Statutes of Limitations for Malpractice Claims in Estate Planning
June 1, 2004
Sean K. Higgins- Los Angeles
The statute of limitations may well be one of the best defenses for estate
planners who must guard against malpractice claims that can arise literally
decades after the estate planning documents were drafted.
Claims of legal malpractice in estate planning present special problems for
practitioners because potential claims may not arise until years or even decades
after the alleged malpractice occurred. In most jurisdictions, the potential
claimant could be (in addition to the estate planning client) an intended
beneficiary who is unborn or unascertained at the time that the estate planning
attorney drafts the disputed documents. This is especially true in states like
South Dakota and Wisconsin, which have abolished the Rule Against Perpetuities.
Indeed, in many jurisdictions, a claim by such a beneficiary may not ripen for
years or possibly decades after execution of the documents. For these reasons,
the threat of liability for estate planning malpractice may last much longer
than for other types of alleged negligence where the defendant's conduct and the
claimed damages are much more proximate in time--for example, in the typical
auto accident case. As a result, statutes of limitations issues may be more
often implicated in estate planning malpractice disputes than in other types of
negligence cases.
Statutes of limitations are based on the theory that, at some point,
potential defendants deserve a "fresh start," free from the risk of liability
for misdeeds long since past.[1]
Further, cutting off liability after a certain period of time is desirable as a
matter of public policy to promote accurate adjudications. Stale claims may be
difficult to adjudicate accurately due to the passage of time, which may have
compromised relevant evidence and the ability of the parties and witnesses to
recount past events.[2]
When crafting and applying statutes of limitations, legislatures and courts
balance the benefits of limitations periods against the right of potential
claimants to seek relief from alleged wrongs. It is these two competing
policies--giving respite to potential defendants from stale claims based on
antiquated evidence, which may produce inaccurate outcomes, and the notion that
the judicial system should afford every harmed person a right to seek relief
from wrongs--that are implicated, and difficult to reconcile, in the
administration of statutes of limitations.[3]
These two policies are especially difficult to reconcile in the estate planning
context where there is an increased likelihood of a long passage of time between
the alleged negligence and the alleged harm.
This article considers the application of statutes of limitations to claims
of estate planning malpractice, provides some suggestions to the estate planner
who is faced with the prospect of a malpractice action, and suggests an approach
to statutes of limitations particularly suited to the estate planning context.[4]
Asserting statutes of limitations in estate planning malpractice actions
Procedure. Statutes of limitations effectively advance their purpose
of providing respite from stale claims only if their application facilitates the
early disposition of claims.[5]
It is for this reason that a successful defense based on a statute of
limitations typically disposes of a case on a motion for summary judgment
without reaching the merits of the malpractice claim.[6]
The purpose of giving repose would not be advanced if the defendant attorney had
to proceed all the way to a trial on the merits before adjudication of the
statute of limitations defense.[7]
The defendant attorney must affirmatively assert the statute of limitations
in the responsive pleading to avoid waiving it.[8]
The attorney must then prove, by affidavit, deposition transcript, or other
evidence (typically in a motion for summary judgment) that: (1) the alleged
claim for malpractice had "accrued," meaning all events necessary to commence
the running of the statute had occurred,[9]
and (2) the applicable limitations period subsequently expired before the
claimant filed the malpractice action. The expiration date is usually a simple
calculation of time based on the calendar. Hence, the critical dispute is almost
always over when the limitations period began, i.e., when the cause of action
accrued.
The general rule: Courts move from `occurrence’ rule to `discovery’ rule
when applying statutes of limitations. Traditionally, the determination of
"accrual" (or commencement of the statute of limitations) for malpractice
actions was a function of applying a bright-line rule based on the "occurrence"
of the malpractice.[10]
Accrual took place when the attorney allegedly breached his or her duty
of care (i.e., at the time of the drafting error), regardless of whether the
claimant had been injured at that time and regardless of whether the claimant
knew of the existence of the claim.[11]
Nominal injury sufficient to support a cause of action and to justify
commencement of the limitations period was presumed to exist at the time of the
"occurrence," and the claimant's ignorance of the claim was deemed irrelevant.[12]
The "occurrence" approach certainly advanced the purpose of providing repose
to estate planning attorneys who could rely on the defense of the statute of
limitations after a time certain had passed from the last estate planning act
performed. However, as the California Supreme Court pointed out in the seminal
case of Neel v. Magana, Olney, Levy, Cathcart & Gelfand,[13]
strict application of the "occurrence" rule fails to balance adequately the
competing interests involved. It does not fully consider the interests of the
claimant who allegedly has been harmed.
When the potential claimant is the client (as was the case in Neel),
the "occurrence" rule is inconsistent with principles of fiduciary duty inherent
in the attorney-client relationship.[14]
It could be seen as unfair for the statute of limitations to run where
the client reasonably relied on the attorney's expertise for the precise
services that might cause injury, a situation the client could not reasonably be
expected to anticipate.[15]
Moreover, it could be argued that a negligent attorney should not profit from
his or her own failure, whether intentional or unintentional, to disclose an
error when he or she has a clear fiduciary obligation to do so.[16]
For these reasons, the court in Neel adopted the "discovery" rule to
determine accrual of a malpractice action for statute of limitations purposes.
Under the "discovery" rule, the malpractice action accrues, and the statute of
limitations begins to run, as of the time the claimant knew or with reasonable
diligence should have known of all elements of the malpractice action.
The California Supreme Court in Budd v. Nixon,[17]
the companion case to Neel, confirmed the simple yet oddly elusive rule
that injury is a required element of a malpractice action, and "discovery" of
injury is therefore necessary before the limitations period begins to run.[18]
If injury is not present, the defendant attorney could prevail on a motion, if
filed, to dismiss the malpractice action for lack of injury. It would be
anomalous to say that the statute of limitations runs on a claim that cannot yet
be maintained. The court in Budd thus held that the statute of
limitations does not run under the "discovery" rule until "discovery" of all
elements of the cause of action, including injury.[19]
The holdings in Neel and Budd set the new standard nationally
for analyzing statutes of limitations in attorney malpractice cases. Comentators
have noted that the "occurrence" rule may apply equitably in ordinary tort cases
where injuries are immediate and the negligence is easily ascertainable to the
claimant, but the rule does not appear to apply so well in estate planning
malpractice where the negligence may not be readily apparent to a layperson and
the resulting injury may not materialize until years after the error.[20]
As a result, most states[21]
today have adopted the "discovery" r