Beal Bank, SSB v. Arter & Hadden, LLP, et al., California Supreme Court Case No. S141131

In a case that has been watched closely by law firms and insurers, on September 27, 2007, the California Supreme Court issued a unanimous opinion that reversed a Second Appellate District decision which held that the limitations period for a legal malpractice claim is tolled as to a law firm while one of the firm's former attorneys continues to represent the firm's former client in the same matter at a new law firm.

The Court of Appeal's decision meant that a law firm could be vulnerable to a legal malpractice claim even if years have passed since the involved firm lawyer worked at the firm, so long as the alleged malpractice occurred while the lawyer was with the firm and the lawyer continued to represent the client in the same matter since leaving the firm.

In its decision, the Supreme Court focused on the tolling provision of California Code of Civil Procedure section 340.6(a)(2), which provides that the one-year statute of limitations period is tolled if "[t]he attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred." According to the Court, the tolling provision applies only to the "attorney" and not to the law firm. A broader reading of the statute, the Court said, places an increased burden on the legal profession by forcing firms to anticipate claims years after a client has left the firm. The Court noted that the ultimate result is increased insurance premiums as liability is extended, and it further noted that a narrow reading of the tolling provision is consistent with the legislature's intent to create a finite limit on the time during which a party can file a legal malpractice claim.

The state Supreme Court's decision largely is viewed as a victory for law firms and insurers in understanding and anticipating the liability of law firms.

For the full California Supreme Court decision, see: