For Whom the Limitations Toll
The Jordache decision renews the uncertainty in determining actual injury in legal malpractice cases
By Robert W. Denton
Robert W. Denton is a shareholder in Lurie & Zepeda, a Beverly Hills law firm, where he focuses on business litigation. Denton specializes in professional malpractice (primarily accountants and lawyers), antitrust, and intellectual property matters.
In 1994, the California Supreme Court held in ITT Small Business Finance Corporation v. Niles1 that in transactional malpractice cases "an action for attorney malpractice accrues on entry of adverse judgment, settlement, or dismissal of the underlying action."2 Since then, some lower courts interpreted this statement as establishing a bright-line test for determining actual injury in legal malpractice cases-a test requiring 1) the commencement of an underlying action, and 2) an initial adjudication of that action in the form of an adverse judgment, dismissal, or settlement.3
Less than four years later, however, the California Supreme Court declared in Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison that "the rules ITT advanced cannot be reconciled with the particularized factual inquiry required to determine actual injury under [Code of Civil Procedure] Section 340.6."4 By overruling ITT, the Jordache court brought an end to California's short-lived experiment with a bright-line rule for determining the accrual of the statute of limitations in legal malpractice cases.
Under Code of Civil Procedure Section 340.6, the limitations period begins upon actual or constructive discovery or upon the attorney's wrongful act:
(a) 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.
Section 340.6 also contains four tolling provisions, the first of which indicates that the limitations period is tolled "during the time the plaintiff has not sustained actual injury." Actual injury thus is an essential element of accrual of a legal malpractice claim under either the discovery or wrongful act test.
Jordache held that actual injury occurs when "the client suffers any loss or injury legally cognizable as damages in a legal malpractice action based on the asserted error or omissions."5 This new formulation of the actual injury test does not necessarily require some form of adjudication, although adverse judgment, dismissal, or settlement might still constitute actual injury in an appropriate case. Thus the new test for determining actual injury in legal malpractice cases depends on a factual analysis of the alleged wrongful act or omission and the consequences alleged to have resulted from it. The first realization of any loss or injury that would give rise to compensable damages in an action (other than fraud) based on the alleged wrongful act or omission will start the limitations period to run, assuming all the other conditions for accrual are met and no other basis for tolling the statute exists.
In light of the supreme court's jettisoning of ITT in less than four years, it is appropriate to consider why ITT's bright-line test failed-and whether the supreme court's new test in Jordache will fare any better in terms of staying power.
How ITT Lost Its Luster
ITT addressed the determination of when the statute of limitations starts to run in the context of transactional malpractice. The plaintiff in ITT retained an attorney to prepare documents for a $200,000 loan between the plaintiff and a third party. The transaction included granting the plaintiff liens on certain assets of the third-party debtor. After the transaction was completed, the debtor not only filed for bankruptcy but also initiated an adversary proceeding against the plaintiff in bankruptcy court to challenge the adequacy of the loan documentation and avoid the plaintiff's liens. The adversary litigation ended with a settlement agreement in which the plaintiff accepted an amount that was less than the full value of its security. Two months after the agreement, the plaintiff sued the attorney who had prepared the loan documentation for negligence.
In the trial court, the plaintiff's former attorney obtained summary judgment on the ground that the malpractice action was time-barred. The trial court agreed that the plaintiff's malpractice action accrued upon the filing of the adversary action against the plaintiff, which was more than one year before the commencement of the malpractice action. The court of appeal, however, reversed the trial court, and the supreme court affirmed the court of appeal.
Relying on its earlier decision in Laird v. Blacker,6 the supreme court stated that the statute of limitations issue in transactional malpractice cases is "separate from that addressed in Laird, but one subject to analogous reasoning."7 Although the plaintiff in Laird sought to toll the statute during the pendency of an appeal, the court observed that the plaintiff in ITT merely sought to toll the statute "while the adequacy of the documents that formed the basis of the transaction is initially litigated."8
The defendant argued on appeal that actual injury in transactional malpractice cases occurs when the former client incurs attorney's fees to defend the adequacy of the work of the client's former attorney or to defend the client's reliance on that work.9 The supreme court, however, rejected this argument and instead held that for transactional malpractice, "an action for attorney malpractice accrues on entry of adverse judgment, settlement, or dismissal of the underlying action."10 The ITT court therefore concluded that the plaintiff suffered no actual injury attributable to the alleged malpractice until the plaintiff was forced to settle on adverse terms with the plaintiff's debtor.11 Although the plaintiff incurred attorney's fees in defending the adversary action filed by the debtor, the supreme court dismissed these fees "because at the time the proceeding was filed and ITT hired counsel to defend the loan documentation, there was no actual harm attributable to malpractice."12 Thus, the court held that the malpractice action did not accrue until the settlement agreement, which occurred only two months before the plaintiff filed the malpractice action.13
The ITT court declared its holding to be "narrow, and limited to the circumstances typified by this case."14 In fact, ITT itself suggested at least two circumstances in which actual injury might occur prior to or in the absence of a judgment, dismissal, or settlement of some antecedent litigation. For example, ITT expressly declined to overrule Hensley v. Caietti,15 a case in which the court of appeal held that the plaintiff sustained actual injury from her former attorneys' alleged malpractice in inducing her to stipulate to an unfavorable marital settlement agreement when the agreement was entered on the record of the court. Hensley rejected the plaintiff's argument that the statute of limitations was tolled until the court refused to overturn the stipulated settlement and entered the judgment of dissolution.16 ITT distinguished Hensley on its facts:
In Hensley, the stipulation to the marital settlement agreement acted immediately to deprive the plaintiff of certain property. Thus, once the stipulation was entered by the court, the plaintiff suffered "actual injury" under [Code of Civil Procedure] [S]ection 340.6(a)(1).17
If the ITT court had intended to articulate a bright-line test, it would have been compelled to disapprove Hensley's conclusion because entry of adverse judgment did not occur until the judgment of dissolution was entered.
Similarly, the ITT court's discussion of Johnson v. Simonelli18 should have negated any argument that ITT created a bright-line test. The plaintiff in Simonelli alleged that his former attorneys, who had represented him in connection with the sale of his business, had failed to warn him that the collateral securing a promissory note given by the buyers in a sale transaction was inadequate. After the buyers defaulted on a promissory note, the plaintiff began foreclosure proceedings against his collateral and acquired it later at a public lien sale. The plaintiff sold the collateral for less than the balance due on the note and then filed an action for the deficiency against one of the buyers. More than one year after the foreclosure sale-but within one year of the commencement of the deficiency action against the buyer-the plaintiff filed a malpractice action against the attorneys who had represented him in the sale transaction, arguing that he did not suffer actual injury until he was compelled to bring a deficiency action against the buyers. The Simonelli court rejected the plaintiff's argument by holding that the plaintiff suffered actual injury when the buyers defaulted on the promissory note.
ITT disagreed with Simonelli's conclusion but did not overrule the result, reasoning that the court of appeal erred because the plaintiff in Simonelli was not injured by the promissory note but by the inadequacy of the underlying collateral.19 Consequently, according to the ITT court, the injury did not occur until "the time of the sale of the collateral for less than the balance due on the note."20 ITT found that actual injury in Simonelli occurred in advance of the deficiency action and therefore-just as in Hensley-prior to termination by judgment, settlement, or dismissal. Thus the ITT court's analysis of Simonelli and Hensley cannot be reconciled with any intent to create a bright-line rule based on the entry of judgment, dismissal, or settlement of an underlying action.
At least two other major problems in ITT's analysis made the uniform application of its rule impracticable. First, ITT failed to address situations in which no underlying litigation had been filed. As a result, some courts interpreted ITT as requiring an underlying action before the statute could begin running on a malpractice claim.21 Other courts concluded that ITT's reasoning did not apply at all to cases without underlying litigation and created an exception in those cases.22
Second, ITT failed to address situations in which the underlying litigation was merely a consequence of the malpractice, or an alternative means of recovery, and would not resolve the issue of malpractice.23 Consequently, lower courts had determined, even prior to Jordache, that ITT did not apply if there was no underlying litigation or if the outcome of the underlying litigation would either have no bearing on the existence or effect of the lawyer's malpractice or only serve to mitigate damages.24
The Adams Portent
The first substantive sign that the ITT test was crumbling arrived in 1995 with Adams v. Paul,25 a California Supreme Court decision that addressed when actual injury occurs in the event the attorney fails to file litigation within the statute of limitations or misadvises the client regarding the expiration of the statute of limitations.26 Prior to Adams, two competing lines of authority had developed in so-called missed-statute cases. Some courts had concluded that the statute of limitations starts to run on the malpractice claim once the limitations period had expired on the underlying claim.27 Other courts held that the statute of limitations did not begin to run until the underlying case had been filed and it had been dismissed or adverse judgment entered.28
ITT's reasoning suggested that in missed-statute cases, the statute of limitations would not begin to run on the malpractice claim until the underlying litigation had been filed and was dismissed due to the expiration of the limitations period. Interestingly, neither the trial court nor the court of appeal in Adams applied ITT's analysis. Moreover, the supreme court also rejected any analogy to ITT. Referring to ITT and International Engine Parts, Inc. v. Feddersen & Company29-the supreme court's counterpart to ITT in the area of accountant's malpractice-the Adams court stated that "[t]hose decisions were not paradigms…and did not articulate a 'rule for all seasons.'"30 Contrary to its reasoning in ITT decided only the year before, the supreme court concluded that in the classic missed-statute scenario (in which the attorney fails to file the underlying lawsuit within the statutory period and does nothing more), actual injury occurs when the statutory period lapses.31 The court explained that actual injury occurs at that point because this is when "the right and/or remedy of recovery on the action has been substantially impaired."32 By fixing the time of actual injury in this manner, the court recognized that the loss or diminution of a right or remedy had long been held sufficient to constitute injury or damage for legal malpractice purposes.33
However, the Adams court declined to put forward its own bright-line rule. It noted that in many circumstances the loss of the underlying remedy may not be certain at the time of the apparent lapse of the underlying statute because questions of waiver, estoppel, and the applicable limitations period may raise factual issues of whether the lawyer's conduct created any harm.34 In an omen of its subsequent overruling of ITT, the supreme court observed:
[I]t is important to note that in…situations of contingent or speculative harm, the determination of actual injury does not necessarily depend upon or require some form of final adjudication, as by judgment or settlement. "An injury does not disappear or become suspended because a more final adjudication of the result is sought."35
The Adams court suggested that "the facts may demonstrate that [the] plaintiff suffered damage when…compelled to 'incur and pay attorney's fee[s] and legal costs and expenditures' as a result of the malpractice"36-a striking observation in that only the year before, the court in ITT had rejected the argument that the plaintiff had suffered actual injury by being compelled to retain an attorney and incur attorney's fees to defend the former attorney's documentation in the adversary action brought by the debtor.
Ultimately, the court in Adams did not decide when actual injury occurs but held instead that the issue is a question of fact requiring the case to be remanded to the lower court for resolution on that basis.37 Nevertheless, Adams suggested two events that could define the onset of actual injury short of dismissal, adverse judgment, or settlement:
- When the underlying statutory period expired.
- When the plaintiff was first required to oppose the limitations defense in the underlying litigation.
In retrospect, the holding and reasoning of Adams was clearly a portent of the court's unease with its earlier decision in ITT.
Jordache Ends the Experiment
In 1998, the California Supreme Court decided to put ITT to rest and thus terminate its experiment with bright-line rules for determining actual injury. By then, ITT's efficacy had already proven illusory. Lower courts had limited its applicability to those narrow circumstances in which underlying litigation was pending that would affect the determination of malpractice-and even the supreme court had refused to follow its reasoning in determining actual injury in missed-statute cases. ITT had become the exception instead of the rule.
The supreme court chose to use its decision in Jordache to overrule ITT. In Jordache, the plaintiff alleged that his former attorneys failed to investigate the possibility of liability insurance coverage for a third-party suit they were defending on the plaintiff's behalf. In the malpractice suit, the plaintiff argued that he did not sustain actual injury until he settled his subsequent coverage action against his insurer for less than the full amount of the insurance benefits. The Jordache court rejected this argument:
We conclude that actual injury occurred before the client's settlement with the insurer. In reaching this conclusion, we reaffirm the basic principles established in Budd [v. Nixen] and reiterated in Adams. Actual injury occurs when the client suffers any loss or injury legally cognizable as damages in a legal malpractice action based on the asserted errors or omissions. Under the [l]egislature's codification of Budd, [Code of Civil Procedure] [S]ection 340.6, subdivision (a)(1), will not toll the limitations period once the client can plead damages that could establish a cause of action for legal malpractice.38
Regarding ITT's bright-line rule, the court commented that "[a]s Adams established, the determination of actual injury does not necessarily require some form of adjudication, judgment, or settlement."39 Further, the court concluded "that the rules ITT advanced cannot be reconciled with the particularized factual inquiry required to determine actual injury under [S]ection 340.6 in accord with Budd, Adams, and our decision in this case."40 The only explanation offered by the court for rejecting ITT's bright-line rule was that it was inconsistent with California's statutory scheme and its legislative history.
The Jordache court then articulated the new standard for determining actual injury:
The test for actual injury under [S]ection 340.6, therefore, is whether the plaintiff has sustained any damages compensable in an action, other than one for actual fraud, against an attorney for a wrongful act or omission arising in the performance of professional services.41
The Jordache plaintiff had suffered several injuries that were compensable in a malpractice case prior to the time it settled the coverage litigation, according to the supreme court. The compensable injuries included:
- The payment by the plaintiff of the defendants' attorney's fees in the underlying third-party action.42
- The plaintiff's lost profits due to the diversion of investment funds to pay the defendants' attorney's fees in the underlying third-party action.43
- The plaintiff's impaired or diminished rights to recover the benefits under the plaintiff's insurance policy-a result of the delay by the plaintiff's attorneys in tendering the defense of the underlying action to the plaintiff's insurers, which gave rise to a "late-notice defense" by the insurer.44 The court explained that the plaintiff suffered actual injury as a result of the delay by the plaintiff's attorneys' because the plaintiff "necessarily incurred additional litigation costs to meet that defense, and the settlement value of its claims decreased."45
Several conclusions can be drawn from the court's discussion of the injuries suffered by the plaintiff in Jordache. First, attorney's fees incurred as a result of an attorney's malpractice will generally be sufficient to constitute actual injury. This is so because attorney's fees typically are compensable in a legal malpractice action46-and the payment of attorney's fees in Jordache was deemed sufficient actual injury in that case.
Second, the diminution or loss of a right or remedy, if not contingent or speculative, will qualify as actual injury. As the Jordache court stated, "[A]ctual injury may consist of "impairment or diminution, as well as the total loss or extinction, of a right or remedy."47 Moreover, Jordache concluded that a law firm's delay in tendering an insurance claim can constitute actual injury if the delay gives rise to an objectively viable late-notice defense, thus diminishing the client's insurance contract rights.48 The delay in tendering the defense of the third-party action necessarily increased the cost of litigating the coverage issue-a cost that was neither speculative nor contingent on the outcome of the coverage litigation.
Third, nominal damages are not enough to constitute actual injury. Jordache reiterated the oft-quoted rule that the mere breach of a professional duty causing only nominal damages is not actionable.49 What constitutes nominal damages, however, is unclear. The term "nominal" in reference to damages has been used to refer both to a very small sum and to a token recovery for a mere technical breach resulting in no actual loss or damage.50 Jordache did not specifically define the term "nominal damages." On the one hand, the court rejected the plaintiff's concern that the court's rule would start the statute running upon the "first dollar" of injury. Instead, the court declared that the statute would not run until "'events have developed to a point where [the] plaintiff is entitled to a legal remedy, not merely a symbolic judgment such as an award of nominal damages.'"51 This language suggests that some sort of quantity threshold is necessary to a finding of actual injury. On the other hand, the court also stated that the term "actual" in the phrase "actual injury" was intended "to focus inquiry on the fact of damage" and precluded "digressions into whether various quantities of damage trigger the limitations period."52 The court therefore appears somewhat confused on whether some kind of quantity threshold is required even if it is as low as a few dollars.
Fourth, the plaintiff need not have suffered all, or even the greater part, of its damages from the malpractice in order for actual injury to arise. Hence, the Jordache court concluded that the plaintiff suffered actual injury upon paying the defense costs in the underlying third-party litigation even though at that point the plaintiff had not yet suffered the added costs of the subsequent coverage litigation and had not yet been forced to settle the coverage litigation for less than the full value of its insurance benefits.53
Fifth, speculative or contingent harm does not constitute actual injury. Jordache defined speculative or contingent injuries as those injuries that do not yet exist, such as when an attorney's error produces only the potential for future harm not yet realized.54 However, the court distinguished speculative or contingent injuries-which do not constitute actual injury-from existing injuries whose permanency or amount may be affected by future events-which do constitute actual injury.55 Thus, an existing injury will start the clock on the statute of limitations for a malpractice claim even though the injury might be remedied or mitigated in the future by insurance, litigation, or other factors.
Finally, although the determination of actual injury does not require some form of adjudication or settlement of the underlying litigation, Jordache suggests that there still might be circumstances in which actual injury does not occur until a settlement, dismissal, or adverse judgment.56 Undoubtedly, one of the major problems lower courts will have to address after Jordache will be defining the circumstances in which a settlement, dismissal, or adverse judgment are still relevant to the inquiry determining actual injury.
Sirott and Baltins Still Standing
Unfortunately, Jordache may have inadvertently sowed the seeds of future uncertainty in this area by failing to disapprove Sirott v. Latts57 and Baltins v. James58-both of which held that actual injury did not occur until adverse judgment was entered against the malpractice plaintiff in an underlying action.
In Sirott, the defendant attorney advised a retiring doctor that he did not need to pay the premium for tail coverage on his medical malpractice insurance on the ground that it constituted an unconstitutional form of age discrimination. The doctor, relying on the attorney's advice, did not pay the premium and subsequently was sued for malpractice. His insurer refused to defend the suit because the tail coverage premium was not paid, and thus the doctor was forced to defend the malpractice suit out of his own pocket. The defendant attorneys pursued arbitration against the insurer based on the unconstitutionality of the premium requirement but were unsuccessful. An arbitration award against the doctor in the coverage action was later confirmed and judgment was entered accordingly. The doctor then sued the defendant attorneys, contending that they committed malpractice in advising him not to pay the tail coverage premium.
The court of appeal held that the doctor suffered actual injury when he incurred attorney's fees to defend himself in the underlying medical malpractice suit and that he suffered another actual injury when the judgment confirming the arbitration award was entered. The Jordache court failed to clarify that the entry of judgment on the arbitration award was not the first realization of actual injury. The court characterized the advice of the attorney for the doctor as "[a] prediction of how the insurer's right to the tail coverage premium, and the doctor's right to coverage without paying the premium, would be resolved if adjudicated"59 and concluded that "this aspect of the Sirott decision [constituted] an instance where the propriety of the attorneys' advice or actions depended on the outcome of a claim by or against a client."60
In suggesting that Sirott was an instance where actual injury did not occur until the adjudication of the arbitration proceeding, the Jordache court confused discovery with actual injury. The doctor may not have been expected to discover the bad advice of his attorneys until the arbitration ended unfavorably to him, but the erroneous advice resulted in actual injury on at least two occasions prior to the adverse arbitration award. The first actual injury was when the doctor was compelled to defend himself without the benefit of insurance in the underlying medical malpractice action, and then another occurred when he was forced to incur still further litigation costs, in the form of additional attorneys' fees, in unsuccessfully arbitrating the tail coverage issue. These expenses-the result of the erroneous advice-could have been avoided by payment of the tail coverage premium and thus were compensable damages in a legal malpractice action against the defendant attorneys.61
In Baltins, the defendant attorney advised the plaintiffs regarding the transfer and management of certain community property during the pendency of a dissolution proceeding. In reliance on the advice, the plaintiff ex-husband transferred the community property of his former marriage to his new spouse and spent more than $500,000 on other community properties of his former marriage. The defendant attorney allegedly advised the plaintiffs that these actions were proper because the plaintiff ex-husband had received the properties pursuant to a settlement agreement with his ex-wife. The attorney also advised the plaintiff ex-husband that an order of the trial court voiding the settlement agreement had no effect while an appeal from the order was pending. The appeal, however, was unsuccessful, and the ex-wife subsequently added her ex-husband's new spouse to the dissolution action and sought damages for breach of fiduciary duty on the part of her ex-husband and his new spouse in transferring the community property. The ex-wife prevailed on the breach of fiduciary duty issue in the dissolution action, and judgment of dissolution was subsequently entered.
The court of appeal in Baltins held that actual injury for the purposes of the legal malpractice action against the attorney who gave the erroneous advice occurred upon entry of judgment in the dissolution action. Jordache did not disagree with this conclusion. As in Sirott, the Jordache majority characterized the malpractice as a mistaken prediction of how a court would resolve the property issue in the future.62 Again, Jordache confused discovery of the attorney's error with actual injury. It may be that the malpractice plaintiffs could not have been expected to discover their attorney's error until the property issue was resolved against them in the dissolution proceeding, but it does not follow that actual injury is dependent upon discovery. In fact, actual injury is often independent of discovery of the attorney's wrongful act or omission and will frequently, if not ordinarily, precede discovery,63 such as when an attorney's error in litigation results in an adverse judgment but the client does not learn of the attorney's error until after the trial has ended and has consulted with another attorney regarding a possible appeal. In these circumstances, actual injury will have occurred no later than an entry of adverse judgment even though the client was ignorant of the malpractice when judgment was entered.64
The adverse judgment in the dissolution action was not the first realization of actual injury in Baltins, even though it may have triggered the plaintiffs' discovery of the error. Under Jordache's rationale the first realization of actual injury occurred prior to the entry of adverse judgment when the ex-wife added her former husband's new spouse to the dissolution action and the plaintiffs were forced to defend against the ex-wife's claim of breach of fiduciary duty. Until the plaintiffs were forced to defend their actions with respect to the property, any harm from the erroneous advice was merely speculative or contingent upon the ex-wife taking some action to challenge it. Once the plaintiffs' actions were challenged in court by the ex-wife, the expenses incurred to mitigate any possible award to the ex-wife were clearly compensable in a subsequent malpractice action against the attorney who gave the incorrect advice.65
While Jordache has clarified many aspects of actual injury in legal malpractice cases, some questions remain, especially in the area of "bad advice" cases such as Sirott and Baltins. Plaintiffs' attorneys in future legal malpractice cases undoubtedly will argue that the bright-line rule of ITT still applies when erroneous legal advice results in litigation. Nonetheless, Jordache clearly concludes that actual injury cannot be determined by a mechanical test that depends on some form of final adjudication.
1 ITT Small Business Fin. Corp. v. Niles, 9 Cal. 4th 245 (1994). For a fuller discussion of ITT and its impact, see Robert W. Denton, When It Hurts, Los Angeles Lawyer, Sept. 1995, at 37.
2 ITT, 9 Cal. 4th at 258. The statute of limitations in attorney malpractice cases is governed by Code Civ. Proc. §340.6.
3 See, e.g., Marshall v. Gibson, Dunn & Crutcher, 37 Cal. App. 4th 1397 (1995); Baltins v. James, 36 Cal. App. 4th 1193 (1995); Karno v. Biddle, 36 Cal. App. 4th 622 (1995).
4 Jordache Enters., Inc. v. Brobeck, Phleger & Harrison, 18 Cal. 4th 739, 763 (1998).
5 Id. at 743.
6 Laird v. Blacker, 2 Cal. 4th 606 (1992).
7 ITT Small Business Fin. Corp. v. Niles, 9 Cal. 4th 245, 250 (1994).
8 Id. at 251 (emphasis added).
10 Id. at 258. Before reaching its conclusion, the ITT court explained that a claim for attorney malpractice accrues upon discovery of the malpractice but that it is tolled until the former client suffers actual injury attributable to the malpractice. Thus a claim for legal malpractice does not accrue until there has been both discovery and injury-without both, "the filing of the malpractice action is premature." Id. at 250.
11 Id. at 252.
12 Id. at 253.
13 In concluding that injury in transactional malpractice cases occurs upon entry of adverse judgment, dismissal, or settlement of the underlying litigation, the ITT court relied on an efficiency argument: "[I]t would be a waste of judicial resources to require both the adversary proceeding and the attorney malpractice action to be litigated simultaneously" because "[h]ad ITT prevailed in the adversary proceeding, the malpractice action would have been unnecessary." Id. at 257.
14 Id. at 258.
15 Hensley v. Caietti, 13 Cal. App. 4th 1165 (1993).
16 The plaintiff in Hensley argued that Laird compelled the conclusion that actual injury is not sustained until entry of adverse judgment or final order of dismissal. Hensley, 13 Cal. App. 4th at 1174. The court of appeal rejected this argument, explaining that Laird "cannot reasonably be construed to have addressed the point whether events other than entry of an adverse judgment can satisfy the criteria of actual injury." Id. The Hensley court further noted that the California Supreme Court, in Budd v. Nixen, 6 Cal. 3d 195 (1971), held that the question of when actual injury occurs is one of fact for the trial court to determine. Id.
17 ITT, 9 Cal. 4th at 255.
18 Johnson v. Simonelli, 231 Cal. App. 3d 105 (1991).
19 ITT, 9 Cal. 4th at 253.
21 See, e.g., McElroy v. Biddison, 32 Cal. App. 4th 1164 (1995), rev. granted, 95 Daily Journal D.A.R. 6551 (May 23, 1995).
22 See, e.g., Tchorbadjian v. Western Home Ins. Co., 39 Cal. App. 4th 1211, 1219 (1995); Radovich v. Locke-Paddon, 35 Cal. App. 4th 946, 974 (1995).
23 See, e.g., Foxborough v. Van Atta, 26 Cal. App. 4th 217, 226 (1994).
24 See, e.g., Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison, 49 Cal. App. 4th 609 (1996), rev'd, 18 Ca
25 Adams v. Paul, 11 Cal. 4th 583 (1995).
26 Id. at 585.
27 See, e.g., Finlayson v. Sanbrook, 10 Cal. App. 4th 1436 (1992).
28 See, e.g., Pleasant v. Celli, 18 Cal. App. 4th 841 (1993).
29 International Engine Parts, Inc. v. Feddersen & Co., 9 Cal. 4th 606 (1995).
30 Adams 11 Cal. 4th at 588.
31 Id. at 589.
33 Id. at 590.
34 Id. at 590-91.
35 Id. at 591 (quoting Laird v. Blacker, 2 Cal. 4th 606, 615 (1992)).
36 Id. (quoting Budd v. Nixen, 6 Cal. 3d 195, 201 (1971)).
37 Id. at 593.
38 Jordache Enters., Inc. v. Brobeck, Phleger & Harrison, 18 Cal. 4th 739, 743 (emphasis added).
39 Id. at 755.
40 Id. at 763.
41 Id. at 751.
42 Id. at 752.
44 Id. at 752-53. In reaching this conclusion, the supreme court reiterated its observation in Adams that actual injury can consist of the impairment or diminution, as well as the total loss or extinction, of a right or remedy. Jordache, id. at 750.
45 Id. at 753.
46 See, e.g., 2 Mallen & Smith, Legal Malpractice ?19.10, at 610-12 (4th ed. 1996).
47 Jordache, 18 Cal. 4th at 750. See also Adams v. Paul, 11 Cal. 4th 583, 591 n.5 (1995).
48 Jordache, 18 Cal. 4th at 743, 752-53.
49 Id. at 750.
50 See 2 Mallen & Smith, supra note 46, ?19.29, at 596.
51 Jordache, 18 Cal. 4th at 752 (quoting Davies v. Krasna, 14 Cal. 3d 502, 513 (1975)).
52 Id. at 749.
53 Id. at 752-53. See also id. at 750 (quoting Budd v. Nixen, 6 Cal. 3d 195, 201 (1971): "The cause of action arises, however, before the client sustains all, or even the greater part, of the damages occasioned by [the] attorney's negligence.").
54 Id. at 754.
56 Id. at 755.
57 Sirott v. Latts, 6 Cal. App. 4th 923 (1992).
58 Baltins v. James, 36 Cal. App. 4th 1193 (1995).
59 Jordache, 18 Cal. 4th at 759.
61 See 2 Mallen & Smith, supra note 46, ?19.60, at 607 (the cost of avoidable litigation or unnecessary legal services may be recoverable as damages in a legal malpractice case).
62 Jordache, 18 Cal. 4th at 761.
63 See ITT Small Business Fin. Corp. v. Niles, 9 Cal. 4th 245, 257 (1994). Discovery of malpractice is different from actual injury, according to the ITT court, which concluded that the plaintiff did not suffer actual injury merely because it sought to mitigate its damages by defending the attorney's loan documentation in the adversary proceeding. Moreover, the Jordache court noted that ordinarily the client will have suffered damage before discovering the attorney's error. Jordache, 18 Cal. 4th at 743.
64 Actual injury in litigation malpractice cases might occur even earlier than adverse judgment if the error caused the value of the attorney's services to be worth less than the amount the client paid to the attorney in attorney's fees. See Budd v. Nixen, 6 Cal. 3d 195, 201-02 (1971).
65 See 2 Mallen & Smith, supra note 46, ?19.60, at 606-07 (compensable damages can result from an attempt to avoid or minimize the consequences of a former attorney's erroneous advice and could consist of the expense of defending a challenge to the advice).
|EARN CLE CREDIT|| ||By reading this article and answering the accompanying test questions, you can earn one CLE credit.|