual injury.

That brings us to the Supreme Court's disclaimer in Niles that the “holding is narrow, and limited to the circumstances typified by [Niles ].”   (Niles, supra, 9 Cal.4th at p. 258, 36 Cal.Rptr.2d 552, 885 P.2d 965.)   Despite this express limitation, we cannot ignore the analogous effect on the determination of when actual injury occurred in a missed statute case, especially in light of the Niles court's characterization of its decision in Laird.

The decisions of the Court of Appeal in Finlayson and Pleasant were written before the Supreme Court's clarification of section 340.6 in Niles.  Finlayson, supra, 10 Cal.App.4th at page 1444, 13 Cal.Rptr.2d 406, held the statute of limitations under section 340.6 began to run on the plaintiff's legal malpractice action when the defendant attorney allowed the statute of limitations in the underlying case to expire without filing a complaint.   The plaintiff in Finlayson retained an attorney to pursue legal remedies for asbestos-related injuries.   The attorney, however, let the statute of limitations expire without filing a complaint against the asbestos manufacturers and suppliers.   The plaintiff fired the first attorney and hired a second, who filed a complaint against the first attorney and a complaint against the asbestos manufacturers and suppliers.  (Id. at p. 1439, 13 Cal.Rptr.2d 406.)

Six years later, the asbestos and malpractice actions were still languishing in the courts when the court dismissed the malpractice action for failure to bring the action to trial within five years.   The plaintiff filed a new legal malpractice action against the first attorney, alleging the plaintiff sustained actual injury when the trial court granted summary judgment, based on the statute of limitations, to some of the asbestos defendants just nine months earlier.   The defendant attorney demurred, and the trial court sustained the demurrer without leave to amend based on the statute of limitations defense.   (Finlayson, supra, 10 Cal.App.4th at pp. 1439–1440, 13 Cal.Rptr.2d 406.)

On appeal, the Finlayson plaintiff again argued he did not sustain actual injury until the court granted summary judgment to some of the asbestos defendants based on the statute of limitations defense.   In making this argument, the plaintiff relied on the pronouncement in Laird that the plaintiff there suffered actual injury when the adverse judgment was entered.   (Finlayson, supra, 10 Cal.App.4th at p. 1440, 13 Cal.Rptr.2d 406.)

The court did not agree.   Citing Laird, it said:  “An attorney's liability for failing to file within a statutory limitation arises when the client's action is proscribed.   The client must act when the attorney's omission becomes, or with reasonable diligence, would become reasonably apparent to the client.  [¶] We believe this conclusion is consistent with Laird's explanation ‘that the focus of the statute of limitations for legal malpractice should be on discovery of the fact of damage, not the amount.’ ”   (Finlayson, supra, 10 Cal.App.4th at p. 1444, 13 Cal.Rptr.2d 406, italics in original, citation omitted.)   The court continued:  “Although Laird repeatedly asserted without qualification that ‘actual injury’ for purposes of section 340.6 occurs when a client suffers an adverse judgment or order of dismissal in the underlying action, we believe that the rule must be qualified to those situations in which there exists a timely filed underlying action.   If the Laird rule demanded an adverse judgment in missed statute cases, the limitations period could be indefinitely extended simply by filing a time-barred action however late and then waiting until an adverse judgment is rendered.”  (Ibid., citation omitted.)

Pleasant, supra, 18 Cal.App.4th at page 850, 22 Cal.Rptr.2d 663, reached the opposite conclusion.   The court there “[chose] to adhere strictly to the rule established by the Supreme Court in Laird ․, and [held] that in attorney malpractice cases, where the attorney's wrong consists of missing the statute of limitations in the underlying suit, the plaintiff's cause of action for malpractice does not accrue until the trial court dismisses the plaintiff's underlying case or enters an adverse judgment against the plaintiff.”  (Ibid.)

In Pleasant, the plaintiff's infant daughter died after the physician failed to diagnose and treat her condition.   The plaintiff timely consulted the defendant attorney who did not, however, file a complaint until after the statute of limitations expired.   With new counsel, the plaintiff resisted dismissal of her medical malpractice action but did not file a legal malpractice action against the defendant attorney.   Several years after the statute of limitations had run in her medical malpractice action, judgment was entered based on that defense.   The next year, the plaintiff filed a legal malpractice claim against the defendant attorney.   He raised the statute of limitations defense, but the trial court rejected it.  (Pleasant, supra, 18 Cal.App.4th at pp. 845–846, 22 Cal.Rptr.2d 663.)

On appeal, the court referred repeatedly to the “bright line rule” established in Laird that actual injury occurs when an adverse judgment or dismissal is entered.  (Pleasant, supra, 18 Cal.App.4th at pp. 847–848, 22 Cal.Rptr.2d 663.)   Relying on this “bright line rule,” the court held actual injury occurs in missed statute cases when an adverse judgment or dismissal is entered in the underlying case.  (Id. at p. 850, 22 Cal.Rptr.2d 663.)

 Laird and Niles support the conclusion reached in Pleasant.  Finlayson, however, finds actual injury much earlier than Niles and Laird allow.   Under Niles and Laird, a plaintiff does not sustain actual injury from an attorney's failure to file a timely complaint until the plaintiff is forced to accept a less favorable settlement or an adverse judicial determination is made based on the attorney's negligence.   By analogy, an unfavorable arbitration determination also meets the actual injury requirement.

Placing actual injury at the date the statute was missed could require the plaintiff to litigate the underlying action in which the attorney committed malpractice and the legal malpractice action at the same time.   In the underlying action, the plaintiff would be required to argue the attorney did not miss the statute of limitations, while in the legal malpractice the plaintiff would be required to argue the opposite view.

Requiring such dual litigation would be a waste of judicial resources, denounced in Niles.  (Niles, supra, 9 Cal.4th at p. 257, 36 Cal.Rptr.2d 552, 885 P.2d 965.)   It is possible the defendant in the underlying action could either fail to identify the statute of limitations defense or waive it.   In that case, the attorney's oversight would cause the plaintiff no actual injury—no harm, no foul.   In addition, requiring the dual litigation would place the plaintiff in the dilemma of arguing opposite views and could possibly result in the plaintiff unfairly losing both cases.   We note, however, that under Laird and Niles a plaintiff might still be subject to the pitfalls of dual litigation if the underlying action is appealed, but that is not a concern here.  (See Laird, supra, 2 Cal.4th 606, 7 Cal.Rptr.2d 550, 828 P.2d 691.)

Nonetheless, adopting the Pleasant approach raises possible problems.   For example, if an attorney misses a statute of limitations, the underlying action might never be filed.   Realizing the action is time-barred, the plaintiff may think it wiser to preserve personal and judicial resources by proceeding directly to a legal malpractice action.   Under Pleasant, however, the legal malpractice action would be premature because the plaintiff sustained no actual injury, that is, there was no adverse judgment based on the statute of limitations defense.  (Niles, supra, 9 Cal.4th at p. 253, 36 Cal.Rptr.2d 552, 885 P.2d 965.)   Yet this troubling possibility finds no sympathy in Niles, which requires an action, including a resolution of the action, resulting from the transactional malpractice, before actual injury is sustained and a cause of action for legal malpractice accrues.  (Ibid.)

Furthermore, the Pleasant approach allows the plaintiff to control the statute of limitations unilaterally by deciding when to file the time-barred action.   Again, Niles overcomes this problem by declaring that “actual injury” and the possibility of the plaintiff's unilateral control of the statute of limitations are separate, unrelated issues.  (Niles, supra, 9 Cal.4th at p. 257, 36 Cal.Rptr.2d 552, 885 P.2d 965.)

 Under compulsion of analogous Supreme Court precedent, we find McElroy did not sustain “actual injury” under section 340.6 until the defendants in the underlying medical malpractice action prevailed in the arbitration proceeding.  (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.)   Her legal malpractice cause of action is not barred by the statute of limitations because she filed the action 10 months after the arbitration decision.

II & III **

IV

Double Judgment

 An issue not raised by the parties is which appeal validly seeks review of the trial court's final determination in favor of Biddison and Hassan.   Regardless of its label, an interlocutory or superseded judgment is neither final nor appealable.  (9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, § 44, pp. 67–68.)   Accordingly, the initial judgments filed separately in favor of Biddison and Hassan and superseded by the judgment disposing of the entire action were not appealable.   The appeal from those judgments, our case No. C016404, must be dismissed.   This, however, has no effect on our consideration of the merits in case No. C016889.

DISPOSITION

In case No. C016889, the judgment as to Biddison on the legal malpractice cause of action is reversed.   Each party shall bear their own costs.   In all other respects, judgment is affirmed.   The appeal is dismissed in case No. C016404.   The parties shall bear their own costs.

FOOTNOTES

FOOTNOTE.   See footnote *, ante.

NICHOLSON, Associate Justice.

SIMS, Acting P.J., and DAVIS, J., concur.